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Marketing effectiveness

Understanding marketing effectiveness The range of marketing options and opportunities for marketers has expanded dramatically. Once there was only a limited choice between TV, radio, print and point-of-sale. Now there are a whole range of media from direct mail to the Internet supported by new technologies and new ways of measuring markets.

Marketing effectiveness is about estimating the return on marketing spend. While online click-through and conversion rates do provide estimates of cost per lead and cost per sale, many markets are not reliant purely on online advertising. How does TV, radio, blogging and events measure up in terms of return on spend?

For many companies, marketing is a major annual expenditure. For instance for major drinks companies marketing and promotional budgets run at more than 15% of total revenue. For global companies that means marketing expenditure of more than $500m per year across the globe.

If this type of expenditure went on salaries or production plants there would be a strong impetus in the business to try to calculate project return on investment before the money is committed. For marketing however, this isn't so easy.

Intuitively marketing works - more promotion creates more sales, but in practice until a piece of marketing  is tried live in the market, it can be difficult to say how well it will work. Online, multiple treatments can be tested, but for many products and brands, online is only a small part of their sales.

It is also often not clear what makes one piece of marketing work better than a different piece of marketing, or what the ideal marketing portfolio (the choice of media and execution is).

To show how difficult this is, below is advertising and promotion spend versus revenue and profit for two global drinks companies drawn from real data.

 

  Company A Company B
Revenue $3609m $3490m
Profit $863m $787m
A&P spend $559m $742m


This indicates that Company A is making more sales ($3.6bn) and more profit ($863m) with substantially less marketing spend than company B.

For each $1.00 of marketing spend Company A spent, it generated $6.45 of sales and $1.54 of profit. This compares to $4.70 of sales and $1.06 profit for each $1.00 of the second company.

So how is it that marketing at Company A is 45% more effective with its marketing than company B?

Marketing effectiveness is about measuring and quantifying the impact of marketing, and then finding ways to make marketing more efficient. How much do you need to spend to achieve a sale? What marketing methods are most profitable? How does marketing investment impact sales across time?

Most market measurements or market metrics measure values. These values might be awareness or brand strength, but how do these values relate back to actual purchasing and decision making by consumers and how do you optimise the amount you spend on marketing to get the best return?

Understanding the impact of different types of marketing, understanding the value points for customers and how much they are willing to spend, getting distribution and sales channels right, and building the right brands experience all factor into how far marketing expend can go.

For a discussion on marketing effectiveness and the controls to start measuring it, contact info@dobney.com


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