Ashok Notaney Steven Treppo. Climbing the Learning Curve Understanding Marketing ROI in Financial Services

Transcription

1 Perspective Joi Bessler Ashok Notaey Steve Treppo Climbig the Learig Curve Uderstadig Marketig ROI i Fiacial Services

2 Booz & Compay is a leadig global maagemet cosultig firm, helpig the world s top busiesses, govermets, ad orgaizatios. Our fouder, Edwi Booz, defied the professio whe he established the first maagemet cosultig firm i Today, with more tha 3,300 people i 58 offices aroud the world, we brig foresight ad kowledge, deep fuctioal expertise, ad a practical approach to buildig capabilities ad deliverig real impact. We work closely with our cliets to create ad deliver essetial advatage. For our maagemet magazie strategy+busiess, visit Visit to lear more about Booz & Compay. CONTACT INFORMATION Clevelad Steve Treppo Pricipal steve.treppo@booz.com Sa Fracisco Joi Bessler Parter joi.bessler@booz.com Ashok Notaey Pricipal ash.otaey@booz.com Origially published as: Climbig the Learig Curve, by Joi Bessler, Ashok Notaey, ad Steve Treppo, Booz Alle Hamilto, 2007.

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4 1 Climbig the Learig Curve Uderstadig Marketig ROI i Fiacial Services Despite abudat resources ad strog iterest i marketig iovatio, fiacial services compaies have thus far made less progress i employig their uderstadig of retur o marketig dollars to ulock marketig value tha compaies i other idustries. Eve though fiacial services ow raks as oe of the leadig idustries i terms of marketig sped, it lags behid other sectors, such as cosumer packaged goods (CPG), i its ability to uderstad the lik betwee marketig ivestmet ad results. This gap is more obvious tha ever as marketig icreases its profile withi most fiacial services (FS) orgaizatios: The marketig fuctio ow acts as a strategic aget i fiacial services, drivig ambitious orgaic growth. More importat, marketig s spedig has icreased as well. The top 10 U.S. fiacial services compaies spet 3.6 percet of their reveue, or $11.1 billio, o marketig i 2005, ad that umber is growig steadily (see Exhibit 1). I failig to fully uderstad their marketig ivestmets, FS compaies are leavig moey o the table. By desigig, buildig, ad deployig a marketig ROI capability, they ca icrease marketig effectiveess by 15 to 25 percet, resultig i sigificat bottom-lie savigs. The Extet of the Problem I the course of our work with FS compaies, we have see uusually wide variatios i marketig ROI, with some strategies offerig a egative 98 percet retur while others are as high as 400 percet positive all withi a sigle compay s portfolio of marketig iitiatives (see Exhibit 2, page 2). Fiacial services etities may, i fact, fid that their marketig ivestmets follow a 80/20 paradigm, i which just a few iitiatives geerate the overwhelmig portio of desired results. Ufortuately, most compaies do ot have the metrics i place to make this determiatio. Oce established, accurate ROI metrics ca set up a positive feedback loop, with each ew roud of Exhibit 1 Compoud Aual Growth Rate i Marketig Sped 2005 Marketig Sped (Dollars i Billios) $12 $10 $8 $6 $4 $2 $ Top Te Marketig Sped i Fiacial Services (Dollars i Billios) $ CAGR 18.1% $ Percet of Reveues $ Note: AmEx sped is et of estimated rewards programs sped. Source: Compay aual reports. $ Total Sped 4.5% 3.5% 2.5% 1.5% 0.5% 0.0% Marketig Sped as Percet of Reveues

5 2 Exhibit 2 A 80/20 Paradigm? ROI Rages, by Iitiative, at Sample Large U.S. Bak have foud success i usig metrics adopted from the CPG idustry, which has made great strides i uderstadig its marketig ROI. ROI Percet 500% 410% 400% 300% 200% 100% 0% 100% -100% Acquisitio Offer Source: Booz Alle Hamilto Marketig ROI Variatio 240% ~60% ~10% (40%) ~(80%) (100%) Acquisitio Ad Campaig TV Show Sposorship Natioal Sports Sposorship Cross-Sell Ad Campaig Arts Sposorship Product Ad Campaig Fially, is the marketig strategy aliged with the sales strategy? Fiacial services compaies typically employ very large sales forces, ad marketig activities must be aliged to the sales process or they will udergo the corporate equivalet of orga rejectio. Gatherig this iformatio allows FS marketig orgaizatios to base strategic decisios o soud isight rather tha estimates (see Whe Marketig Delivers ad Does t, page 6). We kow of oe bak, for istace, that ucovered large differeces i the effectiveess of its marketig vehicles for, respectively, customer acquisitio ad customer retetio. It also foud, to its surprise, that results it had previously attributed to marketig were actually more related to its umber of braches per capita. Aother compay drew upo its ROI fidigs to slash its aual broadcast televisio budget from $70 millio to $10 millio, ad shift spedig ito cable televisio, olie, ad sposorship chaels. comparative data used to refie the ext geeratio of iitiatives. This is whe a fiacial istitutio ca begi to claim it is developig a true capability. To put appropriate metrics i place, FS compaies must be able to aswer a series of questios: How much are we really spedig o marketig? Although may compaies thik they kow the aswer, there are ofte elemets they eglect to take ito accout from the full cost of staffig, to the budget for etertaiig cliets, to the amout spet o ovelties such as promotioal caledars ad T-shirts, extedig eve to such issues as whether marketig materials are set by overight delivery or regular mail. Furthermore, icosistet budget codig also hiders accurate trackig of marketig orgaizatios spedig. Across the etire sped, how much of a retur are we gettig ad where is it comig from? Historically, FS compaies have made little headway i fidig aswers to these questios, but some Overcomig the Costraits of FS Marketig The paradox of FS marketig is that the idustry has access to more marketig data tha early ay other idustry, but it is much more difficult to capture, aalyze, ad act o this data. The istalled IT ivestmet base i fiacial services is huge, ad FS firms have bee by far the heaviest ivestors i the very data-harvestig tools that have made best-practice ROI aalysis possible. Through cotrol of the paymets busiess, fiacial services compaies also sit astride oe of the most valuable assets of the iformatio age: the customer isight embedded i millios of idividual-accout histories. Nevertheless, FS compaies struggle to idetify busiess results that ca be directly attributed to marketig actios. There are certai iheret structural costraits i fiacial services ot faced by marketers i, for example, CPG. I that idustry, comprehesive per-uit sales aalysis is supported by the extesive use of coupos, poit-of-sale data, ad trade sped iformatio. For the most part, CPG

6 3 compaies do ot coted with complexities such as iterest-rate climates, variatios i customer profitability, or depedece upo sales force icetives to drive product mix. Exhibit 3 Three Methodologies for Measurig Marketig Effectiveess Differet Measuremet Approaches ad Their Usage As a result of these costraits, some FS compaies marketig fuctios possess oly massive quatities of raw data; others, a surprisig reliace o aecdotal evidece. Some marketig teams still measure performace armed with oly year-over-year compariso methods, while others use equally simple forecastig models, based solely upo extrapolatig data from the past 90 days forward to the ext 30 days. Fiacial services marketig efforts eve cotiue to use cumbersome cotrol markets, which at the cost of forgoe sales opportuities or dimiished brad presece are itetioally left out of marketig efforts i order to measure comparative impact. Breakeve Aalyses Typically used where outcome data is difficult to obtai (e.g., sposorships) Idicates directioal success of a evet/iitiative Icreasig Data Availability Impact Models Outcome data is available ad causal drivers are clear Quatifies overall beefit of a evet/iitiative Cosumer Fuels Customer data at several itet/ relatioship stages is available Quatifies overall beefit of a evet/ iitiative, broad program Eables idetificatio of weak spots i coversio ad retetio Buildig a Toolbox Although these sector-specific coditios are costraits, they are ot barriers. We have foud that three ROI methodologies breakeve aalyses, impact models, ad cosumer fuels which are quatitatively based ad decisio-support orieted, will respod to early ay data sceario at a FS compay (see Exhibit 3). The amout of data that a particular compay has at its disposal will determie how best to employ some combiatio of these three ROI methodologies. Breakeve Aalyses. I cases where outcome data is difficult to obtai, breakeve aalyses are a way of addig a elemet of quatitative rigor to marketig speds. Sposorships, i which effectiveess is difficult to assess due to the lack of true outcome data that ca be liked to the sped, offer oe example. Cosider the case of a mortgage bak s $2 millio TV show sposorship. The sposorship allows the bak to associate its ame ad logo with the show ad air several commercials durig the show. A breakeve aalysis is used to estimate what sort of viewer peetratio would be eeded to justify the sped: of the estimated eight millio people (ad four millio households) who regularly watch the show, the bak estimates that oe-quarter are reached by the sposorship, give the relative share of voice versus Source: Booz Alle Hamilto other advertisers. From these oe millio households, the bak estimates that 25,000 are i the market for a mortgage, give that 2.5 percet of U.S. households took out mortgages i that year. For this bak, the estimated lifetime value of a mortgage is $4,000. Therefore, the bak would eed 500 ew customers from the pool of 25,000 to break eve. As atioal market share was already 6 percet, the bak could reasoably expect to automatically get 1,500 of these customers ad so would eed to boost its share of this group to 8 percet. Give the stregth of viewers loyalty to the TV show ad the implied loyalty to their sposors, the bak believed the breakeve target to be achievable ad so was very satisfied with its ivestmet i the sposorship. Impact Models. Where good outcome data exists, as i a product-specific icreased-sales iitiative, impact models use classic regressio-aalysis tools to offer a picture of the ivestmet s retur. May FS compaies have already captured the data ecessary to uderstad their retur o marketig ivestmets; the ext step is to geerate regular feeds i usable formats. I these situatios, FS compaies ca use a five-step process to desig ad build impact models that take away oise ad isolate the likage betwee

7 4 Isolatig the Right Drivers Fiacial services compaies ca use these five steps, employig a great deal of data that they have already, to provide a clearer picture of how each marketig iitiative performs. 1. Uderstad the Iitiative I this step, through a process of questioig ad cosideratio, the marketig ad product teams joitly clarify the cotext of the marketig effort, idetify the variables that will affect outcomes, ad articulate the campaig s objectives. For example, is the goal of the campaig customer acquisitio, customer retetio, icreased share of wallet, or cross-sellig opportuities? What customer segmets are targeted? What mix of marketig chaels will be used? What variatios i the campaig are expected across regios, or over time, or i itesity of sped? What specific variables will be aalyzed to defie success? The litmus test for successful completio of this step is the clear defiitio of objectives, i terms agreed to by all ivolved parties. 2. Idetify Drivig Factors ad Examie Raw Data The marketig campaig team idetifies the iteral or exteral variables that are beyod its cotrol. For example, to what degree do seasoal or macroecoomic factors bear upo sales history? How do patters of competitor activity show up i the data? What variables withi the compay iteral iflueces such as sales force iitiatives or brach footprits affect activity levels? The key is to desig a approach i which variatios i marketig effort or applicatio ca be correlated with varyig outcomes; for example, aalyzig performace across geographic areas. 3. Establish a Base Level of Sales Usig simple regressio modelig tools, the marketig campaig team establishes the relative weight of all variables, the develops a pilot formula to set the comparative pre-campaig sales baselie. If seasoal idicators play a major role i sales activity for a particular product, for istace, mothly fluctuatios would be filtered out of the regressio model. The objective durig this stage is to figure out how to isolate the marketig campaig, by peelig away exteral or evirometal impact. 4. Determie Sales Lift ad Cofidece i Estimate Usig the same model, the marketig team examies coefficiets o marketig variables to estimate the impact of the iitiative o sales, as well as the precisio of that estimate. This is ecessarily a iterative process whe buildig the models for the first time: Isigificat variables are discarded, questioable variables examied further, ad refiemets icorporated. This is more tha just umber cruchig. Rather, it is a opportuity to apply busiess acume ad check the model for logical coherece. 5. Calculate ROI Based o Lift The marketig campaig team uses the sales lift percetage figure to determie the umber of icremetal products sold (directly attributable to the marketig campaig). I parallel, the team calculates the lifetime value of a sigle sale, usig a formula that icludes elemets such as the aual discout rate, the average teure of a customer with a particular product, ad the pretax aual profit per product sold. The goal is to determie actual ROI by multiplyig the umber of products sold by the lifetime value figure, ad the settig that figure agaist the marketig ivestmet.

8 5 marketig actios ad busiess outcomes (see Isolatig the Right Drivers, page 4). Cosumer Fuels. I cases where FS compaies have a sigificat amout of data ad are usig it to move customers through successive stages of a desired relatioship, they ca use a cosumer fuel to examie the progressio ad idetify problems. For istace, oe isurace compay employs a cosumerfuel ROI methodology that factors i marketig levers such as brad, product promotio, chael reach, product/features capability, price, ad customer service. This methodology tracks the customer s movemet through the successive stages of his relatioship with the compay: awareess, preferece, itet, purchase, peetratio, ad retetio. The overall results that the methodology provides help the isurer idetify previously overlooked choke poits i the fuel flaws i the purchase process, for istace. The compay also uses its cosumerfuel methodology as a budget-plaig tool. It might, for example, decide to cotiue fudig a customerawareess campaig with a low short-term fiacial retur, because it ow uderstads more clearly how such iitiatives drive log-term success i high-retur stages of the relatioship, such as customer retetio. Embeddig a ROI Perspective i the Orgaizatio No amout of ROI methodology ca compesate for a dysfuctioal marketig orgaizatio, or for deeply igraied cultural biases that may categorize marketig as a support fuctio rather tha a growth driver. Nor ca methodologies offset a lack of aligmet betwee marketig, sales, ad service fuctios. Implemetatio is a critical part of effective ROI methodologies. I movig to a ROI-based decisio framework, sposorig executives should be prepared to move through a umber of commo implemetatio steps, takig full accout of the cultural, orgaizatioal, ad fiacial implicatios alog the way. Istall the aalytic egie. A comprehesive set of methodologies ad aalytic tools is eeded across product types ad customer segmets that attributes acquisitio, developmet, ad retetio to marketig activities. Embed the strategic process. To drive sustaied, eterprise-wide beefits, compaies must esure that marketig ROI metrics are built ito target settig, budgetig, ad plaig processes. Alig the orgaizatio. Aalysis should be igraied ot oly withi the orgaizatio but withi idividuals. Compaies that do ot have people who are skilled i sophisticated strategic aalysis will eed to recruit ad/or trai them. Additioally, appropriate decisio rights, accoutabilities, ad icetives must be put i place. Deploy the systems. Compaies must make certai ot oly that they are collectig the right data, but that they are doig it i a way that will facilitate repeated aalysis; for example, by makig sure that cost codes are stadardized across the orgaizatio. Measurig the results of marketig ivestmet is a ascet sciece i fiacial services. However, if methodologies are implemeted well, marketig heads would realize sigificat beefits from ROI metrics that alig the explicitly stated objectives of the CEO (e.g., growth i top-lie reveue or share), or resoate laterally with the implicit agedas of other staff-side fuctios such as sales operatios or IT. Equipped with the quatitative capabilities we have discussed, the FS chief marketig officer ca egage more productively with the board, the lie, or the back office, i a commo laguage ay stakeholder ca uderstad. The orgaizatioal ad cultural legacies withi most large fiacial services compaies esure that buildig these capabilities will ot be a simple udertakig. Our direct experiece has show, however, that it will be a eormously effective oe. These capabilities eable compaies to get a much clearer picture of their marketig sped ad, more importat, how well that sped is truly workig for them ad how closely their marketig iitiatives are tied to the culture of the compay.

9 6 Whe Marketig Delivers ad Does t A retail bak with atioal presece allocated $6 millio for a cosolidated advertisig campaig to support icreased sales for both brokerage ad savigs accouts. The iitial sales figures showed overall atioal improvemet for both products, but left the marketig team uclear about whether the ad campaig or ecoomic factors such as stock market stregth ad iterest rates were resposible. Whe a ROI aalytics model was applied, however, sharp cotrasts surfaced: The savigs accout portio of the campaig produced more tha a 200 percet retur o ivestmet, whereas the brokerage accout cotributio to results was egligible. The ROI exercise illustrates the challeges preseted by icorrect hypotheses ad icomplete data aalysis. I this case, i order to rescree the data, some ew variable calculatios were itroduced. First, broad treds i brokerage products (geerally icreasig) ad savigs products (geerally decreasig) were factored. Secod, macroecoomic ad seasoal cosideratios affectig the brokerage ad savigs products were calculated. Third, the effect of differet sales icetives was icluded. Whe the sales data for each of the two products was screeed for these ad other variables ad the backgroud oise removed, savigs products showed a 12 percet lift directly attributable to the ad campaig. I cotrast, results showed o discerable correlatio betwee ad sped ad chage i brokerage accout sales. Also cotributig to this article was Joatha Crawford.

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