Planning for effective evaluation: Are marketers really doing it?

Journal of Sponsorship Volume 1 Number 4 Planning for effective evaluation: Are marketers really doing it? Andrew Green Received (in revised form): 21st April, 2008 Ipsos MediaCT, Kings House, Kymberley Road, Harrow, HA1 1PT, UK; Tel: 44 (0)20 8861 8731; E-mail: andrew.green@ipsos.com Andrew Green is Chief Marketing Officer for the global media division of Ipsos. In his 26- year career he has worked in six countries across three continents. In 1998, Advertising Age named him Media Innovator for his work setting up television audience research in China. He has written or contributed to two books on broadcasting in Asia: Television in Contemporary Asia (Sage, 2000) and From Mao to the Millennium: Chinese Broadcasting in Transition (BMRB, 2001). He sits on the editorial advisory boards of both Admap and the International Journal of Advertising and has been a member of the programme committee for the Worldwide Readership Symposium since 1993. ABSTRACT The quest for return on investment (ROI) is close to the hearts of CEOs and finance directors. They want to know whether $1 invested in a sponsorship opportunity, for example, will ultimately pay back more than that $1, just as they do for other capital investment projects. But ROI can be a financial measure, a brand equity measure, a media performance measure and much more besides. More clarity is needed on what the key performance measures are if marketers are to be successful in measuring ROI. Another challenge is to capture the hundreds of influences both long and short term on a brand s profitability, many of them not under its direct control. This is particularly relevant to the sponsorship industry: how can marketers isolate the impact of sponsorship versus everything else and how can its strengths as a long-term builder of brand equity be quantified? The strengths and weaknesses of various technical approaches to measuring ROI are examined, but half the battle is organisational. ROI can be measured very well, if the will and commitment exist to do it and resources are set aside to do the job. Keywords: ROI, marketing return, effectiveness, market mix modelling, survey, research, brand equity BACKGROUND The quest for return on investment (ROI) is close to the hearts of CEOs and finance directors, who want to treat marketing just like other capital investment projects. They know, for example, that $1m invested in new trucks or factory will deliver very specific incremental revenues for this investment. This, combined with an estimate of the life of the investment, will give them a clear handle on whether or not it is likely to pay back over both the short and long term. It is not quite so clear cut with marketing. How many additional sales and how much profit will accrue if $1m is spent on a sponsorship campaign? What is the best way to allocate marketing budgets, HENRY STEWART PUBLICATIONS 1754-1360 JOURNAL OF SPONSORSHIP VOL. 1. NO. 4. 357 363 JULY 2008 357

Planning for effective evaluation ie should more be spent on a television campaign, an event sponsorship, an in-store promotion or on sales force bonuses? According to a survey carried out by the US Association of National Advertisers (ANA) in July 2007, 1 51 per cent of marketers admitted that there were no written goals for ROI in their organisations. It is going to be hard to measure marketing effectiveness if there is no agreed definition of what effectiveness is. An earlier survey, also in the USA, 2 reported that just 7 per cent of senior-level financial executives were satisfied with their company s ability to measure marketing ROI. Less than 10 per cent had allocated a budget specifically for the purposes of measuring marketing effectiveness. Most recently, 3 the Chief Marketing Officer (CMO) Council s annual Marketing Outlook survey found that almost 20 per cent of marketers neither tracked nor measured return on marketing spend, although 34 per cent said they were planning to introduce a formal ROI tracking system. The first requirement for planning for effective evaluation, clearly, is to set goals, track progress towards them and invest a little time and money into the process. Talking about it will not be enough. DEFINITIONS Not every company will have exactly the same definition of the R in ROI. In the ANA survey referred to above, the most popular metric of marketing effectiveness cited was changes in brand awareness, mentioned by 81 per cent of marketers. Other popular measures included changes in market share, consumer attitudes and purchase intent. The least popular was changes in the financial value of brand equity. 4 Practitioners like Binet and Field 5 have argued that ROI should be viewed as a precise financial accounting term, namely, the incremental profit generated by a given level of marketing expenditure. But when people talk about ROI they are, more often than not, using the term more loosely than that. A company may have certain consumer behaviour goals in its sights to ensure, for example, that a given number of target consumers have tried its brand, that loyal customers will comprise a given share of sales or even that the brand s image in the eyes of key consumer segments is favourable. Some brands are tracked against as many as 40 or 50 different marketing performance measures. Media planners report on metrics like ratings, target audience conversion, reach, frequency, share of voice and costs per thousand. Tracking surveys tell companies who can recall their brand, how many recognise its advertising, whether consumers find the message persuasive or would recommend it to a friend. Variations around these kinds of question are considerable. Retailers can look at footfall, average basket size and voucher redemptions. Financial services companies can analyse product cross-selling, and so on. Looking only at sales can be misleading. As every marketer knows, a sale to a repeat customer at full price has greater value than a sale on promotion to a bargain hunter who switches between brands solely on the basis of price. Ideally, therefore, the R in ROI will embrace a balanced set of both financial and non-financial objectives and will be cognisant of the trade-offs within and between the different goals. Such an approach is very much in line with the balanced scorecard process devised by Kaplan and Norton in the early 1990s, which emphasised its use as a management system, rather than only as a measurement device. 6 Ways have also been suggested as 358 HENRY STEWART PUBLICATIONS 1754-1360 JOURNAL OF SPONSORSHIP VOL. 1 NO. 4. 357 363 JULY 2008

Green to how this approach can be adapted into a balanced marketing scorecard, 7 with key performance indicators developed for financial indicators, efficiency, the customer and long-term development of the brand. At the end of the day, most brands are in business to make a profit everything else is merely an intermediate step on the road to this goal. In the strictest sense of the term, therefore, Binet and Field are probably right to try and keep the focus on brand profits as an end goal, informed by a good understanding of the intermediate performance metrics that impact this. 8 EASY TO SAY... This is rather easier to say than to measure of course. There are hundreds of influences on a brand s profitability, many of them not under its direct control. Relative pricing, competitive activity, the weather, the political environment, packaging, word of mouth, the in-store and after-sales experience. All have an impact and, in many cases, they can drown out marketing activity. To complicate matters further, much of the marketing effect may not become apparent until several months or even years after the activity has taken place. 9 This is a particular challenge for the sponsorship industry. With lots of marketing activity going on in different media, some of which has very obvious and rapid marketplace effects (eg retail promotions), how can the financial impact of (say) a one-year sponsorship of the weather forecast on television be calculated? Will it reinforce other activities or be drowned out by them? If, as is often pointed out, the average marketing director is in place for only 18 months or so, his or her horizon is necessarily going to be limited, with the short-term agenda dominating the long-term outlook. One final point worth noting when discussing definitions is the meaning of the I in ROI. If the return part of the ROI equation needs to be carefully defined, the investment part needs equal consideration. For example, is the money a company spends on developing and maintaining its website marketing spend or something else? What about trade payments to retailers or the cost of packaging? Judgments need to be made on these questions and a consistent approach agreed and adopted for ROI to be meaningful. TECHNIQUES A pure measure of marketing ROI is unattainable. There are too many factors influencing whether or not individual consumers will buy Brand A or Brand B (or any brand at all). A number of key techniques can be used, however, including: Direct response. Television and print advertisements which prompt people to phone a number or websites that direct people to click on a link provide builtin and precise measures of how many people respond to an individual advertisement. Media ratings. Television, print, radio and outdoor advertising have relatively well entrenched and accepted ways of tracking the potential exposure to advertising using metrics like gross rating points (GRPs). The relationship between these metrics and financial or customer behaviour measures can be tracked and modelled. These can also provide a guide for many sponsorship executions. For example, sponsorship of a television or radio programme will generate audience ratings every time it appears. Televising sponsored events also allows brands to get some idea HENRY STEWART PUBLICATIONS 1754-1360 JOURNAL OF SPONSORSHIP VOL. 1. NO. 4. 357 363 JULY 2008 359

Planning for effective evaluation of potential exposure to their message (eg banners around a sporting event), both from the live and the at-home audience. Market mix modelling. This method looks at how changes in sales and other marketing outcomes have related in the past to marketing inputs including pricing, distribution, advertising weight and composition, and even externalities like the weather anything that can be measured. Through sophisticated mathematics, marketers can gain insights into which of these variables is having the greatest influence on sales and what might happen if, for example, television advertising were to be increased or stopped. Brand and advertising tracking. Branding, ultimately, lies in the mind of the consumer. While it is relatively straightforward to measure sales performance and advertising weight, it is less easy to measure why consumers might be buying or not buying. Tracking people s awareness of advertising, their attitudes towards individual brands and their preferences over time can provide useful clues as to how marketing is working (or not working). If linked to marketing activity, this can provide useful clues as to which media are working hardest. Consumer mix modelling. This technique collects brand and advertising awareness data as above, but then attempts to derive the relative strength of different media based on various brand key performance indicators. It is one way in which the impact of sponsorship can be assessed, being focused on longer-term drivers of brand equity, rather than short-term sales drivers. 10 Household panels. Large samples of households are recruited to keep a track of all the purchases they make over an extended period (eg by scanning their purchases at home through a special reader provided by the research company). These allow marketers to look in detail at the make-up of their customer base and how it changes in response to the marketing activity. For example, what proportion of buyers are new or repeat, how many are loyal or brand switchers and how does this change as prices go up and down, competitors come and go or advertising weight changes? A weakness of this approach is that the panels may be too small to examine any but the largest brands. Loyalty card databases. UK consultancy, dunnhumby, offers the ability to examine detailed purchasing behaviour over time from the country s largest supermarket, Tesco (and from large retailers in several other countries). Analysis of the store s loyalty card records (representing some 25 per cent of all grocery turnover in the UK) enables the same types of analysis as are available through single-source panels, but with much greater granularity. As has been pointed out by more than one commentator, the most loyal customers often offer companies the greatest long-term customer value, which itself can be a core goal. 11 FOCUS, TENACITY AND BELIEF Given all this complexity in defining ROI, in measuring it and in pursuing it how can marketers become better at doing it? The first step is to adopt a positive attitude to it. As one smart UK marketer put it: ROI is 80 per cent focus, tenacity and belief, and just 20 per cent clever mathematics. Next, they should clarify what is measured, what can be measured and what cannot, and then find the best way of joining all the information together and linking it to financial returns. 360 HENRY STEWART PUBLICATIONS 1754-1360 JOURNAL OF SPONSORSHIP VOL. 1 NO. 4. 357 363 JULY 2008

Green An audit of all the available metrics collected by various departments in the company would be a good place to start. Audits usually can be classified into four broad types: Financial data. These will include sales revenue, profits, market share (volume and value) and relative pricing versus competitors. Behavioural data. The availability of this will vary depending on the product category, but anything that can be collected on brand penetration, frequency of purchase, brand switching and loyalty should be collated. Consumer perceptions. These include standard brand and advertising awareness, purchase intent, brand imagery and so on. Media exposure. Generally provided by media agencies for measurable media like television and print media, these include ratings, media reach and frequency and costs per thousand. As noted above, useful estimates of sponsorship exposure can often also be generated. Looking at all these data, there should be an honest assessment of any major gaps in the information and an eyeballing of which metrics tend to move most and connect with one another. For example, does a rise in media reach usually correlate with an increase in brand awareness or purchase intent? Does this, in turn, link to changes in behaviour or market share? Intermediate, soft measures like brand and advertising awareness have the advantage that they can be more easily controlled by varying marketing weight or mix than can profits which depend on many more factors. So, media weight or share of voice, for example, may be fairly good predictors of spontaneous advertising awareness. PUTTING THE R IN ROI The clever mathematics (ie market mix modelling) referred to earlier is now being employed by many companies to help them identify the effect of their marketing decisions on business outcomes like sales, market share and profits. Market mix models will not answer every question; they depend on the breadth and quality of the data used and must of necessity project history into the future. Models, in particular, tend to be slaves of the brands and product categories they are examining. For example, if all the brands in a given category are using television heavily and little else, it will be almost impossible to gain insight into the potential ROI of using alternative media. This is commonly seen in fast moving, consumer goods (FMCG) categories. Econometric models are also better at teasing out the short-term effects of marketing activity and less good at identifying and quantifying longer-term drivers. This may be an issue for the sponsorship industry. Many sponsorships are in place for long periods of time and at relatively low weight levels compared to other activities. This makes it difficult to identify the precise value they may be creating for a brand using models which work best on short-term effects and invariably will provide better analysis of media used at a high weight. Survey research, used to collect data on what people think of brands, whether they remember advertising and so on, will also often produce results where television effectively drowns out the impact of other media. People may think they have seen a brand advertised on television, even if it has not advertised there for years. Low-weight media, like radio, magazines and some types of sponsorship, may not fare well using these approaches, unless they are specifically tailored to ask people about the sources of their brand and advertising awareness. HENRY STEWART PUBLICATIONS 1754-1360 JOURNAL OF SPONSORSHIP VOL. 1. NO. 4. 357 363 JULY 2008 361

Planning for effective evaluation But despite all these caveats, marketers need to talk the language of finance, even while understanding that links between what they do and a brand s profits may not be as straightforward or as immediate as the CEO wants them to be. Intermediate measures remain an important part of their armoury and a vital link between marketing decisions and financial outcomes. BLOCKAGES There are plenty of reasons why efforts to improve marketing effectiveness can be stymied. Some marketers (or agencies) may insist that they are creative, and do not want to be slaves to numbers or research. They will argue that they know their consumer and what will resonate with him and do not need research to guide them. Others bemoan their personal weakness in mathematics and statistics and fear to go too far into a process where they might lose control or become confused. But most important of all are the organisational obstacles, where departments refuse to share information with other departments or prefer to compete for their share of the budget as opposed to working together to optimise brand budget allocation. There is also the pressure for sales tomorrow and next week, rather than three years down the road when most marketing directors will have moved on to greener pastures, as well as resistance to spending money on measuring and tracking effectiveness. SUMMARY Effectiveness can be defined narrowly or broadly. At its narrowest it seeks to answer the simple question: how much will my sales or profit increaseifispend$xon marketing?. At its broadest, it represents a technique for managing and measuring multiple key performance indicators for a brand including both financial and nonfinancial ones. Best of all, a technique that combines measurement of both long and short-term marketing effects, if desired, can be deployed to help optimise the weight and mix of a marketing campaign. But pursuing marketing effectiveness is a team effort. Different parts of a company that may not be accustomed to working together and sharing information need to do just that in the interests of the brand as a whole. All the clever techniques in the world will be useless without that basic cooperation and commitment. Organisational failure is far more likely to be a barrier to improved marketing effectiveness than a lack of data or an inability to analyse it. As marketing commentator, Alan Mitchell, put it when discussing a slightly different topic: The notion of improved customer experiences [or, in this case, marketing effectiveness] is breathtakingly simple, but doing something about it is horrendously difficult, because while people judge experiences holistically, companies are managed in silos and making them work holistically is a nightmare. 12 REFERENCES (1) Fourth Annual ANA/MMA Marketing Accounting Study (2007) July. http://www.marketingcharts.com/ topics/financial/ana-accountabilitystudy-marketing-finance-not-on-samemetrics-page-1551, (accessed 9th June, 2008). (2) MMA study of 150 Financial Executives International (FEI) members, November 2006, available at: http://www.mma.com/pressreleases/ 2007 (accessed 9th June, 2008). (3) CMO Council (2008) Positive outlook for marketing spend reported by CMO 362 HENRY STEWART PUBLICATIONS 1754-1360 JOURNAL OF SPONSORSHIP VOL. 1 NO. 4. 357 363 JULY 2008

Green Council, press release, 14th January, available at: http://www.cmocouncil.org. (4) ANA,ref.1above. (5) Binet, L. and Field, P. (2007) Marketing in the Age of Accountability, WARC, Henley-on-Thames, Oxfordshire. (6) Kaplan, R. and Norton, D. (1996) Translating Strategy into Action, Harvard Business School Press, Boston, MA. (7) Billett, J. and Bridges, D. (2004) Marketing accountability, Admap, Issue 454, pp. 166 168. (8) Binet and Field, ref. 5 above. (9) See, for example, Campbell, M. (2005) Is ROI dead?, Admap, Issue 459, March, pp. 32 34; and Lodish, L., Abraham, M., Livelsberger, J., Lubetkin, B., Richardson, B. and Stevens, M. E. (1995) A summary of fifty-five in-market experimental estimates of the long-term effect of TV advertising, Marketing Science, Vol.14,No.3. (10) See http://www.ipsos-mori.com/ researchspecialisms/advertising/market solutions/brandgraph360.ashx. (11) Hughes, D. (2004) Return on investment. New ways to make the numbers work, The Advertiser, October, pp. 68 73. (12) Mitchell, A. (2006) Marketing Week, 26th August. HENRY STEWART PUBLICATIONS 1754-1360 JOURNAL OF SPONSORSHIP VOL. 1. NO. 4. 357 363 JULY 2008 363