Quantifying the ROI of marketing investments remains the single most challenging task of marketers. While marketing costs remain being seen as a variable expense, stuck in the monthly P&L , it will remain hostage to the whims of expediency, corporate politics, and short term thinking. The real KPI of marketing investment should be the sustainable margin delivered over a considerable time, as you would with an investment in machinery.
The obvious problem is that you can measure the output and productivity improvements associated with a piece of machinery, the numbers become available with use, although, they are all in the past. Marketing investment is all about influencing the future, and measurement, even with the benefit of hindsight is very hard, and useful only as a learning tool.
Is there something we marketers can learn from elsewhere?
The Kaplan Meier curve is a basic concept used all the time by medical and pharmaceutical researchers. For example, if they are testing a new drug for say, patients with diagnosed terminal prostate cancer, you plot on a daily curve the lifespan of those on the test drug, and those on the placebo.
Assuming there are 100 patients in the trial, at day 1, all 100 are alive, then you plot the numbers who remain alive daily with, and without the drug. If the plot line of those with the drug goes above the line of those without, you can imply the outcome of longer life, and you have some numbers to support the conclusion. If the line of those on the drug dips below the placebo line, you are killing patients. Lines that stay together indicate the drug has no impact.
Simple idea, widely used in medical research.
For years I have watched suppliers to supermarkets being screwed by those supermarkets, and increasingly allocating advertising funds aimed at brand building , which delivers margins over time to the brand owners, and indirectly despite the protestations to the contrary, to the retailers. This reallocation of advertising to working capital and margin via in store promotional activities, and supermarket profitability, at the expense of advertising, has been a huge mistake.
It has seen the demise of some great brands. To be fair however, consumers have benefitted by cheaper prices, at the expense of choice.
A few weeks ago, the recently merged businesses of Kraft and Heinz, announced a disastrous profit result. This came about as progressively brand advertising that gave consumers confidence in the brands has been redirected to price promotion that is the primary competitive tool of supermarkets. Meanwhile, those same retailers have introduced house brands that look very similar, and that trade off the value proposition developed by Heinz and Kraft over many years.
The same thing has happened in Australia, perhaps more so given the concentration of supermarket retailing.
I was around as a junior product manager in the early days of Meadow Lea brand building, at what was then Vegetable Oils Pty Ltd, a long gone business, swallowed up by corporate stupidity.
‘You ought to be congratulated’ is one of the great propositions of Australian brand building. In a hugely crowded margarine market, Meadow Lea held at its height, a 23% percent market share at premium prices, four times that of its closest rival. This was a direct outcome of a good product, great advertising, and a brand that delivered.
I had a look in a supermarket yesterday, and had trouble finding anything labelled Meadow Lea.
What happened?
Retailer power happened, combined with the lack of understanding of the power of great brand building consumer propositions by retailers. Meadow Lea was squeezed by retailers for more and more promotional dollars that ended up being funded by reductions in the brand advertising and building activity, with the end result that the brand in effect no longer exists.
It has become nothing more than a label!
I wonder where the next market building initiative will come from?
Certainly not from the manufacturers, as they know that immediately they create a market the retailers will undermine it with cheap versions, so there is no value in the risks involved in the innovation necessary, and no reward.
Back to where I started, and I do not have the data for this, but I bet that applying a Kaplan Meier analysis to the delivered margin from Meadow Lea over time, both to the now owners of the brand, and the retailers, would show that the allocation of brand activity to the low prices demanded by retailers had hurt everybody concerned, including consumers.
Image credit: Wikipedia
