In every role I’ve had in the decade, the first thing I’ve done is set out to do better work. Try to understand what most needed attention, and address that. Sometimes it was brand positioning. Sometimes media planning. Very often the creative. Not these days. Today, the very first thing I do when starting a new role is to calculate a definitive number on the payback of our marketing spend. So – how much profit do we get back for every dollar, pound or euro spent?
Marketers tend to shy away from metrics. I see eyes glaze over when I start to ask about measurement. I suspect that when marketers signed up for their wonderful, interesting, and creative marketing careers, they didn’t have things like negative binomial distribution or double jeopardy in mind. I most definitely did not.
But without a number, we can’t make progress. We can’t improve on the number. We can’t go asking for more money even if we believe we have a tremendous opportunity to grow market share or launch new products, or whatever. The urge is to go fix some creative or media planning, or other low-hanging fruit. No doubt they can be tackled in parallel – but calculating payback would be top of this list.
Almost two-thirds of CMOs do not successfully demonstrate their marketing return on investment. This does not go down so well with the board. Professor Patrick Barwise, once reminded an audience that CEOs and CFOs have a similar mindset to Ed Deming – “In God we trust, all others must bring data.”
This is where Econometric Modelling comes in. If we’re willing to invest the time and some budget, we can calculate much profit are we contributing to the business. Not just that answer. We can start to understand what parts are working and which bits are working less well. It wasn’t that long ago that I was dismissing Econometric Modelling as pseudo-science. Without Econometric Modelling, there was at least one campaign last year I would have killed. It appeared less effective when looking at the early sales figures and our other research data points. But with rigorous modeling, we realised the campaign was creating good profit and a positive Return on Investment (ROI).
There is probably some truth in the accusation that we just prefer to make advertising. Professor Tim Ambler once said that marketers prefer to “make the runs than keep the score”. He added that “perhaps this is how it should be”. Of course, making ads is more fun than spreadsheets. But Ambler is right – ‘making the runs’ is what creates real value for companies. This is what we’re paid to do. Marketers are just not great at proving it. So we end up with situations where it takes longer to get an ad signed off than it did to write it.
Our role model here must be Direct Line Group in the UK, the company responsible for three brands – Direct Line, Churchill and Privilege. They set up a marketing effectiveness team that analysed what factors drove sales at each brand, measuring the contribution of brand and acquisition activity over the short and long term. Ultimately the team was able to show with confidence that their marketing had contributed £46m profit to its home and motor insurance businesses.
Paul Dervan is CMO of the National Lottery and will be chairing a panel at the forthcoming DMX Dublin event to discuss econometric modelling. The panel will also include Louise Cook, Managing Director of Holmes & Cook; Dr. Grace Kite, Managing Director at Gracious Economics; Michael Dargan, Head of Consumer Marketing at AIB and Ronan Brady, Managing Director of Data at Core.