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Marketing in the era of accountability June 19, 2007

Posted by Keith in Business, Opinion.

Everything you know is wrong
by David Tiltman Marketing 12-Jun-07, 08:30
LONDON – So you thought TV was dead. You believed marketing was all about ROI. Well, think again. A study out this week from the Institute of Practitioners in Advertising explodes some of marketing’s myths.
The report, entitled ‘Marketing in the era of accountability’, is based on the IPA’s database of effectiveness awards case studies, and identifies common misunderstandings throughout the marketing process. Below are an exclusive summary of five of the key findings.
You’re measuring the wrong things
Brand awareness, brand image, consumer attitudes – these are some of the metrics that have become a marketer’s stock in trade. But as proof of effectiveness they are fundamentally unreliable. The IPA’s report, which analyses effectiveness case studies from the past 25 years, concludes that marketers pay too much attention to these factors and too little on measures that directly affect the business, such as market share.
Though fewer than 20% of marketers evaluate the effect of their communications on profits, the study concludes that campaigns that set hard objectives, such as ‘improve profits’, are more effective than those that focus on intermediate goals. Marketers rely too heavily on intermediate metrics as they are easy to measure and move more dramatically in the short term.
The study draws a distinction between effectiveness (doing the right thing) and accountability (being seen to do the right thing). Authors Les Binet, European director at DDB Matrix, and consultant Peter Field argue that, with accountability high on the corporate agenda, marketers are opting for measures that prove to the board that something is happening. ‘It is not just a question of marketers measuring the wrong thing,’ says Field. ‘They are being pushed to do it by this move to accountability.’
Another common failing is holding up a single metric as proof of success. Instead, a suite of measures should be used to judge effectiveness.

Best practice
•    Draw up detailed goals based on hard measures.
•    For commercial campaigns, profit should usually be the ultimate objective.
•    Intermediate measures are only useful as leading indicators of a campaign’s performance.

Forget the rational, work on the emotions
The research found that, overwhelmingly, the most effective campaigns are those that focus on emotional, rather than rational, appeal. Naturally, this is the case in categories such as luxury goods, but even in more rational categories, emotion works best – Cravendale Milk is one brand that switched from rational to emotional ads and saw an improvement in performance.
These findings are not new, but marketers have been slow to turn theory into practice. ‘A number of people have believed this for a long time, but the marketing community institutionally has failed to accept it,’ says Binet. Again, a big reason is that it is more difficult to demonstrate responses to emotional appeals.
Emotions work best when the economy is on the up. In less prosperous times, price becomes more important, so in these cases marketers should consider mixing emotive brand messages with price communications.
Marketers should not discount direct-response work based on rational appeal. These are effective for short-term sales effects, and are suitable when targeting people who have already made up their minds to buy. But it is worth using emotions to ‘warm up’ consumers before they start actively shopping.
The most effective campaigns are those that build brand fame and get people talking about it. The recent Marks & Spencer ads are a good example.

Best practice
•    Emotions should be at the heart of a campaign, not bolted on to rational persuasion.
•    The objective should be making a brand famous. This can lead to major gains in profits.
•    Use direct-response appeals for short-term goals and to target active shoppers.

Television is still alive and kicking
If some commentators in the marketing industry are to be believed, TV is on its death bed. But, in fact, the IPA study reveals that it remains the most effective medium. TV, which builds emotion better than any other medium, has been the driving force of many of the best campaigns in the IPA’s archives, even those with small budgets. For brands looking to build fame, TV remains essential.
If anything, TV is becoming more important than ever. The average rise in market share accounted for by campaigns where TV is the lead medium has increased over the past 20 years. And with greater choice of TV channels allowing more effective targeting, the cost of reaching a given audience via TV has declined. The authors estimate that TV is now 42% more effective than it was in the 80s.
That said, there is still more to advertising than TV. The evidence shows that multimedia campaigns are more effective than single-medium activity, though they are harder to evaluate. Yet marketers can spread their media budget too thin – campaigns with three media tend to work best, and ads should be supplemented with non-advertising channels.

Best practice
•    Spread advertising across more than one medium, as these campaigns work better than single-medium activity. But don’t use more than three or four media.
•    TV should not be neglected. Media such as outdoor are best used as secondary channels.
•    If long-term brand effects are an objective, judge media opportunities on their power to engage emotionally with consumers.

You can’t build customer loyalty
Two common goals of marketing campaigns are to increase penetration of a brand and to build the loyalty of customers. Of the two, campaigns that focus on penetration are more effective, even though loyalty campaigns are more than twice as common.
Loyalty campaigns underperform on nearly every metric; only 9% actually increase loyalty significantly, not much higher than non-loyalty campaigns. Penetration is a far more fertile marketing objective. This holds true across all categories – even in markets where reducing churn is imperative.
Some marketing that attempts to build loyalty delivers significant profits. But the IPA’s report argues that when such campaigns deliver, they do so more by recruiting new customers than by reducing churn or increasing revenue from existing ones.
Demonstrating that you treat customers well can work as a recruitment tool. Binet points to an O2 campaign that talked up the benefits it provided for existing customers. According to his analysis, it was more effective in boosting penetration (since the campaign was viewed by non-O2 customers) than improving loyalty among existing ones. These results fly in the face of much of the CRM movement. ‘We’re not saying loyalty isn’t important,’ he says. ‘But it’s not how you build a brand. Nobody really wants to believe it.’
Best practice
•    Don’t assume that your marketing activity can significantly improve loyalty.
•    Use penetration, not loyalty, to measure performance, unless greater penetration is impossible.
•    Aim to change, rather than reinforce, behaviour. The reinforcement strategy is much less effective.

ROI is not your ultimate goal
In theory, the term ‘return on investment’ is simple – it is the ratio of profits derived from marketing to marketing expenditure. As a concept it makes marketing seem accountable. However, the research shows that ROI is poorly understood in the marketing world.
Interpretation of ROI can be very loose – many assume that all sales growth is due to communication, and that all direct sales are purely the result of direct-response communications (when in fact they may have happened anyway).
Payback should ultimately be about profit, but many confuse added profit with added revenue – roughly two-thirds of case studies make this mistake.
Another misconception is that maximising ROI is a goal in itself. As ROI is a ratio, often the easiest way to improve the figure is simply to cut expenditure, yet that would damage the brand. Instead, marketers should be focusing on goals that are defined in absolute terms, such as generating certain amounts of profit.
Measures of ROI also tend to focus on short-term changes, yet brand-building tends to require long-term investment. Calculating long-term payback is far more difficult, and different measures are required.
In fact, long-term effects of investment are often underestimated. For brands in mature markets, marketing can be about defending sales, rather than increasing them. The payback can be calculated only by working out the impact of a cut in marketing.

Best practice
•    Don’t make an ROI ratio a goal in itself.
•    Be clear about what is revenue and what is profit, and ensure the correct profit margin is used.
•    Take account of both long- and short-term effects.



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