August 24, 2008

Not Just Effective but Efficient

Successful marketing in an era of fragmented media.

For Chief Marketing Officers at big companies, the pressure of managing marketing budgets has never been greater due to today’s proliferation of different media, found a new study by Booz & Company. Today’s Chief Marketing Officers (CMOs), not only have to be well versed in print and television advertising, billboard campaigns and sponsorships, but have to embrace new forms of advertising like the internet. While the types of media for potential marketing spend are growing, overall budgets aren’t, explaining why the average tenure of the CMO has shortened to 23 months.

 “The job of the CMO has become bigger, more complicated and less forgiving,” stated Gabriel Chahine, a Partner with Booz & Company. Meticulously handling marketing’s two levers – the creative/media lever and the cost lever, can increase a CMO’s chances of doing a bigger job with the same resources.
 
Effectiveness vs. efficiency
CMOs have traditionally focussed on marketing ROI - a measure of how effectively companies are reaching their markets with their media efforts. The CMOs first job is to develop marketing ideas that have tangible impact on near-term sales or long-term awareness. Marketers tend to concentrate on this part, and as long as they stay within budget, tend to ignore the 2nd lever – marketing sourcing. This involves maximising the efficiency of marketing, through practices like volume purchasing, the adoption of best practices, and improved back end operating models.
 
“Efficiency is low on the CMO’s agenda because much of the budget is out of his control - it is handled at the business unit level,” explained Karim Sabbagh, a Partner with Booz & Company.  Some CMOs are starting to pay closer attention to how organisations handle procurement – in the face of pressure for better results, and no extra budget.
 
Why marketing ROI is harder than ever
The effectiveness of marketing expenditure has always been difficult to measure, but with marketing tools like direct mail –with decades of data, and in-store promotions – with the proven impact of driving sales, ROI can be relatively measurable.
While print, TV and billboard ads offer a variety of metrics; they can’t actually measure whether people reading newspapers, or watching a TV show, really take notice of the advertisements. Other forms of marketing however are just evolving - like the internet, where measures that are considered desirable - number of visitors, page views and time spent per page, change every month. Less classical marketing activities like sponsorships may not be measurable at all.
 
“CMOs must evaluate media types from two perspectives to devise their marketing strategy,” commented Chahine. A vertical evaluation ranks options within media – such as choosing between an advert in the leading daily newspaper or a magazine, and a horizontal evaluation ranks options between different media such as internet, billboards or print. After determining the marketing activity, the CMO can start to think about measuring its success. By first aligning the activity with a tangible goal, the CMO must then develop specific metrics to measure its performance.
 
The imperative to be efficient
CMOs must know exactly where marketing spend is going. “In a hypothetical company, the CMO may only control about a third of marketing budget. While he has a clear grasp of the money spent for media buying, he can’t account for the remaining two thirds of the budget being spent at the business-unit level,” Sabbagh explained.
 
Decentralization causes widespread inefficiency, and CMOs must begin to take steps to be more efficient, such as insisting the right coding is used for all line items and that vendor reports are sufficiently detailed.  Becoming more rigorous about marketing sourcing can also generate savings of at least 15-20%– the budget increase that CMOs require.  Five recommendations can help toward more efficient and effective marketing:
 
1.      Know your spend
CMOs must analyze marketing spend up and down the supply chain for greater transparency. Transparency allows sound decision making with respect to both ROI and sourcing. Knowledge about where and how money is being spent can provide insights into whether expenditures are consistent with overall marketing goals.
 
2.      Measure your effectiveness
“CMOs must put in place a capability for measuring the effectiveness of those things that can be measured, and supporting these with enablers,” commented Sabbagh. The pay for performance contract – what gets spent depends on what gets achieved, is another route to more predictable ROI. All these enablers make it easier to do midcourse corrections and allow the CMO to divert 10-15% of marketing budget to other initiatives.
 
3.      Leverage centres of excellence
Decentralisation around marketing is inevitable in some companies. Even those that work with decentralisation should implement methods for sharing best practices about ROI, sourcing, and cost management. Centres of excellence enable managers to share what they’ve learned, and can help in solidifying practices across the organisation.
 
4.      Manage your efficiency
The operating aspect of spend is often driven by the creative process and managed through relationships. Decision making is fragmented and incentives to manage costs are limited, resulting in controlled chaos. By instilling discipline through structure and scale, CMOs free their marketers to focus on marketing. “There are two ways to build an enhanced sourcing capability; either internally or by partnering with procurement. With a 15-20% savings opportunity, no CMO can afford to overlook this,” said Chahine.
 
5.      Adopt the new blueprint with an eye to success
CMOs can benefit from becoming more efficient; the key is to finding a place in the organisation where the new effectiveness and efficiency will produce a result that is positive and tangible. Handled badly, a pilot project can destroy the organisation’s momentum and enthusiasm for change. Handled well, the pilot can give the blueprint and its CMO the impetus needed for bigger change tomorrow.