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									08
  05.30.09




                BY ELISABETH A. SULLIVAN//STAFF WRITER




                Measure Up
marketingnews




                Marketers may not like to talk
                about numbers — but here’s
                why you need to start talking
                financial-speak

                g        oogle CEO Eric Schmidt is widely
                         quoted as having said that market-
                         ing is “the last bastion of unaccount-
                able spending in corporate America,” and
                                                                  Chicago-based Global Hyatt Corp. who
                                                                  now works as an adviser for Chicago-based
                                                                  Diamond Management & Technology
                                                                  Consultants Inc.
                he was right on the money, says Je                    In a boardroom meeting, the chief
                Hayzlett, CMO of Rochester, N.Y.-based            operating o cer discusses operating results
                Eastman Kodak Co. “It’s one of the last           in nancial terms and the chief technology
                areas where functional, nancial discipline        o cer talks about technology achievements
                has been applied.”                                in nancial terms, and when the CMO
                    For years, marketers have demonstrated        chimes in and discusses marketing results
                their department’s success by taking a seat       in marketing-speci c terms, “everyone
                in the boardroom and reporting on things          around the table sits back, thinking, ‘OK,
                like brand building, customer loyalty,            this isn’t as important,’ ” O’Toole says. If,
                customer engagement and click-through             instead, the CMO reports the marketing
                rates—all very important measures of              department’s progress in the same nancial
                marketing’s success but not what the              terms that everyone else is using, she’ll
                C-suite wants and needs to hear. When             build credibility.
                every other department within an organiza-            And suddenly, the CMO is trusted
                tion gauges its success in nancial terms,         to discuss and implement even those
                marketers have to do more than issue forth        marketing methods for which it’s harder to
                on marketing-speci c measures.                    demonstrate nancial return because she’s
                       is economy has drawn that distinc-         seen as “a prudent, credible business person
                tion into sharp relief. Budgets are in            … a nancially driven, business-minded
                jeopardy, and marketers are being asked to        marketing executive,” O’Toole says.
                justify how their spending and e orts are         Marketing-speci c measures certainly
                bene tting their companies’ bottom lines.         are meaningful, he says. “ ey’re just not
                Like it or not, it’s time to talk ROMI.           meaningful to the board.” In other words,
                                                                  when measurable marketing activities are
                      a
                The St te                                         satisfactorily assessed and shown to be
                                                                  worthwhile pursuits, immeasurable market-
                of ROMI                                           ing activities can gain credibility and value.
                   e term return on marketing investment          Enter ROMI.
                [ROMI]—or the nancial or business                     “It’s the ideal business metric in
                returns generated by a marketing invest-          that, at the end of the day, what’s most
                ment—now peppers many marketing                   important is that you make more money
                conversations, which some consider a              than you spend,” says Jim Lenskold,
                welcome development and others consider           founder and president of the Lenskold
                a concession to the numbers-focused               Group, a Manasquan, N.J.-based market-
                C-suite. Most marketers, however, agree           ing metrics consultancy, who regularly
                that the increasing focus on marketing’s          leads American Marketing Association
                  nancial value within an organization            marketing ROI workshops. While other
                is an important step.                             marketing metrics are necessary as
                    “Marketing is in the process of maturing      diagnostics and can help marketers attain
                from a communications function to a               long-term goals, ROMI can help market-
                business function,” and its metrics must          ers plan campaign strategy, allocate
                follow suit, says Tom O’Toole, the former         budgets and demonstrate their impact
                chief marketing and information o cer of          on the company’s sales.
cover story
                                                                                                           09




                                                                                                           marketingnews
Executives Weigh In
Marketing News checked with leading marketing executives around the
country to get their thoughts on the importance of measuring marketing




                                                                                                             05.30.09
ROI, especially in these budget-conscious times.


                 ROGER ADAMS, CMO of New York-based Lord & Taylor LLC:

                 “ROMI is of heightened importance during di cult times, but the reality is that
                 ROMI should always be a key metric in any organization,” Adams says. “A key
                 disconnect is agreement over what the appropriate metrics are [to gauge market-
                 ing’s success]. If there is not agreement with the CEO, and many times the chief
                 financial o cer, then marketing e orts will be vulnerable.

                 “The bottom line is that e ective marketing should make the company stronger.
                 What is needed is agreement with the CEO on what dimensions will deliver that
                 strength for a company and a measurement system to monitor them.”



                 PORTER GALE, vice president of marketing for Burlingame,
                 Calif.-based Virgin America:

                 “I agree completely that ROMI has risen in importance. Because of that, we do our
                 best to test, learn, track and evaluate every dollar we spend,” Gale says. “In the
                 online space, we monitor a variety of items including cost per acquisition (CPA),
                 cost per click and CPM. We also look at total dollars driven by natural and paid
                 search, and online display advertising. In the traditional space, we review tracking
                 study results, increases in user tra c to our Web site and other variables to gauge
                 the e ectiveness of a given medium.”

                 “We use a weekly dashboard to measure our online advertising programs. We track
                 all [search engine marketing] (i.e. keyword buying) and online display advertising
                 down to the CPA. We utilize Omniture software and analytics to obtain most of our
                 data. And we work closely with our online media partner, Carat, to make sure all
                 advertising buys are tagged for tracking. We also use traditional tracking studies to
                 measure the performance of our brand communication e orts.”



                 MIKE LINTON, former CMO of San Jose, Calif.-based eBay Inc. and Richfield,
                 Minn.-based Best Buy Co. Inc.:

                 “If you’re resisting this and saying that [marketing] is a pure creative function, then
                 that’s a mistake,” Linton says. “I consider good marketing [to be] a mix between the
                 math and the creative.”

                 “Marketing ROI, stated simply, is the return on marketing money, as measured by
                 profit, sales, tra c, clicks or anything you want to evaluate,” he says. “I almost
                 always put in a marketing dashboard. … I look at the total results and I look at sales,
                 market share [and] status of the competition.”

                 “ROI is an important measure—but it’s not the only measure.”



                 RHONDA SHASTEEN, CMO of Addison, Texas-based Mary Kay Inc.:

                 “I personally focus on the longer-term metrics that indicate that we are growing the
                 strength of the brand as well as increasing the retail earnings opportunities for our
                 1.9 million independent beauty consultants around the world,” Shasteen says.

                 “There are four key metrics that I track: awareness in a given market, consideration,
                 trial and trailing 12-month consultant productivity (this would be the equivalent
                 of same-store sales in a retail environment). The first three metrics come from an
                 annual brand equity study that we conduct through a third-party research vendor
                 and the productivity metric comes from our internal sales data warehouse.

                 “These four metrics appear on our corporate balanced scorecard and they are
                 the ones for which I’m held accountable. My team tracks other more short-term,
                                                                                                            cover story




                 program-specific metrics related to ad impressions, Web site tra c, purchase
                 conversion, et cetera, and they use those metrics to adjust plans, develop content
                 and the like, but I personally do not get involved in that level of metric detail.”
 10
marketingnews 05.30.09




                              a
                         Hesit tion                                       such as brand attribute association, which is
                         Return on marketing investment is a good         a “perfectly appropriate marketing measure,”
                         way to start building the marketing              O’Toole says. “But [in] the C-suite, they
                         function’s credibility within an organiza-       don’t want to hear about brand attribute
                         tion. The question is, just how many             association; they want to hear about direct
                         marketers have started?                          financial return on marketing investment.”
                             “We’ve been tracking this for five years,”   Marketers have to learn to speak the board’s
                         and fewer than one out of four marketers         financial vernacular.
                         seem to be measuring ROMI regularly,                  Some experts, however, are wary of
                         Lenskold says. According to a recent survey      placing too much emphasis on finan-
                         conducted by the New York-based Confer-          cially focused metrics like ROMI. Satprit
                         ence Board, one-third of respondents             Duggal, CEO of EMM Group Inc., a Kala-
                         reported that their companies were making        mazoo, Mich.-based management consult-
                         no effort to measure ROMI. Of those              ing company with clients such as General
                         respondents measuring ROMI, less than            Electric, Google and Visa, says market-
                         one-quarter—22%—report that they’re              ers risk undervaluing marketing activities
                         making good progress.                            that contribute to longer-term, sometimes
                             And yet as far as willingness and            more nebulous returns like brand building
                         understanding go, the needle has moved.          if they focus too much on short-term finan-
                         “Marketers are much more attentive to and        cial returns generated by more measurable
                         respond more positively to working on            marketing tactics. “Marketing should be
                         marketing ROI,” Lenskold says. “I see a          accountable for its results. I completely
                         huge difference in the whole market, but         get that. But we’re a little wary of using
                         when you look at the studies, it doesn’t look    marketing ROI interchangeably with
                         like anything has changed.”                      marketing accountability,” Duggal says.
                             According to O’Toole, marketers’             “Marketing budgets are under scrutiny and
                         hesitation is understandable. ROMI by            marketers [are] under pressure to justify
                         definition seems easy enough, but ROMI           their spends. Unfortunately, in many cases,
                         in practice can be difficult. First, it’s        this leads to an overbearing emphasis on
                            “extremely difficult to credibly demon-       short-term results often at the sacrifice of
                              strate financial value for [many] market-   long-term brand building. … It is an asset
                                 ing investments,” such as brand          that you’re building.”
                                   advertising and PR, he says. Second,        Also, the ROMI metric tends to be
                                      some marketers might be             ambiguous, says Pat LaPointe, managing
                                        uncomfortable with financial      partner at MarketingNPV, a Princeton,
                                          measures. And third, many       N.J.-based marketing metrics advisory
                                             marketers tend to focus on   firm, who regularly runs marketing
                                               more indirect measures,    dashboard workshops for the AMA. “I
cover story
                                                                                                                                                                                           11




                                                                                                                                                                                        marketingnews
think ROI represents the best and                  “I believe that marketing budgets        “we’ve been able to cut budgets because              ere are two very direct and
the worst of marketing metrics at the          have shrunk as a percentage of [compa-       we’re doing a better job with the tools       discernable returns that Hayzlett cares
same time,” he says. Marketing still falls     nies’] total budgets, not because            that we have,” he says. “We’re spending       about: marketing’s impact on the
somewhere between art and science—             marketing hasn’t been successful but         less and getting more.” ((For further         company’s sales and market share. “We
a cra with too many variables to have          because marketers haven’t been able to       discussion of marketing budgets, see          want to grow market share by ‘x’
a standardized reporting structure,            demonstrate the nancial value of             Don E. Schultz’s Viewpoint on page 18.)       amount. We want to grow sales by this
LaPointe says—so each company has to           marketing,” he says. “Imagine if you                                                       much.” It’s as simple as that, he says.
work to create its own understanding of        were running a company and you’re            Profit able                                    Other measures such as brand value and




                                                                                                                                                                                          05.30.09
valuable marketing returns.                    going to make some investments …                                                           customer lifetime value obviously are
    “ e focus should be [on] under-            and [you’ll] only invest in the ones
                                                                                            Picture                                       important for marketers, but when it
standing the payback on marketing              that provide the higher return.” If          “[Marketing ROI] is more relevant than it     comes down to it, “we’re here to drive
investments,” LaPointe says. “ e               marketers simply throw up their hands        was, say, ve years ago” because market-       sales, pro table sales.”
C-suite wants to have a higher level           when asked to demonstrate ROMI or            ing now plays—or should play—an
of con dence that the money they’re            projected ROMI, then “especially in this     integral strategic role within the organi-
spending is generating at least a              economic environment,” their budgets         zation, Hayzlett says. “It’s more than        ‘The Debate
su cient payback, and [the CEO                 will be cut, he says.                        marcom, and a lot of marketers [still]        is Over’
might say,] ‘I want to know whether I              And it’s not about justifying every      come at it from marcom and a feel-good        Talk of marketing ROI began years ago,
should be spending twice as much or            dollar spent, Lenskold adds. Other           kind of measuring,” he says, but market-      but the focus on demonstrating
half as much.’ ” CEOs just want an             business functions o en can’t be—and         ing’s structure and function within           marketing’s nancial value is picking up
“unvarnished, unbiased, spin-free              aren’t required to be—that exact. Rather,    organizations have evolved.                   pace. At many companies, marketing is
assessment,” he says.                          if marketers create realistic ROI projec-        For example, in years past, Kodak         now an integral business function, with
                                               tions of what their marketing spend          “basically had one product and we had to      a spot in the C-suite to prove it. At other
Budgetary                                      might bring the company, they’ll gain        remind people to use it,” Hayzlett says.      companies, marketers still are struggling
                                               credibility. If they then surpass those      Now Kodak o ers a multitude of products       to gain credibility. Times are tight and
Benefits                                        projections, he says, they’ll have the       in a very diverse marketplace, so market-     budgets are at stake.
When it comes down to it, though, any          credibility to request a bigger budget.      ers have a much tougher job ahead of                 e recession most likely will speed
way that marketers can communicate                 Of course, ROMI isn’t only about         them and they have to be disciplined.         up marketing’s transformation from an
how their e orts are boosting sales or         preserving marketing budgets; it’s also          Hayzlett and his team use a market-       expense item to a line item on many
growing market share will help them            about enabling marketers to hone in          ing dashboard to gauge how they’re            companies’ nancial statements, experts
not only justify their budgets, but also       on tools and tactics that are particularly   progressing toward agreed-upon goals.         say. In good times and bad, whether or
protect them. So marketers have to             cost-e ective. e ipside of the               “We look at benchmarks. … We list out         not marketers are ready for it, they’re
start speaking their companies’                ROMI coin is that, by guring out             conditions of satisfaction. What are our      going to be asked to justify their spend
  nancial language, says David Reib-           which marketing e orts generate the          promises to the company?” he says.            with nancial data.
stein, a marketing professor at the            best returns, marketers can whittle away        ose promises are nancially oriented,           “ e debate is over. It’s over. Move
University of Pennsylvania’s Wharton           at their own budgets to become more          of course. “You gotta measure it, so it       on and get with the game,” Hayzlett says.
School, a managing partner at Market-          e ective and e cient, Kodak’s Hayzlett       can’t be just good feelings,” he says. (See   “You should feel comfortable in
ingNPV and an at-large board member            says. It’s not as if Kodak’s marketing       the accompanying article to learn how         justifying the actions that you’re taking
for the AMA.                                   team wouldn’t take a bigger budget, but      others do it on page 9.)                      or you shouldn’t be taking them.” m




     When it comes to proving the e ectiveness of
     branding/marketing initiatives, would you say
     that board/C-suite demands are:


     Percentage of Respondents                    CMOS / SENIOR MARKETERS


                   85%                            BRAND ENTHUSIASTS
                80%




                                         15%           17%
                                    3%

               INCREASING        DECREASING         STAYING
                                                    THE SAME



 Source: New York-based Interbrand Corp., Association of National Advertisers
 and BrandChannel.com

								
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