This article originally appeared on the BeyeNETWORK

Marketers beware! The gloves have come off in the battle over your budgets. The ‘Black Art’ era of marketing has come to end. With it, the protection once afforded by its mysterious measures of success and failure has evaporated. In its place, a new scientific approach has emerged that enables businesses to manage available marketing funds like investment portfolios, with successes and failures measured in terms of profits and losses. Marketing communication expenditures (yes, even the sacred corporate

branding budget) are now being held accountable for the profits they deliver—or don’t deliver.

This new approach is embodied in a discipline known as Marketing Investment Management (MIM), a best-of-breed process and set of tools for optimizing the financial performance and business impact of advertising and communications expenditures. MIM brings increased transparency and accountability to marketing decision-making. MIM also makes it possible to judge the performance of marketing strategies and their tactical elements according to the return they deliver to shareholders and the corporate bottom line.

Leaders Up the Ante With Marketing Accountability Measures

Business leaders who are aware of the implications of full accountability for marketing expenditures are carefully re-examining the status quo in the allocation of their advertising and communications budgets, and are upping the competitive ante by:

• Fixing missing, overly complex or inadequate performance measurement models—especially black box fixes related to understanding customer profitability;
• Requiring those responsible for allocating and dispersing marketing funds to clearly demonstrate the impact of their decisions on the bottom-line;
• Meeting the challenge head-on with bold, thoughtful and innovative action, pre-empting competitor’s improvements in this area; and
• Refusing to accept advertising waste in any form.

Marketing accountability has become a competitive issue that cannot be ignored (See Figure 1).

Figure 1: The four top excuses used by companies when they are asked why they can’t optimize their marketing ROI.

CPI Arrives on the Marketing Scene

For years, world-class manufacturers have applied Continual Process Improvement (CPI) methods in order to enhance their product quality, profit margins and competitive positions. MIM takes a page from the playbooks of manufacturers, combining the proven methodologies of CPI and the principles of corporate finance into a process that helps companies profit from the marketing knowledge assets they have paid huge sums to acquire.

By incorporating the power of MIM into the marketing discipline, businesses are able to establish specific benchmarks for the performance of each element of the marketing mix. It’s no secret. Once the measures of success are in place, they are then able to apply what they’ve learned to continually reach and exceed their goals.

CASE IN POINT: perform a web Search at http://www.google.com/ for both “marketing expenses” as well as “marketing ROI” and see how many pages each phrase returns (include the quotation marks). You may be surprised by the results.

Knowledge Asset Erosion

According to Jack Welch, former CEO of General Electric Corp., the ultimate competitive business advantage goes to the companies that know how to learn from experience and apply newly gained knowledge rapidly to improving results. To take Welch’s advice to heart, marketers need to analyze and apply acquired knowledge before its value as a corporate asset erodes.

To do this, they need a complete picture of advertising and communications results and the net profitability of customer relationships. Failing to act on acquired knowledge, by letting it slip through our fingers, guarantees that marketers will repeat prior mistakes and that more resources will be wasted (See Figure 2).

Figure 2: The five causes of marketing knowledge asset erosion

Even companies that have invested substantial financial and human capital into systems and processes for acquiring data still face difficult hurdles in their efforts to optimize returns of marketing investments. In spite of the presence of so much useful data on customers, sales channels and transactions, strategists usually have only piecemeal access to the available body of knowledge. In order to thoroughly analyze and predict campaign performance, they are forced to build links between individual data elements on their own, usually by sending a series of research queries to the MIS department.

This is primarily because most enterprise databases and information systems have been created as islands unto themselves, performing discipline-specific functions—mostly in isolation (See Figure 3). As a result, the value of the marketing knowledge they possess is unknown, as analysis has not been based on the end-to-end perspective that is possible only when the information resources are connected to each other in the marketing context. In short, a holistic marketing perspective is missing from enterprise systems.

The good news is that most companies are capturing marketing performance indicators every day in various database and business information systems. The challenge that remains is to bring all marketing ROI variables together in a single-source analytic environment.

Figure 3: Enterprise “Islands of Expertise” and the holistic perspective of MIM.

The Science of Managing Marketing Investments

The science behind MIM isn’t based on mysterious measures of success and failure; it’s based on a broad, rich and powerful set of analytical techniques and methods that already exist to support precision business and marketing decision-making. In fact, taking the first step toward optimizing marketing profits is surprisingly simple; it requires no new systems or additional data sources. It requires nothing more than the tools and information already in place in every company that does forecasts.

At its core, MIM is about one simple truth; if an organization wishes to continually improve the ability of its marketing programs to generate profitable revenue, its advertising and communications resources must be managed like an investment portfolio, with measures of success and failure calculated in terms of risk and return.

By fusing a keen understanding of competitive marketing processes, and applied measurement science, MIM delivers breakthrough results to the corporate bottom line vis-à-vis higher returns on marketing investments (See Figure 4).

A truly successful implementation of MIM depends on a solid knowledge base of data on customers, transactions, competitors, suppliers, employees, distribution, sales and communications. That said, even the simplest MIM process is based on measuring and learning from just a handful of key results indicators, leads along the path to optimized Marketing ROI (See Figure 5).

 

 

Sample Marketing ROI calculations, available from such firms as Campaignist, demonstrate the increase in profits and bottom-line results possible when MIM optimization methodologies are employed.

Five Easy Steps to Optimizing Your Marketing ROI

Regardless of your company’s position along the path to optimizing returns on your marketing investments, there are a few initial steps that can be taken to help your business to begin implementing MIM. Most of them do not require additional investments in software or consultants.

• Step 1: Unify the sales and marketing forecasting process, with all those responsible for estimating costs and revenues working from a unified template;
• Step 2: Establish a single system for creating, storing and sharing sales and marketing forecasts and require that all of the variables needed to calculate ROI be included;
• Step 3: Establish benchmarks for the key marketing performance metrics and input variables, establishing timed goals for each;
• Step 4: Build simple tracking devices into every communications element—even those designed for branding and PR purposes—and capture the results; and
• Step 5: Include marketing ROI measurements in every sales and marketing report—even if the values are only educated approximations of the results.

Companies that recognize the importance of integrating financial accountability measures into the marketing management process, stand to gain a significant competitive advantage. Those businesses that hesitate to embrace marketing investment management, even in its simplest form as described above, limit their ability to increase market share and profitability, and face an uncertain competitive future. By embracing MIM, organizations can move more quickly and effectively along the path toward full marketing accountability, higher corporate profitability and market leadership.