The need to prove that marketing delivers ROI has become all the more
vital in the downturn, argues Nigel Foote. Econometric modeling
can provide the solution
Learning to love the 'R' word
IN UNCERTAIN times, successful companies do not abandon their marketing strategies; they adapt them, using the knowledge they've gained of what drives payback or Return on Investment (ROI).
Few managers would dare commit millions of dollars of capital to a project without an analysis of its payback, net present value, and internal rate of return. So how can companies that invest millions of dollars in marketing efforts - including product innovation, branding, advertising, direct marketing, CRM, promotion and incentives - remain competitive in the market without a detailed understanding of the interaction and performance of past marketing investments, or the dynamics of forecasting marketing success?
Simply put, they can't. And they won't. Either we prove ROI in marketing services, or our competitors will.
Indeed today's business climate demands that we pursue ROI with an enthusiasm, with expectation of a good outcome. We need to get our marketing clients to do more of what works, less of what doesn't work and we need to focus on what could make things better, what could make our clients' brands stronger.
The 'open' secret to determining marketing ROI is the application of advanced analytics: marketing mix modelling. Through using advanced analytical techniques such as econometrics you can obtain a quantified understanding of what drives consumer response to all forms of marketing activity.
Marketing mix modelling uses regression-based techniques to predict sales based on marketing activities, pricing, competition, and external factors like weather. It identifies marketing investments that drive volume and provides ROI for each advertising and promotional campaign, including halo effects on related brands in the portfolio: measuring response by market, account, store group/cluster, or consumer segment. The latest agentbased modelling techniques even allow you to determine the relative impact of social media alongside more traditional communications and pricing/promotional mechanics.
Econometric modelling can tell marketers 'what else' they could be doing; it can work to justify strategies and budgets, as well as helping marketers make the right efficiencies; and it can help build and strengthen relationships between marketers and their agencies and research companies.
The great news is that we have the analytic tools, the experience, and the talent within WPP to do all this - there is simply no excuse for our clients to still be wondering about their payback from marketing communications. And with clear marketing ROI knowledge there is increased client confidence: to plan, to commit, and to justify marketing spend levels.
Source: The WIRE - Issue 32