Slide 1

Speaking in Numbers, the Language of Bottom Line Business

Dwight Riskey, PepsiCoKate Sirkin, Starcom MediaVest Group (SMG)

David Stewart, University of Southern California

A Panel Discussion Presented to the IIR 9th Annual Conference on Return on Marketing

InvestmentFort Meyers, Florida

February 7, 2006

Slide 2

Mission

To Establish Marketing Measurement Standards

for Continuous Improvement in Business Performance

The Boardroom Project

2

Slide 3

The Boardroom Project

Marketing Professionals Coming Together to Address Marketing Accountability (2004+)

Dave Stewart (Chair) University of Southern California

Wade Holmes (Admin) The ARS Group

Kate Sirkin Starcom MediaVest

Dwight Riskey Pepsico

Mike Duffy VNU

Meg Blair rsc

Mitch Barns BASES / M&A

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Slide 4

What is ROMI?

…defined as the revenue (or margin) generated by a marketing program divided by the cost of that program at a given risk level.

Guy R. Powell (2002), Return on Marketing Investment, (Albuquerque, NM: RPI Press), p. 6.

This is an economic (financial) measure!

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Slide 5

Why ROMI Must Be A Financial Metric

• It’s the Language of the company• It’s the way companies report and are evaluated• It’s the way to compare alternative actions

– Across products, markets, customers• It provides accountability• It promotes organizational learning and cross-

functional team work• It’s the Way to Answer Questions about the

“Optimal Marketing Mix”

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Slide 6

Marketing does not lack measures, but…

• It lacks standard measures and metrics

• It lacks metrics explicitly linked to financialperformance in predictable ways

• In many areas, but not all, it lacks formal processes for auditing marketing metrics models

• It is highly idiosyncratic

– You cannot improve a process until the process has been defined

Framing the Problem

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Slide 7

An Analogy: The Quality Movement

Marketing is Where Quality Was 50 Years Ago• Highly Idiosyncratic• Viewed as A Cost (Scrap and Re-work as “Low Cost”

Substitutes for Quality)• Lacking Standard Metrics• Lacking Standardized Processes

The Quality Movement has spent 50 years proving itself (this has cost money)

• Developing Metrics• Creating Standard Processes• Linking to Financial Performance (through demonstrated

cost savings and higher returns in the market)• Demonstrating its Value

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Slide 8

Standards Must Be Linked to Something

• Marketing Standards Must Be Linked to the Objectives of the Firm

– Financial Performance

– Growth

• Marketing Standards Must Be Linked to the Common Language of the Firm

– Financial Performance

– Shareholder Value

• Marketing Standards Must Reflect Both Revenue & Costs

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Slide 9

Cash Flow Is the Ultimate Marketing Metric

• Cash flow is the primary financial metric of the firm— It is a measure that is consistent across markets,

products, customers, and activities• Objective of marketing is to identify sources of and to

produce cash flow• There are a small number of drivers of cash flow

— Cash is obtained from a source (customer acquisition and retention, share of wallet within category, share of wallet across category)

— Cash is produced through a business model (margin, velocity, leverage)

Every marketing activity should be causally linked to these drivers and ultimately to cash flowIntermediate marketing metrics may be useful and even necessary to make this causal link BUT such intermediate metrics must be validated and tested against cash flow

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Slide 10

Linking Marketing Outcomes to Financial Performance(Marketing Metric Audit Protocol -- MMAP)

There Is a Need to Causally Link Specific Marketing Actions and Intermediate Marketing Outcomes to Each of The Three Types of Returns from Marketing

MarketingActivity

Cash FlowDriver

IntermediateMarketing Outcome

TV Ads

Price Premium

Consumer Brand

Preference

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Slide 11

Step 1: Identify Cash Flow Drivers for the Business

Cash Flow

Cash FlowDriver ( Share of

Wallet within Category)

Cash FlowDriver (Leverage)

Cash FlowDriver (Velocity)

Cash FlowDriver (Margin)

Cash FlowDriver (Customer Acquisition and

Retention)

Cash FlowDriver

(Share of Wallet across Categories)

BusinessModel: (How the firm generatesCash)

SourceOf Cash

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Slide 12

Step 2: Identify Measures of Marketing Outcomes

MarketingActivity

IntermediateMarketing Outcome

IntermediateMarketing Outcome

Measures and Metrics

IntermediateMarketing Outcome

IntermediateMarketing Outcome

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Slide 13

Step 3: Identify the Conceptual Link of Intermediate Metrics to Cash Flow Drivers

An Example

Note: this would be done for both short-term and long-term

Cash Flow Drivers

Source of Cash Business Model

Customer Acquisition

and Retention

Share of Wallet Within

Category

Share of Wallet Across

Category Margin Velocity Leverage

Intermediate Marketing Outcome Metric

Market Share √ √

Leads Generated √ √ √

Purchase Intent √ √

Brand Preference (Equity; Loyalty) √ √ √ √ √ √

Customer Satisfaction (Retention; Loyalty) √ √ √

Coupon Redemption Rate √ √

Distribution Coverage √ √ √

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Slide 14

Step 4: Identify the Causal Links of Marketing Activities

MarketingActivity

Cash FlowCash FlowDriverIntermediate

Marketing Outcome

Measures and MetricsValidation & Test Business Model

IntermediateMarketing Outcome

IntermediateMarketing Outcome

Cash FlowDriver

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Slide 15

Validation and Causality Audit

• Every Intermediate Marketing Outcome Metric Should Be Validated Against Short-term or Long-Term Cash Flow Drivers and Ultimately Cash Flow

– This will cost money, but

– It will facilitate forward forecasting & improvement. . . which should be the criteria for validation

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Slide 16

Case Study 1: Frito-Lay

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Slide 17

• A wide variety of marketing “levers” to pull

• Pulling them requires resources

• The challenge: Figure out how well each works

• Learn how to use them more effectively

Main Objective: Grow the Business Faster

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Slide 18

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Marketing Mix allows us to learn “contingencies of reinforcement”

Slide 19

A wide variety of marketing “levers” to pull

Pulling them requires resources

The challenge: Figure out how well each works

Learn how to use them more effectively

Avoid:

– “Superstitious Behavior”

– “Learned Helplessness”

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Main Objective: Grow the Business Faster

Slide 20

Marketing Mix employed for 5 years

Consistent models – Portfolio Approach

Periodic rather than intermittent analysis and reporting

Viewed from four perspectives:

— Feedback – How did we do?

— How should we adjust?

— Forecast – How will we do after plan adjustments?

— What have we learned about what makes them work?

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Frito-Lay Case Study

Slide 21

• All MacroSnack push & pull activities• Environmental data – unemployment, Consumer Price

Index, etc.• Market level, rolled-up to three divisions• Key output: Base and Incremental volume “due-to”

various marketing activities

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The Frito-Lay Approach

Slide 22

• What helped/hurt pound growth in a given period of time vs. same time year ago

For both PORTFOLIO and BRAND:

• Effectiveness Measures:Incremental #’s per GRP Incremental #’s per Coupon

• Efficiency MeasuresCost Per Incremental PoundCost Per Incremental DollarROI

Growth Drivers (& Restrainers)

Effectiveness/Efficiency “Report Card”

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Key deliverables

Slide 23

• How to allocate limited marketing resources > which brands to fund

> which region/divisions to fund

> which mix activities to fund

• … provide the most incremental volume and highest Return on Investment

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How we use it

Slide 24

How Do We Make It Better?

CoverageSpeedComparability

– Need for standards

This is the link to The Boardroom Project.

Slide 25

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Marketing Mix allows us to learn “contingencies of reinforcement”

Slide 26

Case Study 2: Optimizing Customer Contact

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Slide 27

Brand Health Analytics

The Evolution of ROMI from Media Agency Perspective

Is media helping to maintain brandHealth and/or reposition brand?

Is media campaign deliveringplanned CPMs?

Post Buys

Is media helping to build awareness? Tracking studies

Is media driving short term sales? Marketing mix modeling

Time Question Source of Answer

ComprehensiveAnalytics Frameworks

What is the optimal mix of Integrated Marketing Contacts and tactics

Within those contacts to drive bothShort and long term brand goals? 26

Slide 28

SMG Three Pronged Approach to Measuring ROMI

MCABrandHealth Analytics

MarketMix Modeling

OutputsRelationships between marketing efforts and ST sales

Relationships between marketing efforts and

Consumer brand experience metrics

Coefficients - by media, copySaturation levelsHalf lives

ImpactsEffective weekly weights by medium

Helps understand BRAND AWARENESS, IMAGE AND POSITIONING in relation to marketing efforts Optimal IMC mix

Scheduleing tacticsHelps predict awareness linked to media weight

Measures current and projected campaign effects

Focus on R/F

Helps understand how the CONTEXT IS WORKING TO DRIVE THE BRAND MESSAGE AND

Measures TOTAL CONSUMER BRAND EXPERIENCE

For currently used media For currently used mediaCURRENT AND POTENTIAL CONTACTS

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Slide 29

0 10 20 30 40 50 60 70 80 90 100

Doc/Nurse

Mother

Friends

Free smpl pdt with purchased pdt

Smpl packs in school/college

Smpl via mail

Health/sex-ed class

Smpl packs @ O/door female places

IS money off coupon

Free smpl @ grocery store

Smpl in Mag

Money off coupon in mag/NP

Packaging

Free smpl @ favorite clothing store

Magazine new pdts reco.

Advice columns in mag

Wsite for teens girls/women

Sponsored Charities/Causes

Purchase @clothing/Beauty Store

Magazine Ad

Special IS store display

Smpl via internet/800 #

TV Sponsored Programs

TV Ad

1st Q

uarti

le2n

d Q

uarti

le3r

d Q

uarti

le

MCA Contact Clout Factors Provide Most Influence Contacts

S

Advice/reco from trusted sources

Try before you buy with samples

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Slide 30

MCA Decomposition of Brand Experience with Changes over Time in Mass Media

24%

22%

47%

21%

19%

22%

37%

25%

22%

40%

18%

16%

19%

40%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Magazine Ads

Advice Columns in Magazines

Sample in Magazine

New Product Reco

TV Ads

TV Sponsored Program

Pdt Appears in TV Show

Wave 1 Wave 2

104 Index

100 Index

85 Index

86 Index

84 Index

86 Index

108 Index

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Slide 31

Ultimate Goal Is To Link The Metrics To Deliver ROMI

correl = 0.76

0%

5%

10%

15%

20%

25%

30%

0% 5% 10% 15% 20% 25%BES

Mark

et

Sh

are

(V

alu

e)

JAS’04 Femcare Total

Brands BESMarket Share

(Value)Market Share

(Volume)Value Index

RatioBES/MS

W 26% 16% 15% 1.1 1.61S 24% 30% 30% 1.0 0.78L 23% 24% 29% 0.8 0.95E 11% 12% 12% 1.1 0.85Ce 10% 6% 7% 0.9 1.65Ch 6% 11% 6% 1.8 0.58

100% 99% 99%

Correlations BES/MS (Value): 76%Correlations BES/MS (Volume): 80%

)

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Blue = W2 reference

Slide 32

Conclusions

Why The Boardroom Project?– Need for standards– Link to financial performance– Importance of forward validation– Continuous improvementJoin Us?– ARS-group hospitality suite (Suite 973)– 6:00 – 8:00 pm

Slide 33

• How do you deal with the fact that the outcomes of many marketing activities are hard to measure and difficult to separate from other factors? How do you get the numbers?

• Unlike operations or finance, many marketing outcomes are associated with a great deal of uncertainty. Isn’t it misleading to offer numbers that seem precise?

• Doesn’t the use of the same numerical measures reduce creativity and innovation?

31

Questions for the Panel