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Measuring marketing communications: concentrate on outcomes, not outputs

Measuring marketing communications

An agency colleague told us a story about meeting with the KFC franchise marketing board – a group that represented the restaurant owners and franchisees. As each restaurant contributed a percentage of sales to fund the advertising, the ad agency and the marketing director regularly met with this group to 'sell in' the advertising.

These meetings were often tense events for both the agency and the marketing director. Both parties were responsible for developing the marketing communication plans and advertising work. Hard-nosed store managers and retailers had little time for advertising executives from London, so when they met, their worlds collided.

When presenting the media plans, the agency executive defended his choice of TV schedules. He insisted that they would deliver the optimum level of coverage and frequency against the core target demographic while delivering a low cost per thousand. According to the agency's modelling of past advertising, this strategy would deliver the targeted awareness levels for the campaign.

One of the franchisees interrupted him to ask: 'Can you buy a spot in the middle of Who Wants to Be a Millionaire?' Our agency colleague responded: 'I'm not sure if that particular programme stacks up on our modelling system.'

The franchisee pointed out: 'All I know is that whenever we put a spot in that programme more people come into the store. I sell more chicken and we make more money.'

The moral of the story? An over-reliance on soft metrics can obstruct the ultimate corporate goal of driving sales and profit. Some marketers find themselves focusing far too much on outputs as surrogates for marketing payback at the expense of keeping tabs on what's driving growth and profit.

WHAT'S THE DIFFERENCE BETWEEN AN OUTCOME AND AN OUTPUT?

Marketing and the Bottom Line (Ambler, 2004) points out that there is often a contradiction between what is measured and what it is considered important to measure. Ambler points to the example of NHS waiting lists in the UK: targets were met but actual waiting times increased and non-urgent patients were prioritised over more urgent cases.

Think back to the KFC marketer. An outcome of the fast-food restaurant's advertising in Who Wants to Be a Millionaire? was that it sold more chicken. An output was the media agency's carefully selected media plan based on coverage and frequency. Being too output-driven hinders marketers from developing an instinct for the right course of action that could lead to a better outcome – or, in other words, increased profits.

Obsessions with Output

The world is divided between people who see marketing as a cost and people who see it as an investment. Every marketer in the world will say that their budget isn't big enough, but they have got to know how much to spend; they can't just spend money and not know what's most effective. That's input/output marketing when all that really matters is the outcome.

One of the key foundations of marketing ROI is putting in place a structure with the right measures based on outcomes rather than outputs.

In our view, awareness, coverage, cost per response and brand equity are outputs; they are not outcomes that marketing should target.

They don't sustain financial scrutiny, and they aren't tied into delivering the ROI – or profit – expected from marketing investments.

Boards want to understand how marketing activities are directly increasing sales, improving profitability and enhancing shareholder value.

Marketers trying to justify their investments using these metrics will find themselves confronted by the CFO and the very real prospect of having their budgets slashed when they fail to prove a link between the required input (investment) and the desired outcome (profit).

Outputs that Lead to Bad Decisions

Being overly focused on outputs can drive the wrong sort of marketing investment decisions. A particular objective can launch a marketer down a particularly narrow path before he or she has had a proper chance to assess all the possible options.

Many years ago, when a colleague was planning for a nappies brand, the client set an objective of maximising awareness. He believed that the solution was television with a solid mix of prime time because there was no other medium that could match TV's efficiency in terms of driving awareness against the broad target audience. Yet to engage with new parents or parents-to-be, particularly mothers, ads in baby magazines or outdoor sites near maternity hospitals seemed a no-brainer.

Somewhat surprisingly, this approach proved to be a remarkably difficult sell. But consider what proportion of the marketing budget was wasted in reaching people on prime-time television who may well have been in the right demographic (16–34-year-old women) but who were definitely not in the market to buy. This is a textbook example of how an output can steer a particular course of action at the expense of achieving the best outcome. Outputs are often used as the endgame rather than as various checkpoints on the path to profit. This is where we question brand image measurements Too often they are used as an excuse to duck the issue of driving ROI. We're told that advertising the brand will create equity with the consumer, which will eventually lead to sales and long-term brand strength. Yet all too often, these assumptions are made with little or no evidence of a direct line of sight.

As a Coca-Cola executive once said in one of our meetings: 'That's nice, but we don't live in the land of eventually.' But because marketing professionals tend to over-rely on these 'outputs', boards take these measures less seriously, meaning that it becomes much harder for them to get their budgets approved.

All in all, being focused on outputs can turn into a vicious circle where marketers talk only about the brand. Consequently, their resultsfocused colleagues stop listening to them, preferring to remain cynical about how marketing can improve business performance.

WHAT DO MARKETERS THINK ROI MEANS?

Marketers have responded by leaping on to the ROI bandwagon. In reality, this has been more superficial than beneficial. 'Defining ROI', a survey of US marketers conducted by Forrester Research and the Association of National Advertisers, showed that, when it came to defining what was meant by ROI, marketers tended to define it in terms of outputs rather than outcomes.

Over half, 57% defined ROI as changes in brand awareness, 40% said it related to lead generation and 30% of the marketers considered coverage and frequency of their advertising schedules were what they meant by ROI. Sales, effectiveness, response and efficiency risk become interchangeable terms with ROI when marketers attempt to justify their spending decisions.

This only does the marketing profession more harm than good when they're presenting to their boardroom colleagues. Metrics such as these simply don't hold up, particularly where the likes of Six Sigma disciplines are being applied.

Unhelpful metrics are often used because they are easier to measure or because sales are affected by other non-marketing communication factors such as distribution and pricing that will influence sales beyond marketing communications.

SETTING THE RIGHT METRICS

Brand awareness, brand equity, cost per acquisition and market share are common metrics used by marketers, which offer certain insights into brand performance, but which are limited in how they relate to business performance. Below, we assess the benefits and the drawbacks of each one.

The Illusion of Awareness

Having worked with huge global brands such as Coca-Cola, McDonald's, Sony and Nokia, we find that they spend very little time thinking about brand awareness. These brands have phenomenal ubiquity and, as a result, they are less interested in consumers being able to recall their brands. They spend more of their time wanting to understand the sales pull-through of their marketing communication.

According to a Journal of Advertising Research US validation study, of 1165 aired TV commercials in 16 different product categories, published in MSW Research's newsletter Topline in 2005, brand recall's contribution to brand sales is, on average, 25%, while persuasion's is 75%. That's not to say that brand awareness has no value; it's relevant when launching a new brand, particularly if there is a genuine point of difference or a need to launch quickly.

Brand awareness can also play an important role in highly competitive or cluttered categories where there's little discernible differentiation between brands. But, in general, there is an over-assumption that awareness is the objective because there is often only nominal correlation between brand awareness and sales.

Brand Equity: What's it Really Worth?

Brand equity is often used as a measure for a brand campaign, but in fact it can't be used as a surrogate for sales because it offers no consistent or universal means to measure.

For instance, Interbrand's established Brand Valuation Model and the recent addition to the fray, the Millward Brown Optimor (MBO), adopt different formulae when defining 'brand equity'. MBO, in its list of Top 100 Global Brands – compiled from Millward Brown's BrandZ database – includes entries that Interbrand has never featured in its ranking, such as Wal-Mart and China Mobile. The lists also differ on the world's biggest brand, with Interbrand citing Coca-Cola and Millward Brown, Microsoft.

There are at least half a dozen different formulae for calculating brand equity. If the methodologies can't agree, it's understandable that boards answerable to shareholders can't take brand equity as a serious business metric.

The other factor to consider is that brand equity is boosted by several factors beyond marketing communication: sales staffs, call centres, the CEO's visibility (particularly relevant to companies like Virgin, Microsoft and Apple where the CEO is rarely out of the limelight), product performance, word of mouth and other uncontrollable touchpoints.

The Trouble with Cost Per Acquisition

This is a useful metric for gauging the relative efficiency of different marketing channels. However, it's worth being slightly wary of becoming too fixated on acquisition. Not only does this exclude the value offered by existing customers, but it also shifts the focus on to new customers as opposed to profitability.

For instance, the research company Experian estimates that it costs a credit card company at least £100 to take on a new customer. Bear in mind that this new credit card holder might be someone who pays off their balance on time and in full every month, and it's clear that he or she represents limited lifetime value to a credit card company.

Output-obsessed marketers often find themselves paying to acquire new customers as a means in itself rather than a means to an end.

This makes acquisition a costly business with no guaranteed returns.

The Mirage of Market Share

Being market-leading doesn't necessarily mean that a company is the most profitable. For instance, General Motors sells more cars than any other car manufacturer, but its financials have been less than impressive over the last few years. According to an article entitled 'On a collision course', published on www.economist.com in April 2006, it lost $10.6 billion in 2005.

Targeting market share isn't wrong, but ROI is about growing profit and sometimes that involves rethinking how to do business. There has to be a strategic reason why marketing to maximise market share is commercially the right business decision.

Some Useful Metrics

Sergio Zyman, the consultant and former Coca-Cola marketing officer who helped to boost Coke's worldwide annual sales volume from nine billion to 15 billion cases, famously defined marketing success as 'selling more stuff to more people more often for more money more efficiently'.

The metrics that demonstrate levers that closely match these objectives are:

  • intention to buy
  • brand penetration (or trial)
  • repeat volume
  • loyalty
  • retention rate
  • price premium (relative price)
  • customer profitability.

Each of these metrics can be tied to increased purchase, revenue or profitability. They also provide a basis to measure marketing communication performance and ability to target the communication at a specific objective.

TURNING METRICS INTO OBJECTIVES

Marketers can always find a good story – even with a poor marketing performance. Explanations typically include: 'the campaign didn't sell, but we got fantastic awareness' or 'the awareness figures were lower than expected, but we got good ratings on likeability of the ads'.

Marketers are often guilty of introducing metrics at the end of a campaign to help retro-fit results. Yet for metrics to work usefully, they need to be in place right at the start of the process They need to reflect the strategic expectations of marketing and have a strong sense of direction. Metrics need to be proactive rather than defensive.

TARGETING BY UNDERSTANDING HOW CONSUMERS BUY

When it came to planning its marketing communication campaign, Toyota's upmarket Lexus range focused its communication strategy against a key stage of the customer journey (see the case study on page 55).

AN OUTCOME-LED APPROACH

The Lexus example clearly shows that focusing on appropriate outcomes can improve the return on your marketing investment. The following seven steps can help to achieve similar goals by implementing an outcome led approach.

  1. Build a Team

Unit stakeholders including finance, brand management, market research and senior management.

  1. Unify the ROI Agenda
  • Debate and agree a strategy.
  • Set realistic and quantifiable objectives.
  • Prioritise outcomes.
  1. Establish Metrics
  • Determine data sources and frequency of collection.
  • Set targets based on established benchmarks and historical performance based on a specific time frame.
  • Align budgets with targets.
  1. Initiate Marketing Communication Development
  • Brief agencies.
  • Link communications objectives to agreed metrics.
  1. Establish the Marketing Dashboard

Align the dashboard with the cross-functional team so that it works across different departments.

  1. Deploy Data Strategically.

Once the campaign has launched, improve and optimise its performance based on data.

  1. Review the process.

Using these steps gives you flexibility and, because the team is made up from different business functions, it will make it easier to align your marketing with your stake-holders to justify the return on your marketing communications investments.

CASE STUDY: STELLA ARTOIS – REASSURINGLY EFFECTIVE

Focusing on outcomes rather than outputs means that you automatically avoid relying on ad and brand awareness. These are lesser metrics that in reality offer little substance when it comes to establishing how marketing activity relates to profit. In the Journal of Advertising Research, Heath and Nairn (2005) cite the example of Stella Artois lager, whose ad awareness for its press campaign was tracked by a competitor brand. It had notched up awareness of just four per cent, compared with 29 per cent for Castlemaine XXXX.

Yet its quality rating was 45 per cent. Heath and Nairn reflect: 'A rigorous analysis of all other factors indicated it could only have been the advertising which gave the brand its exceptionally high repute, thereby confirming that advertising can build strong values without necessarily performing well on memory-based evaluative measures.'

There have been countless studies that examine the variety of ways in which advertising works to influence behaviour. Yet consumers don't necessarily think of ads as having an impact on their behaviour, or don't necessarily like crediting them with having such an impact.

This is particularly the case when consumers are placed in the artificial situation of being grilled by a market researcher about how much a particular ad has or hasn't influenced their purchasing behaviour.

CASE STUDY: LEXUS EUROPE – DRIVING SALES, NOT AWARENESS

Challenge

Lexus regards its competitive set as the larger-selling and more established European car marques of Audi, Mercedes and BMW. Yet it outperforms all three on its test drives to sales conversion. Lexus faced up to the reality that it was less likely to be placed on a consideration list versus better-established brands.

To attract potential customers, it had to focus on the driving experience and the value/luxury equation synonymous with its cars. Lexus needed to get people closer to its brand to generate test drives, which would then convert into sales across Europe. Instead of waiting for potential customers to find the Lexus, the campaign decided to put its target market in the vehicle. It needed to familiarise the target with the benefits that the Lexus had to offer as a contemporary luxury car.

Solution

This was to surround the target audience with Lexus cars while they were travelling on business and in key holiday destinations. This gave the target constant opportunities to feel the Lexus experience and to gain direct access to the brand via chauffeur-driven cars. To qualify, registration was required, giving Lexus an opportunity for data capture. As well as creating partnerships with traditional media outlets, ZenithOptimedia, Lexus's media agency, joined forces with six-star hotels, restaurants, ski resorts and airports across the French and Italian Rivieras and the Swiss Alps – the prime holiday spots for the 'upper liberals' – Europe's affluent 35–55-year-olds and the core target market.

Magazines and online featured a bespoke booklet that showcased summer activity featuring the SC430 sports coupé and the LS430 limousine on the French and Italian Rivieras, and the RX300 4WD and the SC430 sports coupé, which made their winter debut on the ski slopes. The booklet highlighted the Lexus chauffeur service that featured in the participating hotels and encouraged the more affluent targets to use it. Lexus models were also on display inside airports at those holiday destinations with test drives and chauffeur request cards on display. All activity was measurable from leads generated at airports, individuals who had utilised the chauffeur services at hotels and online requests for more information and test drives.

Results

The results surpassed expectations. Over 5800 quality leads for test drives were generated, representing over 10% of the annual lead quota. What's more, in keeping with Lexus experience prior to the campaign, leads generated achieved a much higher conversion rate compared with general test drives.

This article featured in Market Leader, Summer 2007.

REFERENCES

Ambler, T. (2004) Marketing and the Bottom Line, 2nd ed., Financial Times/Prentice Hall, London.

Heath, R. & Nairn, A. (2005) Measuring affective advertising: implications of low-attention processing on recall, Journal of Advertising Research, Vol. 45, No. 2, June 2005, pp. 269–281.


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