i PROFITABLE MARKETING COMMUNICATIONS A GUIDE TO MARKETING RETURN ON INVESTMENT ANTONY YOUNG & LUCY AITKEN London and Philadelphia ii To Nancy and Dorian Publisher’s note Every possible effort has been made to ensure that the information contained in this book is accurate at the time of going to press, and the publishers and authors cannot accept responsibility for any errors or omissions, however caused. No responsibility for loss or damage occasioned to any person acting, or refraining from action, as a result of the material in this publication can be accepted by the editor, the publisher or any of the authors. First published in Great Britain and the United States in 2007 by Kogan Page Limited Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be repro- duced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licences issued by the CLA. Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned addresses: 120 Pentonville Road 525 South 4th Street, #241 London N1 9JN Philadelphia PA 19147 United Kingdom USA www.kogan-page.co.uk © Antony Young, 2007 The right of Antony Young to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988. ISBN-10 0 7494 4942 X ISBN-13 978 0 7494 4942 1 British Library Cataloguing-in-Publication Data A CIP record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Young, Antony. Profitable marketing communications : a guide to marketing return on investment / Antony Young and Lucy Aitken. p. cm. Includes bibliographical references and index. ISBN-13: 978-0-7494-4942-1 ISBN-10: 0-7494-4942-X 1. Marketing--Management. 2. Capital investments--Evaluation. 3. Rate of return. 4. Profit. I. Aitken, Lucy. II. Title. HF5415.13.Y69 2007 658.8--dc22 2006039729 Typeset by Saxon Graphics Ltd, Derby Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall iii Contents Foreword vii Preface ix Acknowledgements xi 1. A need for a new marketing model 1 How it used to be… 2 The declining effectiveness of mass advertising 5 The changing consumer 6 Increased pressure on corporate profitability 7 Growing pains 9 The impact of interactivity 10 The implications 12 What this book sets out to do 13 2. A change in philosophy 15 What is Marketing ROI? 15 Studying the market 20 Why Marketing ROI is difficult to achieve 20 How should marketers respond? 27 3. Our Marketing ROI stars 30 Toyota Motor Corporation: driving in top gear 31 P&G: a soap opera with a happy ending 35 iv ❙ Contents O2: How a £17.7 billion brand was born 39 British Airways: dealing with turbulence 42 Impossible is nothing… 45 4. Invest, don’t spend 46 The ICE checklist 47 Investing in experimentation 50 Decide whether you need to invest in marketing 51 Marketing – an alternative to acquisition 52 The ladder of insight 53 Our eight investor tips to profitable marketing communications 53 Use these tools… 60 5. Concentrate on outcomes, not outputs 61 Output obsessions 62 Outputs that drive the wrong marketing 63 What’s the difference between an outcome and an output? 64 Creating a Marketing ROI culture 64 Setting the right metrics 65 Useful metrics 68 Turning metrics into objectives 69 Targeting the right outcome 69 How to focus on outcome-led marketing 71 Reassuringly effective 74 6. Forget consumers, target customers 76 The three deadly sins… 77 Profit (Marketing ROI) comes from loyal customers 79 Profit (Marketing ROI) = loyal customers 80 Customer satisfaction = customer retention 80 Customer equity 81 Segmenting by customer profitability 83 Customer retention helps acquisition 88 Consumer packaged goods 92 The power of empathy 93 Bespoke media 93 Use the technology to guide smart investments 94 7. Manage your communication investment portfolio 95 Your marketing communication portfolio 95 Contents ❙ v Embracing risk 96 A different approach 97 The integration challenge 98 Growth of alternative channels to advertising 103 Payback time 105 Making the right investment decisions 107 Touchpoints ROI Tracker 108 A central organizing communication idea 110 Determining the channel mix broadly based on ROI measures 111 Leveraging synergies: development 111 Leveraging synergies: execution 112 A final thought… 113 8. Differentiate any way you can 114 Value versus price 116 How to differentiate your brand 118 Avoid commoditization 123 When not to differentiate… 128 Editing consumer choice 128 9. Engagement and experience are the new 30-second ads 130 The magic of mavens 133 Invest in inspiration 133 Experience, not possessions 134 Encouraging consumers to participate 142 ‘In the flesh’ appearances 143 Making it personal 143 What’s in a name 143 Revamping a flagging brand 144 10. Apply a ‘focus investing’ approach 145 The Buffett style of investing 145 Focus investing applied to marketing 146 How strategy helps focus investing 147 Understanding why marketing campaigns fail 149 New product initiatives 150 Making the right choices 150 Identifying the big bets 151 Making choices about communication 158 Betting on Buffett 159 vi ❙ Contents 11. Establish a measurement culture 160 Setting out the problem 161 Our view… 162 Set metrics at the start 163 It’s not failure; it’s learning 164 Metrics: moving the needle 165 Introducing an ROI system 169 Modelling 170 Owning econometrics 172 Marketing dashboards 173 Market testing 176 Data, not dinner 176 12. Leverage your employee capital 177 Investing in staff… to invest in customers 177 Marketing that motivates 179 Employees are customers too… 181 Our Marketing ROI stars and their employees 189 13. Is your organization Marketing ROI-fit? 191 Why ROI is important 192 Learning from the pitch 198 Relationship management 199 The brief 199 Unification, not integration 200 How does the ad industry need to change? 200 Selling advertising 201 Building value 201 Equipping agencies to deliver a Marketing ROI agenda 202 A new breed of agencies 202 Summary 204 References 205 Further reading 208 Index 209 vii Foreword Creativity and innovation should be at the very heart of any marketing and communications organization worth its salt. They certainly have always been at the core of what we do at Publicis Groupe. If we are doing our jobs right, we must never forget that the work we do… needs to work. And by working, of course, we mean that our creative ideas must deliver a payback – with interest – on the investment our clients make. Our clients demand – quite rightly – that their marketing efforts not only deliver results, but a real and quantifiable return on invest- ments. This ever-higher degree of accountability, this focus on ROI, is changing the face of our entire industry. That is why this valuable study which treats marketing communica- tions as an investment is so timely. It adds to the momentum of a debate about marketing and about marketing’s role as a key facilitator of business. Any executive from the CEO down who cares deeply about the success of his or her company should be taking part in this debate. This book demystifies marketing communications and explains how it can bring tangible financial results to the bottom line. There are few people in the industry better equipped than Antony Young to explain the importance of ROI in marketing communications. I first came across Antony back in 2001, while he was running ZenithOptimedia in Hong Kong. He seemed to have a real knack for running media communication agencies because he instinctively under- stood that the essential role of the ad business is about getting results for viii ❙ Foreword clients. I was happy to see that a lot of clients apparently agreed with him – and Zenith was able to add assignments for P&G, Coca-Cola, McDonald’s, Sony and others under Antony’s stewardship in Asia. Antony helped establish Zenith’s value proposition as ‘the ROI Agency’ – and this later became the mantra for the entire international network. Delivering business results through marketing communication was a need marketers all around the world were clearly demanding. He later applied these principles to UK clients with considerable success and has now taken his brand of management style to Optimedia US. Books about ROI and marketing tend to be academic and full to the brim with the kind of jargon that makes this vital subject matter difficult to access. By going to the crux of the matter – how marketing communi- cations can be profitable – Antony and his co-author Lucy Aitken make this topic incredibly accessible to readers from any background in the business world. By examining marketing communications strategies with the approach of an investor, the authors have come up with a simple but powerful perspective. The investment and marketing worlds are furthermore interacting more than ever. Investors and analysts are increasingly interested in understanding how effective marketing can add shareholder value, while marketers and the agencies they work with are beginning to understand the implications of being able to demonstrate a quantifiable return. When I agreed to write the foreword to this book, it was not to please the authors. It was because I have seen with my own eyes how ROI has worked for our clients. In the fragmented media world that is before us, with all the difficulties of reaching the right audience at the right time, we need to have a rigorous approach to media.