Marketing Mix Modeling is use of databases available to a brand in terms of sales data on the one hand and the marketing variables such as advertising, promotions, pricing, season, distribution etc on the other, and finding a statistical relationship between the two. This relationship once established does two things 1. It separates the impact of sales of each of the elements even if they are running concurrently (ah, the magic of software!) and 2. It allows us to optimize each element or at least the important ones which means that we get more out of the marketing spends. The improvement could be as much as 30% or more as a lot of the marketing spend presently may be having no impact whatsoever and so dropping it will not hurt. Or better still pushing it into something that is working will push up sales further.
The difference from what we have done earlier in Indian Marketing circles is that we are modeling actual behavior (sales) and not using mind measures (Brand Tracks) to guess at the behavior and sales numbers tracking that do not break down the impact by element. So MMM helps by quantifying this and therefore is pretty revolutionary for marketing. Secondly, we can validate the model by running it with inputs only on past data and see the “fit”. This means that the model will predict sales and we can then compare it with actual sales. If it is indeed predictive than we know that the model works! No wonder MMM is become the holy grail for marketers world-wide. Manoj Tadepalli
Friday, December 4, 2009
Wednesday, October 14, 2009
Shareholder value enhancement - Pardigm shift in marketing science
New age marketing science calls for a clear outcome - How it has transformed in ehancing the share holder value? Yes share holder value goes beyond the balance sheet of the company and the real enhancement of the brand value should delight shareholders through enhancing the overall valuation of the company. Time has come now to seriously to look at shareholder value enhancement through brand management to any business leader. Thanks to the scenario of consumer soverignty, digital revolution and overcrowded category choices amongst consumers to satisfy a need!
Of course consumer measures such as awareness,image and other measures of “brand health” play crucial roles in the share holder value enhancement but as some practitioner rightly mentioned "Marketing can only improve business performance if it changes the pattern of thoughts, feelings, associations and habits by a brand"!
What is crucial is to assess the changes that resulted from the various strategy points deployed and used to examine the impact of market factors as well as marketing practices.
So how do we get there? To really measure the share holder value through effective brand management one need to carefiully manage the following pillars-
1. "Controllable taps" - These are like taps that need to be turned on and off! examples being price, communication, distribution,product innovation, and consumer promo/CRM. These are normal "taps" the marketer controls but in this case as well they are base "taps" for share holder value outcome
2. Analysis on "means to reach" - Through this pillar we get to know the intermediate effect of "controllable taps" on brand health measures like familiarity, consideration, preference, delivery etc
3. Monitor matrices - The "controllable taps" effect do not stop at the brand health parameters but has an impact through health matrices, on customer equity, brand equity, profit, sales and market share. The key challenge is to measure the impact of "taps" on these matrices and the impact of brand health parameters on these matrices.
End benefit is shareholder value estimation. Using analytics estimate the efect of each of the above mentioned matrices on enhancing the shareholder value! Or in other words measure the impact of "controllable taps" on each of the matrices and examine the elasticity of these on shareholder value
Once the ingrediants of the shareholder value are derived then the key task is to manage the "taps" to get an enhanced "share holder value...
Analytics is in the heart of the process of estimating and managing the share holder value. The success lies in not only in sound analytics but a thorough knowledge on the marketing dynamics!
Welcome New age Marketing!!!
V. Balu
15th October 2009
Of course consumer measures such as awareness,image and other measures of “brand health” play crucial roles in the share holder value enhancement but as some practitioner rightly mentioned "Marketing can only improve business performance if it changes the pattern of thoughts, feelings, associations and habits by a brand"!
What is crucial is to assess the changes that resulted from the various strategy points deployed and used to examine the impact of market factors as well as marketing practices.
So how do we get there? To really measure the share holder value through effective brand management one need to carefiully manage the following pillars-
1. "Controllable taps" - These are like taps that need to be turned on and off! examples being price, communication, distribution,product innovation, and consumer promo/CRM. These are normal "taps" the marketer controls but in this case as well they are base "taps" for share holder value outcome
2. Analysis on "means to reach" - Through this pillar we get to know the intermediate effect of "controllable taps" on brand health measures like familiarity, consideration, preference, delivery etc
3. Monitor matrices - The "controllable taps" effect do not stop at the brand health parameters but has an impact through health matrices, on customer equity, brand equity, profit, sales and market share. The key challenge is to measure the impact of "taps" on these matrices and the impact of brand health parameters on these matrices.
End benefit is shareholder value estimation. Using analytics estimate the efect of each of the above mentioned matrices on enhancing the shareholder value! Or in other words measure the impact of "controllable taps" on each of the matrices and examine the elasticity of these on shareholder value
Once the ingrediants of the shareholder value are derived then the key task is to manage the "taps" to get an enhanced "share holder value...
Analytics is in the heart of the process of estimating and managing the share holder value. The success lies in not only in sound analytics but a thorough knowledge on the marketing dynamics!
Welcome New age Marketing!!!
V. Balu
15th October 2009
Thursday, October 8, 2009
" I know which half of my advertising was wasted"
The Marketing Effectiveness conundrum
The need for accountability on the issue of effectiveness of marketing and communication has been discussed in many meetings many a time, but the progress has been tardy especially so in India. Now this is probably because we find it quite convenient to say that this is one of the imponderables and really nothing much can be done about this. The general alibi is that not even in the most advanced countries, with their rich databases and research spend are they able to get a handle on this.How did this mind-set come about?Lord Lever-Hume is reported to have famously said “I know half my advertising is wasted, but I do not know which half”. This was probably a fact of life 50 years ago and it struck an immediate chord with the marketing folk, and thereby gave us marketing folk a great way to get out of the uncomfortable questions on effectiveness and accountability. While the impact of advertising was lauded when it led to increased sales or people noticed the campaign, it was not to be quantitatively evaluated by the standard methods as the impact was many dimensional and over time. The advertising agencies supported this stand as research and data driven accountability is seen as making a creative profession accountable to bean-counters, who have no idea of the power of communication and hence this issue was best avoided by all concerned.In India, the other alibi has been the availability of good data. Since the data is limited (and this is self fulfilling) or not good, it is better to go by the gut. Now, one point of view on marketing ideas is as good as the other – so which campaign runs depends on who gets to make the call. Hardly a recipe for producing consistently good stuff.Now let us consider some changes that have come about largely in the last 10 – 15 years that has changed the scenario quite substantially across the world and in India• Tremendous amount of data is captured at different points both within the company and by research and other agencies, making tracking of impact with all its complexity distinctly possible• IT has revolutionized the amount of complexity that can be handled, for e.g., it is possible to distinguish the impact of one media (out of many used) on the sales impact through regression or other statistical methods. These technologies are constantly being improved.• Many of the leading companies are working with the above two inputs and as expected beating those who are still living in the past. The leading practitioners of this new science not only know which half of the advertising budget is wasted, but they also know how to derive the maximum impact from all the other activities, pricing and promotions. They are able to achieve this by collecting and using the important data from the many sources available to them.Are processes on marketing effectiveness very difficult and only for a few companies at the top?Any new practice starts with a few companies and if successful, others have to adapt or be condemned to mediocrity. As marketing becomes the one last differentiator to succeed and with its importance growing over time, Indian companies will need to adapt themselves to a new discipline. The fruits are not “low hanging” but with a little effort and process, rapid strides can be made. This is all the more important for the Indian brands as MNC brands are already using technology, data, research and analytics to create an advantage for themselves.What is it that is required to be done to progress on this issue?• The top management including the heads of functions such as marketing, sales, IT and Finance will have to come together to create a strategy for this. The progress on marketing effectiveness will need to be tracked on a regular basis as cost or sales or any other key project is tracked.• The strategy will need to define in what way predictive modeling and data can be used to improve the top line, bottom line or both• Analytics ability will need to be created in the company to get on the virtuous cycle. Marketing effectiveness is not a one time activity and over time, a team that focuses on this will be the essential. The other teams will also need a change in orientation, as data driven decision making takes centre stage.• Specific budgets need to be allocated. It is however not necessary to break the bank, as value sits not in the software being used, but in the process/knowledge that can be created internally or with a little help at the beginning.Now for the good stuff. Indian companies can pole-vault most of the hurdles as they have some inherent advantages• Indian companies are pretty IT savvy – we simply need to direct that ability better through a strategy.• We do not have to re-invent the wheel – we can take just a few years to come up to the level of western companies ( who have taken over 30 years to reach there) and then take it from there.• India is seeing a mushrooming of small analytic firms, all of whom presently service the western market. Their expertise can be sourced quite easily and cost effectively.• The ROI on this is high given that much wastage can be avoided
The need for accountability on the issue of effectiveness of marketing and communication has been discussed in many meetings many a time, but the progress has been tardy especially so in India. Now this is probably because we find it quite convenient to say that this is one of the imponderables and really nothing much can be done about this. The general alibi is that not even in the most advanced countries, with their rich databases and research spend are they able to get a handle on this.How did this mind-set come about?Lord Lever-Hume is reported to have famously said “I know half my advertising is wasted, but I do not know which half”. This was probably a fact of life 50 years ago and it struck an immediate chord with the marketing folk, and thereby gave us marketing folk a great way to get out of the uncomfortable questions on effectiveness and accountability. While the impact of advertising was lauded when it led to increased sales or people noticed the campaign, it was not to be quantitatively evaluated by the standard methods as the impact was many dimensional and over time. The advertising agencies supported this stand as research and data driven accountability is seen as making a creative profession accountable to bean-counters, who have no idea of the power of communication and hence this issue was best avoided by all concerned.In India, the other alibi has been the availability of good data. Since the data is limited (and this is self fulfilling) or not good, it is better to go by the gut. Now, one point of view on marketing ideas is as good as the other – so which campaign runs depends on who gets to make the call. Hardly a recipe for producing consistently good stuff.Now let us consider some changes that have come about largely in the last 10 – 15 years that has changed the scenario quite substantially across the world and in India• Tremendous amount of data is captured at different points both within the company and by research and other agencies, making tracking of impact with all its complexity distinctly possible• IT has revolutionized the amount of complexity that can be handled, for e.g., it is possible to distinguish the impact of one media (out of many used) on the sales impact through regression or other statistical methods. These technologies are constantly being improved.• Many of the leading companies are working with the above two inputs and as expected beating those who are still living in the past. The leading practitioners of this new science not only know which half of the advertising budget is wasted, but they also know how to derive the maximum impact from all the other activities, pricing and promotions. They are able to achieve this by collecting and using the important data from the many sources available to them.Are processes on marketing effectiveness very difficult and only for a few companies at the top?Any new practice starts with a few companies and if successful, others have to adapt or be condemned to mediocrity. As marketing becomes the one last differentiator to succeed and with its importance growing over time, Indian companies will need to adapt themselves to a new discipline. The fruits are not “low hanging” but with a little effort and process, rapid strides can be made. This is all the more important for the Indian brands as MNC brands are already using technology, data, research and analytics to create an advantage for themselves.What is it that is required to be done to progress on this issue?• The top management including the heads of functions such as marketing, sales, IT and Finance will have to come together to create a strategy for this. The progress on marketing effectiveness will need to be tracked on a regular basis as cost or sales or any other key project is tracked.• The strategy will need to define in what way predictive modeling and data can be used to improve the top line, bottom line or both• Analytics ability will need to be created in the company to get on the virtuous cycle. Marketing effectiveness is not a one time activity and over time, a team that focuses on this will be the essential. The other teams will also need a change in orientation, as data driven decision making takes centre stage.• Specific budgets need to be allocated. It is however not necessary to break the bank, as value sits not in the software being used, but in the process/knowledge that can be created internally or with a little help at the beginning.Now for the good stuff. Indian companies can pole-vault most of the hurdles as they have some inherent advantages• Indian companies are pretty IT savvy – we simply need to direct that ability better through a strategy.• We do not have to re-invent the wheel – we can take just a few years to come up to the level of western companies ( who have taken over 30 years to reach there) and then take it from there.• India is seeing a mushrooming of small analytic firms, all of whom presently service the western market. Their expertise can be sourced quite easily and cost effectively.• The ROI on this is high given that much wastage can be avoided
Analytics - A lethal way to fight the economic slowdown
The Sudarshana Chakra as mentioned in Hindu texts, where Lord Vishnu decapitated various evil demons. It is also considered to be a symbol of enlightenment, hence in various drawings it is depicted with a brilliant glow. Lord Vishnu is believed to be the "Protector/Provider" of this universe. He is depicted lying across the entire expanse of the Universe form. The Sudarshana Chakra in his hand depicts the control over the various stars and galaxies, as if they all orbit around him.
This analogy can be seen with the new age business leadership. The challenge for the new age leadership is to function as protector and provider and take the organization to new heights inspite of dark economic slowdown cloud staring at them. To fight this dark cloud and to come victorious, the leadership take the role of Vishnu of their enterprise and exercises insights derived through analytics that form as Sudarshana Chakra a key weapon of enlightenment that provide them directions to pass through this darkness. Thus with this Sudarshana Chakra they exercise complete control over their investments and bring in efficiency and effectiveness through which the enterprise sails through the slowdown storm. Bringing efficiency and effectiveness out of the investments/ spends will be the most key challenge that the leadership need to exercise in current context. The key challenge thus can be reiterated for a CEO/CFO is to understand the optimal way his/her key spends is exercised and to reap maximum return on investment. Looks like an easy challenge though spoken in many occasions but reality will reflect few practicing it and those aim to manage their return on investment are in a better position to handle the current crisis.
How relevant to the current times when Robert S Kaplan and David P Norton mentioned “Managers, like pilots need instrumentation about many aspects of their environment and performance to monitor the journey
toward excellent future outcomes” (Robert S Kaplan and David P Norton – The balanced score card)
In their well known work, Robert Kaplan and David Norton liken managers to pilots who need all their instruments to relay the crucial information required to do their job. Each instrument provides the CEO with a snapshot of the separate divisions of the company. This ‘dashboard’ provides a balanced view of what’s happening in all aspects of the business. The CEO needs a perspective of all the functions to make the appropriate decisions.
Each meter is providing a live update of the market and how it is affecting business. With all these feeds of information the CEO can take quick action to take the best route to improving profits.
Kaplan and Norton call this ‘The Scorecard’ and it provides a complete perspective of what’s happening in the business.
This concept can also be honed and applied to various divisions of an organization. Let’s take a case of a marketing director. The marketer’s balanced scorecard is at the centre of converting data into agile decision-making, and is return on investment (ROI) analytics in action. What is more important is that the usage of score card is not just for reporting but through analytics it helps a real guide for future decision making.
Thus a key challenge for a marketing director is not only to create a marketing score card but also to manage it on a continuous basis by deploying the efficient and effective strategy that optimizes investment and give back an accountable result. For the marketer at this juncture, four clear questions must be dealt with in the process of making ROI analytics work:
1. What works? (e.g. Media? Creative? Price? Trade schemes?)
2. Who to target and when? (e.g. Customer segment? Communication layering?)
3. How investment much is enough?
4. Is this for real?
Although these questions are simple: the big challenge is to answer them, and to keep updating and reviewing them over time. These are in effect what the leadership needs to know from the marketing department.
Here the biggest asset of the enterprise that comes of help is own data. Companies investment in its own data be it on customer, suppliers, industry, various past investment etc. form the basic foundation of this lethal weapon. Just building analytics on its own data is not adequate but what is crucial is derive meaningful insights out of this realistic analytics and use it as one of the key tools for strategic planning.
‘Analytics’ refers to the collection of statistical approaches in mining the data that decipher of the influences of key business metrics (e.g. sales, profit, brand awareness/image etc) and that all lead to an understanding of Return on Investment (ROI). It started to be put into practice in the 1960s and 70s, but grew more popular when genuine technological advancements came in and data warehousing progressed.
In recent years the leaps in technology have also meant an evolution in analytics, an evolution which turns data not only to get an insight but moving towards in gaining a foresight, and delivers it swiftly for efficient and effective decision making. Earlier getting insight was through measuring some parameters that affected a brand performance like customer response, market feedback etc. This later then evolved through analytics in relating these measures with the brand performance like sales/profit. This stage analytics was used more at a diagnostic level. The evolution is now more in a complete form thanks to the technology boom. Analytics has now allowed us to progress from simple measurement to quantifying the effect of various factors affecting business performance and predicting their impact. This is a shift from simple insights to gaining real foresight. It arms senior management with the tools to move from reactive to proactive decision making.
As business data analysis has evolved it has become easier to answer the four questions mentioned above, making it more straightforward to create a dashboard of marketing, HR, Logistics etc. that allows the impact of money spent to be analyzed. Each instrument on the dashboard is a different factor that goes to build up the overall picture of the respective function. This includes for eg. In marketing, sales and profit, market share, customer loyalty, brand equity, customer acquisition, customer experience and attrition rate and customer lifetime value, etal
This is the type of scorecard every function head should have at their fingertips, and is achievable only with the help of analytics. By looking at each element within the respective function the leadership can see exactly how each dollar spent in total on marketing is converted in to sales.
Previously data was used purely at a diagnostic level. The different aspects of the function mix were looked at in isolation so their relative importance was treated in a silo. This meant each area, such as the impact of price or how a trade promotion affected sales, was dealt with separately.
But, for example, scorecards enable the leadership to see the effect on sales of their own pricing changes in the context of competitive price changes. The scorecard makes the leadership more pro-active.
The score card thus provide utility not only in just reporting the scenario but also as guide to decision making in the following way
At diagnostic level it points the effect of each of the function driver on the enterprise success: For eg. Identify each marketing driver influence on the brand success
It provide the return on investment (ROI )of the dollar on each of the drivers
By embedding analytics it helps to optimise the dollar spent on each function. This helps a function head to minimise the risk in future investment on various drivers and be surer on the return on investment. The optimization processes take away many non lucrative factors and focuses to the one that yields maximum return. Making this optimized score card live, it can capture the dynamics of the market place in a continuous manner and provide insights to the decision maker.
Six steps to best practice
The biggest challenge for applying analytics successfully is getting the business intelligence in place to begin with. This essentially involves three stages: collecting the right information; storing it in a convenient manner; and exploiting that information. It is crucial each is undertaken so that as much understanding and learning to help the company or department run effectively can be achieved.
Analytics comes in at the third stage. How will you wisely exploit the information recorded and stored so you can manage better? It is also within this area and from our experience that we are driving the elaboration of these three stages into a formal process of corporate best practice. This involves a six step process.
Set your Key Performance Indices (KPIs)
This requires a proper definition of each target that must be set from the outset be it in sales, customer acquisition, loyalty measures, employee retention, and market share and so on.
Collect Data
Once the KPIs have been set, relevant data collection can start. This is an information library process. You can collect data on any relevant aspect including market share, customer purchase behaviours, brand measures and macro trends in the market. This might also include implementing a system to capture all the below the line input from the trade for example.
Create a datamart (data warehouse)
This is similar to the ‘store’ stage in the three step process and it is where business intelligence is important. The challenge here is to store all relevant forms of information in one place. This is the starting point to ‘correct exploitation’ of the rich data resource.
Analytics
A key issue with analytics, as outlined above, is that many organizations proceed with it without setting their KPIs. However, if done correctly, it is this stage that allows for the move from diagnostic to predictive, integrated insight. This is also where the most added-value can be achieved through optimization.
Create a dashboard
Here, all the different parameters can be looked at. Each metric covers a different area, for example metrics for financials, market share, customer loyalty and so on. This is best benefited if an optimization works at the back end. It then provides us directions in optimal allocation of all resources to be deployed to get maximum returns.
Monitor
Managing a dashboard is of crucial importance. All the parameters must be continually and constantly monitored and stitched well in to the analytic output for desired effective outcome. You can measure where you are going right and where you are wrong and put recommendations and alterations into action as a consequence.
Implementing the six steps will help build value and innovation, and it is important to work through all of the steps – each is essential to ensuring organizations get the maximum value from analytics. For example, without well thought through KPIs, the later stages become objective-empty and the whole process loses its value.
A final thought
All managers need to be continually updated to keep pace with the dynamics, and meet the challenges they are facing in the marketplace. Current economic environment demands to have a complete picture, to better predict where things are going and what course of action, as a business, you need to take.
Analytics is now a more understood and friendly valued tool for business but business need to be realistic about what it can do. The technology alone will not do the whole job and it can’t perform miracles. Each element is not mutually exclusive so storing the data without undertaking the analytics will not be beneficial. And it needs to be integrated with consumer insight and looked at from a wider angle. But if you learn to appreciate the process, and integrate into the heart of your business practice then the technological advancement is something that can help deal with the large amount of data within your organization and in the market in a foresightful and timely manner.
And this will be your Sudarshana Chakra to fight the current economic slowdown and come out with winning colors through your return on investment optimization!
- V Balu, Sept 25th 2009
This analogy can be seen with the new age business leadership. The challenge for the new age leadership is to function as protector and provider and take the organization to new heights inspite of dark economic slowdown cloud staring at them. To fight this dark cloud and to come victorious, the leadership take the role of Vishnu of their enterprise and exercises insights derived through analytics that form as Sudarshana Chakra a key weapon of enlightenment that provide them directions to pass through this darkness. Thus with this Sudarshana Chakra they exercise complete control over their investments and bring in efficiency and effectiveness through which the enterprise sails through the slowdown storm. Bringing efficiency and effectiveness out of the investments/ spends will be the most key challenge that the leadership need to exercise in current context. The key challenge thus can be reiterated for a CEO/CFO is to understand the optimal way his/her key spends is exercised and to reap maximum return on investment. Looks like an easy challenge though spoken in many occasions but reality will reflect few practicing it and those aim to manage their return on investment are in a better position to handle the current crisis.
How relevant to the current times when Robert S Kaplan and David P Norton mentioned “Managers, like pilots need instrumentation about many aspects of their environment and performance to monitor the journey
toward excellent future outcomes” (Robert S Kaplan and David P Norton – The balanced score card)
In their well known work, Robert Kaplan and David Norton liken managers to pilots who need all their instruments to relay the crucial information required to do their job. Each instrument provides the CEO with a snapshot of the separate divisions of the company. This ‘dashboard’ provides a balanced view of what’s happening in all aspects of the business. The CEO needs a perspective of all the functions to make the appropriate decisions.
Each meter is providing a live update of the market and how it is affecting business. With all these feeds of information the CEO can take quick action to take the best route to improving profits.
Kaplan and Norton call this ‘The Scorecard’ and it provides a complete perspective of what’s happening in the business.
This concept can also be honed and applied to various divisions of an organization. Let’s take a case of a marketing director. The marketer’s balanced scorecard is at the centre of converting data into agile decision-making, and is return on investment (ROI) analytics in action. What is more important is that the usage of score card is not just for reporting but through analytics it helps a real guide for future decision making.
Thus a key challenge for a marketing director is not only to create a marketing score card but also to manage it on a continuous basis by deploying the efficient and effective strategy that optimizes investment and give back an accountable result. For the marketer at this juncture, four clear questions must be dealt with in the process of making ROI analytics work:
1. What works? (e.g. Media? Creative? Price? Trade schemes?)
2. Who to target and when? (e.g. Customer segment? Communication layering?)
3. How investment much is enough?
4. Is this for real?
Although these questions are simple: the big challenge is to answer them, and to keep updating and reviewing them over time. These are in effect what the leadership needs to know from the marketing department.
Here the biggest asset of the enterprise that comes of help is own data. Companies investment in its own data be it on customer, suppliers, industry, various past investment etc. form the basic foundation of this lethal weapon. Just building analytics on its own data is not adequate but what is crucial is derive meaningful insights out of this realistic analytics and use it as one of the key tools for strategic planning.
‘Analytics’ refers to the collection of statistical approaches in mining the data that decipher of the influences of key business metrics (e.g. sales, profit, brand awareness/image etc) and that all lead to an understanding of Return on Investment (ROI). It started to be put into practice in the 1960s and 70s, but grew more popular when genuine technological advancements came in and data warehousing progressed.
In recent years the leaps in technology have also meant an evolution in analytics, an evolution which turns data not only to get an insight but moving towards in gaining a foresight, and delivers it swiftly for efficient and effective decision making. Earlier getting insight was through measuring some parameters that affected a brand performance like customer response, market feedback etc. This later then evolved through analytics in relating these measures with the brand performance like sales/profit. This stage analytics was used more at a diagnostic level. The evolution is now more in a complete form thanks to the technology boom. Analytics has now allowed us to progress from simple measurement to quantifying the effect of various factors affecting business performance and predicting their impact. This is a shift from simple insights to gaining real foresight. It arms senior management with the tools to move from reactive to proactive decision making.
As business data analysis has evolved it has become easier to answer the four questions mentioned above, making it more straightforward to create a dashboard of marketing, HR, Logistics etc. that allows the impact of money spent to be analyzed. Each instrument on the dashboard is a different factor that goes to build up the overall picture of the respective function. This includes for eg. In marketing, sales and profit, market share, customer loyalty, brand equity, customer acquisition, customer experience and attrition rate and customer lifetime value, etal
This is the type of scorecard every function head should have at their fingertips, and is achievable only with the help of analytics. By looking at each element within the respective function the leadership can see exactly how each dollar spent in total on marketing is converted in to sales.
Previously data was used purely at a diagnostic level. The different aspects of the function mix were looked at in isolation so their relative importance was treated in a silo. This meant each area, such as the impact of price or how a trade promotion affected sales, was dealt with separately.
But, for example, scorecards enable the leadership to see the effect on sales of their own pricing changes in the context of competitive price changes. The scorecard makes the leadership more pro-active.
The score card thus provide utility not only in just reporting the scenario but also as guide to decision making in the following way
At diagnostic level it points the effect of each of the function driver on the enterprise success: For eg. Identify each marketing driver influence on the brand success
It provide the return on investment (ROI )of the dollar on each of the drivers
By embedding analytics it helps to optimise the dollar spent on each function. This helps a function head to minimise the risk in future investment on various drivers and be surer on the return on investment. The optimization processes take away many non lucrative factors and focuses to the one that yields maximum return. Making this optimized score card live, it can capture the dynamics of the market place in a continuous manner and provide insights to the decision maker.
Six steps to best practice
The biggest challenge for applying analytics successfully is getting the business intelligence in place to begin with. This essentially involves three stages: collecting the right information; storing it in a convenient manner; and exploiting that information. It is crucial each is undertaken so that as much understanding and learning to help the company or department run effectively can be achieved.
Analytics comes in at the third stage. How will you wisely exploit the information recorded and stored so you can manage better? It is also within this area and from our experience that we are driving the elaboration of these three stages into a formal process of corporate best practice. This involves a six step process.
Set your Key Performance Indices (KPIs)
This requires a proper definition of each target that must be set from the outset be it in sales, customer acquisition, loyalty measures, employee retention, and market share and so on.
Collect Data
Once the KPIs have been set, relevant data collection can start. This is an information library process. You can collect data on any relevant aspect including market share, customer purchase behaviours, brand measures and macro trends in the market. This might also include implementing a system to capture all the below the line input from the trade for example.
Create a datamart (data warehouse)
This is similar to the ‘store’ stage in the three step process and it is where business intelligence is important. The challenge here is to store all relevant forms of information in one place. This is the starting point to ‘correct exploitation’ of the rich data resource.
Analytics
A key issue with analytics, as outlined above, is that many organizations proceed with it without setting their KPIs. However, if done correctly, it is this stage that allows for the move from diagnostic to predictive, integrated insight. This is also where the most added-value can be achieved through optimization.
Create a dashboard
Here, all the different parameters can be looked at. Each metric covers a different area, for example metrics for financials, market share, customer loyalty and so on. This is best benefited if an optimization works at the back end. It then provides us directions in optimal allocation of all resources to be deployed to get maximum returns.
Monitor
Managing a dashboard is of crucial importance. All the parameters must be continually and constantly monitored and stitched well in to the analytic output for desired effective outcome. You can measure where you are going right and where you are wrong and put recommendations and alterations into action as a consequence.
Implementing the six steps will help build value and innovation, and it is important to work through all of the steps – each is essential to ensuring organizations get the maximum value from analytics. For example, without well thought through KPIs, the later stages become objective-empty and the whole process loses its value.
A final thought
All managers need to be continually updated to keep pace with the dynamics, and meet the challenges they are facing in the marketplace. Current economic environment demands to have a complete picture, to better predict where things are going and what course of action, as a business, you need to take.
Analytics is now a more understood and friendly valued tool for business but business need to be realistic about what it can do. The technology alone will not do the whole job and it can’t perform miracles. Each element is not mutually exclusive so storing the data without undertaking the analytics will not be beneficial. And it needs to be integrated with consumer insight and looked at from a wider angle. But if you learn to appreciate the process, and integrate into the heart of your business practice then the technological advancement is something that can help deal with the large amount of data within your organization and in the market in a foresightful and timely manner.
And this will be your Sudarshana Chakra to fight the current economic slowdown and come out with winning colors through your return on investment optimization!
- V Balu, Sept 25th 2009
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