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Slide 1
Speaking in Numbers, the Language of Bottom Line Business
Dwight Riskey, PepsiCoKate Sirkin, Starcom MediaVest Group (SMG)
David Stewart, University of Southern California
A Panel Discussion Presented to the IIR 9th Annual Conference on Return on Marketing
InvestmentFort Meyers, Florida
February 7, 2006
Slide 2
Mission
To Establish Marketing Measurement Standards
for Continuous Improvement in Business Performance
The Boardroom Project
2
Slide 3
The Boardroom Project
Marketing Professionals Coming Together to Address Marketing Accountability (2004+)
Dave Stewart (Chair) University of Southern California
Wade Holmes (Admin) The ARS Group
Kate Sirkin Starcom MediaVest
Dwight Riskey Pepsico
Mike Duffy VNU
Meg Blair rsc
Mitch Barns BASES / M&A
3
Slide 4
What is ROMI?
…defined as the revenue (or margin) generated by a marketing program divided by the cost of that program at a given risk level.
Guy R. Powell (2002), Return on Marketing Investment, (Albuquerque, NM: RPI Press), p. 6.
This is an economic (financial) measure!
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Slide 5
Why ROMI Must Be A Financial Metric
• It’s the Language of the company• It’s the way companies report and are evaluated• It’s the way to compare alternative actions
– Across products, markets, customers• It provides accountability• It promotes organizational learning and cross-
functional team work• It’s the Way to Answer Questions about the
“Optimal Marketing Mix”
5
Slide 6
Marketing does not lack measures, but…
• It lacks standard measures and metrics
• It lacks metrics explicitly linked to financialperformance in predictable ways
• In many areas, but not all, it lacks formal processes for auditing marketing metrics models
• It is highly idiosyncratic
– You cannot improve a process until the process has been defined
Framing the Problem
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Slide 7
An Analogy: The Quality Movement
Marketing is Where Quality Was 50 Years Ago• Highly Idiosyncratic• Viewed as A Cost (Scrap and Re-work as “Low Cost”
Substitutes for Quality)• Lacking Standard Metrics• Lacking Standardized Processes
The Quality Movement has spent 50 years proving itself (this has cost money)
• Developing Metrics• Creating Standard Processes• Linking to Financial Performance (through demonstrated
cost savings and higher returns in the market)• Demonstrating its Value
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Slide 8
Standards Must Be Linked to Something
• Marketing Standards Must Be Linked to the Objectives of the Firm
– Financial Performance
– Growth
• Marketing Standards Must Be Linked to the Common Language of the Firm
– Financial Performance
– Shareholder Value
• Marketing Standards Must Reflect Both Revenue & Costs
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Slide 9
Cash Flow Is the Ultimate Marketing Metric
• Cash flow is the primary financial metric of the firm— It is a measure that is consistent across markets,
products, customers, and activities• Objective of marketing is to identify sources of and to
produce cash flow• There are a small number of drivers of cash flow
— Cash is obtained from a source (customer acquisition and retention, share of wallet within category, share of wallet across category)
— Cash is produced through a business model (margin, velocity, leverage)
Every marketing activity should be causally linked to these drivers and ultimately to cash flowIntermediate marketing metrics may be useful and even necessary to make this causal link BUT such intermediate metrics must be validated and tested against cash flow
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Slide 10
Linking Marketing Outcomes to Financial Performance(Marketing Metric Audit Protocol -- MMAP)
There Is a Need to Causally Link Specific Marketing Actions and Intermediate Marketing Outcomes to Each of The Three Types of Returns from Marketing
MarketingActivity
Cash FlowDriver
IntermediateMarketing Outcome
TV Ads
Price Premium
Consumer Brand
Preference
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Slide 11
Step 1: Identify Cash Flow Drivers for the Business
Cash Flow
Cash FlowDriver ( Share of
Wallet within Category)
Cash FlowDriver (Leverage)
Cash FlowDriver (Velocity)
Cash FlowDriver (Margin)
Cash FlowDriver (Customer Acquisition and
Retention)
Cash FlowDriver
(Share of Wallet across Categories)
BusinessModel: (How the firm generatesCash)
SourceOf Cash
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Slide 12
Step 2: Identify Measures of Marketing Outcomes
MarketingActivity
IntermediateMarketing Outcome
IntermediateMarketing Outcome
Measures and Metrics
IntermediateMarketing Outcome
IntermediateMarketing Outcome
12
Slide 13
Step 3: Identify the Conceptual Link of Intermediate Metrics to Cash Flow Drivers
An Example
Note: this would be done for both short-term and long-term
Cash Flow Drivers
Source of Cash Business Model
Customer Acquisition
and Retention
Share of Wallet Within
Category
Share of Wallet Across
Category Margin Velocity Leverage
Intermediate Marketing Outcome Metric
Market Share √ √
Leads Generated √ √ √
Purchase Intent √ √
Brand Preference (Equity; Loyalty) √ √ √ √ √ √
Customer Satisfaction (Retention; Loyalty) √ √ √
Coupon Redemption Rate √ √
Distribution Coverage √ √ √
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Slide 14
Step 4: Identify the Causal Links of Marketing Activities
MarketingActivity
Cash FlowCash FlowDriverIntermediate
Marketing Outcome
Measures and MetricsValidation & Test Business Model
IntermediateMarketing Outcome
IntermediateMarketing Outcome
Cash FlowDriver
14
Slide 15
Validation and Causality Audit
• Every Intermediate Marketing Outcome Metric Should Be Validated Against Short-term or Long-Term Cash Flow Drivers and Ultimately Cash Flow
– This will cost money, but
– It will facilitate forward forecasting & improvement. . . which should be the criteria for validation
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Slide 16
Case Study 1: Frito-Lay
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Slide 17
• A wide variety of marketing “levers” to pull
• Pulling them requires resources
• The challenge: Figure out how well each works
• Learn how to use them more effectively
Main Objective: Grow the Business Faster
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Slide 18
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Marketing Mix allows us to learn “contingencies of reinforcement”
Slide 19
A wide variety of marketing “levers” to pull
Pulling them requires resources
The challenge: Figure out how well each works
Learn how to use them more effectively
Avoid:
– “Superstitious Behavior”
– “Learned Helplessness”
19
Main Objective: Grow the Business Faster
Slide 20
Marketing Mix employed for 5 years
Consistent models – Portfolio Approach
Periodic rather than intermittent analysis and reporting
Viewed from four perspectives:
— Feedback – How did we do?
— How should we adjust?
— Forecast – How will we do after plan adjustments?
— What have we learned about what makes them work?
20
Frito-Lay Case Study
Slide 21
• All MacroSnack push & pull activities• Environmental data – unemployment, Consumer Price
Index, etc.• Market level, rolled-up to three divisions• Key output: Base and Incremental volume “due-to”
various marketing activities
21
The Frito-Lay Approach
Slide 22
• What helped/hurt pound growth in a given period of time vs. same time year ago
For both PORTFOLIO and BRAND:
• Effectiveness Measures:Incremental #’s per GRP Incremental #’s per Coupon
• Efficiency MeasuresCost Per Incremental PoundCost Per Incremental DollarROI
Growth Drivers (& Restrainers)
Effectiveness/Efficiency “Report Card”
23
Key deliverables
Slide 23
• How to allocate limited marketing resources > which brands to fund
> which region/divisions to fund
> which mix activities to fund
• … provide the most incremental volume and highest Return on Investment
22
How we use it
Slide 24
How Do We Make It Better?
CoverageSpeedComparability
– Need for standards
This is the link to The Boardroom Project.
Slide 25
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Marketing Mix allows us to learn “contingencies of reinforcement”
Slide 26
Case Study 2: Optimizing Customer Contact
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Slide 27
Brand Health Analytics
The Evolution of ROMI from Media Agency Perspective
Is media helping to maintain brandHealth and/or reposition brand?
Is media campaign deliveringplanned CPMs?
Post Buys
Is media helping to build awareness? Tracking studies
Is media driving short term sales? Marketing mix modeling
Time Question Source of Answer
ComprehensiveAnalytics Frameworks
What is the optimal mix of Integrated Marketing Contacts and tactics
Within those contacts to drive bothShort and long term brand goals? 26
Slide 28
SMG Three Pronged Approach to Measuring ROMI
MCABrandHealth Analytics
MarketMix Modeling
OutputsRelationships between marketing efforts and ST sales
Relationships between marketing efforts and
Consumer brand experience metrics
Coefficients - by media, copySaturation levelsHalf lives
ImpactsEffective weekly weights by medium
Helps understand BRAND AWARENESS, IMAGE AND POSITIONING in relation to marketing efforts Optimal IMC mix
Scheduleing tacticsHelps predict awareness linked to media weight
Measures current and projected campaign effects
Focus on R/F
Helps understand how the CONTEXT IS WORKING TO DRIVE THE BRAND MESSAGE AND
Measures TOTAL CONSUMER BRAND EXPERIENCE
For currently used media For currently used mediaCURRENT AND POTENTIAL CONTACTS
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Slide 29
0 10 20 30 40 50 60 70 80 90 100
Doc/Nurse
Mother
Friends
Free smpl pdt with purchased pdt
Smpl packs in school/college
Smpl via mail
Health/sex-ed class
Smpl packs @ O/door female places
IS money off coupon
Free smpl @ grocery store
Smpl in Mag
Money off coupon in mag/NP
Packaging
Free smpl @ favorite clothing store
Magazine new pdts reco.
Advice columns in mag
Wsite for teens girls/women
Sponsored Charities/Causes
Purchase @clothing/Beauty Store
Magazine Ad
Special IS store display
Smpl via internet/800 #
TV Sponsored Programs
TV Ad
1st Q
uarti
le2n
d Q
uarti
le3r
d Q
uarti
le
MCA Contact Clout Factors Provide Most Influence Contacts
S
Advice/reco from trusted sources
Try before you buy with samples
28
Slide 30
MCA Decomposition of Brand Experience with Changes over Time in Mass Media
24%
22%
47%
21%
19%
22%
37%
25%
22%
40%
18%
16%
19%
40%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Magazine Ads
Advice Columns in Magazines
Sample in Magazine
New Product Reco
TV Ads
TV Sponsored Program
Pdt Appears in TV Show
Wave 1 Wave 2
104 Index
100 Index
85 Index
86 Index
84 Index
86 Index
108 Index
29
Slide 31
Ultimate Goal Is To Link The Metrics To Deliver ROMI
correl = 0.76
0%
5%
10%
15%
20%
25%
30%
0% 5% 10% 15% 20% 25%BES
Mark
et
Sh
are
(V
alu
e)
JAS’04 Femcare Total
Brands BESMarket Share
(Value)Market Share
(Volume)Value Index
RatioBES/MS
W 26% 16% 15% 1.1 1.61S 24% 30% 30% 1.0 0.78L 23% 24% 29% 0.8 0.95E 11% 12% 12% 1.1 0.85Ce 10% 6% 7% 0.9 1.65Ch 6% 11% 6% 1.8 0.58
100% 99% 99%
Correlations BES/MS (Value): 76%Correlations BES/MS (Volume): 80%
)
30
Blue = W2 reference
Slide 32
Conclusions
Why The Boardroom Project?– Need for standards– Link to financial performance– Importance of forward validation– Continuous improvementJoin Us?– ARS-group hospitality suite (Suite 973)– 6:00 – 8:00 pm
Slide 33
• How do you deal with the fact that the outcomes of many marketing activities are hard to measure and difficult to separate from other factors? How do you get the numbers?
• Unlike operations or finance, many marketing outcomes are associated with a great deal of uncertainty. Isn’t it misleading to offer numbers that seem precise?
• Doesn’t the use of the same numerical measures reduce creativity and innovation?
31
Questions for the Panel