Marketing spend optimization Driving marketing value Marketing Executives Council Meeting March 17,...

Marketing spend optimizationDriving marketing value

Marketing Executives Council MeetingMarch 17, 2009

Agenda

► Introductions► Today’s marketing landscape► Marketing excellence capabilities model► The Marketing Lifecycle► Case study

Today’s marketing landscape

► Price pressure and margin erosion► Increased scrutiny and accountability on investments► Increasing regulatory barriers to traditional approaches► Expanding number of possible channels► Marketing effectiveness and productivity in decline► Intelligent competition

Radio

TV

Sponsorship

Direct Mail Digital

Out-of-Home

Magazine

Newspaper

Price

MarketingChannels

Marketing excellence capabilitiestake time to evolve

Organizations must utilize solutions that increase marketing performance through the enhancement of spend effectiveness and channel optimization across all phases of the process: from initial analyses to the rigorous execution of tactical plans and monitoring of results.

Short-termactivities(Basic)

Long-termactivities(Leading)

Mid-termactivities

(Enhanced)

• Increase brand awareness

•Utilize inexpensive but efficient marketing tactics

•Study the market, customer and competition

•Measure surrogate markers

•Track sales to quantify the impact of marketing initiatives

•Utilize market research to understand customer behavior

•Optimize the marketing mix

•Compare the ROI of marketing channels

•Understand marketing effectiveness by channel, geography and customer segment

•Measure the incremental impact each marketing initiative has on volume sales

•Copy-test a portion of the marketing budget in non-traditional/innovative media

Leve

l of s

ophi

stic

atio

n

High

Low

Long-term

Mid-term

Short-term

Effort to implem

ent

High

Low

• Are we getting the most bang for our marketing buck?

•Do we have the ability to evaluate marketing effectiveness rapidly and make adjustments accordingly?

•Are we in a position to translate effective marketing initiatives into opportunities?

• Do we have the data and tools to allocate our marketing spending and evaluate the value of our marketing with new metrics?

• What is the contribution, effectiveness, cost-efficiency,and payback of each marketing tactic and program?

• Which core and incremental initiativesare driving volume and to whatdegree?

• What is working, what is not, and why? How does current performance compare to the norm (or the industry)?

• How can we use marketing mix analysis to optimize our marketing strategy and dollars?

The Marketing Lifecycle is a process of continuous improvement

• What does our marketing mix look like? What could it look like? What should it look like?

• Do we have a flexible planning model that allows us to take advantage of changes in the performance of campaigns or tactics?

• How can we integrate the most effective tools to optimally value our customer?

• Are we looking at the right metrics to evaluate marketing performance? Are there different metrics that could better capture new tendencies?Stra

tegy Planning

Evaluation Execu

tion

Marketing Lifecycle

• How does the changing marketing landscape affect our marketing efforts and decisions?

• What marketing mix best drives incremental sales and captures the core customer?

• How does new technology affect the interpretation of our message?

• How do we best integrate traditional and new media?

Case study

► Ernst & Young was engaged to assist an automotive manufacturer in reviewing marketing strategies with respect to Brand A®.

► The success and future growth of this brand may rely heavily on the level and appropriate allocations of marketing spend to the available channels.

► Ernst & Young was tasked with two primary objectives:

► Calculate the impact marketing performance has on Brand A, for all geographic markets (where statically significant), across all available marketing channels (TV, radio, internet, among others).

► Calculate an optimized marketing mix based on the information provided by the Client and deliver the functional form of the model and its outputs to the Client.

Business issue

A Marketing Spend Effectiveness and Channel Optimization Analysis helps marketers answer pressing questions concerning their business. Some of the most popular questions are:

► How important is base (volume generated in the absence of any marketing activity) and incremental volume to my overall volume?

► What has driven volume changes year to year?

► What was the relative effectiveness of marketing activity year to year?

► How did specific campaigns contribute?

► Which advertising campaigns are most effective?

► What trade tactics should be pursued for greatest effectiveness?

► What marketing spending shifts, if any, should be considered?

Case study

Business issue (cont.)

Case study

Scope: This analysis utilized the following parameters:

Brand A

Geographic area Country X (96 Markets)*

Dealership count 175 (2006-2007), 170 (January–August 2008)

Analysis period January 2006 – August 2008

Marketing channels National Open TV, National Paid TV, Local Open TV, Radio, Newspaper, Magazine, Out of Home, Cinema, Internet, Alternative Events

* markets with dealerships

Case study

• Marketing activity generated roughly 26% of the incremental volume during the analysis period.

• Open TV, Paid TV, and Newspaper accounted for the majority of incremental volume.

National Open TV

Newspaper

National Paid TV

Local Open TV

Magazine

Radio

Out of Home

Cinema

Marketing incremental

volume

26%

Base incremental

volume

74%

16.4%

2.4%

2.3%

2.2%

0.9%

0.9%

0.4%

0.2%

Findings — incremental volume decomposition

Case study

Average ROI*

Open TV generated the highest ROI for Brand A during the analysis period, followed by Paid TV and Newspaper.

* Revenue generated by each marketing channel is based on average dealer price multiplied by volume sales contributions.

$0

$5

$10

$15

$20

$25

$30

$35

$40

NationalOpen TV

LocalOpen TV

National Paid TV

Newspaper Magazine Radio Cinema Out of Home

Incr

emen

tal $

rev

enue

per

$ s

pent

Findings (cont.) — marketing efficiency

Case study

• Based on ROI estimates, additional funds to the marketing budget should be allocated across marketing channels in the following proportions.

• While marketing channels such as Alternate Events and Internet were insignificant in the statistical model, Client should allocate budget to these activities to maintain brand awareness and equity.

National Open TV26%

National Paid TV19%

Newspaper18%

Local Open TV15%

Magazine12%

Out of Home6%

Cinema2%

Radio2%

* Based on the most recent 12 months of data

Findings (cont.) — optimized marketing mix*

Case study

The total units sold peaked at the end of each calendar year, even though the average price was not at its lowest during this period, and dropped during April/May of each year.

Total Units Sold

Average Selling Price

Average Dealer Price-

5,000

10,000

15,000

20,000

25,000

30,000

Jan-

06

Mar

-06

May

-06

Jul-0

6

Sep-0

6

Nov-0

6

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep-0

7

Nov-0

7

Jan-

08

Mar

-08

May

-08

Jul-0

8

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

Un

its

So

ld

Findings (cont.) — annual volume topline

Case study

-0.036

-0.038

-0.043

-0.089

-0.123

-0.719

-0.76

-0.78

-0.931

-0.964 Market A

Market B

Market C

Market D

Market E

Market V

Market W

Market X

Market Y

Market Z

Overall National Price Elasticity = -0.395

Price elasticity (sensitivity)Most Elastic Markets

Least Elastic Markets

Brand A® is not price elastic. Changing price alone does not yield significant changes in unit volume sales. However, price changes coupled with TV or Newspaper campaigns could generate significant ROIs.

Findings (cont.) — price elasticity

Case study

Alternative

Internet

Cinema

Out of Home

Magazine

Newspaper

Radio

National Paid TV

Open TV

$0

$5

$10

$15

$20

$25

$30

$35

$40

2006 2007 2008(January-August)

Inv

es

tme

nt

Le

ve

l (M

M)

Marketing investments in Paid and Open TV represented 59% of all marketing investments in 2006, 51% in 2007 and 54% until end of August 2008.

Findings (cont.) — annual topline spending

► Allocations across different channels can be adjusted to optimize overall return on each Brand

► Further internal analysis can be performed on each marketing channel at the geographic or customer class level to optimize overall return on each channel

► Similar modeling for other Brands can be conducted in other key countries

► Learnings can be used as a planning tool (benchmark) for new launches in similar categories

► Learnings can be applied to decision making on marketing channel activity for other Brands

Value Creation

Case Study

Marketing spend optimization Driving marketing value Marketing Executives Council Meeting March 17,...

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