Marketing spends lots and, if this is done intelligently, it contributes lots to sales and to profits; done ignorantly, it wastes lots.
Yet a recent report, Return On Ideas, commissioned by CIM, CIMA and the DMA found too often marketing budgets are wasted through ignorance. And this just needn’t happen when both parties could spend a day or a week applying the findings of the report.
We set out to define some practical steps that can be taken to strengthen working relationships and get better results. We include checklists and procedures that can be applied practically – even in one day or one week you can achieve significant improvements.
What mistakes do companies typically make?
Affordability is the key to intelligent marketing – it’s the counterbalance to marketing’s aspirations. It’s also where finance should help by telling marketers things they don’t already know about what is and isn’t affordable. While affordability should never destroy marketing’s aspirations and creativity, creative tension between affordability and aspiration is good.
Ignorance about affordability leaves marketers too reliant on aspiration, leading them to make mistakes. The first mistake marketers make is buying “must-have” iconic data on brand awareness, customer satisfaction and loyalty. The second mistake is spending time and money watching PowerPoint presentations of this iconic data. The third and final mistake is the pursuit of aspirational goals that are unaffordable.
Iconic “must-have” status has been conferred on certain data items by conference speakers, books and articles. Marketers also face great pressure to buy from hundreds of data, research and polling firms and, as a result, they collect data a bit like boy scouts collect badges, based on aspirations. Let’s look at the three common “must-have” metrics and the balancing act between aspiration and affordability.
Brand awareness is “Top of the Pops” in marketing. Often it’s low say, for example, 50 percent of the population are brand aware. Aspiration can lead marketers to chase 60 or 70 percent brand awareness. But the affordability test may lead the wise marketer to abandon their aspirations. So what if we’re not famous? Is awareness-raising likely to succeed – at an affordable cost – and will the benefits outweigh the costs?
Customer satisfaction is another aspirational metric. Sat-scores often hover round 6 or 7 out of 10. Consumer behaviour research explains this – most products and services are intrinsically boring and so never achieve 10 out of 10. Aspiration again can make management want to chase 100 percent satisfaction scores. Again the affordability test may lead the wise marketer to abandon their aspirations. So what if all our customers aren’t delighted? Is it feasible and affordable; will the benefits outweigh the costs?
Loyalty is the third iconic metric. It’s never high, customers are naturally promiscuous purchasers and in some markets it’s really low. Aspiration once more leads to macho slogans about “zero defections”. Affordability considerations may refocus intelligent marketers on customer acquisition, and driving down the costs of acquisition, despite retention being the more fashionable idea.
Don’t misunderstand, market research, polls and surveys can sometimes contribute useful information. However, they should always stand alongside financial information about affordability, nor should they support marketing in the same way that a lamp-post supports a drunk.
What is the Return on Ideas report and the “infinity model”?
Getting the right balance between affordability of marketing and aspiration is a frustrating challenge for many finance professionals. To help them, we’ve published an important new report “Return on Ideas”. What we’ve delivered isn’t theoretical or waffle. The report is packed with practical suggestions, checklists and case studies, solidly based on candid research on over 100 organisations, large and small and across industries. When we shared it in draft with a sample of CIMA members they gave it their unanimous thumbs up.
Click to download the full 40 page Return on Ideas report
The need for this guidance paper came from joint discussions between the Chartered Institute of Management Accountants (CIMA), the Chartered Institute of Marketing (CIM) and the Direct Marketing Association (DMA). It emerged that members of all three professional bodies were concerned about the value contributed by marketing and what constitutes sound evidence about its value. Pivotal to this, they also recognised the need to drive productive teamwork between finance and marketing working together.
Finance and marketing sometimes have disjointed working relationships. They often ask different questions and they answer them in different languages. Questions that finance ask focus too much on budgets and too little on performance; and marketing focus too much on brand awareness and image and too little on sales and profit performance. Everyone retreats into their own technical jargon, each bewildering the other and wasting lots of time pursuing irrelevant questions. Ultimately any attempt at finance-marketing dialogue gets derailed.
The Infinity Model
The essence of this candid research has led to the creation of the “infinity model” – an innovative framework designed to put the finance-marketing dialogue back on the rails. Full of practical self-help exercises, questions, checklists and illustrative case study examples, the report is prescriptive about what constitutes good and bad evidence about marketing efficiency and effectiveness, and it enables managers to decide for themselves what is feasible. The model can be tailored to the needs of all types and sizes of organisation.
What we found is the best organisations have a positive creative tension between financial rigour and the marketing imagination. More specifically this involves:
• harnessing the marketing imagination to create value adding ideas
• predicting how much financial value these ideas will contribute
• delivering and demonstrating that value really was created
• establishing learning that will improve future ideas, predictions and results.
This creative tension is found in all their working practices, and these are things that any other organisation can and should copy. Managers can assess their adherence to this model by answering the questions listed in the report’s checklists.
Figure: the infinity model of marketing value creation
By adopting this double cycle, the failure rate of marketing ideas and associated waste can be reduced significantly. It can never be totally eliminated because customers are forever changeable and are never completely predictable. Good senior management accept uncertainty and risk as an innate part of marketing. They do not try to force a ‘right every time’ philosophy; instead they manage uncertainty using the best methods available.
What can companies do to put the report into practice?
A lot of progress can be made in just one day, through holding a workshop with finance and marketing. By discussing the questions listed in the report, participants can find out how they can do a better job of making marketing more efficient, effective and value adding. In the process they will start to speak a common language that focuses on performance as well as conformance.
Having a follow-up session with the managing director, or business unit heads, can be helpful too. The report sets out departmental specific questions to be answered by the key players. A common issue that such discussions can resolve occurs when business units hold the marketing purse strings, and they use the marketing department as an internal service function. All too often such expenditure is squandered on vanity projects, whose sole effect is inflation of managerial egos, without sound commercial justification.
Quick wins from these workshops can be put into practice with immediate benefits. A longer term programme of change may be identified too, and the report contains a road map to plan out this more strategic approach.
So what are the benefits?
Ten of the benefits of this are:
1. Making the marketing budget work harder
2. Holding Agencies rigorously to account for results
3. Eliminating production wastage and its causes
4. Making marketing assets and collateral (images, video, text) work harder
5. Maintaining media effectiveness while reducing costs
6. Getting Agencies to do a better job in less time
7. Avoiding surprises in budget commitments
8. Wasting less time on budgetary bureaucracy
9. Faster marketing approvals with fewer errors
10. Forecasting more accurately
Conclusions
This report is aimed at giving practical help to any organisation that has to market itself. Free to CIMA, CIM and DMA members, grab a copy of the report, read it and run a workshop. We believe this is the way of the future for responsible marketing in the 21st century.
One Response to “How can marketing become more affordabile and value creating?”
“Price is what you pay – value is what you get.”
Warren Buffett, Chairman of Berkshire Securities
Deliver value that your customers recognize, appreciate and reward. If you want your customers to value what you offer – you must demonstrate that you value them and their money, risk, time, staff, business, and needs.
Value implies trust so start by building trust. Always underpromise and overdeliver.
Example:
“I’ll get it to you within one week.” = Have it delivered in three days.
“It will cost about $1,000.” = It costs $950.
“I will need thirty minutes of your time.” = You use twenty minutes.
Be known for keeping your promise and then some. Be honest. Never promise what you cannot deliver.
Don’t confuse value with cost. In fact, a product’s value is almost never equal to its cost. For example, your product might cost you $2 and you sell it for $10. The value to you is $10. The value to the customer will usually be more than the selling price. If it was only worth $10 to the customer then they have no motivation to buy. But if the value to them is greater than the selling price, they are motivated to trade their money for something of greater value. It may be worth $25 to the customer. Then they will gladly give up $10 of their money for the product. The more that value exceeds the cost of the purchase, the more the customer will want to buy from you. Always offer value that is greater than the price they pay.
The Value Formula
How can value be so different from cost? Examine the following formula, then discover where you can concentrate your efforts to enhance value.
Total value = real value + perceived value
Let’s take it apart to understand it. Real value comprises the tangibles. It is relatively easy to measure. Real value can be expressed in this manner:
Real value = function/cost
Function is what the product or service does in mechanical or analytical terms. Imagine you are buying a new car. If you are shopping for the best real value, you would get the most function efficient ground transportation for the lowest cost. You could measure the car’s function factor by comparing it with the cost of your practical alternatives; public transit, car pooling, taxi, bicycle, limousine, various car models. You might wish to consider the costs of these alternatives in terms of time and inconvenience. What does your new car give you that these other modes of transportation don’t?
Having determined the new car’s function factor, you can divide it by its cost. Is its function worth more to you than its cost? If so, the new car has real value. At the end of your analysis you would buy the cheapest car. Right? Not necessarily. Remember that what you are willing to pay for your car is based on the total value to you, which is a factor of both real and perceived value. So, sometimes without realizing it, you assign value to less quantifiable benefits and buy something that you like. Liking is not part of real value, it is part of a product’s perceived value.
Perceived Value = belief x emotion
Compared with real value, perceived value is more difficult to measure directly. Yet it can have greater impact on total value. Perceived value is the product of belief times emotion. It is influenced by many intangibles such as image, credibility, beauty and feelings – all the benefits you should emphasize in your marketing efforts. Emphasizing your perceived value is the surest way to differentiate yourself from the competition – and gain you more profit. Perceived value is what makes a brand name more valuable than a no-name. Nike is one example of a company that built a fortune on perceived value. As individuals we think differently, perceive differently, and place different values on things. Beware of that. Use it to your advantage. When your prospect wants to negotiate price, remember to build up your product’s perceived value.
By the way, always deliver real value too.
Adding Value: Here are a few ways to add value
How do you provide more value to your customers? Customers buy both real and perceived value, and often they don’t know the difference. You might point that difference out when your competitor is perceived to be superior. When you are perceived to be better, enhance that image.
Cost
Notice that in the Total Value equation cost is a factor – but only one. In a commodity market cost becomes the dominant factor because function of competitive products is similar and perceived value is ignored. If you compete on price then be aware of the market you will attract.
Quality
What is quality? Buyers of Honda Civic, Ford Taurus, and Rolls-Royce all claim to buy quality. And they are all right. The secret of quality is to deliver what you promise. To delight your customers, meet their expectations, and deliver a little bit more. When we speak of quality, we often confuse reality and perception. At one time buying IBM products was the smart decision to make, even if they were not the best. The name implied quality. Was that quality real or perceived?
Time
The competitive advantage of the new millennium is time. This means respecting your customers’ time. How long does it take for your customer to get through to you? How long do you take to respond? How long does it take them to fill out your silly paperwork? How long does it take to receive the product? How long does it take for you to upgrade and develop new products? Identify and emphasize at least one area in which you can beat your competition on time.
Image
Your personal and company image can add to or detract from the perceived value of your product. Do you reach into your pocket for a cheap pen or a Mont Blanc? Do you arrive in a limo or a cab? Image is a strange thing. We might say it is not important, yet we find ourselves judging others on their image. Watch it! Your prospects are judging you. Does your ‘client list’ improve your image? Do you project an image of success? We prefer to deal with successful companies. Think of image as the packaging of you, your product and your business.
Service
This is another term that is hard to define. Do you smile when you greet your customers, even on the phone? Are you easy to reach with a problem? How quickly do you respond and satisfy the customer? Do you make your customers feel inadequate when they complain, or do you welcome the feedback? Today many companies stress customer service yet some still have room to improve. Discover what your industry does to annoy its customers then eliminate that annoyance from your business.
You should notice that each of these five factors can impact both perceived and real value. Find ways to increase value to your customers by working with both sides of the total value formula. The total value you add will be measured by the growth in your sales.
George Torok is co-author of the national bestseller “Secrets of Power Marketing”. To arrange for your speech or training program call 905-335-1997. To receive your free copy of the special guide, “50 Power Marketing® Ideas” and subscribe to monthly marketing tips visit PowerMarketing.ca
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