Accountability Discourse

Almost every week marketing journals like the AdAge reiterate a constant theme in the marketing discourse. This theme hunts CMO’s and ensures a short average tenure of less than 24 months for CMOs: It’s called Accountability. This whole Accountability discourse circle around three different questions that need to be kept separate:

• Do marketing investments provide a positive Return or not?
• What kind of metrics should be measured and tracked to better understand the performance of my marketing?
• How can these metrics be measured and tracked in an ongoing and reliable manner?

The first question solely focuses on a positive financial impact that assumes a direct and measurable correlation between marketing and sales that can be predicted with a high level of statistical confidence. Most of us marketers know that this is extremely difficult to prove, but the marketing community as a whole has made some progress against this question.

The second question gets more interesting. It realizes that one need more indirect measures between marketing and sales to build a more accurate correlation between these variables. I like to distinguish between indirect and direct metrics, where brand awareness, considerations, purchase preferences, satisfactions are indirect (non-behavioral) metrics and where repeat purchase rate, retention rates, etc. are direct metrics.

As part of the more direct metrics l have lately started to embrace a concept that I call “Earnings per consumers (EPC)”. EPC describes how much profit a brand does either with a particular consumer, with a distinct consumer segment, or with the average of all consumers that a brand has. To calculate the operating profits of a brand EPC needs to be multiplied by number of consumers of a particular brand. This concept is borrowed by a key financial metric “Earnings per share (EPS)” that well known financial expert like Eddie Lampert focuses on. The EPS formula is pretty simple: EPS = Profit/Weighted Average Common Share.

These financial wizards are being driven by increasing the earnings per share, while marketers focus on optimizing the earnings per consumer and on increasing the numbers of consumers. I believe that this EPC concept forces marketers to focus on elements of their marketing strategy that are often neglected:

• Improve the quality of consumers. It’s not just that all consumers are not equal but that brands have to focus on attracting consumers with high profitability potential.
• Balance attracting new consumers with average profit per consumer: Most marketers don’t know how to balance the acquisition of new consumers with increasing the revenue and profit potential of existing consumers. Too many marketers believe that they have to decide on one area at the expense of the other
• Increase profitability by consumer: Most marketers focus on retaining consumers instead of increasing profit and revenue of existing consumers.

These three implications of taking EPC seriously can significantly alter a brand’s marketing strategy. In one of my next blogs I will tackle the third question of the “How” to measure and track. EPC.

Hedging in Marketing

Hedge Funds have become under tremendous pressure over the last weeks of stock market turmoil and subprime mortgage problems. But I continue to be intrigued by the idea of hedging, especially when applied to our marketing discipline. Wikipedia explains Hedging:

“In finance, a hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment. Hedging is a strategy designed to minimize exposure to an unwanted business risk, while still allowing the business to profit from an investment activity. Typically, a hedger might invest in a security that he believes is under-priced relative to its "fair value", and combine this with a short sale of a related security or securities. Thus the hedger is indifferent to the movements of the market as a whole, and is interested only in the performance of the 'under-priced' security relative to the hedge.”

Isn’t there something beautiful in distributing your risk by betting on one outcome while simultaneously betting on a different outcome which has low probability to occur with the first outcome? It seems to me that marketing could learn from the principles of hedging. Here are a few suggested hedging applications:

• While a brand is betting on being successful with one segment (e.g. young people), the brand should develop an alternative marketing solution for the “opposite” segment (e.g. older people). Success with a younger segment seem to be almost diagonal of success with an older segment but hedging one’s marketing approach could lead to very different brand applications.
• While betting on the successful impact of one marketing channel (e.g. TV), a brand should work on deploying a very different channel approach that is on the other extreme of media (e.g. outdoor events). The real hedging is happening when one books both media events at the exact same time. Most People can’t be watching TV and be at on outdoor event at the same time.
• While betting on selling a lot of high priced goods in a highly developed market (e.g. price points of over $1,000 in the US), a firm should find a way to sell a significantly lower priced good in one of the BRIC countries (e.g. lower than $100 price point in India).

Most firms might not incorporate hedging elements in their marketing strategy but thinking through what hedging would mean for a particular brand can be an incredible insightful intellectual exercise. One argument against hedging is its understanding as the opposite of focus. I believe that hedging and focus don’t have to be mutually exclusive. Hedging is the data and insight driven decision of focusing primarily on one bet while ensuring the spread of risk and including another potential outcome in conscious and thoughtful manner. To include hedging in one’s marketing might trigger the disappearance of unique and extraordinary success but it could increase the average success rates of marketing efforts over a longer period of time. That’s what hedging is all about.

Creative Criteria

My last blog entry about creative evaluation got a lot of reaction from friends and work colleagues. Most questions centered on attempting to find a brief but powerful list of criteria to judge creative content.

Here is my list of four criteria that we should always keep in our minds when we are reviewing creative:

• Business centric Creative - Are there enough reasons to believe that the presented creative will successfully attack the identified business challenge?
  First, you need to know the true business challenge to figure out if the creative is “On Strategy” or just a beautiful idea that will vaporize in the universe of communications. Then you need to analyze if the creative has a high likelihood of being successful in meeting this business challenge.
• Insightful Creative - Is the creative inspired by a powerful and true consumer insight or key consumer data points?
  Only a creative rooted in great insights will have a high success rate. Everything else might work 1 out of 10 times but it will not provide a consistent positive impact.
• Powerful Creative - Is the creative idea so engaging that it will stop people doing what they do right now and at least invest 3 seconds of digesting the creative work?
  Most consumers don’t care about our work, so we need to see if the presented creative is so strong to break through to all the clutter and loss of interest of most consumers.
• Channel agnostic Creative - Do we see a big idea that is so powerful that it can be brought alive in any kind of marketing channel?
  The idea can be presented just a creative concept, in a 30 second TV spot, in a print ad, or a digital application. It does not matter; the idea needs just to be simple and broad enough to be stretched positively across a multitude of media channels.

It’s extremely helpful to file your creative judgments and compare them with post-launch real impact data. Only if you know if you were right (or wrong) about your call on creative work, then in the future you will better your judgment approach and improve your success score. This is the only way of how one can continuously improve its own judgment. Unfortunately most marketers will have forgotten their creative judgment after the creative has met the real consumer world. But they still believe that their creative judgment grows with experience. Isn’t insanity the phenomena of doing the same thing over and over again and expecting different results?