Print this article | Return to Article | Return to CFO.com
Marketing is changing in leaps and bounds. The metrics to show whether that's a good thing for the bottom line will have to wait.
Janet Kersnar, CFO Europe Magazine
December 27, 2006
Do a quick search on the video website www.youtube.com and you can find a 54-second clip starring a BMW. It's not just any BMW. This one is equipped with state-of-the-art infrared technology that improves a driver's night vision. In the 24 hours after the video first appeared on YouTube last summer, it was downloaded 63,000 times; by the autumn, that number was nearly 200,000. That's pretty good considering that the €46.6 billion German car maker never intended the clip to be a mass market ad—it had been produced for the corporate website and, unbeknownst to BMW, a car enthusiast got hold of it and uploaded it on YouTube. The accidental success shows how consumers are changing the face of marketing, says Jörg Reimann, head of marketing innovations at BMW.
But the car maker is no stranger to that phenomenon. In 2001, it set up a dedicated team around 12 specialists to focus on innovation, "so that BMW stays ahead of the curve" in terms of tapping into unconventional media that can affect brand awareness and customer loyalty, says Reimann. One benefit has been 2.5m video downloads from its website, like the one featuring an interview with head designer Chris Bangle. Then there are the video podcast pilots. A series of week-long podcasts at recent auto shows in Frankfurt, Detroit and Geneva were a surprise hit attracting more than 400,000 subscribers (so-called "RSS feeds") from all around the world—in fact, about a third came from Japan, an audience that the marketing planners hadn't even expected to reach.
The challenge for Reimann: is there an ROI or other metric that'll show whether the investments in video clips, podcasts and the like are contributing to BMW's bottom line? Not yet, he says. As "new media" marketing booms—the amount of money companies have spent on internet advertising alone has nearly tripled, from €7.3 billion in 2001 to €20.5 billion in 2006, according to investment bank Piper Jaffray—Reimann says the metrics capable of measuring its business impact haven't had a chance to catch up. "It's not so easy at the moment," he says. "The measurements we use for classic media [such as broadcast television] don't work for most of the new media."
Other marketers agree that it's becoming tougher. Getting a grip on marketing's effectiveness has always been a tough task for them, but now it's even harder as the popularity of traditional monolithic mass media are quickly giving way to proliferating alternative media. The greater the number of channels, the greater the number of metrics needed to monitor them.
It doesn't help much that the old metrics are generally flawed. Market share, customer satisfaction, audience cost-of-reach, brand awareness, all are useful, but marketing experts say none shows how an entire chain of marketing events eventually leads to a sale or new business. "Even if [an ad] reached its intended viewers or readers and improved their awareness of the product, these results have little relevance if they don't ultimately put cash in the company's coffers," write Roy Young, vice president of development at online publisher MarketingProfs, and his co-authors, Allen Weiss and David Stewart, in Marketing Champions (John Wiley & Sons, 2006).
And even cutting-edge metrics don't do the trick with the type of marketing that's coming Reimann's way. Consider econometrics. Still in early development, it's a blend of mathematical statistics, consumer behaviour theory and business results to develop analytical modelling around marketing activities. "We try to use history to look forward," says Tom Lloyd, EU director of analytics for Kraft, a $34 billion (€25.7 billion) US consumer goods firm. But because of its reliance on historical data, the use of econometrics is limited and, of course, it can't be applied to new media. "Often [the impact of new media] can be small in scale and they do call for a different approach. It's something we're talking about aggressively."
The new media conundrum is part of a wider frustration for marketers trying to justify marketing spend with hard numbers that "demonstrate that they're skilled in not only the art, but also the science" of their profession, observes Richard Ingleton, a partner with Accenture's marketing science unit. Unsurprisingly, a global survey of nearly 800 marketing professionals by US consultancy Lenskold Group and MarketingProfs earlier this year found 42% of respondents are "a long way from where they should be" in terms of measuring financial returns.
Many marketers are juggling a mishmash of metrics. In a recent paper—"Boosting returns on marketing investment"—McKinsey consultants cite one company's struggle to get a grip on its marketing returns. While consumer behaviour studies were able to show that it was neglecting brand awareness not spending enough on advertising, the company was still unclear about which channels to invest in and the real costs of various media.
So it now has a portfolio of metrics that can be applied to each marketing investment: the first set of metrics (using what's called the "funnel method") helps it study historical data in order to understand where its message will have the greatest impact in the future; the second set ("brand driver analysis") determines which type of message resonates with which type of customer; and the third set ("reach-cost-quality methodology") identifies the cost/quality tradeoffs between various campaigns. Still early in its development, the new metrics package is "imperfect," McKinsey consultants concede. But it's a start.
But what about the "art" of marketing? McKinsey says marketers should spend at least 20% of their budgets experimenting with different channels and innovating. That sounds about right to Paul Philpott, UK commercial director at ¥21 trillion (€138 billion) Japanese car maker Toyota. "If any marketing team claims that 100% of a marketing activity has worked, then they have not innovated through the process," he says. "But it's got to be innovation based on business judgement."
That would have been a tough sell at Toyota GB a few years ago. But soon after Philpott arrived in 1999, he says, a sales and marketing reorganisation became "the key that unlocked Toyota GB's ability to enter into more measurable marketing." Toyota GB had previously been a sales-led organisation, in which the view around the office was that "sales drove the revenue, marketing spent the money." The result was that the entire organisation was focused on one performance metric: sales growth. "Provided that marketing spend was kept within the budget, there were few other marketing metrics," recalls Philpott. "While that's absolutely a key metric, that is not enough."
The reorganisation put sales and marketing together in the commercial division that Philpott leads today, marking an end to the sales-led culture. Now, there's much more interaction between sales and marketing; it's not unheard of for staff from both sides to swap jobs to foster knowledge sharing. The result: "our marketing team has become more commercially oriented, sales more brand aware," he says.
Breaking with the past, each marketing activity now has a business plan before it's allowed to go ahead. Objectives and measurement mechanisms are clearly identified and communicated to other parts of the organisation, including finance and operations. Metrics such as unit cost per customer are rigorously monitored. "I'm not saying there isn't room for judgement. If you become too metrics-driven, metrics become big sticks," he says. "Marketing would be a very dull place if it were only about measuring effectiveness."
In the Driver's Seat
As for the metrics that Toyota GB will use for a new family hatchback launch campaign in February, Philpott says only that he expects the new car to increase sales by 15%—and that has to be done without an increase in marketing spend.
It's a tall order, as Toyota GB knows from its last launch, for a next-generation Corolla, in 2002. At the time, the Corolla brand had a big image problem in the UK—as one motoring journalist quipped, it was "the perfect car for every undercover agent—it says nothing about you." With a £20m (€31m) budget and help from ad agency Saatchi & Saatchi, Toyota wanted to spruce up the Corolla brand.
"We started with a premise that TV was almost a given," recalls Philpott. Though direct marketing, interactive TV and the internet had a role to play, five catchy commercials formed the crux of the campaign. Over seven months, sales volume grew 49%, much higher than the previous Corolla launch in 1997, and average revenue per unit increased 22%. By year-end, it had scored well in various consumer studies, moving from 22nd to 5th in spontaneous purchase consideration, started attracting younger buyers and outsold competitors. Dealerships also increased high-end sales and scrapped tactical incentives, all helping to boost profitability.
Will TV play as big a role in the next campaign? Philpott says, "If you're looking to put your brand on the map with scale, you have to have TV." At the same time, he adds, "you can't ignore the fact that 90% of car buyers now do research online before buying a car." There's also the fact that "anything online is much more measurable than TV"—TV still has the least amount of metrics, though it remains the biggest line item in most marketing spending, he says.
But Philpott and other marketers agree that metrics are a moving target, whatever the media. What works in one campaign, customer segment or media might not work in another.
Roisin Donnelly, corporate marketing director for the UK and Ireland at Procter & Gamble, is an expert on such moving targets. The $68.2 billion consumer goods company has some 20 brands with $1 billion or more annual sales and is among the world's biggest marketing spenders—topping Advertising Age's 20th annual marketing ranking with $8 billion annual advertising spending last year, nearly double its nearest rival, Unilever; this rises to $15 billion when trade promotions, internet marketing and other campaigns are thrown in. The pace isn't slowing either. Over the next 12 months, P&G will launch more than 150 products in the UK, each assigned between 6 and 40 metrics. And because "no two marketing plans at P&G are alike," Donnelly has her work cut out.
P&G's bespoke marketing strategy is a reflection of the bigger changes that have swept through the fast-moving consumer goods (FMCG) sector. Before the 1990s, advertising accounted for the bulk of a typical FMCG company's budget. By the late 1990s, advertising spend was one-fourth of the budget, with the rest going on targeted consumer and trade promotions, according to Robert Shaw and David Merrick in Marketing Payback: Is Your Marketing Profitable? (Pearson Education, 2005).
When Donnelly got her first job at P&G in 1987, measuring marketing was relatively straightforward. Back then, the main metric was "reach," marketing speak for the number of relevant customers who receive a marketing message. So when P&G launched Wash N' Go shampoo in the UK in 1987, P&G blanketed neighbourhoods with sample products and ran three peak time TV ads. "Our reach was 95%," she says.
Compare that with a new regime today, which Donnelly describes as going "from mass marketing to a bulls-eye." Campaigns now involve more ad agencies than previously, and more detailed research about individual customer segments. "That's harder, but more efficient," she says.
Another change: new technology means it doesn't take long for Donnelly to know how efficient a campaign's been. Sales information that once could have taken four months to reach her, she now knows "within a couple of hours."
Looking for more ways to improve, P&G is participating in a US project with Unilever, SC Johnson and Wal-Mart testing a new data-gathering technology that aims to provide a causal link between marketing and consumer spending. Ten thousand consumers have been given "portable people meters" the size of a mobile phone to record every ad they see or hear and every product and service they buy. That information is matched to data about media consumption, price promotions, in-store displays and anything else that influences buying.
Will projects like this deliver better metrics? Marketers feel a growing sense of urgency. "It'll be a big challenge for the whole marketing industry in 2007," says Reimann. "We must understand the new tools better and deliver stable metrics."
BMW doesn't intend to let others do the heavy lifting, Reimann points out. "We don't want to wait another year until the marketing research agencies come back to us with proven figures so that we can plan them into our budget. By then, that would be too late."
In a recent marketing benchmarking exercise of 200 companies, Aberdeen, an IT research company, identified a group of "best in class" marketers, the top quartile of companies which it says have higher customer retention and higher revenue from up-selling and cross-selling campaigns than the other companies studied. They are also more likely to have customers who buy more than one product or service from them each year.
Their secret to success? They are two times more likely to use real-time customer intelligence; two-and-a-half times more likely to profile and segment customers using at least 20 criteria per campaign; and are three times more likely to measure the value of their customers, often with automated tools. The technologies that these companies are investing in include customer relationship management systems, web analytics, business intelligence platforms and marketing automation solutions.