Measuring and managing marketing effectiveness
Determining marketing return on investment
Paul Magill discusses how executives can be well equipped in calculating their marketing spend effectiveness by better understanding the complexities involved with MROI.
Managing marketing effectiveness
Marketing leaders are used to the pressure of working under the spotlight. But as organizations intensify their focus on marketing accountability, there can be a greater need for robust methods to demonstrate the function’s contribution to the business. Determining marketing return on investment (MROI) can help assess the productivity of marketing pursuits, but MROI suffers from two big challenges: It is calculated and used in multiple ways that can create confusion around the interpretation and business actionability of the results. Measuring MROI can also distract from managing marketing effectiveness. So, while MROI might provide the illusory sense of measuring marketing contributions, creating basic alignment of marketing spend with business priorities, and building complementary capabilities, are the types of broader managerial levers that can actually help manage marketing effectiveness.
Given the complexities of MROI, executives should ask the right questions to inform how business decisions are made. In general, decisions to engage in a major brand-building effort, to prioritize new customer acquisition, or enter new markets or customer segments, are strategic choices to be made on a holistic basis. MROI is just one potential input to those strategic decisions. In fact, MROI is often more valuable for the downstream operational decisions around allocating fixed marketing budgets.
Although MROI has a role to play in marketing effectiveness, it should be deployed in the context of a broader managerial approach. Marketing executives have several critical levers at their disposal to help accomplish that goal:
First, executives need visibility into customer-facing dollars across the enterprise, covering geographies, markets, products, and marketing vehicles. Creating transparency around spending is often the required foundation for managing marketing effectiveness.
Next, marketing spending should be aligned to business priorities. It is common for this alignment to drift over time. A particularly important element of this lever is ensuring that spending is aligned to future growth potential, not past priorities. Marketing expenditures also should be aligned with the business objectives other functions are pursuing (especially Sales).
Design, target, and prioritize.
Interactions with customers should be designed, targeted, and prioritized. The right messages, content, and experiences delivered to the right customers—through well-timed touchpoints that influence customer behaviors—are typically critical drivers of marketing effectiveness. Executives should understand the priority of different customer interactions, and reflect that priority in allocating funding, particularly in situations where financial resources are volatile. Cuts to budgets across all current programs are almost always less effective than ensuring priority programs are funded at sufficient scale.
The portfolio of brands, messages, and tactics being deployed should be rationalized and simplified to optimize marketing effectiveness. Combining or linking marketing efforts across brands, exploring how integrated messages might support multiple brand objectives, and sharing tactics across brands, can be important levers for improving overall marketing effectiveness.
Optimize marketing spend by streamlining costs where feasible. This includes reducing non-working spend (e.g., agency rationalization and consolidation), and achieving purchasing efficiencies on working spend or media. Shared services, such as content production, can also enhance marketing productivity, although it’s also important to beware of coordination costs or service responsiveness issues.
MROI should be deployed as part of a holistic effort to build capabilities in measuring and adapting marketing spend and tactics. This capability-building approach to deployment means thinking about marketing effectiveness not as a specific data analysis tool, but as an integrated program designed to upgrade the marketing organization’s effectiveness over time. That includes talent, processes, performance management, tools, and methodologies. It also includes creating a suite of metrics that can complement MROI (for example, brand metrics that demonstrate tactics are “working” even if not generating sales in the current period.) Deployment also includes thinking through how to connect measurement and analysis to business decision processes, which in turn involves making MROI outputs comprehensible and actionable for business decision makers, through visualizations, intuitive model assumptions, and clear communication. Building capacity through deployment also often requires having senior business decision-makers model the behavior required to demonstrate they are using market insights or MROI to make adjustments to marketing investments.
When it comes together
When executives take this holistic approach to enhancing marketing effectiveness, it can create the right context for MROI analytics and tools to serve the business. For instance, in the North American division of a top global automotive manufacturer, executives had little insight into program effectiveness and few tools with which to make sense of it. Company leaders lacked analytical capability and ways to guide marketing spend allocation at the market-area level. In response, the company developed a complex analytics and decision-making engine. The solution integrated advertising and incentives to enable scenario planning at the dealer market-area level. It incorporated more than 25 internal and third-party data sources, visibility into seven markets and more than 100 dealer market areas, providing the ability to assess marketing mix ROI across more than a dozen models. The engine enabled real-time alerts for market-level opportunities, performance diagnostics, predictive analytics, and marketing mix modeling. By framing the solution as part of an integrated capability-building program and connecting it to business decision-making through easy-to-read and compelling visualizations, the impact was dramatically enhanced. The approach generated $70 million in incremental margin per year and is currently being extended to the company’s operations across key markets in Asia.
An important responsibility of marketing executives is ensuring they are optimizing marketing effectiveness and can demonstrate marketing’s contribution to the business. Marketing should be more financially accountable than ever before. MROI can help. But it’s important to understand the complexities of MROI, and to deploy MROI-based solutions in the context of an integrated suite of actions by marketing leadership to build their organization’s marketing effectiveness over time.