What is marketing accountability?
Accountability has become another business buzz-word. We all think we know what the word means and we all think we do it. When you review the definition of accountability, it doesn’t really shed much light on its importance, “ac•count•a•bil•i•ty [uh-koun-tuh-bil-i-tee]: the state of being accountable, liable, or answerable.” (Dictionary.com).
We can turn to the AMA for a more specific definition. The AMA defines marketing accountability as:
“The responsibility for the systematic management of marketing resources and processes to achieve measurable gains in return on marketing investment and increased marketing efficiency, while maintaining quality and increasing the value of the corporation.”
Perhaps VEM’s perspective will help drive home the concept. Accountability is the measuring and monitoring of the commitment a person, group, or organization makes to deliver specific, defined results. We have found that accountable marketing organizations are both accountable to the financial and strategic initiatives of the organization. When marketing examines the ROI of a program it is addressing the financial side of the equation.
Measuring marketing’s commitment to moving the needle regarding market share growth or an increase in customer value are examples of being accountable for the strategic initiatives side of the equation. Both necessitate aligning marketing objectives with business outcomes and linking marketing to a company’s financial performance.
Performance Management Takes Measurement
“You can’t manage what you can’t measure.” This time-tested adage from management guru Peter Drucker applies now more than ever given the continuous scrutiny on marketing. Best-in-class marketers understand this idea all too well and are investing in the infrastructure (tools, systems, skills, processes) needed to develop a fully accountable performance-driven outcome-based marketing organization. These organizations aren’t only focused on being more efficient (reducing costs and waste), but improving their effectiveness and strategic value with laser-beam focus being on improving business results.
Notice two operative words: performance-driven and outcome-based. Accountability starts with an outcome, a result that needs to be accomplished. Marketers have tended to concentrate on outputs, the “stuff” we produce, and the ROI on these outputs. Best-in-class marketers are shifting from being output-oriented to outcome-based.
For example, rather than reporting on the number of people who attended a webinar and the associated ROI, these marketers are reporting on the number of qualified opportunities against the expected performance target for a webinar and how many of the opportunities ultimately converted into sales worthy prospects.
Performance-driven marketing organization leverage performance management techniques. Performance management is the process of measuring progress toward achieving key outcomes and objectives in order to optimize individual, group or organizational performance. VisionEdge Marketing research over the past nine years found that marketing performance management is a top priority for the C-Suite (CEOs, CFOs, COOs, etc.).
The bottom line, as marketers we must still prove the business value of marketing, that is we must be ever more diligent and vigilant when it comes to marketing accountability.
The need for marketing to embrace performance management is not new. The Advertising Research Foundation study highlighted this finding back in 2000. Despite the number of tools added to the marketing arsenal, performance management remains elusive for many marketers. Why? In our work we have discovered that many marketing organizations lack the data and tools they need to measure and manage performance and those that have the tools and data often lack the analytics, metrics, performance targeting, and measurement sills. These problems will continue to plague marketing organizations until they focus on and acquire the analytical approaches and skills, the right data and data collection processes, and the right measurement skills and tools.
Most importantly accountable marketing requires develop meaningful action based measures and metrics. This year’s study by Unica (now part of IBM) found that turning data into action, measuring results and effectiveness remain among the top priorities for marketers.
Steps to Improve Your Marketing Accountability
There are two things every marketer can do to improve their accountability. First, ensure the link between marketing objectives and the associated programs, tactics and activities are directly linked to specific quantifiable business outcomes. Second, demonstrate the value of marketing by setting, monitoring and reporting on relevant measurable marketing objectives, metrics and performance targets to the leadership team.
Easier said than done you think? True. But these five initial steps will go a long way toward enabling you to start and accelerate this important journey.
- Conduct an audit to identify alignment, data and process gaps.
It’s hard to know where to go and where to aim if you don’t know your current state. Use the audit to identify and add the right talent, systems, and tools to help automate marketing processes and improve marketing performance. Assess the crucial data, analytical and measurement skills your team needs and provide training.
- Create and adopt a performance measurement and management strategy, system and metrics and measurement framework that aligns marketing with the business outcomes.
Design and select metrics and clear standards of performance that enables marketing to measure its impact, effectiveness, efficiency and value. It’s important to understand the select the right metrics. Marketing metrics should tie to our three primary responsibilities: acquiring, keeping and growing the value of profitable customers. Therefore the metrics we select should in some way indicate the impact marketing is having on market share, customer value, and customer equity.
- Engage the leadership team and form strategic partnerships with an extended team of finance, IT, sales, service, etc.
In 2005 the Tuck School of Business facilitated an executive roundtable with nearly 20 CFOs and CIOs from some of the largest companies in the world, including Cisco, IBM, Eaton, Whirlpool and Citigroup. Why? Because CFOs and CIOs along with other members of the C-Suite “have increasingly become key partners in a variety of initiatives critical to business success.” Performance management is one of these critical business initiatives. CFOs often lead the internal discussion about metrics and performance management. CFOs are also taking the initiative to develop standard, consistent measurements that focus on leading indicators of value creation. CIOs and IT play a major role in creating and maintaining the infrastructure and data needed to support performance management. Marketing accountability is key to performance management. The elevation of their roles plus the leadership team’s renewed focus on productivity, business value and performance management require marketing to build bridges and allies finance and IT and engage them and other key members in the marketing performance management journey.
- Create and align processes, policies and practices that ensure the linkage between marketing objectives and programs with business results.
As a result the marketing organization will be properly and strategically positioned and pulling in the same direction as the rest of the organization. Organizational development research has shown that proper alignment of people and organization’s result in higher productivity for less effort. When you have achieved alignment the link between marketing project, programs and initiatives and the broader company outcomes is explicit. And each member of the marketing team understands the impact of their daily activities on the outcomes. Once you take this step you will be able to prioritize projects based on their value and impact rather than what’s most familiar or easiest.
- Develop a multi-level dashboard to report performance and results in real-time to facilitate course adjustments and foster decision making. Make your marketing dashboard an iterative and collaborative effort. A good marketing dashboard facilitates decisions. If your marketing dashboard doesn’t enable you to make course adjustments, know what is and isn’t working, and communicate the value of marketing in financial and strategic impact terms then it’s time for a dashboard makeover.
For many marketing organizations these steps may require process and cultural changes. So marketing accountability is not a journey for the weak or timid. However, there have been enough studies over the years to suggest that by implementing marketing accountability you will be able to hold or add to your marketing budget AND you will become more effective at using marketing to drive business results.
Today’s customers are more value-oriented and less loyal creating even greater challenges in today’s business climate. With customer expectations increasing, the competitive landscape growing, the proliferation of new technologies and channels, and the avalanche of data, marketers needs more than intuition and experience to succeed. The world is just too dynamic and the pace of change is just too fast. In fact, the deluge of data is actually fueling the growth of analytics. As Dave Frankland of Forrest once said, “the goal is not to collect data, but to develop insights.” Insights are the purview of analytics. Analytics are algorithms advanced and/or mathematical techniques on large volumes of data that help marketers translate data into actionable insights to help drive marketing and customer strategies and optimize marketing efforts.
Analytics is hard and time consuming so why make the effort and investment? A High Performance research study by Accenture found that companies that invest heavily in their analytic capabilities outperform the S&P 500 on average by 64% and recover more quickly during economic downturns.
How are the high performers different? First, they have above average analytical capabilities. Second they have better decision support analytical capabilities. Third, they more highly value analytical insights, which seems obvious or they wouldn’t have invested in the first two. And finally, they use analytics across their entire organization, including sales and marketing. Julio Hernandez, a partner at Accenture, says, “Companies need to be analytically inclined and data- driven in order to turn insights into action for driving growth.”
How can you use analytics to drive growth? Marketing analytics help you answer questions such as: “Which customers are worth paying a lot of attention to? Which ones are worth less?” Analytics helps you evaluate and address five growth opportunities:
- Acquire more valuable customers
- Acquire customers who will buy more from you
- Acquire customers who will buy your more high value products/services
- Retain high value customers longer
- Determine which marketing activities have the greatest impact on accelerating customer acquisition and improving retention
Companies use analytics to make decisions related to business operations, competitive moves, staffing and skill requirements, customer strategy, positioning and messaging, marketing optimization. Even so few companies really invest in analytics. A 2011 Ventana Research study included input from more than 2,850 organizations found that more than half of organizations still spend the majority of their time in unproductive data preparation and quality assurance processes, rather than in applying analytics.
There are so many possible analytic projects to evaluate it may be hard to know where to start. To prioritize projects we recommend you evaluate projects against two criteria: ease of execution from easy to hard and value derived from low to high. Score each project and classify them into one of four categories.
- High-Value/Easy-to-Execute- Must Do’s
- Low-Value/Easy-to-Execute – Quick Hits (things you can do in 30 days or less)
- High-Value/Hard-to-Execute- Transformative
- Low-Value/Hard-to-Execute- Nice to Have
We recommend you focus on the high-value/easy-to-do first. This is the way to demonstrate fast high value wins. Then tackle the easy-to-execute/low-value for the next set of fast wins while you put a plan in place to address the hard-to-execute/high-value projects.
The math associated with analytics is only one step. Here are a few items that should be on your checklist before “doing the math”:
- Establish a clear methodology you will use to guide your work.
- Define the business objective and desired outcomes.
- Analyze and select the most appropriate data sources to support the outcomes and scope of work.
- Select, extract, and transform data upon which will be used to create models.
- Create, test, and validate models
- Apply model results
- Manage and modify models to improve performance
It’s probably become evident that an analytics approach to marketing takes skills and resources. In their book The Four Pillars of Profit-Driven Marketing, authors Leslie Moeller and Edward Landry claim that being good at analytics is not enough. Analytics along with the tools to disseminate the insights from analytics, the processes that makes sure analytics is not an afterthought and the organizational infrastructure are the keys to success.
How do you scale it? Most companies have some analytical capability, usually residing in a market research or intelligence function. We believe the optimal way to scale is with marketing operations. Marketing operations is oxygen for growth. A properly chartered and resourced marketing operations function facilitates an agile marketing organization. These marketing organizations define efficient and scalable processes, including data capture and management; use analytics to identify and recommend ROI-led marketing investment, including developing models to optimize channels; and facilitate strategic planning and growth by using analytics to develop market and customer segmentation models.
Our research shows that many organizations have someone performing some part of the marketing operations function, primarily budgeting, research and planning. As we approach 2012 and continue to try and manage a business environment that most of us would describe as uncertain, perhaps it is time to invest in the infrastructure and skills to achieve the next level of capabilities on your marketing metrics and analytics journey.
Optimization means “the action of finding the best solution.” Mathematical programming, or optimization modeling, is a branch of mathematical modeling that is concerned with finding the optimal solution to a problem.
Initially, optimization was used as a way to mathematically determine the optimal allocation of scarce resources. The concept has been borrowed by businesspeople to aid decision-making.
Optimization has been used in the areas of the manufacturing supply chain, airline revenue yields, and financial investment risk assessment. More recently, the concept is being adopted by marketing.
You’ve probably heard phrases such as site optimization, search engine optimization, event optimization, and campaign optimization. A more recent concept with broader application to marketing is the idea of marketing optimization.
Marketing optimization addresses determining the optimal subset of combinations that will maximize profit.
Marketing’s primary responsibility to the organization is to generate profitable revenue growth. It would seem that maximizing profit is a relatively easy thing to do: just achieve the full profit potential for each and every customer. Easier said then done.
The sheer number of customers, products, and communication channels creates complexity, often making it difficult to find the right set of customer-product-channel combinations that will maximize profit while ensuring customer satisfaction.
At the same time, product life cycles are getting shorter, competition is fiercer, market fragmentation and the number of segments are greater, and change is accelerating, adding further complexity to making marketing decisions. Marketing optimization is designed to help address this level of complexity.
With the use of data and analytics, a company can develop marketing optimization processes and models that help determine which customers should be offered which product through which channel, and which purchases customers make via what channel that are the most profitable.
It can also help determine the maximum possible profitability of a multi-offer campaign and the optimal mix of offers to send each customer.
Deploying a mathematical method allows you to explore all the possible solutions and select the one that will achieve the best possible outcome while satisfying all of the constraints. This approach generally requires using linear programming. A common explanation for linear programming is when a problem can be expressed in the following form:
Maximize cTx Subject to Ax ≤ b
Where x ≥ 0
x represents the variables to be determined, while c and b are known coefficients and A is a (known) matrix of coefficients. The expression to be maximized or minimized is called the objective function (cTx in this case). The equations Ax ≤ b are the constraints that specify a convex polyhedron over which the objective function is to be optimized.
A marketing example might be, “Given a customer C and an offer X, should I make the offer X to customer C?” It might be relatively easy to answer this question as long as the number of customers, offers, and channels are few; but the computations become very difficult when you have hundreds of variables and constraints.
You will also want to time as a variable into consideration when you build your model. Maximizing profit over what time frame is important. And while everyone will say “the long term,” the reality of today’s equity market may mitigate that solution in reality.
So what does it take to do marketing optimization? First, we need good data. We need data related to customer response, marketing costs, product margins, pricing levels, etc. Some of this data we can get from our CRM, SFA, ERP, financial systems. Other data may need to come from external sources or market research.
Second, we create the model and equations. The ideal is to convert the marketing management problem into a marketing programming problem. This model describes the relationships between the relevant variables in a quantitative way.
To solve a marketing programming problem, we need a model that describes the mechanism underlying the marketing problem or phenomenon, and an optimization algorithm that searches for the optimal values for the decision variables given the objective, such as profit maximization or 30% brand preference.
Don’t worry if an objective ideal model that provides a valid description of the marketing phenomenon under study may not exist. Create the best model you can using all the relevant variables and the supposed cause-and-effect relationships between these variables.
Last, we systematically vary the inputs until optimization is achieved.
As you have surmised, the first hurdle is the data. Once you have the data, it may make sense to invest in an optimization software program that will help you develop the equations and apply the inputs, rather than trying to do this in a more manual way or with spreadsheets.
By using marketing optimization processes and tools, marketing professionals are able to develop and implement the optimal marketing mix for each target market and segment for their company’s products and services.