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  1. 1. No ShortcutsThe Road Map to Smarter Marketing
  2. 2. The Boston Consulting Group (BCG) is a Marketing Analytics, founded in 1991, isglobal management consulting firm and the a leader in market response modeling. Weworld’s leading advisor on business strategy. help clients measure the impact of mar-We partner with clients in all sectors and keting on sales. Our experience includesregions to identify their highest-value oppor- modeling sales for thousands of productstunities, address their most critical chal- and services across a range of industries,lenges, and transform their businesses. Our sales channels, and countries. We have in-customized approach combines deep insight dustry-recognized expertise in measuringinto the dynamics of companies and mar- media effectiveness and return on invest-kets with close collaboration at all levels of ment, as well as proven marketing andthe client organization. This ensures that media mix optimization capabilities. Ourour clients achieve sustainable competitive proprietary soware tools enable clientsadvantage, build more capable organiza- to leverage our models on an ongoing,tions, and secure lasting results. Founded in efficient basis. Marketing Analytics is a pri-1963, BCG is a private company with 69 vate company headquartered in Evanston,offices in 40 countries. For more informa- Illinois. For more information, please visittion, please visit
  3. 3. No ShortcutsThe Road Map to Smarter Marketing Jens Harsaae Ross Link Neal Rich Kevin Richardson Rohan Sajdeh September 2010
  4. 4. © The Boston Consulting Group, Inc. 2010. All rights reserved.For information or permission to reprint, please contact BCG at:E-mail: bcg-info@bcg.comFax: +1 617 850 3901, attention BCG/PermissionsMail: BCG/Permissions The Boston Consulting Group, Inc. One Beacon Street Boston, MA 02108 USA
  5. 5. ContentsExecutive Summary 4The Need for Rigor in Spending 6Testing the Rules 8Peg Marketing Budgets to Revenues 9Maintain “Share of Voice” and Overinvest to Gain Market Share 9Integrate Marketing Campaigns to Realize Synergies Across Vehicles 10Invest in Brands with the Highest Market Share 10Invest in High-Margin Brands 10A Better Road Map 12Strategy: Spend on the Right Things 12Tactics: Spend in the Right Ways 13Operations: Analyze, Execute, Measure, Adjust, and Repeat 14Stepping Up to the Challenge 18Appendix 19For Further Reading 21Note to the Reader 22N S 
  6. 6. Executive SummaryC ompanies invest staggering sums of money in ◊ In the face of such complexity, managers turn to rules marketing with surprisingly little rigor. Because of thumb, such as spending as a percentage of revenues, it is notoriously difficult to measure and opti- to guide their budget allocations for marketing. mize the return on marketing investments (ROMI), marketing executives oen rely on rules To test some of the common rules of thumb used toof thumb—such as spending as a percentage of revenues— set spending on marketing, The Boston Consultingto guide their decision-making. Our research and experience Group and Marketing Analytics, a leader in market-suggest that these shortcuts can be imprecise, unreliable, response modeling, reviewed a data set of compara-and just plain wrong. We recommend another approach— ble marketing-mix models for 75 consumer that goes beyond marketing to encompass all commer-cial investments. It integrates a top-down strategic perspec- ◊ In our joint research and analysis, we found a widetive and a rigorous bottom-up analysis. variance in marketing impact, efficiency, and return on investment—even across a relatively similar collectionMore than $1 trillion a year is spent on marketing. of brands.◊ The figure is even higher if you include related com- ◊ We also found that five of the most commonly used mercial investments, such as trade spending, price pro- rules of thumb for marketing investments had no clear, motion, and sales force incentives. consistent relationship to marketing performance in the sample we reviewed.◊ Many companies spend as much—or more—on ad- vertising alone as they invest in capital expenditures. ◊ Managers who rely on such rules, therefore, could be using the wrong approaches to allocate their market-As marketing budgets continue to escalate, managers ing budgets across business portfolios and the market-are coming under increasing pressure to prove the ing mix.value of their marketing investments over time. Rather than look for shortcuts, managers should em-◊ At the same time, marketing is becoming much more brace the complexity of optimizing returns on mar- complex as digital and viral marketing vehicles prolif- keting. We recommend that they integrate a top- erate and market segments fragment. down strategic perspective on commercial investments with a rigorous bottom-up analysis.◊ Another complicating factor is that marketing perfor- mance depends heavily on elements that either are ◊ Such a comprehensive approach would incorporate all difficult to measure precisely—such as the content of the tactics that managers generally consider when an ad and its creative execution—or emerge over they are optimizing ROMI, as well as those that fall un- many months and years, such as the impact of market- der the broader banner of return on commercial in- ing on brand perception. vestments (ROCI). T B C G
  7. 7. ◊ Managers could use this approach to evaluate com- About the Authors mercial investments dispassionately, on the basis of Jens Harsaae is a partner and managing director in the their ability to drive incremental sales, influence con- Copenhagen office of The Boston Consulting Group and sumers at every point in the purchase decision, and BCG’s worldwide topic leader on marketing. You may build brand equity for the long term. Consequently, contact him by e-mail at Ross companies would spend on the right things, spend in Link is founder and chief executive officer of Marketing the right ways, and be able to measure and optimize Analytics. You may contact him by e-mail at rosslink@ that spending continuously. Neal Rich is a project leader and marketing specialist in BCG’s Chicago office. You◊ To achieve these goals, corporate leadership must es- may contact him by e-mail at Kevin tablish a sustainable capability to measure and opti- Richardson is vice president of consulting services at mize commercial investments. Only then will they be- Marketing Analytics. You may contact him by e-mail at gin to reclaim the 15 to 30 percent of spending that Rohan typically is wasted today. Sajdeh is a partner and managing director in BCG’s Chicago office. You may contact him by e-mail at S 
  8. 8. The Need for Rigor in SpendingM ore than $1 trillion is spent annually on investments one-tenth the size in other areas of their marketing around the world, and that business. sum doesn’t include related forms of commercial investment, such as trade Many executives tell us that they are feeling increasing spending, price promotion, and sales pressure to meet demands for accountability throughforce incentives. Many companies spend as much—or better marketing metrics. Yet marketing performancemore—on advertising alone as they invest in capital ex- depends heavily on elements that are difficult topenditures. (See Exhibit 1.) This situation led Jim Sten- measure precisely, such as the content of an ad and itsgel, former global marketing officer for Procter & Gam- creative execution. Furthermore, a change in one busi-ble, to observe that companies spend millions on media ness activity can directly—and indirectly—affect thetoday with less data and discipline than they bring to efficacy of many others. As a result, it can be extremely Exhibit 1. Many Companies Spend as Much—or More—on Advertising as They Do on Capital Expenditures Advertising expenditures/net revenues (median percentage, 2004–08)1 30 20 10 0 10 20 30 Capital expenditures/net revenues (median percentage, 2004–08)2 = $15 billion in median net revenues, 2004–08 Source: BCG ValueScience Center, BCG analysis. Note: We analyzed 169 companies from the S&P 500. 1 We divided each company’s median annual advertising expenditures from 2004 through 2008 by its median annual net revenues. 2 We divided each company’s median annual capital expenditures from 2004 through 2008 by its median annual net revenues. T B C G
  9. 9. difficult to isolate the specific drivers of business results. Given the inherent challenges of measuring and optimiz-This is particularly true in today’s environment, in ing a company’s return on marketing investment (ROMI),which so many functions outside of the marketing de- it’s not surprising that many managers take refuge inpartment—such as the sales force or the customer ser- simplistic rules of thumb. Nevertheless, our experiencevice department—can significantly affect the brand ex- and research confirm that there are few, if any, effectiveperience. shortcuts.N S 
  10. 10. Testing the RulesT o validate some of the rules of thumb most during the same time period. (See Exhibit 2.) Across the commonly used to justify marketing bud- brands in our sample, the incremental impact of mar- gets, BCG and Marketing Analytics part- keting on unit sales volume ranged from 1 percent to nered on a meta-analysis of 75 comparable more than 50 percent. In examining marketing efficien- marketing-mix models for consumer pack- cy, we found that companies spent anywhere from lessaged goods in the United States. We used the models to than $100,000 to almost $18 million to capture an incre-analyze each brand’s ability to drive incremental sales mental percentage point of unit sales volume for avolume from marketing activities, including trade spend- brand. Thus, for every dollar spent on marketing, theing, and from advertising via television, print, radio, bill- companies in our data set were able to generate any-boards, and online media. (See the sidebar “Building where from $0.04 to $2.75 worth of incremental sales.Our Proprietary Data Set” and the Appendix for details And in terms of ROMI, brands realized anywhere fromabout the study’s data set and analytical method- $0.03 to more than $2 of incremental gross margin forology.) every dollar their companies spent on marketing.The first key finding from our research was a surprising- Such a wide variation in the outcomes of similar market-ly wide variance in marketing impact, marketing ing-mix models suggests that there is no benchmark forefficiency, and return on marketing investment (ROMI) marketing returns that managers can reliably applyfor brands with reasonably similar profiles—that is, for across brands when planning budgets. Historical bench-consumer packaged goods sold in the same channels marks may be calculated for a specific brand, but they Building Our Proprietary Data Set The meta-analysis of marketing-mix models developed by sessed the amount of marketing spending it took to in- The Boston Consulting Group and Marketing Analytics re- crease unit sales volume or retail sales by 1 percentage sulted in a unique proprietary data set with associated point. Finally, we measured the incremental revenue and benchmarks. The findings are powerful, but companies incremental gross margin generated by each dollar spent must carefully consider the implications for their own sit- on marketing. uations. It is important to remember that the models in our data We undertook this analysis because we were interested in set are focused on the shorter-term sales impact of com- evaluating three measures of marketing performance: mercial activities. Consequently, they provide very little marketing impact, marketing efficiency, and return on insight into the longer-term health of a brand or the im- marketing investment. For impact, we sought to under- pact that longer-term commitments to branding have on stand the incremental percentage of unit sales volume shorter-term sales. that resulted from marketing. Our efficiency measure as- T B C G
  11. 11. cannot be generalized to other brands—even within sim- age of dollar sales is not viable as either a standard man-ilar product categories. As much as managers might wish agerial target for marketing budgets or a competitiveotherwise, a “typical” return on marketing investment is benchmark.a myth.The second key finding from our research was that many Maintain “Share of Voice” andof the rules of thumb frequently used as shortcuts for Overinvest to Gain Market Shareallocating marketing budgets had little or no correlationwith enhanced performance in marketing. We eval- In the hopes of securing what they consider a fair share ofuated the following five commonly used rules for allocat- voice in the ongoing “conversations” with consumers, mar-ing marketing investments. keters oen look to the competition when determining their level of advertising exposure. However, we found that brands with a relatively higher share of voice, whichPeg Marketing Budgets to Revenues we calculated as an estimated percentage of overall media spending in the category, did not consistently drive greaterWe found no consistent correlation between marketing unit-sales volume—and oen generated less gross marginspending as a percentage of dollar sales and either mar- for every dollar they spent on marketing. Similarly, com-keting impact or ROMI. Brands that spent more on mar- panies that overinvested to capture a share of voice thatketing as a percentage of dollar sales (that is, 30 to 35 per- exceeded their market share also failed to achieve greatercent rather than 20 to 25 percent) did not drive more return on their investment. (See Exhibit 3.) In short, sim-volume, but they did realize lower returns on their invest- ply shouting louder than the competition does not appearment. We therefore conclude that spending as a percent- to be the best path to achieving marketing success. Exhibit 2. Marketing Impact, Efficiency, and ROMI Varied Widely Across the Modeled Brands Return on marketing Marketing impact Marketing efficiency investment (ROMI) Percentage of unit sales Spending per percentage point Incremental gross volume attributed to of unit sales volume attributed margin per $1 spent marketing1 to marketing2 ($millions) on marketing ($) 100 20 2.50 80 2.00 15 60 1.50 10 40 1.00 5 20 0.50 0 0 0.00 Brands 1–75 Brands 1–75 Brands 1–75 Source: 2010 ROMI modeling meta-analysis by BCG and Marketing Analytics. Note: The models for the 75 brands were based on at least two years of marketing activity and weekly sales in the U.S. food channel between October 2005 and July 2009. 1 This percentage reflects the amount of unit sales volume that can be attributed specifically to the impact of marketing expenditures. 2 This calculation reflects the marketing expenditures that can be linked specifically to an incremental increase in unit sales volume.N S 
  12. 12. Exhibit 3. Capturing a Share of Voice in Excess of Market Share Failed to Consistently Deliver a High Return on Investment Incremental gross margin per $1 spent on marketing ($) 3.00 2.00 1.00 0.00 –100 –50 0 50 100 Share of voice – unit market share (%) Source: 2010 ROMI modeling meta-analysis by BCG and Marketing Analytics. Notes: We calculated share of voice on the basis of Kantar Media’s estimates of measured media expenditures for the 75 brands in the proprietary data set for the entire period modeled for each individual brand. Share-of-market calculations were based on brand-specific data for each brand. The models for the 75 brands were based on at least two years of marketing activity and weekly sales in the U.S. food channel between October 2005 and July 2009.Integrate Marketing Campaigns to consider investing in lower-share brands, since they offerRealize Synergies Across Vehicles greater marginal opportunity.Increasing the number of marketing vehicles and de-creasing the average spending per vehicle resulted in Invest in High-Margin Brandsboth lower unit-sales volume and lower ROMI. (See Ex-hibit 4.) While synergies between marketing vehicles ex- Brands with relatively higher gross margins did not de-ist and can be measured, managers cannot assume that liver greater marketing impact and had comparativelythese occur in the absence of sufficient support. Adding lower ROMI. Brands with a gross margin below 50 per-marketing vehicles to the mix requires increasing the to- cent of the net sale price had higher marketing impacttal budget. and delivered greater incremental gross margin per $1 spent on marketing than did brands with a gross margin above 50 percent. Managers shouldn’t assume that high-Invest in Brands with the Highest er-margin brands offer higher returns on marketing.Market ShareIncremental unit-sales volume was not any greater for Wthe brands that had relatively higher market share—in e are not saying that rules of thumb don’t ex-fact, the return on investment was actually lower for ist. No doubt, in certain cases, some could de-these brands. Therefore, driving incremental unit-sales liver higher levels of marketing performance.volume was expensive and inefficient for the highest- However, as our study reveals, such rules shouldn’t be fol-share brands in our sample. Managers should therefore lowed blindly without analysis of the specific situation. T B C G
  13. 13. Exhibit 4. Without Support, Additional Marketing Vehicles May Dilute the Return on Investment Incremental gross margin per Average annual spending $1 spent on marketing ($) per marketing vehicle (millions) 3.00 40 30 2.00 1.74 20 1.00 0.82 0.68 0.63 0.61 10 0.56 0.51 0.43 0.00 0 Average 1 2 3 4 5 6 7 Number of vehicles used of all vehicles Number of brands 75 3 12 11 29 11 6 3 in sample Source: 2010 ROMI modeling meta-analysis by BCG and Marketing Analytics. Note: The models for the 75 brands were based on at least two years of marketing activity and weekly sales in the U.S. food channel between October 2005 and July 2009.N S 
  14. 14. A Better Road MapM ost companies have tried to improve Strategy: Spend on the Right Things discrete elements of their marketing plans, but few have addressed all the At the strategic level, the key ROCI disciplines are precise activities in their commercial mix. Few- allocation of investments across the portfolio, clear com- er still combine the rigor of models and mercial objectives, and focused customer targeting.research with the art of strategy and creativity for a bal-anced approach to marketing. Many also fail to suffi- Allocate spending on the basis of both strategic po-ciently balance traditional marketing-mix measures of tential and commercial response. Commercial budgetsnear-term sales impact with longer-term measures of should be directed to businesses that deliver high ROCIbrand strength and customer retention. Finally, few and offer long-term strategic potential. Our research inmanagers are able to adjust and optimize their commer- consumer packaged goods suggests that U.S. manufactur-cial activities continuously. ers should adopt a strategy of “go big or go home.” The largest absolute budgets allocated to the largest brandsThe approach we recommend for achieving higher ROMI (determined by unit sales volume rather than marketemploys a proven and comprehensive set of tools. It in- share) in the largest categories yielded a disproportion-corporates all the tactics that are generally considered ately higher return on investment. (See Exhibit 6.) Bywhen optimizing ROMI, as well as those that fall under a contrast, the smallest brands and the smallest categoriesbroader banner that we call return on commercial invest- had lower returns regardless of their budget range. Notment, or ROCI. In addition to the traditional ROMI levers only is direct investment being wasted on these “long-of media spending and consumer promotions, ROCI cap- tail” opportunities, but managerial time and overheadtures a wide range of other business drivers, including are also being squandered. Commercial budgets can’t betrade marketing, product quality, pricing, distribution, allocated democratically—not every brand deserves anand sales force activities, as well as the external context equal share of the budget.of the overall brand category and economy. Through thisapproach, we evaluate commercial investments not only Set clear, discrete, and measurable commercial objec-for their ability to drive short-term sales, but also for their tives. Commercial objectives and success are too oenpotential to build brand equity over the longer term and defined aer the fact by choosing from a grab bag of theto expand the purchase funnel—that is, the mental deci- most favorable metrics at hand. Even when commercialsions a customer makes from gaining initial awareness of objectives are determined ahead of time, they are not al-a product to purchasing it. ways aligned with corporate objectives or across the com- mercial organization. We’ve found that a return to classicThe ultimate goal of this approach—which we outline be- purchase-funnel analysis can help companies greatly im-low and in Exhibit 5 at the strategic, tactical, and opera- prove ROCI by encouraging them to select a few specifictional levels—is to establish a lasting measurement and objectives (for example, brand awareness, trial purchase,optimization capability within the commercial organi- or repeat purchase) and support them with a strong busi-zation. ness case and associated metrics. T B C G
  15. 15. Exhibit 5. Measuring and Optimizing ROCI Requires Activities at the Strategic, Tactical, and Operational Levels Level of activity Key levers Core principles Strategic Precise allocation of the portfolio ◊ Allocate resources to brands with high potential and high commercial response Clear commercial objectives ◊ Align on a few specific objectives Focused customer targeting ◊ Focus on the highest-value customers Tactical Level of spending ◊ Find your sweet spot: above the minimum and below the maximum Commercial mix ◊ Optimize on the basis of driver efficiency Timing of activities ◊ Balance message reach and frequency Organizational alignment ◊ Align disparate commercial disciplines Operational Process integration ◊ Integrate pan-commercial processes Metrics mindset ◊ Embrace a culture of measurement Analytical competence ◊ Enhance analytical talent and tools Systems and infrastructure ◊ Determine what, who, why, when, and how oen Source: BCG experience and analysis.Target the subset of customers who really matter. spans. Others are too large given the marginal impactManagers need to first determine which customers drive they deliver. Our research clearly showed that increasedvalue for a category and a brand, and then understand absolute spending drove incremental volume—but withtheir behaviors, demographics, and attitudes. For exam- declining efficiency. The challenge of finding the limits ofple, one of our clients discovered that a large, highly valu- minimum and maximum investment is all the more rea-able group of buyers tended to make purchase decisions son to adopt a statistical, model-based approach, ratheras early as six months before a product’s launch. There- than relying on rules of thumb.fore, virtually all the commercial activity timed to coincidewith the launch itself was wasted on a critical segment of Reallocate the commercial mix toward the highest-“early deciders.” This discovery led the company to invest return vehicles. Companies intuitively know that therea portion of its commercial budget much earlier in the will be varying levels of impact, efficiency, and ROCI forproduct launch cycle. different commercial activities. But they do not always quantify these important differences. In our research, we identified clear patterns of inefficient allocation. Specifi-Tactics: Spend in the Right Ways cally, most of the brands in our sample overinvested in trade spending and television ads that generated high in-Tactics address a company’s level of commercial spend- cremental volume but low efficiency and low return oning, allocation of the commercial mix, and timing of com- investment. This type of behavior oen reflects corporatemercial activities. cultures and key performance indicators that reward vol- ume over value.Spend above the minimum threshold but not past thepoint of diminishing returns. Many commercial invest- By contrast, less than half of the brands in our samplements are too small to break through the clutter of over- invested in online advertising during the period of ourcrowded markets and capture consumers’ short attention study (and only in relatively small amounts, at that),N S 
  16. 16. Exhibit 6. Go Big or Go Home Large Budgets Spent on Large Brands and Categories Yielded the Highest ROMI Marketing expenditures versus brand size Marketing expenditures versus category size Marketing expenditures ($millions) Marketing expenditures ($millions) 0.33 0.85 ≥100 0.89 0.89 ≥100 0.89 1.74 0.42 0.62 50–99 0.62 1.25 50–99 0.84 0.42 0.64 0.42 30–49 0.55 30–49 0.22 0.42 0.35 10–29 10–29 0.30 0.38 0.27 0.27 0.48 0.55 0.27 <10 <10 0.44 0.26 0.71 0.70 0 0 <100 100– 250– 500– >1,000 <0.5 0.5–<2 2–<5 5–<10 >10 249 499 999 Brand size ($millions) Category size ($billions) 0.62 = Incremental gross margin per $1 spent on marketing ($) Source: 2010 ROMI modeling meta-analysis by BCG and Marketing Analytics. Note: The models for the 75 brands were based on at least two years of marketing activity and weekly sales in the U.S. food channel between October 2005 and July 2009.despite our finding that online ads delivered the greatest Managers should have a system for evaluating messageefficiency and return on investment. No doubt, findings complexity to ensure sufficient frequency of exposure,like ours are prompting the recent expansion in digital and they also should consider seasonality and the pur-marketing by consumer-packaged-goods manufacturers. chase cycle when trying to reach a specific audience. (SeePrint advertising was also characterized by relatively Exhibit 8.)smaller volumes and higher economic returns. Both printand online media are highly targetable vehicles that canbe effective and efficient with discrete audiences. Over- Operations: Analyze, Execute, Measure,all, it is clear that impact equals neither efficiency nor Adjust, and Repeatreturn on investment—and that volume does not ensurevalue. (See Exhibit 7.) The final and perhaps greatest barrier to making com- mercial spending more accountable is developing the ca-Balance message complexity, reach and frequency of pability to measure and optimize ROCI consistently andmarketing exposures, and product purchase cycles. continuously. This capability requires companies to em-Consumers must be exposed to ad messages with suffi- bed new tools into their commercial-planning processescient frequency if investments in them are to pay off— and new thinking into the culture of their commercial or-just how oen depends on message timing and complex- ganizations. (See Exhibit 9.)ity. Complex messages require more exposures, but thatdoesn’t mean they cannot be as effective as simpler ones. Although it is positioned as the last of our three sets ofComplex messages also require a minimum threshold of activities, operations must be more than an aerthoughtinitial investment in order to achieve efficiency and pay- when optimizing ROCI. Take the example of a telecom-back (an S-shaped curve). By contrast, simple messages munications company that recently embedded a ROCIhave no minimum threshold: the first impression is the capability within its organization. The company dividedbest, and it’s all downhill from there (a C-shaped curve). its initiative into two basic phases: analysis, which consist- T B C G
  17. 17. Exhibit 7. Greater Sales Volume Doesn’t Necessarily Yield Greater Value Return on marketing Marketing impact Marketing efficiency investment (ROMI) Spending per percentage point Percentage of unit sales volume of unit sales volume attributed Incremental gross margin attributed to marketing1 to marketing2 ($millions) per $1 spent on marketing ($) 20 19 5 3.00 4 3.8 15 2.00 1.85 3 10 2.4 2 1.7 1.00 0.84 5 0.9 0.62 4 1 0.39 1 0 0 0 0.00 Trade TV Print Online Trade TV Print Online Trade TV Print Online Number of brands in 75 64 43 29 75 64 42 29 75 64 43 29 sample Source: 2010 ROMI modeling meta-analysis by BCG and Marketing Analytics. Note: The models for the 75 brands were based on at least two years of marketing activity and weekly sales in the U.S. food channel between October 2005 and July 2009. 1 This percentage reflects the amount of sales volume that can be attributed specifically to the impact of marketing expenditures. 2 This calculation reflects the marketing expenditures that can be linked specifically to an incremental increase in unit sales volume. Exhibit 8. Marketing Impact Varies with Media Penetration, Message Complexity, and Media Dispersion Illustration: Sales response curves Messaging characteristics Incremental unit sales volume (%) Media Message Media penetration1 complexity dispersion2 Diminishing returns Example 1 High Low High Example 2 Moderate Low Low Example 3 Moderate High Moderate Example 4 Low Low High Incremental investment ($millions) Sources: Marketing Analytics experience and analysis; Jim Surmanek, Media Planning: A Practical Guide, NTC Business Books, 1996. 1 Media penetration is the percentage of people exposed to a given media vehicle within a given period; it is a key factor affecting an ad’s maximum potential audience. 2 Media dispersion reflects the coverage of a given media daypart based on the total number of ad placements and the number of programs (publications, for print ads) in the rotation. It is a key factor affecting the rate of audience accumulation. For example, 20 ads appearing in 15 to 20 programs constitute high media dispersion; 20 ads appearing in 4 to 8 programs constitute low media dispersion.N S 
  18. 18. Exhibit 9. Companies Must Embed ROCI Capabilities into the Commercial Organization Models, tools, and KPIs Commercial planning process Customer valuation Commercial Commercial Commercial Commercial and insights objectives and goals planning execution impact Communications planning Demo- Awareness Budgeting graphics Fulfillment Consideration Commercial Advertising $ calendar Preference t Messaging Media strategy buying Production Trial Behaviors Attitudes Commercial plan $ Commercial organization and culture Organizational Process Metrics Analytical Systems and alignment integration mindset competence infrastructure Source: BCG experience and analysis.ed of developing and executing a ROCI model, and indus- effort on all fronts, the model was accurate and robust—trialization, which called for the company to hard-wire the but also a bit untidy. To “industrialize” the analysis, thisROCI approach into its day-to-day business activities. Al- disorderly plate of spaghetti needed to be transformedthough the analysis was tough, the industrialization effort into a replicable jigsaw puzzle. The pieces of the puzzletook just as long—and was in many ways the more chal- became systematic, preformatted templates for eachlenging of the two phases. function to use in order to contribute to efficient updates of the ROCI models. Then the company embedded theIn the first phase, the company developed a set of models insights from those models into the commercial organiza-and analyses addressing the entire commercial budget. tion’s planning. It also created a full-time position to man-Every one of the commercial functions—including tradi- age the ROCI process, and it assigned clear roles and re-tional brand communications, retail marketing, distribu- sponsibilities across each function. The result is a moretion, and new media—worked together on this effort, in cohesive and objective planning process across the entiresome cases for the first time. In the past, each function commercial organization.had relied on completely different data, metrics, and toolsto make decisions about commercial investments. Since As this example illustrates, most successful companiesthis phase was completed, they’ve gained a common cur- spend a good deal of time addressing organizational andrency that allows them all to compare and optimize the cultural hurdles in addition to analytics and models. Spe-impact and efficiency of—and the return on—their col- cifically, they focus on five objectives.lective investments. Organizational Alignment. A typical commercial or-Whereas the analysis phase delivered immediate finan- ganization houses many disciplines, including advertis-cial impact, the industrialization phase resulted in an on- ing, sales, loyalty marketing, and pricing. These groupsgoing capability. Dozens of independent data sets were must be brought together in order to develop a commonpulled in to feed the initial analytical model. Aer great understanding of the accountability imperative, a T B C G
  19. 19. common definition of ROCI, and a metrics toolkit. analytical suppliers (sourced either externally or in-Effective alignment oen requires broadening the defini- house), and the development of internal centers of ana-tion of the commercial organization to include advertis- lytical agencies and other key partners. Systems and Infrastructure. The databases and infor-Process Integration. Each commercial discipline has its mation technology required to continuously measure andown processes for planning, budgeting, and execution. optimize commercial investments are not trivial. WhenAlthough these processes do not need to properly understood and scoped, numer-be standardized across the commercial or- The goal is to bring ous data sources can be mapped to theganization, they do need to be integrated both right- and left- models and tools they feed, allowing forso that they enable commercial planning regular and highly efficient updating. Thisand measurement across functions. The brain thinking—art infrastructure, however, must be tailoredflow of knowledge from models and other and science—to the to the needs and usage patterns of individ-tools must be channeled into commercial uals across the commercial organization. marketing challenge.processes so that managers can leverage Too many managers are seduced by dem-past results going forward. onstrations of techno-gadgetry without first properly understanding what tools are needed, byMetrics Mindset. Commercial activities are not becom- whom, for what purposes, when, and how o less creative, but they are certainly becoming moreanalytical. Managers should champion the metrics and Like other major improvement programs (such as lean,processes of ROCI optimization and integrate them with Six Sigma, and just-in-time manufacturing), measuringthe brand and the broader category context. The goal is and optimizing ROCI cannot be accomplished throughto bring both right- and le-brain thinking—art and sci- shortcuts. It requires a dedicated change-management ef-ence—to the marketing challenge. fort, and, in most cases, building and embedding a ROCI capability across the enterprise takes well over a year. ItAnalytical Competence. The level of analytical compe- also requires sufficient resources and time to overcometence in many commercial organizations is simply insuf- the inevitable pitfalls that occur in any change-manage-ficient given the amount of data and metrics available to ment program. However, if done correctly, this up-fronttoday’s managers. There are a range of options available dedication will be efficiently leveraged by the commer-to close this competence gap, including a hiring- and cial organization for years to upgrade in talent, a purposeful reliance onN S 
  20. 20. Stepping Up to the ChallengeR OCI isn’t just for consumer-packaged-goods ◊ Identify the minimum and maximum thresholds of companies. In fact, some of the most ad- spending vanced ROCI work being done today can be seen in industries such as telecommuni- ◊ Shi their commercial mix to the vehicles with the cations and financial services. Similarly, highest ROCIthe approach we are describing is not only for large, so-phisticated companies with sizable commercial budgets. ◊ Deploy a single ROCI definition and toolkit acrossBrands of all sizes around the world are using these commercial disciplinestools and analytics. ◊ Develop a culture of commercial accountabilityOf course, managers must take into account a company’sindividual context when anticipating results. Still, we be- To measure and improve ROCI continuously, companieslieve our approach to be widely applicable and the ben- must first acknowledge and embrace the complexity ofefits it delivers significant. But it will require most com- the challenge. That means resisting simplistic rules andpanies to make some major changes. Companies that questioning traditional formulas for allocating budgets. Itadopt a more comprehensive ROCI approach will do the also means being ready and able to take a more compre-following: hensive approach to commercial investments.◊ Allocate spending to the businesses that are most re- With advertising budgets at many companies beginning sponsive to commercial investment to approach or exceed capital expenses, there is a tre- mendous amount to be gained by optimizing ROMI and◊ Align commercial spending with commercial and cor- ROCI, and the need to do so has never been more ur- porate objectives gent. Today, when growth is hard to come by and bud- gets remain tight, the opportunity to reclaim or reinvest◊ Focus their efforts on motivating the most valuable 15 to 30 percent of commercial spending is simply too customers good to pass up. T B C G
  21. 21. AppendixOur meta-analysis summarizes results from 75 marketing- In all cases, we were careful to protect the confidentialitymix models developed by Marketing Analytics for con- of our clients. Individual, anonymous identifiers weresumer-packaged-goods brands. used for all brands in our sample (for example, BR000001). Furthermore, all analytics were conducted on the sum- mary input and output of individual models, rather thanConstructing the Data Set on content specific to the model itself.The data set of 75 brands was drawn from a range of foodand beverage categories, as well as household cleaning, Analytical Methodologypersonal care, and other nonfood product categories. Themodels for these brands were based on at least two years We undertook this analysis because we were interestedof marketing activity and weekly sales in the U.S. food in evaluating three measures of marketing performance:channel between October 2005 and July 2009. marketing impact, marketing efficiency, and return on marketing investment (ROMI). For impact, we sought toUsing these 75 models as our foundation, we subsequent- understand the incremental percentage of sales volumely projected total U.S. sales, using estimates of the grocery attributable to marketing. Our efficiency measure assess-channel as a proportion of total sales for each category. es the amount companies spent on marketing to in-Next, we grouped sales volumes attributable to individu- crease unit sales volume or retail sales by 1 percentageal marketing activities into a standard hierarchy of me- point. Finally, we measured the incremental revenuedia: television, print, radio, billboards, online, coupons in and incremental gross margin generated by each dollarfreestanding inserts, and retail trade promotion. We then spent on marketing. The specific calculations are out-converted these standardized units of activity into esti- lined below.mates of marketing spending, using published estimatesof costs per unit. For instance, we converted modeled Marketing Impact: Higher Is Better. We calculatedgross rating points (GRPs) for specific cable-TV program- marketing impact as the percentage of sales volume at-ming into spending on cable TV by using an estimated tributed to marketing (measured either in category-equiv-average cost per GRP from third-party sources. alent units or retail sales):Trade spending, however, required a different approach, total sales volume attributed to marketingsince it is notorious for not being governed by a consis- total sales volume of the brandtent price list. We therefore estimated trade spending ata constant 17.5 percent of dollar sales volume. Marketing Efficiency: Lower Is Better. We calculated marketing efficiency as the dollar amount of marketingFinally, we applied third-party estimates of gross margin expenditures per percentage point of unit sales volumefor manufacturers and retailers, at the category level, en- attributed to marketing (measured in either category-abling us to calculate return on investment. equivalent units or retail sales):N S 
  22. 22. average annualized marketing expenditures ◊ We focused on consumer-packaged-goods brands in percentage of total sales volume attributed to marketing the United States. The primary reason for this focus was to leverage the relative similarities found acrossReturn on Marketing Investment: Higher Is Better. these brands and models in terms of inputs, outputs,We calculated ROMI as incremental manufacturer reve- assumptions, and methodologies. When BCG and Mar-nue in dollars per $1 spent on marketing: keting Analytics have worked in other industries, such as entertainment, media, telecommunications, and total sales volume in dollars total unit-sales volume total unit-sales volume × attributed to marketing × 1 − retailer gross margin consumer electronics, we have found those brands to total marketing expenditures be very different from brands in the consumer-pack- aged-goods industry—and from one another.We also calculated the incremental manufacturer grossmargin in dollars generated by $1 spent on marketing: ◊ The brands in our data set are predominantly well-es- tablished, mature, and widely distributed, as are the total sales volume in dollars total unit-sales volume × attributed to marketing overall product categories in which they compete. On total unit-sales volume 1 − retailer gross margin total marketing expenditures × the basis of our experience, we anticipate that many total trade spending younger, niche brands in rapidly growing categories + × manufacturer gross margin total unit-sales volume will encounter different results.Important Considerations ◊ The results presented here implicitly reflect product and messaging quality, but these elements were notAs we counsel in this report, few rules of thumb are reli- analyzed directly. We regularly observe that higher-able enough to be universally applicable. Companies quality products and higher-quality communicationshould take the following points into consideration when can lead to better marketing performance. However,reviewing our efforts and findings: our results reflect our sample of 75 brands, with no ad- justment for relative product quality, message quality,◊ The models in our data set are focused on the shorter- or creativity in advertising. term impact of commercial activities. They therefore provide little insight into the longer-term health of a Our work has resulted in a unique proprietary data set brand or the impact that longer-term commitments to with associated benchmarks. Our findings are powerful, branding have had on shorter-term sales. but companies must carefully consider the implications for their individual situations.◊ Our work reflects data for the United States. Extrapo- lation to other regions is limited by at least five factors: distribution patterns, consumption habits, marketing factor costs, retailer margins, and manufacturer eco- nomics. T B C G
  23. 23. For Further ReadingThe Boston Consulting Group pub- The CMO’s Dilemma: Can You Go to Market Advantage: Thelishes many reports and articles on Reach the Masses Without Mass Battlefield for Consumer Media? Companiesmarketing and commercial invest- A report by The Boston Consulting BCG Opportunities for Action inment that may be of interest to se- Group, July 2009 Consumer Markets and Marketing &nior executives. Recent examples in- Sales, February 2007clude: Collateral Damage: Function Focus; Responses for Marketing To Spend or Not to Spend: A New and Sales in the Global Downturn Approach to Advertising and A report by The Boston Consulting Promotions Group, February 2009 BCG Opportunities for Action in Consumer Markets, April 2005 Smarter Marketing for Tougher Times BCG Opportunities for Action in Consumer Markets, June 2007N S 
  24. 24. Note to the ReaderAcknowledgments For Further ContactThe authors would like to thank BCG’s Marketing & Sales and Con-Lasse Jensen, Dan Krohm, and Eric sumer practices cosponsored thisStuckey for their role in developing publication. For inquiries aboutour study and Megan Findley, Sally these practices or our approach toSeymour, Mary DeVience, Gina Gold- achieving better returns on market-stein, and Angela DiBattista for their ing investments, please contact onecontributions to the writing, editing, of the following BCG partners:design, and production of this report. Asia Miki Tsusaka BCG Tokyo +81 3 5211 7939 Europe Patrick Ducasse BCG Paris +33 1 4017 1023 Jens Harsaae BCG Copenhagen +45 7732 3400 The Americas Neal Rich BCG Chicago +1 312 993 3300 Rohan Sajdeh BCG Chicago +1 312 993 3300 T B C G
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