Monday, February 24, 2014
HAVE YOU CALCULATED THE ROI—
FOR YOUR POSITIONING TARGET?
Asking the average marketer “What’s the Return-On-Investment we can expect from that initiative?” can often result in a blank stare. On the other hand, a good many marketers are rarely asked that question by their Senior Management anyway…so we can’t be too quick to judge the blank stare as indicative of a shortcoming that resides only within the company’s Marketing function. The thing is, of course, that Marketing functions that work the hardest and contribute the most toward building the company’s business are ones that are also held accountable for what they do with the company’s resources (especially with people, infrastructure, and money).
Some companies will say, “We rely on market share performance to assess Marketing’s accountability.” But what a blunt instrument market share can be! A time period covered by market share can comprise a host of variables and factors, from distribution changes to competitors’ pratfalls to retail or customer issues. And while a disciplined comparison of two analytically similar markets (test market versus control market) can effectively isolate variables to determine how much share change is due to a particular marketing initiative, when it comes to ROI calculation more precision is better.
By precisely setting incremental volume targets for expended resources, and by then rigorously tracking and reporting back to Management the “multiple” of return (or non-return) for their various initiatives, marketing leaders not only accept real accountability for their actions, they also memorialize—over time—a kind of helpful predictability. With an outcome history of different types of marketing initiatives as a “normative” context, Senior Management then can actually make better decisions about which initiatives to support and which ones to defer or pass on. After all, since no company’s resources are unlimited, making choices about “where to place the company’s bets” is something Senior Management gets paid to do day-in and day-out. And it doesn’t take a senior manager to know that, when it comes to initiatives (of any kind—from marketing to capital equipment), they are not all equally valuable.
Making choices about where to place your bets in an environment where every choice is not equally valuable should sound familiar to regular DISPATCHES readers. It’s a theme we have repeated often—especially when writing about the selection of a brand’s positioning target. In fact, although we usually think of return-on-investment calculation in reference to initiatives, actions and things, ROI calculation applies equally to groups of people against whom we plan to invest company resources. Put in terms that we marketers commonly use, after dividing the market into logical segments (“segmentation”)—ideally with the aid of market research--we then calculate the relative value of each segment so we can choose which one or ones to position our brand against (“targeting”). And, as everyone who has engaged in market segmentation has learned, there is typically a wide range of value among the various segments: in actual size; in likelihood of becoming regular brand users; in lifetime value, and so on.
Unfortunately, we marketers and our senior managers do not always think this way. Among a good many Senior Management teams the thinking too often seems to go like this:
“Household penetration of orange juice in the US has run steadily at 88% for years. Nearly everyone drinks some orange juice—at least once in awhile. We make the freshest, best-tasting brand of orange juice in the market. With such a great product, why wouldn’t everyone who drinks OJ prefer ours (if they knew about it)? Therefore, our brand positioning target ought to be: ‘All moms with families who lead busy lives and who want the best for their families.’”
Okay, so maybe you don’t work in the orange juice or even the beverage business, but you’ve heard or seen this line of thinking, right? But, have you or, better yet, your Senior Management, really considered the faulty assumptions behind it:
- All families consume OJ at the same rate (untrue)
- All families can afford to pay a premium or even want to pay a premium for the “best-tasting” OJ (untrue)
- All families think about OJ benefits in the same way (untrue)
- All families have the same “set” of beverage options to choose OJ within (untrue)
Given these very basic untruths, even a market with the breadth of household penetration of orange juice demands a meaningful segmentation and an analytical calculation of the relative value of its segments. And here’s the real reason why. You know how we’ll sometimes hear American football coaches, with some frustration, make the statement, “When you throw a forward pass three things can happen—and two of them are bad (incompletion or interception by the other team)”? Well, when you go with a brand positioning target that encompasses everyone, or nearly everyone, and thereby do not recognize the differing relative values among the segments of “everyone” two things can happen—and they are both bad: (1) limited company resources are wasted on “unlikely” brand prospects…as in, unlikely to ever become full-time regular brand users, or even semi-regular users; and (2) those same resources are no longer available to devote to the “most likely” brand prospects…the old lost opportunity effect.
So, applying ROI thinking to your brand positioning target really ought to be a “must” for today’s brand-builders and their managements: honestly, almost no one has more resources today than they did yesterday; and there isn’t an organization out there that we’ve worked with who hasn’t been hearing for some time now, “You’ve got to do more with less.” One of the best ways we know of to do more with less is simply this: Spend Smarter—on what you do and against whom you do it.
Richard Czerniawski & Mike Maloney
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