罗兰贝格Efficiency of Marketing Communication

- 1 - MUC-0040-00001-01-17d ME2 Efficiency of Marketing Communication Realizing the potential Optimizing effectiveness Roland Berger & Partner GmbH Sales & Marketing CC Munich, August 1999 Roland Berger & Partner GmbH International Management Consultants Barcelona Beijing Berlin Brussels Bucharest Budapest Buenos Aires Delhi Detroit Dsseldorf Frankfurt Hamburg Kiev Kuala Lumpur Lisbon London Madrid Milan Moscow Munich New York Paris Prague Riga Rome So Paulo Shanghai Stuttgart Tokyo Vienna Zurich - 2 - MUC-0040-00001-01-17d ME2 achieves marketing efficiency by means of an integrated approach, and optimizes four key areas in parallel Procurement Budgeting/ Allocation Application Measurement Controlling Application Procurement Budgeting/ allocation Measurement/ controlling ME2 - 3 - MUC-0040-00001-01-17d Identifying the right marketing communication budget is still suboptimal -internal and external factors push different levers Budgeting Sales: Price reduction Controlling: Improving profits Engineering: Investment analysis Production: Product improvements Marketing: ”The higher the better Competition: Share of voice Distribution Pull channels: Agencies: self-interest Budget for marketing communication Traditional methods % of sales x% on previous year Residual size of budget Source: Roland Berger & Partners Budget decelerators Budget drivers - 4 - MUC-0040-00001-01-17d Management frequently receives either no answer or unsatisfactory answers to key questions (1) Are we determining our marketing budget in a focused and systematic fashion? Does are budget meet the needs of the market and the competition? Are we allocating our resources according to the right priorities and to the right target segments and the right instruments? Are we paying our agencies (advertising, media, promotion) too much commission? Should we be centralizing or decentralizing our communication activities? Do our objectives correspond to the requirements, are we meeting them and how efficient are we in doing so? - 5 - MUC-0040-00001-01-17d Management frequently receives either no answer or unsatisfactory answers to key questions (2) The first thing we do to meet profit targets is to reduce the advertising budget that is simple, but what effect does it have on our marketing efficiency? Do we increase revenue and profit by supporting price promotions with advertising, and if so, by how much and how can we improve the results? What is the return on our investment in marketing communication what other than financial criteria could we use to evaluate it? Are we using all available information (internal and external) in order to make our communication more efficient? Is our advertising budget spent cost-efficiently and how do we ensure this? - 6 - MUC-0040-00001-01-17d Management frequently receives either no answer or unsatisfactory answers to key questions(3) Are we controlling/steering our agencies according to our objectives in a fast and cost-effective process? What level of above-the-line advertising makes sense are there examples of subcritical budgets which we need to adjust? Are our procurement methods working when applied to advertising media, agency performance, media buying and market research? What market research is required in order to measure efficiency? How does an information and control system need to be structured in order to ensure continuously increasing efficiency? - 7 - MUC-0040-00001-01-17d Across many industries, companies are faced with similar challenges when it comes to increasing the efficiency of their marketing expenditure Areas of efficiency in marketing communication Source: Roland Berger & Partners Budgeting/allocation Check spendings against budget Allocation of funds (regions, products, brands, ) Measurement/controlling Key ratios for evaluating success Monitoring systems for meeting targets Management information system Spendings Use of funds by issues Target segment/audience orientation Achieving critical-size Procurement Purchasing volumes and budget limits Supplier evaluation/selection Procurement terms Optimization in closed-loop system through systematic control and transparency - 8 - MUC-0040-00001-01-17d A pragmatic approach characterizes the approach developed by Roland Berger & Partners Pragmatism Systematic structuring and allocation of marketing activities 80/20 rule/target: highest possible degree of transparency on important national markets Verifying data from cost (type) accounting Structure Analyzing key cost drivers and identifying main fields of efficiency potential Developing measures with potential for short-term results Process changes for long-term optimization Focus Integrating existing internal data and project results Processing the experiences of agencies and external experts No across the board initiation of market research projects Integrating experience/key ratios of other companies Developing/building on existing systems Sensible links to decision-making model/purchasing model Deriving the main success factors in communication Status in the decision- making process Procurement Spendings Allocation/linking by targets, issues and customer segments Prioritization and detailed analysis of 7-10 representative communication activities Developing streamlined and targeted processes (esp. budgeting and planning) Source: Roland Berger & Partners - 9 - MUC-0040-00001-01-17d Efficiently designed communication mix of main activities by targets and customer groups Proposal for systemizing of the budget Roland Berger & Partners structure the comprehensive task in three blocks, and integrate the results into a closed-loop system Key question Key content Results Centralized and decentralized recording of all expenses (agencies, media buying, ad production, marketing production, market research/QM) in the relevant markets Analyzing Buying modes Planning and contract awarding process, sequences of events Selection of suppliers Benchmarking Identifying controllable costs Quantified savings potential/ efficiency increase Short term Long term Implementation plan Evaluating, completing and developing (existing) key ratio system Developing a management information system based on key ratios Establishing portfolio techniques Developing tools for monitoring Management controlling report with key ratio system Applied tools for monitoring efficiency Systematic allocation and linking of marketing activities, their associated costs to targets/target segments and to the communication instruments media Identifying and quantifying inefficiently used media budgets Analysis of weaknesses and cross-referencing with reference companies Integrated closed-loop Procurement Measurement of efficiency Application side Realizing quick hits I III II How should marketing communication targets be structured and met? How should the effectiveness of marketing procedures on different levels be measured and tracked? How can materials, media and advertising agencies be more efficiently purchased and managed? - 10 - MUC-0040-00001-01-17d Marketing procurement: in many companies characterized by high complexity and decentralized responsibility - insufficiently integrated into purchasing No systematic overview of worldwide agency portfolio, incl. performance, terms, etc. No facility for optimized control of agencies No system for checking suppliers Lack of cost awareness Variety of media (alternatives) Rapidly rising volume Lack of transparency Complexity Quality level of production Centralized processing Additional, independent projects in individual countries Decentralized budgeting Success monitoring? No overview of worldwide media buying No central coordination No two agencies with the same terms? Market research/QM 4 Media mix/distribution 3 Media/marketing production 2 Agencies/creative 1 Four key cost drivers ? Efficiency potential of marketing procurement through professional, integrated purchasing Source: Roland Berger & Partners - 11 - MUC-0040-00001-01-17d Potential: savings of more than 5% of the total volume can be achieved by taking a differentiated viewpoint and by exploiting all approaches 1) Cost reduction potential as % of all controllable costs 2) Controllable costs Market research/QM 4 Media plan/distribution 3 Media and marketing production 2 Agencies 1 Possible approaches to marketing procurement + Budgeting and controlling Optimization of contract awarding and planning processes, changes, etc. Defining performance specifications Quality level Standardization Internationalization Framework agreements Annual bonus Differentiation by Creative performance Standards (e.g. final artwork) Specification of performance Increasing competition by buying standard products Benchmarking Identifying services which can be influenced by purchasing Use of media, pooling of media Effectiveness and placement of media plan (e.g. location of rented poster sites) Optimization of postal rates Defining performance specifications Negotiating specific services rather than hourly rates Framework agreements Quantity rebates etc. 210%1) 210%1) 320%1) 515%1) Source: Roland Berger & Partners - 12 - MUC-0040-00001-01-17d On the spending side, efficiency increases are systematically developed in three steps Project procedure on application side Audit Reorientation Integration Systematic allocation of marketing/communication activities to Targets/target audiences Communication media Subject areas Regions Costs Sources Analysis of processes/structures relevant to communication Measurement of efficiency Adapting the reallocation of planning and budgeting system Reorganizing budgeting and planning processes Creating the necessary organizational and IT environments Selecting/defining key ratios for tracking marketing communication procedures Design core activities Efficiency increase Strategic communication Tactical communication Basic communication A Consider other forms of communication, e.g. sponsorships, advertising media B Introduce supporting cultural change in the organization Source: Roland Berger & Partners - 13 - MUC-0040-00001-01-17d Results of the audit: The critical evaluation of marketing communication reveals the need for extensive action Weaknesses in marketing communication Control of value added partners (agencies) less than ideal Budget allocation inflexible both regionally and in terms of timing No use of control and optimization aids or of key ratios (non-selective marketing) Communication strategy not systematically derived from marketing objectives Only case-by-case use of testing procedures (pre-test, post-test) Limited transparency of costs and limited monitoring tools Numerous internal and external interfaces Tendency toward inhomogeneous communication approach despite extensive coordination processes Lack of target definition in above-the-line activities Budget sizing and budget allocation not strategy- oriented Budget responsibility for money invested in the regional markets not clearly defined No integrative approach to communication subjects Example project Source: Roland Berger & Partners - 14 - MUC-0040-00001-01-17d Measuring efficiency: Price-promotion and direct-marketing campaigns are evaluated on ROI-basis, and optimization approaches derived Financial evaluation Sales analysis Revenue analysis DM Cost analysis DM Result analysis DM Anticipated sales1) 57,760 67,793 10,213 Current sales Net effect Gross revenue 5,515 1,379 2,259 Net result Advertising budget Variable costs 1,877 25%2) ROI 120% 1) Before price campaign 2) Flat rate for distribution costs (variable) +18% Example project Source: Roland Berger & Partners - 15 - MUC-0040-00001-01-17d Reorientation: Approach designed to cluster core activities and to underpin them with targets and ratios for evaluation Source: Roland Berger & Partners Diagram Reorientation according to Targets Key ratios for sustainable increases in efficiency Cluster core activities Tactical communication Strategic communication Basic communication Trigger inefficiencies identified in audit phase Other In terms of the 80:20 rule not part of the study - 16 - MUC-0040-00001-01-17d Strategic communication: The most efficient form of communication can in each case be derived from and optimized on the basis of the brand pyramid Brand pyramid contribution to level of understanding Source: Roland Berger & Partners Cross-section comparison Brand status Vertical comparison What are the main differences across countries and brands? What are the main communication levers? Where do the priorities lie? Are there any countries with similar communication requirements? Brand awareness of Sample Inc. in target market Relevance of Sample Inc. brand for the target market Preference for Sample Inc. in freedom of choice Share of loyal customers who (almost) exclusively choose Sample Inc. Change in brand status Communications contribution to branding Ways of optimizing or modifying communication Possible adjustment of budget priorities Awareness Relevance Preference Loyalty Comparison at one point in time Brand A Country A Brand B Country B vs. A B abs. % Example vs. Comparison over time t 0 t 1 t 0 t 1 abs. % Example Use of communi-cation - 17 - MUC-0040-00001-01-17d Tactical communication: The essential element is short-term stimulation of demand - the measurement criterion is a positive ROI Optimization principle Source: Roland Berger & Partners Diagnosis Campaign value ROI simulation Traditional dip in sales in summer Addition-al sales Advance costs Advertis-ing costs Contribu-tion ROI Success factors Use of media Attractiveness of offer Design of campaign Target: Boost sales and utilization of capacity Target: Determine factors of advertising success Target: Reach decision on whether to advertise and if so to what extent - 18 - MUC-0040-00001-01-17d Control: The system satisfies both the requirements of senior management as well as the marketing departement - start of a continuous improvement Target customers of the key ratio system Senior management Controlling/strategy Sales Marketing communication Content Differentiation by Target levels Communication media Structure of key ratio system Aggregation by measures, target audiences and tools Coverage of Meeting objectives Efficiency Budget adherence Source: Roland Berger & Partners - 19 - MUC-0040-00001-01-17d In a pragmatic manner, the proven project approach enables learnings and conclusions that can be translated into practical action Pragmatic approach instead of The universal marketing formula Focus on the most important marketing activities (targets, target groups, tools) Analysis of effectiveness and measurement of efficiency on the basis of examples Intelligent use of existing raw data Development of controlling mechanisms and integration into management processes Linking of classical marketing and direct marketing Concentration on marketing activities which tend to be suited to the measurement of efficiency Develop mutually exclusive, collectively exhaustive structures Search for universally applicable relationships Carry out experiments and gather additional data Process-independent viewpoint Exact evidence and exact quantification Find and formulate complex optimization models Basic approach - 20 - MUC-0040-00001-01-17d By these methods, marketing efficiency is continuously improved in a closed-loop system after implementing the specially adapted tools and processes Increase in marketing efficiency Plan and specify targets/ draw up budget Analysis of effectiveness, measurement of efficiency, controlling of measures Action planning (communi- cation mix) Optimize Communi- cation mix Efficiency measure-ment Continuous optimization Continuous improvement in efficiency by reviewing Definition of targets Conformity to targets Achievement of targets Know-how transfer and staff training Introduction of readiness to accept change Cost potential in procurement Allocation of marketing budget (Further) development of key ratio system Establishment of clear rules quick hits Source: Roland Berger & Partners - 21 - MUC-0040-00001-01-17d rb addresses ARGENTINA Roland Berger y Asociados S.A. International Management Consultants Tte. Gral. J.D. Peron 346 - Piso 5 1038 Buenos Aires Phone +54-11-43 42 14 98 Fax +54-11-43 45 57 58 AUSTRIA Roland Berger & Partner Ges.m.b.H International Management Consultants Freyung 3/2/10 A-1010 Vienna Phone +43-1-5 36 02 0 Fax +43-1-5 36 02 60 BELGIUM Roland Berger International Management Consultants S.A. 100, Boulevard du Souverain B-1170 Brussels Phone +32-2-6 79 01 70 Fax +32-2-6 72 92 22 or 51 81 25 01 BRAZIL Roland Berger & Partners S/C Ltda. Rua Alexandre Dumas, 2220-5 andar 04717-004 So Paulo / S.P. Phone +55-11-51 81 83 66 Fax +55-11-51 81 69 19 CHINA Roland Berger (Shanghai) International Management Consultants Ltd. China World Trade Center 914-916 China World Tower No. 1 Jianguomenwai Avenue Beijing 100004, P.R.C. Phone +86-10-65 05 21 96 Fax +86-10-65 05 54 84 72 Xing Guo Road 3F Business Building Shanghai 200052 , P.R.C. 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