March 2008

IN THIS ISSUE

A Letter from CEO Michael Dunn

Recent articles in Advertising Age, among other publications, are showing that marketing effectiveness and accountability is increasingly a front and center issue – with senior management as a whole, let alone senior marketers.

Consider:

  • Campbell’s Soup executives tell analysts they need to do better marketing, not more.
  • Kellogg’s, while increasing ad spending, is looking to identify “dollars” with the lowest rate of return and redirect them into other forms of advertising as well as to the bottom line.
  • A survey by the Association of National Advertisers shows 62% of marketers believe traditional TV ads are fast losing their effectiveness, and they’re pushing for better metrics.

Marketing effectiveness has never been more relevant. Customer channels are growing by leaps and bounds. The tried-and-true tactics of the past are slipping in their ability to drive business results. Customers are increasingly dictating how they want to be spoken with – and when. The pace of change presented by a Web 2.0 world is presenting breath-taking opportunities for those marketers that can keep up.

This issue of our newsletter takes a look at several facets of the marketing effectiveness issue. My piece, “Pressure’s mounting for strong ROI, accountability, smarter spending,” offers a sneak preview of my forthcoming book titled, “The Marketing Accountability Imperative”. Senior Partner Andrew Pierce discusses a better way to trial new initiatives in “’Test and learn’ your way to more effective marketing.” We also share a case study on how one client, UnitedHealthCare, approached the marketing ROI issue.

As always, we welcome your feedback. And for those of you in less welcoming climes than San Francisco, remember that spring is (finally) just around the corner!

Best,

[Signed, Michael Dunn]

Michael Dunn
CEO & Chairman
m_dunn@prophet.com

Pressure’s mounting for strong ROI, accountability, smarter spending

By Michael Dunn, CEO & Chairman

Senior management continues to dial up the pressure on marketers to demonstrate a strong return on investment. They’re demanding higher levels of accountability and seeking assurance that every penny spent is helping to grow the business.

It puts the pressure on marketers to demonstrate disciplined planning, rigorous tracking and evaluation, along with continuous improvement in performance. They also must be able to link spending cause and effect, quickly diagnose the root causes of any spending performance issues, and make timely, fact-driven decisions to improve returns.

Yet what’s often missing in the debate over marketing effectiveness is the duality of the challenge. Efforts to maximize marketing’s return on investment at the expense of overall company growth are folly, but so are programs that grow the company with significant waste and little accountability (or little transparency).

The solution is to craft a marketing approach that addresses both challenges. As marketers design new approaches, they should work to achieve 10 critical benefits to the company, as follows. Anything less fails the accountability test.

  1. Accelerated in-market earnings growth.
  2. Stronger return on investment from each marketing spending program.
  3. Acknowledgement by the CEO and top management that marketing accountability is a critical priority and requires their support.
  4. Increased rigor in quantifying marketing program returns, diagnosing performance problems and making fact-based, objective decisions.
  5. Systematic budgeting, planning, and execution processes that are both faster and more disciplined.
  6. Elimination of spending, brand, and customer data gaps that block understanding and decision-making.
  7. More collaboration across company divisions with less organizational tension and finger-pointing.
  8. Creation of an ongoing program of in-market experimentation, adaptation, and improvement.
  9. A long-term road map for improving marketing accountability and performance including investments to build and improve capabilities and processes.
  10. A culture of accountability and performance reinforced by formal measurement systems and informal messaging top-down and from peer to peer.

It is possible to improve marketing accountability and business performance in a short period of time. Within a few months, most companies can identify marketing waste equal to 15% to 25% of their marketing budgets and redeploy those assets more effectively to achieve company goals. It all starts with a commitment –from top to bottom—to make it happen.

This piece is based on Michael Dunn’s forthcoming book, The Marketing Accountability Imperative.

“Test and learn” your way to more effective marketing

By Andrew Pierce, Senior Partner

Too many marketers remain overly dependent on traditional, historical, or one-dimensional modeling techniques to measure their initiatives. In an environment defined by non-stop change, metrics built around returns on past investments and based on lagging indicators, may not offer an accurate forecast of future results.

Marketers should consider using the “test and learn” approach to initiatives and evaluating outcomes. This process involves systematically varying the elements of a marketing equation using experimental designs to determine optimal strategies for a brand, product, or geography.

With test-and-learn, businesses experiment with different combinations of tactics—new and traditional, together and separately—on a smaller scale and with varying parameters, such as price and product mix, to evaluate results. The various combinations tested are based on both judgment and fact-based assumptions about tactics will create the greatest financial impact or increased efficiencies. 

These results can build a powerful argument for brand and marketing investment because they drive faster in-market learning to support your strategy. Additionally, test-and-learn is cost-effective at a time when tolerance for missteps is low and budgets are often static.

It’s all about demonstrating effectiveness – the issue preventing marketing executives from wielding greater influence within their organizations. Test and learn is a route to quick wins that build marketing’s credibility while providing a platform for continuous improvement of the overall marketing mix.

This article is adapted from a piece that originally ran in the Dec. 15, 2007 issue of Marketing News. Click here to read the original.

Track the ROI on marketing

To spend your marketing dollars wisely, you need to know what form of marketing is giving you the biggest bang for your buck. What’s required is a systematic analysis of the interplay between pricing, product, promotions, and distribution decisions.

We recently conducted a project for UnitedHealthcare (UHC), a $40-billion division of UnitedHealth Group. UHC faced significant competitive pressures in some parts of the country and was losing market share to rivals. Prophet studied data on behaviors, perceptions, and transactions to determine the effectiveness of a wide range of marketing efforts from pricing to media buys.

What we learned has helped UHC recalibrate its efforts to successfully drive membership growth in the increasingly volatile healthcare industry. And the lessons learned are being applied to other key markets. To learn more, click here.

Prophet Recommends...

How to Invest in Branding: The Harrah's Story [Webcast]
By Kevin O'Donnell
In this 90-minute web seminar, Kevin O'Donnell from Prophet and Lisa Marchese from Harrah's Entertainment, Inc. will discuss how the largest casino operator in the world uses brand to compete and win in a fiercely competitive and ever-changing market. (MarketingProfs, February, 2008)

Build a Brand Consumers Will Actually Want to Control [PDF]
By Scott Davis
In this article, Scott Davis answers questions about customer control: Does the customer really want to be your co-pilot? Does the customer want to do the marketer’s work in building the brand? Make your ads? Design your products? Distribute your message? Maybe not, he argues. (AdAge, 11/27/2007)

Think Big [PDF]
By David Aaker
In this article that appeared originally in the Wall Street Journal, Dave Aaker argues that to win market share, don’t try to influence what brand of product people buy. Change how they use the product in the first place. (MIT Sloan Management Review, September 14, 2007)

Other articles of interest

How to Make the Move up to General Manager
Advertising Age, March 3, 2008
For all the arguments calling for longer tenure, a majority of marketing leaders aren't intent on being career CMOs. Most aspire to trade their functional experience and take a chance on general management. In a recent Spencer Stuart study of 500 marketing executives across industries, only 30% want to be a CMO, while 70% of respondents have long-term aspirations of becoming general managers. It's not an outlandish goal. Broad cross-functional complexity, tied directly back to P&L results, often makes a marketing career a natural route to general management. After years of planning, implementing and evaluating marketing programs, should general management be your next step?

Made to Measure
Fortune, March 1, 2008
Under big blue letters declaring WE ARE NIELSEN, executives of the world's largest measuring company gathered in the ballroom of a resort near Fort Lauderdale for their second annual leadership retreat. Over two days in early January they trumpeted accounts won and targets achieved, and plotted Nielsen's plans for the year ahead, such as expanding its Internet ratings service into China. But a recurring theme was the company's need to improve - and fast - its spotty reputation with the clients that pay millions for its TV ratings data and retail market-share rankings.

Marketers Losing Confidence in TV
Advertising Age, February 20, 2008
Whether traditional TV advertising has truly lost its power, marketers and advertisers are already eager to find alternatives. The Association of National Advertisers and Forrester Research's fourth biennial TV and Technology survey shows a dramatic loss of confidence in the medium as the industry gears up to explore new ad formats and forms of video commercials. Indeed, two thirds of the C-level-executive respondents said they are watching the medium closely, up from just half two years ago, and 87% of respondents said they were going to be spending more on web ads in the coming year.

For additional interesting articles and factoids on the subject of Marketing Effectiveness, check out Prophet’s blog — BackPocket.

News and Events

In a recent discussion with Reuters, Karen Woon talks about the importance of not slashing marketing budgets when heading into an increasingly tight economy. Read her thoughts here.

Scott Davis recently discussed DDB’s new community-focused approach to advertising, called “swarm communications” in AdAge. Read what Scott had to say here.

We continue to sound off on brand and business issues in this opinion section of our Backpocket blog. Take a look at recent postings, and add your comments to continue the dialog!

 

Spotlight on Speaking

ANA Business-to-Business Conference
March 27 — Santa Clara, CA
David Aaker will be presenting at this event on the topic of “Innovation: Brand It or Lose It.”

ANA Regional Meeting
April 3 — Chicago, IL
Prophet is proud to sponsor this regional meeting focused on innovation. At the event, Mike Leiser, Senior Partner, will reveal the results from Prophet's 2008 survey on innovation; and Scott Davis, Senior Partner, will co-present with Dennis Cary, SVP Marketing from United Airlines.

HSM Innovation Forum
April 8-9 – New York, NY
Prophet is proud to sponsor this industry-leading event, featuring pioneers in the field of innovation including Chris Anderson, Eric von Hippel, Daniel Pink, Andrew Zolli, and others.

Best Practices in Marketing
April 21–25 — Zurich, Switzerland
Roland Bernhard will discuss innovation management and the latest trends in marketing at this event.

AMA Strategic Marketing: Marketing in a Brave New World
May 19–21 — Boston, MA
This event boasts an impressive line-up of C-level speakers who will be discussing charting the waters of marketing in this brave new world.  Mitch Duckler, Partner, will be Chairing and speaking at the event.


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