The hallmark of a great marketer is the ability to consistently drive both marketing efficiency and effectiveness simultaneously. This should be done in a transparent way, in conjunction with their partners in purchasing and finance. It may be difficult to develop and execute true effectiveness measures, but without these it is likely that bad decision-making—decision making that actually harms marketing performance—will likely occur. Here's how all marketers can achieve the best of both worlds.
What is Marketing Efficiency?
Marketing efficiency has always been important, but probably never more so than during the recent past. Increasingly, CMOs have to demonstrate ongoing marketing efficiency improvements with their limited budgets. This can take many forms but the most common approach includes year over year comparisons for "apples-to-apples" budget items.
Management's intentions behind these measures are often well placed. "We simply want to make sure that we are getting the best value for our money," and "We want to improve our marketing performance" are common refrains. This marketing efficiency process often includes approval or vetting from groups outside of Marketing, such as Purchasing or Finance. The thought is to add transparency and specialized skills that the Marketing department may not have.
Frequently, this is a two-step process. In the first step, Purchasing will often determine which elements of the marketing budget will be measured for efficiency. All too often the simplest of measures are chosen. Some examples include:
* Total media budget
* Web site maintenance costs
* Overall ad production costs
* Agency management fees
Channel Specific Measures:
* Media budget by channel
* Media CPM by channel
* Cost per Web site visitor
* Production cost by channel
* Agency fees by channel
Typically, in the second part of the process, a percent improvement target is chosen and measured against a year-over-year period. Targets of 5 - 15% are commonly chosen. In this scenario, a 10% year-over-year decrease in the overall media budget or media CPMs would be counted as an improvement in Marketing efficiency.
What is the Problem with Marketing Efficiency?
It is not that these types of measures aren't important. In fact, they are very important. But they only tell half the story. Efficiency measures should never be looked at without also considering effectiveness. This is because if we increase efficiency but drive down effectiveness in the process, then we haven't accomplished anything and we could have actually done significant harm.
There are lots of "easy" choices to gain efficiency improvements, such as buying cheaper media (late night versus prime time), spending less to create digital content (using static content as opposed to video), or choosing the agency that has the lowest hourly rate. It is not difficult to imagine how too many of these types of decisions would drive down marketing performance.
Another challenge is that there are many "one-time" efficiency tactics that can't be repeated. For example: switching a large percent of the broadcast media budget from network to cable; or adding retargeting to the digital media plan for the first time; and moving to a lower-cost content management system for a brand Web site. Trying to repeat these savings
year-after-year can create pressure to make decisions that will erode performance.
Yet another consideration is that a brand's marketing objectives often vary considerably from one year to the next. A brand may be launching four new products in one year and none the next. Or, a key competitor may be struggling, creating an opportunity to gain market share through additional spending. And, of course, there is the impact of market factors that are out of the advertisers control, such as inflation and GDP growth to name a few. The point is that overly simplistic year-to-year measures often don't account for changes in marketing objectives or changes in the larger economic environment.
And finally, if Purchasing has committed to efficiency improvements that the Marketing team doesn't support, then there will likely be in-fighting and a culture of blame instead of one of collaboration, teamwork and true innovation.
Taken together, these factors can lead to a decrease in marketing performance. Ironically, this is the exact opposite of what was intended by instituting efficiency measures in the first place.
The Solution—Marketing Efficiency + Effectiveness
I do not want imply that you should not have marketing efficiency measures when, indeed, you absolutely should. However, a good rule of thumb is that for every efficiency measure, you should have a corresponding effectiveness measure. Together, these measures act as check and balance for each other.
A challenge worth noting is that most the meaningful measures of effectiveness are not easy to determine. And this is often the reason that more marketers don't pursue them. A true attribute-based ROI is often at the heart of many of these measures. Additionally, there is likely to be some econometric modeling along with the need to combine survey and behavioral data. However, given what is at stake, it is imperative to work through these challenges. I have covered in detail how to calculate an accurate ROI in several other posts that you may find helpful (http://www.fastcompany.com/user/steve-kerho).
Here are some conceptual examples of efficiency and corresponding effectiveness measures:
Here is some real world data for four different upper funnel digital media campaigns for a highly considered durable product that were executed within the same calendar year (changes in seasonality and macro-economic factors have been controlled for):
So what is the take away here? Simply put, relying solely on the efficiency measures of CPM or CPM year-over-year changes would lead us to rate Campaign C as "poor." And, in reality this was our most effective campaign as measured by ROI and ROI year-over-year change. In this context, is easy to understand why both measures are important. It would be key to understand what where the factors that led to the significant increase in CPM costs for Campaign C and if these drivers continue will there be a negative impact in future campaign performance.
Marketing efficiency is important and it is something that good marketers care deeply about. But they need to care equally about marketing performance and they should never sacrifice one for the other.
Steve Kerho is the SVP, Analytics, Marketing Optimization at Organic (www.organic.com ).
By Steve Kerho
July 20, 2010 | 12:40 AM