Marketing Calculator Author Guy Powell Urges Execs To Connect On Measurement

Published: December 9, 2008

DemandGen Report caught up with Powell to discuss the new book and also get his take on how the challenging economic climate factors into marketing strategy.

DemandGen Report: One of your chapters talks about dealing with the uncontrollable and exogenous factors. Is the general economy one of those? How can ROMI help a company deal with tough times?

Powell: Yes, economic factors fall squarely in this area. With the current economic downturn, business managers are keen to know whether an investment in marketing will provide a better return than an investment in cash or elsewhere in the company. In the short term, during an economic downturn, ROMI (Return on Marketing Investment – an index comparing marketing investments to revenue generated) will almost always be lower than during good economic times. The real objective for a valid metric is to determine both the short and long term value of a marketing investment. Many models ignore the long term value and many shortsighted business managers have trouble justifying an investment for the long term, when the short term looks so bleak.

DGR: Realizing executives need to keep long term investments in mind, how can marketers also address the short term?

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Powell: The horizon isn’t so bleak. With a functioning set of metrics that connects the dots between marketing investments and short term and long term revenue, even during an economic downturn, there are many marketing activities that should be invested in. These are the ones that are the real bright spots in the marketers’ portfolio. If marketers don’t have a functioning ROMI Framework in place in these economic times, they better get one. Their budgets will be the first to be cut and their jobs will definitely be on the line.

DGR: It is interesting that you refer to marketing tracking and measurement as a continuum. For most companies marketing measurement changes with each campaign or season. How does a company become consistent in this area? Why should it be consistent in this area?

Powell: This is probably the area where marketers need to change the way they think about managing the business of marketing. Just capturing data on the results of a single campaign is certainly a good start. But it is much better to capture data on an ongoing basis in a systematic fashion. Only in that way, can marketing start to determine whether the incremental or decremental revenue was due to the last price increase, the reduction in the sales force or an economic downturn.

For marketers, data is like a drug. The more you have the more you want. Marketers must continually invest in data from the market so they can truly understand how their activities (in comparison with their competitors) drive incremental revenue and brand value. I have trained thousands of marketers on the topic of ROMI and have found that greater than 90% of them spend either zero or less than 1% on measuring and tracking their effectiveness. The best marketers spend greater than 5% and sometimes over 10%. If an investment in marketing data could find the 50% of the marketing budget that’s being wasted, that could lead to an immediate doubling of marketing’s effectiveness. Where else can you get that kind of return on your marketing investment?

DGR: Is marketing mix modeling a worthwhile strategy for BtoB companies?

Powell: Yes. It doesn’t matter whether they’re BtoB or BtoC. Marketers must understand across the 4 Ps (product, price, place and promotion) the impact on revenue of all their marketing investments. Whether it’s a new advertising campaign, a new product launch or an upcoming price reduction, understanding the net impact on revenue, profit and share will go a long way in defending their budgets. For marketers to have a strong seat at the executive table, marketers must know what works and what doesn’t and marketing mix modeling is a tool to help them get there. With this in hand the business management team can finally make realistic choices between investments in marketing, sales, operations and finance. Without this, marketers will simply be an expense, an expense that can be cut when the going gets tough. Marketing mix modeling, whether it’s for a BtoB company or a consumer company is one very effective tool to help marketers be in the critical path for corporate success.

DGR: A lot of our readers are sales-driven companies. They struggle to generate leads, track them, and then measure their sales team performance against them. Give them three things to do tomorrow to increase their marketing effectiveness.

Powell: Great question. This is one of the biggest challenges for marketers in business-to-business. If you ask a salesperson who closed the deal, they’ll answer “It was all my hard work.” But if you ask them to cut marketing to zero, they’ll say, “No, I need good leads.” The sales team knows they need help from marketing, although they often won’t admit it. Here are three things a marketer can do immediately to increase marketing effectiveness.

  1. Implement a lead classification system. Marketers that see their job as one of just generating leads need to change their focus to one of generating leads of a certain quality. They need to develop a lead classification system, one that the sales team agrees to. Leads need to be classified into high quality leads that should get immediately passed on to the sales team, low quality leads that may need to be discarded and medium quality leads that should be nurtured until they turn into high quality leads.
  2. Implement a lead tracking system. Marketers need to track leads not only based on their source but also on their disposition. Did those high quality leads really convert to sales? What was the conversion percentage? What was the conversion timeframe? What were the reasons for losing the business? With this information in hand, marketers can finally start to manage their part of the revenue generation process to deliver more revenue for the same level of marketing investment.
  3. Implement a cost tracking system. If marketing doesn’t know what it costs to implement a specific campaign they will never know whether it is delivering a positive or negative return. In large BtoB companies this requires help from many parts of the organization including sales, service and accounting. Once the cost tracking system is in place they will now be able to embark on a continual improvement process and transition from being simply an expense to being a critical revenue generation component for the company.

DGR: All those suggestions sound great, but how do I sell it to my boss?

Powell: If you’re having trouble getting approval to invest in marketing infrastructure to manage the business of marketing, then here is a line of reasoning that may help. Ask your CFO: How much money does the company spend on managing cash? How much effort and manpower go into tracking cash at the bank, reconciling accounts, making certain that checks clear and bills are paid? If this number is not zero, then how is it that we can spend money on managing cash, but nothing on managing marketing? Isn’t marketing a critical function in the company, certainly just as critical as any other function in the company?

If we were to invest a million dollars in building a new building, wouldn’t we want to know exactly where that money went? If we applied John Wanamaker’s “50% of my marketing is wasted I just don’t know which 50%” to constructing a new building we’d all be fired. If we’re going to invest a million in marketing, we need to know whether it is working and what value it is providing. We need to invest in the right systems to make this happen. Just as it costs money to track cash, so, too does it cost money to track the effectiveness of marketing.

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