How to Spend the Minimal Effective Amount on Marketing

© 2011, Networked Insights, Inc. 2

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CFOs: How to Spend the Minimal Effective Amount on MarketingCFOs have access to rich data and reliable metrics for managing business performance in real or near-real time. Inventory turns. Cycle times. Days sales outstanding. In fact, business intelligence capabilities give today’s finance execu-tives a good grasp of virtually every aspect of operations.

But then there’s marketing. Sure, CFOs ultimately decide what financial resources are allocated to marketing based on revenue expectations and marketing’s corresponding responsibility to extend the reach of the brand and build both customer awareness and market share. But in reality, marketing is the major budget item that traditionally has been the hardest to understand and measure from a performance standpoint. Quarterly and annual reviews provide some idea of how the money is being spent, and frequency, reach, target rating points, media impressions and press clip counts are among the long-standing measures of marketing effectiveness. But these are becoming less and less informative as the world moves at Internet speed.

And here’s another unsettling reality CFOs are all too aware of: Your organization is probably overspending on marketing for the value you’re getting by 30 to 80 percent. As U.S. department store magnate John Wanamaker said: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” Knowing this, CFOs often go to their marketing departments for spending reductions when quarterly earnings per share (EPS) targets are not going to be met. Marketing dollars effectively serve as a rainy day fund that can be tapped for those extra cents per share needed to meet Wall Street’s expectations.

It doesn’t need to be this way anymore. Through social media and other channels, consumers are increasingly vocal about their likes, dislikes, intent to act and discussion of past actions.

Your organization is probably overspending on marketing for the value you’re getting by 30 to 80 percent.

30 - 80%

Marketing can leverage these “conversations” to become far more efficient — especially with its spending on advertising. The key is not just to monitor the conversation, however — almost any company can do that now with today’s social media monitoring engines.

Instead, marketing needs techniques and analytical capabilities that cut through the conversational clutter to identify trends and perform predictive modeling that not only captures the pulse of the marketplace now but offers valuable insights as to where the market is moving or where new markets are likely to appear. Armed with this information, chief marketing officers can identify the minimal effective amount of spending needed to drive the greatest market awareness.

This new form of “marketing intelligence” can dramatically reduce wasted spending. As a result, such a shift in spending effectiveness can contribute directly to earnings per share improvement. Marketing can finally — and with far greater accuracy — prove its accretive value to the enterprise and shareholders.

Right message, right place, right timeFor decades marketers have considered television to be the major driver of awareness. But today highly engaged, potentially massive audiences can be found in many other places. More than half a billion people, a twelfth of the world’s population, is connected on Facebook. Twitter has two hundred million users.

Numbers like these demand that marketers think about us-ing their resources differently. It’s not just about appending social media to traditional ad buys, or even integrating the two. Instead, CMOs can start using their customers to help sense and inform what awareness and promotional activities should be done in marketing and which of those will be most effective in reaching their exact audience.

Media buying can be made hyper-efficient by abandoning the traditional “spray and pray” approach and instead finding out exactly when and where to use it — the times and places that targeted consumers will not simply hear marketing’s messages but be highly receptive to them.


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More than half a billion people, a twelfth of the world’s population, is connected on Facebook.

Twitter has two hundred million users.

CMOs can then identify the most valuable components of the marketing arsenal — the right messages — and sequence them in ways that both resonate with target audiences and deliver measurable, substantial improvement in marketing ROI.

The two largest portions of the marketing budget typically are developing content and buying media. Being efficient and effective in both of these processes boils down to deliv-ering the right message in the right place at the right time.

Case study: An NCAA slam dunkEach year American businesses brace for a productivity plunge during the NCAA men’s collegiate basketball tournament — by one estimate, a total hit of $1.2 billion in 2010. Without question, March Madness stirs the passion of fans from coast to coast.

Companies typically try to capitalize on this fervor by adhering to a traditional marketing approach. One consumer services company believed it could dominate its category during the three-week tournament by buying exclusive advertising rights to TV broadcasts of games, at a cost of about $42 million. By throwing this expensive advertising blanket over the proceedings, the company effectively locked a competitor out of direct tournament advertising.

Searching for another way to get in front of tournament fans, the competitor turned to Networked Insights, which used social media data analysis to build a strategy for reach-ing this target audience at a fraction of the price of the TV buy. The typical approach in a situation such as this is to buy up all the online media, but there simply isn’t enough online content to achieve the same reach as a TV buy.

So Networked Insights challenged this approach and uncovered one especially promising insight associated with March Madness — the appeal of the upset. Combining social media and search data analysis, we learned that of all the storylines emerging during the tournament, the one fans enjoy and talk about more than any other is David taking down Goliath in a real upset.


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Social Loves an Upset

Social media engagement around teams with the biggest upsets.

To capitalize on this interest, the company could develop and license content associated with upsets — the creative possibilities are endless — and then be ready to roll it whenever the little guys triumph. Placement opportunities could include interstitial ads that appear when someone goes to YouTube looking for upset-themed videos. Google search results could include company-generated links that drive users to company-sponsored content.

Sequencing became the key to the success of such an approach. Content should be placed in venues that enable it to ripple and increase its social reach as much as possible as people pass it around.

Networked Insights’ comparison of the effectiveness of a targeted, sequenced media approach and a traditional exclusive-rights approach revealed striking differences. By modeling the overall ripple effect and social reach of the sequenced approach, we proved that a $2 million paid media investment would generate the same amount of reach and brand awareness as the $42 million spent on traditional advertising produced (Figure 1).

Viewed another way, more than 95 percent of the $42 million spent using the traditional media approach was wasted. That’s about $40 million that could have been spent on other priori-ties, or taken to the bottom line to boost EPS. For this client, that translated into 8 cents of EPS for the quarter.

A slam dunk indeed. Email: [email protected]

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Investment Summary

More than 95 percent of the $42 million spent using the traditional media approach was wasted.

(Figure 1)

NUMBER OF IMPRESSIONS

SOCIAL IMPRESSIONS COST


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How to make it happenWhat can you as CFO do to set your company on the path to hyper-efficient spending on marketing? A good place to start is by asking the CMO if he or she knows the minimal effective amount the company can spend on marketing to reach the awareness goals it seeks.

More than likely, your CMO will not know what you mean. This line of thinking is new, and the methodologies and tech-nology that enable this type of social media data analysis have only come into their own in the past two years. In light of this, a valuable next step is to conduct a pilot program to begin identifying inefficiencies and realigning resources to the rapidly changing, social media-infused marketplace.

Begin to tap the true value of marketing CFOs are sometimes grateful that marketing provides a piggy-bank their company can draw from to shore up earnings. But they also know that the flab in the marketing budget is stark evidence of costly, continuing inefficiency.

Consumer analytics can help CFOs and CMOs speak the same language and, for the first time, understand the minimal effec-tive amount they need to spend on their marketing initiatives. Placing the right message in the right place at the right time based on quantifiable real-time “intelligence,” your company can economically reach target audiences that are tuned in and responsive to your message, while enjoying a boost in EPS.

Networked Insights wasfounded in 2006 by industry leaders and seasoned entrepre-neurs in the fields of social media and customer intelligence. Headquarters are in Madison, WI, with offices in New York and Chicago.

Total Savings on Advertising 50,000,000

EXAMPLE WORKSHEET

534,000,000Number of Shares Outstanding

Impact on EPS 8 cents per share

How to Spend the Minimal Effective Amount on Marketing

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