The core problem of calculating a return on an investment in marketing.

Feb 24, 2020 | Management, Marketing

Return on Investment is a very simple financial equation.

What you earned, minus what you spent, divided by what you spent.

Earn $100 after spending $75, divided by the $75, and you have a  33% ROI. Put another way, for every dollar you spend, you get back $1.33.

Simple, right?

Then why do marketers seem to have so much trouble convincing the corner office that investing in marketing is a sound strategic and commercial choice.

Simple answer: Attribution.

Which part of revenue, or margin earned, depending on how you want to measure the success or otherwise of an investment, is attributable to the spending of the money?

Let’s take a simple and very common example: building a website.

Every business these days is told they need a website, not having one is like not having a phone, it simply makes doing business next to impossible.

 Let’s look at the formula to try and pick clean the bones of the calculation.

What you spent:

  • You need resources to determine the form and scope of the website.
  • You need someone to write the copy, and take or source the photos and illustrations.
  • You may need subscriptions to items supporting the website, such as CRM integrations, analytics services, pop-ups, autoresponders, and on, and on, and on.
  • You may need resources to manage and ‘clean’ the data bases that appear on the site, such as product specifications, promotional deals, customer and lead management, and on, and on, and on.
  • Finally, you need resources to build and maintain the website.

All of these resources can be sourced from external parties, in which case you can track invoices, or from internal resources, in which case all you have to do is determine what part of their employee costs you need to attribute to this website development. Simple to say, hard to do.

What you earned:

If anything, this is harder than attributing costs to a website development project.

  • What part of the revenue, or margin, whichever you choose as the benchmark, can you attribute to the cost of the website, and which part goes to the sales force, the quality of the product, the photography on the website, the manner in which you follow up enquiries, how  you capture returns, the cleanliness of the delivery truck belting around suburban streets, and on, and on, and on.
  • Over what time frame do you measure the return? A week, a month, a year, the duration of the associated advertising campaign, the lifetime of a customer?
  • How do you factor in other marketing activities, advertising on traditional media, digital ads, the weight of your distribution, the quality of the targeting of activity to real potential customers Vs the tyre-kickers. And on, and on, and on.
  • How do you include the value or otherwise of the word of mouth, or organic reach on social media? Which social media do you include in these considerations, is it just Facebook and twitter?  What about LinkedIn, or if you are a ‘techo’, GitHub, or Reddit, or the networks of gamers, and on and on, and on.

The core question is, ‘what do you include, and how do you allocate a weight to the contribution it made to the outcome?‘

Attribution.

Too add to  the confusion, people use a range of  terms interchangeably, usually because they do  not think about, or recognise the problems of attribution.

For example, they confuse return on marketing investment with return on advertising spend, and they  confuse leads generated with real financial results, and most particularly when confronted by someone flogging new and shiny digital toys, revenue with margin.

To go back to the metaphor at the beginning, a website is not anything like a telephone, so to make the comparison is  nonsense. A phone is a one dimensional tool. They all look the same, and do the same job, although the advent of smart phones has widened that scope considerably. A website by contrast is infinitely variable in what it does, looks like, and performs, and should be the product of a robust strategy and tactical implementation plans, not some simple template pulled out of a digital urgers kitbag.

To build that necessary credibility in the corner office, most probably occupied by an accountant or engineer, whose whole mind set is quantitative, you must be able to draw conclusions based on data. This data must demonstrate the cause and effect chains that exist, often  very well hidden, and avoid the marketing clichés and jargon, which just make you sound like that digital urger in the foyer.

Need help thinking about the implications of all that, call an expert.

 

The grassroots essentials of marketing

Feb 19, 2020 | Branding, Customers, Marketing

 

What do we mean by the term ‘marketing’?

I suspect if I did a poll, there would be a scarily wide range of responses. So, let me repeat the definition I have evolved over 45 years, which would not be found in any textbook.

‘Marketing is the identification, development, protection and leveraging of competitive advantage that adds value’

This is different from the ‘purpose’ of marketing, which to my mind is to create the opportunity and motivation that, when conditions are right, will build relationships and create opportunities, that lead to transactions. That transaction might be a sale, a subscription, a vote, a referral; it can be many things, with the common element that it is an outcome of the so called marketing activity.

Let me use the metaphor of the expert gardener. 

This gardener has a process by which he/she manages their gardens.

  • They decide what it is they want, what the end product should look like, at least in general terms.
  • They pick the ground they will cultivate.
  • They prepare the ground in the manner appropriate for the outcome they have visualised.
  • When conditions are right, they plant the seeds.
  • They nurture the seeds and resultant seedlings until they are ready to harvest.
  • They repeat the process, incorporating the things they learnt on the way through.

This process is the same for growing broadacre grain as it is for growing a few decorative flowers in the back yard. As it is for marketing. The process is the same whether the product is a tub of yoghurt or a power station, a national effort, or a local one. Only the scale of the investment, implementation details, and time frame differ. Try to take a shortcut, and you end up with dead flowers, or at best, substandard ones.

So how does that rather vague stuff translate into your world of marketing the products and services of your SME?

When I first encountered ‘Marketing’ at University, 50 years ago, the core of it was ‘The 4 P’s of marketing’. Product, Price, Place, Promotion. Everything sprang from those 4 elements. A lot of water has passed under the bridge since then, and the expressions used may have changed a bit,  the processes of achieving them changed radically, but the core remains.

The architecture of the 4 p’s of marketing are a bit like the Model T Ford. It redefined the notion of the car, and how to manufacture it. Over time, the expression of the car has changed enormously, but the basic architecture remains.    

However, to me it makes sense to see ‘marketing’ from the perspective of the customer, and to do so, we need to answer a few simple questions:

  • What is the problem my customer has that I can solve with my product/service? This will answer the further question of why should my customer do business with me and not my opposition, which is all about the value you can create while being differentiated from the competition. You need to define it from the perspective of the customer. The costs, of all types, created by the problem, and the benefit to them of a solution.
  • Who is my ideal customer? Your ideal customer will see your differentiated value proposition, as being made for them. This takes focus and always hard choices about who you will service, and who you will not; it is the customer Pareto at work. If you have defined both the problem and the ideal customer, i.e. the one who has more of the problem, or feels it more acutely than most, when they see your value proposition, their instinctive response is ‘at last, this is for me’, or something similar.
  • How do I apply leverage to my marketing investment? It is at this point you are considering which messages, delivered to who, via what media, and how do you do that while getting the biggest bang for your buck possible. It is where the marketing rubber hits the road.
  • How do I make a profit? Profit is a simple equation: revenue minus cost.

Still the same four items, or ‘P’s, it is only the articulation and perspective that has changed. The primacy of the ‘p’s remains.

The common denominators in each of the four, required for success, are choice and iteration. You must make often very difficult choices, implement, learn from that experience, and apply the learning for the next iteration. This need to make choices, and enable the manner in which you deploy your modest marketing resources to evolve based on the experience, is perhaps the largest marketing hurdle for every SME I have ever seen. Many SME owners have had a bad experience with marketing snake oil, and are reluctant to try again, and others who have hit on something that seems to work are reluctant to change anything, so you get a lack of optimisation, not as much leverage as you could.  

As you consider your marketing, given the small scale of business, and budgets available, do not let your thinking be dominated by the mass models of the past. These are simply not appropriate for you. Way more appropriate are small, niche models, an artisanal approach. Why? We have become sceptical, untrusting, demand to know the real provenance, and only rely on those we know personally, and trust because they have earned that trust.

The original social media, word of mouth, subsumed by digital for the past 15 years is making itself heard again. Therefore it follows that you, the business owner, need to be seen and heard, tell your story, use the digital tools, but be personal and human. However, this does not mean you should turn your back on digital, by any means. The data and tools we have now could not have even been imagined 15 years ago, let alone 50 years ago. The practise of marketing has changed radically, the foundations remain the same, just way more exposed and subject to interrogation and automation than they were, and you have to be in there just to keep up.

As Einstein said, ‘Everything should be as simple as possible, no simpler’. What could be simpler than providing a great product and service that solves a problem, and having those problem liberated people tell their friends, and most particularly those with a similar problem? That is how to market at the grass roots.

 

 

 

Why most enterprises fail at cost effective marketing

Feb 17, 2020 | Management, Marketing

It is budget time again, that time of the year when planning comes to the fore, usually as an added job that is just a pain in the rear.

There is an easy way, and a hard way.

The easy way is to download a template and get the intern to spend a day filling in the gaps. About as useful as an umbrella in a cyclone.

Better than nothing, but only just.

Then there is the hard way, because it takes time, and requires you to use your brain, and the collective brains of others, and can be an emotional as much as analytical exercise, requiring time, energy, critical thinking, and collaboration, and making some really challenging choices.

Let’s define what we mean by marketing, useful if you are going to plan for it.

My definition of marketing is the ‘generation, development, leveraging and protection of competitive advantage’.

Not a definition you will find in any textbook, but mine evolved over 40 years of doing this stuff.

Competitive advantage evolves, and comes in many forms, but without it, you are in a commodity, price driven market, and you cannot win in that. The pace of evolution is these days frenetic, so writing a plan, and leaving it on the shelf for an occasional reference before the next budget session is useless. It has to be an evolving document.

If you can find a template that helps you do that, let me know.

Marketing is about the future, you are trying to shape it, so you are dealing with unknowns that can be qualified, but rarely quantified. With the use of various mental models, cause and effect, domain knowledge, customer intimacy, competitive understanding, tactical agility, and a whole range of other things, you can build a level of confidence that justifies the risks being taken.

It is a jigsaw puzzle, to which you do not have the picture, and many of the pieces you do have are wrong, and many are missing, so you have to experiment, make up your own, use someone else’s cast-offs, try making your own pieces to fit.

At the end, it is about making choices with imperfect information.

That is hard.

When faced with a choice that appears to be between two sub optimal outcomes, step back, and find another way. That is in itself a valid choice, and a very good one, and it makes you think.

The greatest two problems most corporates have in planning marketing are:

Extrapolation.

Confirmation bias.

Add 3% to last year, and, only seeing what they want to see.

That is what you get when you use a downloaded template in place of using your brain to critically assess options, information, domain knowledge, capabilities, resources, risk, and market and trend sensitive indicators.

How do retailers create irresistible ‘customer flypaper’?

Jan 28, 2020 | Customers, Marketing, Small business

 

As a very young kid, I remember my grandmother having flypaper stuck around her kitchen. From time to time she would smear something smelly on it, which doomed any flies in the neighbourhood.

Wouldn’t it be nice to have ‘Customer flypaper’ for your business?

Once attracted,  they will never leave, simply because they never want to.

A secondary but ideal characteristic of that customer flypaper would be that those customers who were just there tyre-kicking, shopping for the cheapest price, or were inclined to just waste the time of you and your staff, would be repelled.

Nice. I have seen such a metaphorical commercial flypaper at work.

My aging mother lives in a major regional centre, and has a range of pharmaceutical and ancillary needs. A local pharmacy has created a veritable moat of flypaper around his ever increasing customer base, my mother amongst them.

How has he done this?

  • Focus. He focusses his attention on his current customers, personalising their experiences and interactions with the pharmacy and its staff. This is done by a combination of digital record keeping software, and old fashioned humanity. If you want loyalty from your customers, you have to earn it, as it is rarely just given, and then never lightly.
  • Differentiation. Finding something that is challenging to replicate, and adds value to a cohort of customers creates a powerful attraction. In this case, the pharmacist is a compounding chemist, so is able to combine and mix the medications in such a manner, that instead of taking a pile of pills twice a day, my mother is able to take just one or two.
  • Rewards. Current customers are rewarded, not by money, discounts, or any of the other easy to replicate offers, he recognises and rewards their psychology, their instinctive need to be a part of some sort of community. In the early 50’s, psychologist F. Skinner did a series of experiments, using rats and pigeons as subjects, since validated widely in labs, and obvious any time you walk into a location with poker machines. The psychological power of an intermittent reward can be compelling, for some, irresistible. This pharmacist uses intermittent rewards that confirm he cares about his customers. A vase of flowers sent when one is in hospital, a handwritten birthday card, remembering a grandchild’s success at school, all sorts of things that just demonstrate he, and his staff, care.
  • Service. Older people sometimes find it hard to get out and go to the pharmacy. So, there is a free delivery service, for your compounded few pills, all sorted into the times you must take them, packed in a daily and, morning/afternoon blister pack that even someone with advanced arthritis can open. This is all run on an account, so not only can you get the pills delivered, you can also ring up and get other items stocked delivered at the same time, paid for in one simple monthly transaction. Being cynical, I compared the prices of a number of the ‘grocery’  items my mother had bought in this manner to other retailers. While it was not the discount promotional price sometimes available in woolies, they were by no means capitalising on an opportunity to gouge.
  • Overheads. This pharmacy is located in a suburban shop, next door to a butcher, baker, and physiotherapist, with generous and easy parking outside the door. Not only is this convenient, it would be a cheaper place to have a store than in a location with heavy passing foot traffic, and leaves a bit more in the kitty for doing the things that really matter to customers.
  • Collaboration. There is considerable collaboration between the co-located shops. The pharmacist also collaborates closely with a number of the local GP’s and specialists to ensure that their patients receive the best possible care, and medications. Mums GP from time to time, varies the dosage of some of the things she takes, and communicates that change directly to the pharmacist. This ensures that the information is clearly communicated and understood, and adding a layer of added professional scrutiny to the mix of medications she takes.
  • The ‘original’ social media. Word of mouth is the original social media, and still by a country mile, the best. My sister who lives in the town, and helps Mum, often picks up bits and pieces in the pharmacy for herself, as well as Mum. The level of service and care evident, and the simple fact that the staff also know her, and her family, means not only would she not go anywhere else, but she will not allow any of her friends or acquaintances to go anywhere else.

All this adds up to very powerful ‘commercial flypaper’.

It is not easy to build, takes time, effort, and investment ,as well as a very clear strategy within which to build the tactics that act as the flypaper.

 

 

 

What is the core KPI of Marketing?

Jan 13, 2020 | Branding, Marketing

 

The answer just has to be ‘Sustainable Margin’.

An enterprise can only do three things to increase margin, however you choose to define that term.

  1. Lift prices.
  2. Expand sales.
  3. Decrease production and operating costs.

Options 1 and 2 are often seen as mutually exclusive, but truly successful marketers prove the opposite. The gold standard here is the Apple iPhone, 15% market share of volume, 85% market share of industry profitability.

Marketing has at least some control over the prices and sales efforts, but usually little over the operating costs.

None of these strategies are easy, neither are they short term.

It would seem that a focus on the drivers of margin will pay big dividends

What is the biggest driver of margin?

Brands.

The greatest store of economic value we have ever seen.

Would Apple have  been the first trillion dollar business without the premium held by the Apple brand?

No. It would be in the gutters scrapping with Samsung, that also happens to be one of its key suppliers from whom they buy screens. I bet that Apple headquarters is looking for an alternative supplier for some price competition, and that Samsung is investing in the tech in order to hold and enhance the margins they would be making from their wealthiest customer.

In a homogenising world where it is getting harder and harder to build a brand, a long term intangible asset it is becoming ever more crucial that you do so in order to protect margins and remain competitive.

Like Rome, brands are not built in a day, and you need experts doing the building.

 

Header photo courtesy Tom Shockey via Flikr.

Is marketing losing its humanity?

Jan 8, 2020 | Marketing

Marketing, when I first started was a mind-set that had at its core, the customer.

The information we had was by todays standards in the dark ages, and we had to work really hard for it. We pored over sales and basic market research reports by hand, working with others in the supply chain, and most importantly, talking to customers, real ones, over a coffee, lunch, or even on the golf course.  In the process we learned about their problems and aspirations, and once in a while, came up with something good.

In the meantime, we  got to know in some detail what they were seeking, and how we might best address that quest. Yes, it was an expensive and time consuming process, and yes, it was subject to being less of a commercial exercise than it was a tonic for the ego, but it was effective.

Now all we do is pore over the deluge of data generated by algorithms driven by marketing technology: Martech.

We delude ourselves that in doing so we  are not missing anything,  but the reality is that we are so deluged that we risk missing what should be the obvious, and more importantly, the less obvious connections visible to the experienced and informed human eye, invisible to an algorithm.

The central objective of marketing is to solve a customers problem, add value to their lives in some way, and have them come back for more.

I am unsure of how this end is achieved by constant automated updates, unsolicited sales offers, chasing them around the net with ads for stuff they do not want, and making them click away a detested pop up.  So called marketing people, those who have emerged in the last 15 years, seem to think that actually engaging with a customer, talking to them, asking questions to which they might  not like the answer, is akin to walking on stage to deliver a presentation to a crowd: to be avoided at all costs!

Marketing is at its core, all about human interaction.

Martech has its place, but is not a silver bullet, or replacement for the insight that comes from humanity.

 

Header cartoon courtesy Tom Gauld at www.tomgauld.com