A SYSTEMATIC APPROACH TO IMPROVE YOUR RETURN ON MARKETING INVESTMENT
To prosper in today’s environment is all about return on marketing investment and marketers must dramatically improve the impact of every marketing dollar they spend.
If marketing dollars are not contributing to brand building, according to the new rules of marketing, just what are they contributing to? For many, the old saying, “I know half my advertising isn’t effective – I just don’t know which half,” is truer than ever.
In the last few years several brands including Starbucks, Discovery, and Home Depot have grown from obscurity to ubiquity very quickly and cost-effectively. Why have some marketers made marketing effectiveness a source of competitive advantage while others have been stalled by clutter and rising costs?
Looking closely at the best brand builders, clear patterns emerge. Using approaches described below, successful marketers are spending smarter, focusing on new points of leverage in a more complex, dynamic marketing environment. As a result, they are building brands more quickly, cheaply, and ef?ciently.
If you are working in the digital marketing space return on investment in digital marketing is a concern as is the return on investment for social media marketing. We are often asked why is marketing return on investment so difficult to? measure? There is a return on the marketing investment formula for every program that can be measured.
Both B2B and B2C companies spend a lot of money on marketing communications. But is all that money well spent? Marketing return on investment helps companies measure the return on investment.
For marketers (and management), there are benefits associated with using this measurement, including setting budgets, justifying marketing spend; deciding what to spend on, comparing marketing efficiency with competitors; and holding themselves accountable.
It’s not an easy metric to measure, because it can be hard to determine how much incremental financial value a marketing program add. It can also be difficult to figure out which incremental profits are attributable to which programs. Measuring the lag time associated with most marketing spending investment is another common challenge.
Despite these challenges, measuring marketing return on investment is worth it. Ideally, your marketing program is not only affecting sales and profits this year but is also strengthening your brand equity and customer relationships over time.
Companies spend a lot on marketing communications. In fact, global spending on media is expected to reach $2.1 trillion in 2019, up from $1.6 trillion in 2014. But is all that money well spent? And more fundamentally, does marketing work? A marketing ROI analysis can help answer those questions. So let’s dive in.
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The New Environment: Not Business as Usual
Several key changes in the marketing environment have put an end to business as usual in managing marketing spending. This holds true for startups and small businesses as well.
The Number of Touchpoints has Exploded
The rapid growth in consumer touchpoints fueled by the Internet and other technology-driven channels, including social media, VR, AI, e-mail, social media, call centers, ATMs, Web TV, kiosks, and new interactive mobile technology – has created a wide new array of options for building brand presence.
The rapidly changing marketing landscape has resulted in increased clutter, fragmented audiences, and higher costs. 40.5 percent of all U.S. media spending is now digital. At this rate, the 50 percent mark might not be too far in the future.
In fact, recent studies have shown that increases in advertising expenditures led to increases in sales in only about 50 percent of the cases examined. It is not only advertising that is suffering from questionable effectiveness.
Analysis of trade promotions across 65 product categories suggests only 16 percent were pro?table.3 In this environment, many marketers struggle to sustain, let alone grow their brands, spending and essentially wasting more and more money on advertising, promotions, and other marketing efforts.
To understand how to select the right touchpoints – and spend the right amount of money in the right way against them, it is important to understand the forces that are shaping brand presence today.
Word of Mouth Increasingly Shapes Brand Presence
Technology has dramatically increased the power of the grapevine to shape brand presence – by equipping more consumers with more information than they’ve ever had, and by making it easy for them to share that information quickly.
When consumers were asked what compels them to visit a company’s Website, 57 percent said a word-of-mouth recommendation, compared to only 42 percent who were in?uenced by an online ad. Technology also gives consumers the tools to spread the word rapidly.
Email word of mouth has become “word of mouse,” a powerful shaper of brand presence because it grows exponentially. Fully 92 percent of consumers who learned about a website from a friend will pass it on to another friend.
But, content marketing is driving more organic search traffic with over 70% of clicks go to organic searches that rank on the first page of Google. Search engine optimization is important.
Consumers now organize their own Web and of?ine communities around products and companies that they support – or want to rally against. These groups range from support networks for purchasers of failed products to interest groups promoting ethical or political causes. These can become fast and powerful channels of communication outside the direct control of marketers.
Word of mouth can work both ways. While positive word of mouth can quickly promote a brand, negative word of mouth can quickly do damage.
In one instance, consumers propagated an e-mail campaign calling for a boycott of a prominent apparel brand, falsely accusing the company of racism. Although the company acted quickly to set the record straight, the brand suffered. Social media and brand reputation must be monitored closely.
Marketers must actively manage and in?uence the information ?ow around their brand, knowing how and when to intervene so that they don’t lose control of their brand’s image.
Alliances Multiply Consumer Touchpoints and Your Return on Marketing Investment
Increasingly, marketers are forming partnerships to multiply their consumer touchpoints, while bootstrapping acceptance among consumers through association with partner brands.
Starbucks, for example, is renowned for extending its brand presence into more consumption occasions through alliances with companies such as Barnes & Noble, United Airlines, and Ben & Jerry’s. Alliances abound on the Internet as companies form agreements to hot-link their sites. Amazon.com has an extensive program, including ?nancial and other incentives, to populate other sites with its hot-linked icon.
The key is to choose partners that reinforce and effectively deliver the desired brand positioning.
Consumer Experience is Playing a Greater Role in Brand Loyalty
Now more than ever, consumers’ direct experiences drive brand perceptions more than traditional advertising. This is partly due to ?agging consumer con?dence in advertising messages. Yankelovich research shows that 93 percent of consumers do not have great con?dence in the advertising messages of large corporations.
Consumer experience is also playing a greater role because of the changing nature of winning value propositions. As functional bene?ts (e.g., technical features of a car) become commodities that are easily replicated, process and relationship bene?ts (e.g., the experience of buying a car and the ongoing connection and af?nity with the brand) increasingly drive purchase decisions, word of mouth, and loyalty.
This interplay of functional, process and relationship bene?ts deepens the experience for the consumer far beyond what a traditional advertising message could deliver.
Saturn was one of the ?rst to successfully introduce process and relationship bene?ts into the automotive category by offering no-haggle pricing and programs to make customers feel valued, respected and part of a special club. Through online information and owners’ groups, Saturn customers can manage the buying process and access national service.
Saturn owners even trust the dealers – a signi?cant achievement. Each customer is welcomed into the “Saturn Family” and is invited to owner picnics and other events. Saturn’s advertising supports the message that something different is being offered. Through these efforts, Saturn has nurtured deep loyalty without signi?cant distinctiveness in the car itself.
The interplay of functional, process, and relationship benefits deepens the experience for the customer
Starbucks, another leader in experience-based loyalty, grew from 11 stores to over 1,000 in under 15 years with very little advertising – relying instead on the delivery of a superb coffee-drinking experience to the consumer.
Starbucks’ consistency and attention to detail in the sensory experience – the smell and taste of the coffee, the music and décor that reinforce the relaxed brand personality – have effectively retained the core customer base while signi?cantly growing the franchise. And along the way, the company has managed to rejuvenate what was a fairly stagnant coffee category.
The importance of consumer experience in building brand equity means that, in addition to advertising, sponsorships, and promotions, marketers need to use marketing vehicles that improve the customer relationship or buying processes, such as consistent store operations, responsive call centers, and information-rich Websites.
Collectively, the forces described above increase the options for marketers, but the result may be double-edged. Marketers have more effective and more ef?cient vehicles at their disposal to address speci?c brand needs, but the sheer number of vehicles and their combinations and interactions create complexity and cost that many ?nd dif?cult to manage.
A New Approach to a better return on marketing investment.
In this complex environment, any marketer can become more successful by taking a more systematic approach to developing the marketing plan. Below we describe an approach that takes advantage of the broadening set of marketing options while focusing the right amount of spending in the right places to build brand presence quickly, effectively, and ef?ciently.
Focus on the bottlenecks and Your Return on Marketing Investment
To spend where the investment will work hardest, marketers need to know exactly what stands in the way of brand growth. This means diagnosing the speci?c barriers or bottlenecks that impede greater use of, and loyalty, to the brand.
While bottlenecks vary from situation to situation, depending on the product category, target segment, and life stage of the brand, they can appear at any stage of the consumer’s decision process – awareness, consideration, experience, or loyalty (see Table 2).
Awareness. Awareness bottlenecks often derive from one of two problems. Either the brand is having dif?culty breaking through the competitive clutter, or marketing programs are not addressing the “type” of awareness relevant to the brand.
Breaking through the clutter can sometimes be achieved with sheer scale by out-spending the competition. More cost-effective awareness can be achieved with creative measures
that deliver high impact for the dollars spent. In a fragmented world, innovative PR and media events can cut through the clutter.
Failing to develop the right type of awareness can allow signi?cant bottlenecks to develop. While many brands have aided awareness above 80 or 90 percent if this is just awareness of the brand’s name and not of the brand’s proposition, consumers are less likely to act on their awareness.
Consideration. Most consumers have a repertoire of two to three brands from which they select on any given purchase occasion. Marketers, therefore, face two challenges with consideration: ?rst, making the brand relevant so it enters consumers’ consideration set; and second, making it distinctive enough to drive consumer choice.
Lack of relevance or distinctiveness to the target segment can be caused by real or perceived gaps in the brand’s emotional or rational bene?ts, or in the brand’s communication or delivery of these bene?ts.
For example, one ?nancial services company analyzed its customers based on their unique needs and discovered very different considerations bottlenecks by segment. In fact, two segments had con?icting perceptions of the brand’s heritage, creating bottlenecks with both groups.
Wealthy young “Internet junkies” who adjusted their investment portfolios frequently had dif?culty accepting the company as a dynamic online broker, given the company’s regional bricks and mortar beginnings. At the same time, many wealthy retirees viewed the brand – which had only recently expanded nationally – as an upstart which had not yet earned its stripes.
Experience. Marketers face two primary bottlenecks in moving from consideration to experience. The ?rst is the lack of a compelling call to action; the second is dif?culty in gaining access to the brand.
A powerful call to action is needed in many categories to overcome the consumer inertia that develops when switching is dif?cult, or a brand becomes part of a consumer’s routine.
Access becomes a bottleneck to experience when consumers have strong consideration for a brand but have dif?culty in purchasing it due to weak retail distribution, limited hours of operation, or other factors.
ETRADE, for instance, demonstrates the importance of a powerful call to action. While ETRADE’s low price positioning was enticing, it may not have been enough for consumers to go through the work of switching account information and funds from one online broker to another. Taking the offer just a bit further did, however, push consumers to trial; using the call to action of “Up to 25 trades on us!”, an extraordinary number of online traders went from consideration to experience.
A call to action can bring consumers to the store or a Web site, and in categories like packaged goods, it can often be very effective at the point of sale. In-store promotions for packaged goods abound because research shows that over 70 percent of consumers have not decided which brand they will buy before they are in the store.
Loyalty. Cementing loyalty is often critical to brand pro?tability, as loyal consumers typically spend more and purchase more frequently. Inspiring loyalty requires a powerful consumer experience, reinforcement of the reason for purchase, a consumer-friendly repurchase cycle, and increasingly, some form of emotional af?nity between the brand and the consumer.
In most categories, consumers fall into loyalty segments ranging from “dissatis?ed defectors,” who will abandon your brand at the next opportunity, to “emotive loyalists,” who develop deep bonds with brands and are unlikely to switch (see Table 3). Identifying loyalty bottlenecks begins with understanding a brand’s penetration of loyalty segments versus key competitors.
An accurate, fact-based understanding of a brand’s real consumer bottlenecks will help marketers focus attention and resources on the critical drivers and quickly improve brand strength and value.
Tips for Getting Started
- Map how a consumer in each of your segments typically moves from awareness of your brand to consideration, to experience, and to loyalty.
- Measure leading indicators, drivers, and results at each stage. For example, a soft drink manufacturer measures consideration, but also its relative scores on the rational and emotional image attributes that contribute to that consideration (“refreshing,” “cool,” etc.).
- Use proxies where the best metric isn’t available – one packaged goods company uses grocery store distribution as a proxy for all chain store distribution.
- Ensure metrics and performance expectations are appropriate, given:
- Industry context – an insurance company can compete with much lower levels of awareness than a fast-food chain;
- The life stage of your brand – an established brand may need to focus on maintaining consideration and sustaining scores inexperience, while a new brand may need to focus on awareness and consideration;
- The consumer segment in question – mortgage loyalty should be higher among the af?uent segment than among the mass market;
- The channel structure – the bottleneck can be with an intermediary, despite healthy consumer demand.
- Look for performance changes over time as well as gaps versus competitors – a catalog company found that although trial and usage were high compared to
- competing brands, both were declining rapidly, signaling issues with the appeal of the brand among the untapped market.
- Understand root causes – such as in the example of the bank that understood its key issue to be its resolution of consumer complaints, rather than the factors that drove the initial complaint.
- Set up a scorecard for ongoing performance tracking to provide early warning of future bottlenecks.
2. Use a More Relevant and Diverse Set of Presence-Building Methods
Armed with an informed view of a brand’s bottlenecks, the marketer must then craft programs that employ the most appropriate set of traditional and new presence-building vehicles and tactics.
It is deceptively easy to simply base this year’s programs on last year’s, or to fall into sector “group-think.” Why should GM and DaimlerChrysler, for example, employ nearly identical marketing spending, when they likely are experiencing bottlenecks that are unique to each of their brands? (See Table 4.)
Moreover, while traditional vehicles such as mass advertising will continue to be an important part of many marketing programs, it is important to consider a broader set of marketing vehicles – especially those that shape a consumer’s brand experience and spark positive word of mouth – which may more effectively and ef?ciently achieve marketing objectives.
The Right Tool for The Job
The key to presence building is not necessarily the use of more vehicles or to blanket all the touchpoints. The key is to select the right vehicles at the right time to address speci?c bottlenecks in the consumer decision process.
Leading marketers often ?nd it helpful to assemble internal and external “rules of thumb” about the role of different marketing vehicles in moving consumers through their decision process for a particular product category (see Table 5). By recording the impact a brand has with its presence activities, and by constantly experimenting with new vehicles, these rules of thumb become more powerful and prescriptive over time.
Break Through the Clutter and Your Return on Marketing Investment
There are no limits to the creativity that can be brought to the challenge of creating and employing new marketing tactics. In fact, the more innovative and fresh the approach, the more likely it is to break through the awareness clutter.
State Farm, for example, garnered free PR to spark positive word of mouth through its “Dangerous Intersections” program, addressing awareness and consideration bottlenecks head-on.
The company reached into its proprietary database to supply the media with a list of the most dangerous intersections across several major cities. The media – hungrier than ever for content, due to the growth of media outlets and the explosion of “infotainment” – turned the information into a big story.
Nightline, Dateline, USA Today, local papers and TV stations all carried large features that credited State Farm. Citizens wrote to their local papers and politicians demanding that something is done about the problem.
As a result, State Farm strengthened its image with millions of consumers as a concerned, caring institution (one survey showed 50 percent of adults were aware of the campaign) and delivered real bene?ts, in the form of information, at a fraction of the cost of a major media campaign.
Equally creative is the art of turning “vanguard” consumer segments, which help establish new trends, into powerful product ambassadors. Abercrombie & Fitch became legendary for hiring the “cool kids on campus” to work at their stores, offering attractive discounts and very ?exible hours as inducements.
These kids, in turn, use their discounts to build their wardrobes and become very in?uential walking billboards for the brand at their schools. For a company whose challenge is to get key segments to consider its products, the ambassador vehicle is extremely powerful.
While most trends eventually die, Nike has shown that seeding the vanguard can be a sustainable presence-building model, as long as the pace of new product development stays ahead of individual product life cycles.
The Power of Experience
As the portfolio of brand building vehicles grows, so too does the challenge of maintaining a consistent customer experience across all touchpoints.
Recognizing the importance of this consistency, Victoria’s Secret trains its call center staff to perpetuate the romance of the brand in the way they discuss the product; to cross-sell product and suggest alternatives when desired items are out of stock; and to help callers with sizing and other questions.
This is in sharp contrast to many other companies who focus telesales staff primarily on ef?ciency objectives such as the number of calls, time per call, and dollars per hour.
In the search for new and innovative brand-building vehicles, marketers must not forget the potential of their existing resources. Retailers, for example, can use merchandising and service to create an in-store experience that becomes their most powerful loyalty-building tool.
Our work has shown that adjusting store operations – including sales staff behaviors, back-room practices, and visual merchandising – to better re?ect brand objectives can result in sustained 10 to 20 percent sales increases versus comparable stores.
Aveda, specializing in premium personal care products, does not do a great deal of advertising but has built and sustained its brand through its multisensory store experience: a distinctive aroma; soothing new age music; trendily coiffed and made-up store personnel and minimalist décor. Starbucks, GAP, and Disney are all legendary for driving brand growth through the in-store experience they provide for consumers.
Getting Intermediaries (Channels) Involved
Marketers working in channels with strong intermediaries can employ combinations of consumer pull and intermediary push to create a reinforcing loop of awareness, consideration, experience, and loyalty.
In the pharmaceuticals category, for example, Novartis (like many others) supplements direct-to-consumer print ads with direct marketing to physicians. A diet drug producer extended this approach recently by marketing to an unconventional intermediary – the hairdresser.
Similarly, branded apparel manufacturers like GAP and Jones of New York work with department store retailers like Macy’s and Lord & Taylor to build their brands.
The manufacturer helps the retailer to improve in-store experience and cosponsors targeted advertising to draw people into the stores. In return, the retailer promotes the product with ?oor space and in-store sales support.
Tips for Getting Started with Your Return on Marketing Investment
- Question old assumptions about your brand’s spending mix – the fact that a vehicle has always been used may not make it appropriate for current bottlenecks.
- Don’t let traditional organizational boundaries between marketing and other functions limit your presence-building options – including the full suite of activities that affect a brand’s health (e.g., sales initiatives, public relations events, the Internet), regardless of which department manages them.
- Evaluate the performance of existing vehicles against each stage in the consumer decision process and build an institutional memory of what works where, when, and why.
- Constantly experiment with new presence-building tools – companies that were early adopters of the Internet as a marketing vehicle were handsomely rewarded.
- Consider changing how you use existing vehicles to make them more powerful in removing bottlenecks, as Abercrombie & Fitch did with their sales associates.
- Develop a fact-based understanding of every customer touchpoint – could you take better advantage of these?
- Ensure that vehicles are consistent with desired image associations for your brand – e.g., a bowling sponsorship may not support an innovative, contemporary personality positioning.
3. Create a Dynamic Marketing System to Accelerate Brand Building
With the most appropriate tools to address a brand’s bottlenecks selected, breakthrough marketing effectiveness then requires getting the tools to work together in an integrated way.
Each part of the marketing program (advertising, sales events, promotions, call centers, etc.) should contribute to a common goal – removing brand bottlenecks. When this is done well, the brand’s marketing “system” can take on a life of its own, and create a virtuous cycle of the brand building.
These brand-building dynamics create value which is more than the sum of their parts. Studies on the combined impact of advertising and promotion among packaged goods brands suggest that the combination of these activities drive volume gains far in excess of the total gain achieved by advertising and promotion conducted independently.
Victoria’s Secret, for example, exploited a powerful dynamic with its brand. To entice more male customers, Victoria’s Secret took the non-traditional step of advertising an Internet fashion show for lingerie during the Super Bowl.
The Victoria’s Secret’s Super Bowl ad was not a means to an end, but rather an opportunity to advance male consumers beyond awareness to consideration by bringing them to the Web for a deeper brand sell.
Victoria’s Secret Internet fashion show attracted over 1.5 million viewers, shattering all previous records, and creating overwhelming media buzz and word of mouth. Importantly, the show brought new male customers into Victoria’s Secret stores, where they could have a rich ?rst experience with the brand.
Sometimes building quantitative dynamic models can yield essential insights, especially in complex situations where second-order effects, feedback loops, and non-linear relationships can create counterintuitive results.
A spirits company generated such counterintuitive insights when it quantitatively modeled the dynamic interrelationships between its marketing actions and consumers’ responses across three major markets. The model clearly indicated the impact of investments in marketing levers – individually and in combination – on total brand net present value.
Because of the dynamics at play, the optimal combination of levers was sometimes different from the hypotheses developed before the modeling exercise. Ultimately, the model suggested very different strategies for each of the three markets – resulting in a 30 percent increase in brand net present value. (See Table 6)
Marketers can launch a virtuous cycle of brand-building by using their consumers as an active part of the brand-building system. Most of us are familiar with the shampoo commercial that says, “I told two friends, and they told two friends, and so on ….”
The power of positive word of mouth within a presence-building system is that it generates exponential growth, where each new consumer becomes the brand’s ambassador for the next. The trick is to build a catalyst for this word-of-mouth cycle around your brand.
The producers of the Blair Witch Project kick-started that movie’s ubiquitous word of mouth by seeding buzz on Internet chat rooms frequented by college students.
To sustain this word of mouth, the movie’s producers promoted a content-rich Internet site that made visitors feel like they were part of a private club – showing scenes not included in the movie, and detailing the mythology surrounding the Blair Witch. Only when the word of mouth reached its apex did the producers introduce traditional mass advertising to sustain the movie’s momentum (see Table 7).
An important cautionary note: a dynamic system can turn against a brand if marketers fail to think through and avoid unintended outcomes. Many packaged goods marketers have landed in this territory by launching promotional discounts that merely drove pantry loading rather than build the brand’s consumer franchise.
Tips for Getting Started
- To get started, draw on your management team’s experience to map the current interrelationships among marketing vehicles, consumer reactions, and brand outcomes.
- Initially focus on describing the connections between two vehicles (e.g., how direct response television advertising should feed leads to call centers). Build outward from these simple connections, rather than trying to come up with the total system all at once.
- Measure rates of change of key indicators such as awareness, image perceptions, distribution, trial, and repurchase to understand what is causing consumer movement.
- Choose and sequence marketing vehicles to amplify positive relationships (e.g., capitalizing on growing consumer purchase intent with trade-focused initiatives to increase distribution) or to dampen negative relationships (e.g., canceling promotions that merely train the customer to wait for deals).
- Estimate the impact of planned marketing initiatives on future brand performance – and then ?ne-tune the marketing program accordingly. In some situations, this needs to be done quantitatively. In others, it can be done qualitatively – visually mapping out the likely causal links among the initiatives, consumer reactions, and brand performance.
- Explore the use of quantitative systems models to understand the impact of using different combinations and sequencing of marketing vehicles.
4. Invest in the “Spending Zone” (Sweet-spot) to Accelerate the Pace of Brand Building
Given the increasing number of vehicles and their growing cost, it has never been more important to spend the right amount of money – no more, no less – on each element. To accelerate brand presence, marketers must invest in this “zone” of effectiveness – the optimal brand-building investment above minimum critical mass and below diminishing returns. Spreading the spend too thick or too thin will lead to wasted investment.
A leading packaged goods company has used an understanding of the zone in advertising to effectively manage marketing investment across its portfolio of brands (see Table 8). The company determined that some of its smaller brands could not support signi?cant broadcast advertising, and what was being spent was too small to break through the clutter of the category.
The company stopped national advertising for these brands, and instead invested in building awareness and trial for the brands within leading retail outlets – again, achieving a better match between bottlenecks and marketing vehicles.
This also allowed them to focus their internal and agency talents on building powerful advertising for their major brands. After this move, the small brands grew due to more concentrated investment at retail, and the larger brands experienced image and share gains from more effective advertising copy.
Rules of thumb can be established to ?nd the zone in other market vehicles. For example, a chain of donut shops found a “sweet spot” market penetration level by comparing the number of stores for a given population with the sales in each store.
Below a critical mass of stores, consumers would not encounter the chain frequently enough for it to become part of their routine. Likewise, by examining the same data they determined the point at which stores began to compete with one another and store sales declined. This information is now used to plan the development of new markets to achieve maximum pro?tability.
Similarly, a gasoline retailer found an effectiveness zone for the pace of capital improvements to its station network. By comparing the time horizon over which site improvements were made with market share movements.
The company found that most signi?cant share gains were achieved when they blitzed a local market and upgraded all their facilities within a 6-month period. While the total spending was the same as when they phased these improvements in over several years, with a blitz they reached a rapid critical mass of consumer awareness and experience of the new store concept.
Tips for Getting Started and Your Return on Marketing Investment
- Select the most relevant metrics for the intensity of the marketing activity and the related consumer response (e.g., advertising reach and consumer’s strategic message recall).
- Be creative about what could be analyzed in this way. Retailers, for example, could examine how a store’s productivity varies by market penetration.
- Be careful not to choose dependent variables that are too far removed from the marketing activity. For example, there are too many variables at play to relate advertising directly to sales or share growth, but advertising can be related to changes in consumer attitudes which ultimately lead to sales.
- Create a library of quantitative rules of thumb regarding zones of effectiveness for each major vehicle by gathering data from multiple sources: internal data from multiple markets, publicly available data, data from partners such as ad agencies or research firms.
- Launch local market pilots to gather data where gaps exist.
- Track internal and competitor data (spending and impact) over time for the most important vehicles. Changes in competitor spending and/or consumer behavior will shift effective zones over time; as a result, the effective spending zone will also change.
Putting It Altogether – Two Examples
Two real examples from two very different industries show how the application of these steps can dramatically improve your return on marketing investment.
The Renewal of Rolling Rock
The renewal of Rolling Rock beer illustrates the power that lies in challenging conventional category wisdom and focusing on the true bottlenecks for the brand.
Rolling Rock – a leading U.S. domestic specialty beer brand – stalled in the early 2000s when the import and microbrew segments took off. After ten years of steady growth, the brand languished. Margins also fell as a result of price promotions that tried – but failed – to stimulate consumption. Labatt USA (LUSA), the brewer and distributor of the brand, began to worry that it had hit the end of its lifecycle and could no longer compete.
Instead of launching into the usual round of marketing actions – changing agencies, shooting some new creative, initiating a national promotion – LUSA marketing managers rolled up their sleeves and rebuilt the marketing program from the ground up.
The real bottlenecks. The team began by laying out the consumer decision process and potential bottlenecks for specialty beer, drawing on their own experiences and recent research on consumer behavior in the category.
The team initially hypothesized that brand image was creating a bottleneck for Rolling Rock at the crucial consideration stage. As sexier imports and microbrews like Corona and Pete’s Wicked Ale ?ooded the market, consumers likely found Rolling Rock to be a bit tired.
The team thought the core attributes of the brand – its old Latrobe heritage and quirky individualism – were probably passé. The product itself was also a problem, they surmised since the micros had likely shifted the consumer palate toward darker, more bitter tastes. The micros brewing industry has exploded and so has mico-roasting for coffee.
But benchmarking Rolling Rock versus competitors throughout the decision process told a different story. Consideration was falling behind, but surprisingly, consumers still related to the core attributes of the brand. While usage was indeed falling behind the competition, the decline in consumption followed – not led – a decline in retail distribution.
The LUSA team realized that it was trade distraction – not consumer disenchantment – that was causing Rolling Rock’s performance decline. In effect, the explosion in imports and microbrews distracted wholesalers from effectively distributing the brand to retailers and bars. As the brand lost shelf space and share of tap handles, consumption fell – despite a healthy image and intent to purchase among consumers.
The right marketing vehicles. Given the nature of the bottlenecks, money focused on large media buys and consumer promotions would have been wasted. Instead, the company engineered a dramatic (and low-cost) turnaround of the brand by addressing the bottleneck of consideration and loyalty in its wholesaler network, supplemented by some creative changes to the brand to renew interest among retailers and consumers.
LUSA began by reminding wholesalers of the disproportionate margins available to them on Rolling Rock versus other brands on a per-unit basis. They then announced a rejuvenated marketing program for Rolling Rock. First, they overhauled the packaging – returning to the painted label, long-neck bottle – to give wholesalers a talking point with retailers and “on-premise” customers (as well as make the bottle stand out more at the point of purchase).
Second, they updated and committed to a promotion called “Bucket of Rocks” – designed to create on-premise trade excitement around the brand and shift on-premise preference from the draft (especially microbrews) to bottles. Third, they created new advertising – not to shift the image of the brand, but to reinforce traditional equities (e.g., heritage, quality).
Positive brand dynamics. By focusing on the wholesalers, the LUSA team hoped to turn the vicious cycle plaguing Rolling Rock into a virtuous cycle.
They were successful. As the wholesalers got excited about the brand again, they became more vocal proponents of it with on- and off-premise players.
As retailers displayed the brand prominently and the bars promoted it with the “Bucket of Rocks” campaign, incremental consumption grew. The new packaging and the trade prominence sparked word of mouth, which accelerated usage. As consumption grew, Rolling Rock’s contribution to trade pro?tability increased. As a result, the trade pushed the brand even more, further accelerating consumption.
The Rolling Rock zone. Because LUSA focused its efforts on vehicles that addressed its speci?c bottlenecks, and because it was able to kick-start positive brand dynamics, it was able to spend signi?cantly less than it might have to renew Rolling Rock. For example, concerning advertising, Rolling Rock as a specialty brand could never justify the media buy that a mainstream brand such as Budweiser would make. The LUSA team chose to invest enough in advertising to convince the wholesalers that it was committed to the brand – and to reinforce the messages it was giving consumers at the point of purchase through its packaging, displays, and promotions. For Rolling Rock, the advertising “zone” was in the millions of dollars – not the tens or hundreds of millions.
The Rolling Rock marketing program has been a resounding success. The brand has emerged from the microbrew/import discontinuity stronger than ever. Over the past 3 years, revenue has increased an average of 7 percent per year.
The Launch of an ecommerce Business and Your Return on Marketing Investment
The holiday marketing program of a major “clicks and mortar” retailer – with a large store network and an emerging Internet channel – illustrates how these return on marketing investment rules apply equally to Internet businesses. In the last 6 months of 1999, the company was struggling to make its Internet business viable.
To meet aggressive ?nancial goals for its Website, fundamental changes to their marketing spending program were needed in time for the critical Christmas buying season. This retailer successfully employed the approach we describe, proving its value online and of?ine.
Experience and loyalty bottlenecks. The company had been focusing almost exclusively on building awareness for its site among Internet users. While this approach was attracting a respectable number of visitors to its site, “look-to-buy” ratios ranged from 1.0 to 1.5 percent – well below best practice players, and repurchase was similarly weak. To make the site a ?nancial success, the presence-building focus needed to break the experience and loyalty bottlenecks by converting existing site visitors into customers and then ensuring that those customers returned.
New vehicles drive conversion. Despite spending over 90 percent of its marketing budget on online advertising, only 15 percent of site traf?c could be traced back to this vehicle. Clearly, these funds could be better applied to vehicles which would remove the site’s experience and loyalty bottlenecks among existing visitors.
To drive the ?rst purchase, the company employed a diverse set of online and of?ine tools. Trial discount coupons were included with targeted credit card statements, with the agreement that insertion costs would be based on the redemption that was achieved.
Sweepstakes rewarded purchases with chances to win large cash prizes; attractive loss leaders were tied to minimum purchases, and free shipping was offered above a minimum purchase size. Instead of signi?cant online advertising, e-mails with promotional offers were targeted at site visitors.
To promote online trial activities, the company found synergies with the broadcast advertising of its brick and mortar business. To ensure that the company was not luring customers to a fundamentally poor site, efforts were made to improve the functionality of the site and make the assortment more relevant to Internet customers.
Building the loyalty dynamic. The company knew that if they could encourage rapid repurchase, they would capture an ever-expanding share of their customers’ wallets and that the growing loyalty of these customers would generate new site traf?c through positive word of mouth. To drive repeat purchase, the company focused on ensuring a positive ?rst-purchase experience and on inducing a quick second purchase.
To create a positive ?rst-purchase experience, the company marshaled its organizational resources to ensure that all orders were shipped within 24 hours, and that service recovery was promptly initiated if that standard could not be met. To induce a shorter cycle time on second orders, discount certi?cates were mailed out immediately after a customer’s ?rst purchase was made.
Always in the zone. To make the most of a limited marketing budget, the company examined its previous marketing spending activities to understand where sweet spots exist- ed. While the focus was shifted away from Internet advertising, there remained some sites where a limited presence was needed to sustain current traf?c growth on the company’s site. Beyond this handful of related sites, the law of diminishing returns was clearly in evidence.
The company even found a sweet spot in the size of prizes needed for its promotional activities, with previous promotional data showing that prizes below a million dollars would not induce trial. While building new awareness was not a primary focus, the company ensured that the site remained top of mind with consumers by piggybacking the URL on the company’s of?ine assets (advertising, store counters, shopping bags, etc.).
Through these activities, they generated a staggering one billion incremental impressions for a cost of less than $1 million.
Following this marketing spending approach, the company turned its struggling Internet business into an important contributor to its overall bottom line. In the 3 weeks before Christmas, the site attracted more visitors than it did in the preceding 6 months, and most importantly, conversion increased by over 50 percent. By the end of 1999, the company had doubled its original sales projections.
Where to begin with your return on marketing investment?
As has been illustrated in each example, the four-step approach to improving return on marketing investment is most powerful when marketers challenge their traditional assumptions about the brands they manage.
A great deal of discipline and creativity is required to question long-held beliefs about brand equity, marketing vehicles, momentum and resource allocation. Every marketer must go through his or her own process of examination, but “Tips for Getting Started” should help.
From our experience, we recommend keeping the scope of a new return on marketing investment effort manageable. For example, select one brand from the portfolio or focus on one market for a national product. By overhauling one brand or one market, you have the opportunity to get to know the four-step process before rolling it out to the full portfolio.
While many of the examples discussed here have dealt with the revival of weak or struggling brands through improved return on marketing investment, there is no reason to limit this approach to problem-solving.
Even strong brands can be made stronger and will require equally creative approaches to keep them vital. Further, strong brands can lose their momentum if left to coast. The four-step approach can help to keep even the strongest brands from stalling out.
The rules of brand building have changed because the fundamental dynamics of how marketers connect with consumers and stay connected to build loyalty have changed.
Marketers who master these rules, and manage their spending based on a deeper understanding of the bottlenecks, the vehicles, the brand dynamics, and the “zone,” will be the winners. This applies to all businesses, from startups, small businesses to enterprise that wants a better return on marketing investment.
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Definition: Return on marketing investment or ROMI is a metric used in online marketing to measure the effectiveness of a marketing campaign.
What does ROI stand for in marketing?
If you’re tracking monetary return on investment (ROI) as the sole criterion to determine if your marketing programs are working, then you need to catch up.
What is the return on the marketing investment formula?
You take the sales growth from that business or product line, subtract the marketing costs, and then divide by the marketing cost. So, if sales grew by $1,000,000 and the marketing campaign cost $150,000, then the simple ROI is 567%.
The Right Way to Calculate the ROI of Digital Marketing
1. Revenue ÷ Number of Transactions = Average Revenue per Sale.
2. Revenue – Expenses = Profit.
3. Lifetime Transactions x Lifetime Revenue – Lifetime Expenses = Lifetime Value of a Customer.