marketing optimization

Power Tools-Use with Caution

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The results from the marketing performance research recently conducted jointly by ITSMA and VisionEdge Marketing (VEM), and Forrester were just announced. In its 12th year, the purpose of this study has been to understand how proficient marketers are at measuring and managing performance; using metrics, data, and analytics; and communicating marketing’s value, impact and contribution to the business. This year’s study captured input from more than 400 respondents. The study revealed areas in which marketers have made strides and areas where marketers remain challenged.Image

The result I found most perplexing was that, while marketers have access to more data than ever, leverage more analytics, and invest in more tools and systems, they continue to struggle to prove marketing’s contribution to the business. One clear indicator of this is that just 9% of CEOs and 6% of CFOs use marketing data to help make strategic decisions. Less than 10%! Although the majority of the marketers regularly produce and share a marketing dashboard, they are not bringing valuable, useful information to the table.

So where’s the disconnect? If you want your leadership team to understand how marketing is moving the needle in terms of top line revenue, market share, customer value, category ownership, and so on then the dashboard needs to be able to tell that story. Unfortunately, it appears that most marketers participating in the study use their marketing automation (MAP) or sales automation (CRM) systems to create their dashboards. In fact, dashboards and reports are already integrated into many of these systems. These dashboards, however, typically report on marketing activity and associated costs – email activity, website activity, social media activity, lead activity- rather than reporting on metrics executives can to set direction. It’s not that these reports and dashboards are bad; they are valuable when used to support tactical decisions, but if you want your CEO, CFO and other members of the C-Suite to use your dashboard it must clearly connect marketing investments and initiatives to business outcomes and results.

The ability to push a button and generate a pretty report that doesn’t add any value to the strategic decisions made at the C-Suite level doesn’t serve marketing well. To be on the right track, you need to start by making sure the marketing initiatives and investments are clearly aligned to business outcomes and that you have the right metrics in place. Otherwise, investing in better marketing tools is akin to buying a power saw when you have yet to master a hand saw. You have the ability to do more damage faster.

Learn more about the survey results and some initial impressions at:

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How Vulnerable Are You to Customer Defection?

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In this article, you’ll learn…

  • Five factors for maintaining successful customer relationships
  • How to identify your most vulnerable customersImage
  • How to calculate your company’s vulnerability index

In the early ’90s, the term “customer relationship management” (CRM) joined the marketing lexicon. Though the idea is often thought to refer to the implementation of some kind of technology, the real idea behind CRM is that the management of customer relationships is a business imperative.

CRM is about deciding which customers or segments to target, and then developing customer acquisition, retention, and growth plans that will attract and keep your best customers. CRM is really about making your customers the heart of your business.Our job as marketers is to acquire, grow, and retain profitable customer relationships to create a sustainable competitive advantage.

How do you measure customer relationships?

We’ve all come to accept that creating customer loyalty is an integral part of any organization’s strategy and focus. Various factors influence the success of any customer relationship initiative.

Here are five critical success factors:

1. Clearly defined business outcomes related to customer acquisition, retention, and growth

2. Agreement about who the customer is and what they want and need from your category (and you)

3. Well-defined customer segments (and their desired behaviors) and customer-experience objectives

4. A documented, integrated customer strategy

5. Explicit measures of success, and the data and processes needed to support the metrics

Customer satisfaction and loyalty are two of the most common measures of success. A variety of models are used to measure and quantify customer loyalty, ranging from simple recency and 2 referral models to RFM and customer lifetime value models. Recent research is examining those models to ascertain which, if any, truly measure customer loyalty.

Many organizations would agree that a loyal customer…

  • Stays with the brand despite competitive offers, changes in price, negative word-of-mouth, and product failures
  • Increases business/engagement in some way
  • Actively promotes the brand to others

Though there are many approaches to measuring customer loyalty, one metric that many
organizations should consider is the Vulnerability Index.Add the vulnerability index to your marketing KPI’s. A vulnerability index serves as a way to measure loyalty in the face of competitive pull. Its purpose is to help you identify your most loyal customers—those who are going to stick with you through thick and thin.

To calculate your vulnerability index, you will need excellent market intelligence about your
competitors’ campaign’s channel, offers, and markets. Once you have this information, follow these seven steps to construct your vulnerability index:

1. Map the competitive activity. Include the competitor’s name, offer, duration of offer, and the offer’s focus area and market.

2. Generate a list of loyal customers in the market where the campaign ran.

3. Map their repurchase and engagement cycle based on frequency and last purchase date.

4. Isolate all the customers whose repurchase or renewal dates fall within the competitor’s campaign period. This is your observation set (OS) and the set of customers who will experience the greatest competitive pull and are, therefore, the most vulnerable.

5. Define your observation period, which is generally the campaign launch date and one purchase cycle after the last date of the competitor’s campaign.

6. Monitor the purchases by vulnerable customers. Track all the customers whose purchases drop during the observation period. These customers constitute your vulnerable set (VS).

7. Calculate the vulnerability index. Divide your VS by your OS and multiply that number by 100:

Vulnerability Index = (VS/OS) x 100.

The index will give you a good idea of the proportion of customers who are succumbing to
competitive pressure and some idea about the level of loyalty in those customers. If the index is high, you know that there is something to worry about. If the index is low, you can assume, with some degree of certainty, that your customers are exhibiting robust loyalty to the brand.

Because Marketing is charged with finding, keeping, and growing the value of customers,
customer retention falls within the domain of marketing. Therefore, marketing organizations
should have at least one objective aimed at retaining customers. In addition to monitoring customer loyalty and advocacy and customer churn, Marketing should also keep tabs on customer vulnerability. If your vulnerability index begins to climb and exceed that of your competitors, you can anticipate that your defection rate is going to increase. By monitoring your vulnerability index, you will know who your most loyal customers are, and you will be able to develop and implement strategies to withstand competitive pressure.

Modeling and Optimizing Your Marketing Mix

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Today, the media mix has expanded  to include new digital channels such as social networks, SEO, online advertising, virtual events, email, and mobile. All of these marketing vehicles reinforce and amplify the importance of being able to ascertain the effectiveness and efficiency of our marketing channel investments; hence the increased emphasis on marketing mix modeling and optimization.

What is a Marketing Mix Model?

Marketing Mix Models are used to quantify the sales impact of various marketing activities and determine effectiveness and ROI for each marketing activity. Most organizations set their models up to evaluate their various channels.

Marketing mix modeling uses statistical analysis such as multivariate regressions on sales and marketing time series data to estimate and forecast the impact of various marketing tactics on sales. Regression is the workhorse for mix models. Regression is based on a number of inputs (or independent variables) and how these relate to an outcome (or dependent variable) such as sales or profits or both. Once you have the statistics to create the model you can use these equations to
figure out how to optimize your mix. This is known as Marketing Mix Optimization.

You will want your model to account for direct as well as indirect effects and take things outside of your contract (such as the time of year, interest rates, exchange rates, gas prices, elections, competition, etc.) into account. Developing a marketing mix optimization model requires good data and strong analytical skills. You may find it prudent to partner with your finance organization to co-author the model.

When does it make sense to use a marketing mix model?

Marketing mix models makes sense when you are trying to answers questions such as:
• What happens if the economy changes by X?
• What happens if we reduce/increase the marketing budget by Y?
• What happens if the competition adds Z to their media spend or reduces their price?
• What if we have to hold our touch points to the current mix, what is the optimal mix of these?
• What is the optimal mix for our current budget?

However, the marketing mix model needs to support your overall organizational outcomes, marketing objectives, and metrics and performance targets. Optimizing a mix that will not enable you to achieve your outcomes and objectives may make your more efficient but will not make you more effective. If you are not meeting your performance targets or industry benchmarks, you may want to revisit your execution before you adjust your mix and spend.

So you want to build your model. What are the steps and what data will you need? Data is the  key to being able to perform analytics. So the first step is to determine what data are going to go into your model. Common types of data include: monthly/weekly sales data with causal factors, competitive information, monthly/weekly marketing spend by touch point (channel, promotion, etc), customer demographic and other data, industry data, distribution data, product category
data, economic and other data that impacts customer buying decisions. Once you have the data, you can construct a prototype.

The following steps are important to fine-tuning your model:
• Test the predictive ability of the model on a hold out sample
• Refit using all the data and predict the future- remember to account for indirect effects and things out of your control in the model
• Compare actual to forecast sale performance and determine incremental revenue
• Apply financial data and determine ROI
• Model the influence of individual factors
• Simulate the impact of different marketing activities
• Develop and deploy the optimal marketing mix

You will want to refresh your models quarterly and rebuild them at least annually. Things such as your data quality, the breath of internal and external data, the granularity of your data, the accuracy of your historical marketing data, the robustness of your statistical functionality, and the technical architecture to support the model construction all impact the quality of your model. This may be one of those tasks worth outsourcing to the experts if you don’t have the analytical
skills to develop your model or access to internal resources that can help.