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Comment on articleGiven today’s economy, marketers are being asked more than ever to justify their budget – how did they help drive more business and profit? It’s no longer acceptable for marketers to provide only metrics regarding perception of the brand, recall of key messages, intent to prescribe, or Share of Voice. Senior managers want to know what is the return on the investment, and how can we grow more sales and more profit?
Despite all the talk about giving customer value, social media, and ROI, marketing is still stuck in the dark ages on this critical element of the planning cycle: how much budget to put in what activities. The way this is done has not changed significantly in the past several decades. Although one would expect that marketing decisions should be based on a complex analysis of product and competitor factors and environmental factors, in reality many companies still shockingly make these decisions based on either historical spend levels, “percent-of-sales” rationales, or to “match-the-competitors” share of voice and spend. Unfortunately, only a few companies are planning their budget allocations on the expected cost versus impact of achieving targeted objectives for the upcoming year (zero-based). And even fewer are using any kind of robust analytical assessment to arrive at risk-adjusted budgets associated with probabilities-of-success factors.
Weirdly, in many companies, someone in finance, with no real understanding of marketing, is asked to determine the overall marketing budget. Often, their first thought is ‘What did we spend last year?’ Does it matter? Given how much is changing in our environment, should we not be staying firmly focused on our objectives and how to achieve them and emphasize what budget allocated to what areas will provide the highest level of profitable growth?
We recommend that when planning your budgets for 2010, marketers follow the following steps to get significantly more bang for their buck.
1. Stay Focused on Your Sales and Profit Goals
Without focusing on what you want to achieve, how are you going to know how to get there? Figure out your goals in terms of both top and bottom line growth.
2. Create an Analytic Framework
Okay, I know, I know…an experienced marketer can tell a lot from gut feel. But, the environment is changing and what your gut tells you is often based on your experience. The world is not as it used to be. The block buster model is failing, doctors don’t want to see reps like they used to, social media use IS exploding and customer empowerment and knowledge is greater than it has ever been. You need to remove as much emotion as possible from the process and make all assumptions used very explicit, and then use analytics to figure out how to reach your goals accurately.
3. Use Simulation
The more variables you can account for in a simulation, the more you’ll understand the full impact of your marketing dollars (and promote marketing credibility with finance and the C-suite). There never is one answer in any budgeting process. There are a series of overlapping risk and opportunity evaluations that must be made, and a variety of different combinations can lead to a successful outcome. What if you increase this, and decrease that? What will happen?
4. Anticipate the Competitors
How do you know what your competitors are doing and how they will respond? Understanding how you expect to use your marketing resources to create and defend competitive advantage is critically important in building your case for getting them in the first place. Marketing does not need to be an expense that has to be managed, but an investment in the future. We must consider how can we invest in it appropriately and thoughtfully to gain competitive advantage. And if we can’t, then we shouldn’t spend.
5. Refine your Activities Based on Results
Sometimes your competitors may do something that causes you to re-evaluate what you are doing. Don’t be stuck in doing something the same way if the results are not what you want. Modify your activities based on your results.
Conclusion
Each budget planning cycle, every marketing director is presented with a number of critical questions about their assumptions and they have a responsibility to build into each year’s plan an appropriate set of data, tests and analyses to provide the answers. Without these, resources will be drained and growth will be stunted, especially in light of the changes in the pharma environment. Marketers must keep the following in mind when planning their 2010 budgets.
- - Know your market share or sales as well as profit objectives
- - Figure out what you need to know to get there
- - Figure out what analytics you can get that answer these questions and complete these now so they can feed into your planning cycle
- - Prioritize marketing plans on the basis of value of the result versus cost
- - Develop action plans to achieve the results
Pharmaceutical marketers have been doing a lot of the same things for a long time. You may know that if you propose a 5-10% budget increase for your marketing activities, you will get a ‘yes’, but if you use analytics appropriately, you can show an evidence-based argument for how much budget will get you the results you want. Marketers should be able to propose budgets on the basis of business goals and get support from senior management, and the only way to win that support is by using sophisticated analytics that are not tied to historical data to show you the evidence.
For more information on this topic, or what types of analytics can help you, please contact Dr Andree Bates at Eularis www.eularis.com
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Planning Marketing Budgets
All organizations run on numbers - and the first rule of any organization is survival. For an organization to survive it needs cashflow - just like a body needs blood. The finance department is the beating heart of the company, distributing money around all parts of the organization, and prioritising it to those parts who need it most. There is a limited capacity, this is the point. And so someone, somewhere in the organization has to decide where to employ the captial. That's finance's job.
One could argue that the capacity shouldn't be limited. Because prudent investment should grow revenue and therefore whilever we can invest wisely the situation becomes self-funding. But life isn't quite like that unfortunately.
"ROI" is an interesting concept. It suggests that we should be able to measure the return on a particular investment and thereby calculate its value relative to other investments. For this to happen we would need to be much better at:
Understanding the relationship between cause and effect.
I recently sat through a meeting where one of my marketing managers presented some data showing how they had seen a kick-up in sales following an initiative that they had introduced to the market. The conclusion was that this initiative had produced the kick-up in sales. I wasn't convinced.
Of course, as a marketer I wanted to believe this. In fact, I wanted to tell everyone about it and celebrate it as an achievement. But there are so many confounding factors that could affect sales one way or another that realistically the only way to know if we are truly achieving "ROI" with our activities would be to evaluate them under strict clinical trial conditions.
So, the reality is that we do those things that we think will help to drive sales but we don't really have a very objective handle on whether this is the case.
In this situation, qualitative measures become just as important, moreso in fact, than quantitative ones, because we know that we can't provide ultimate proof of the value of our investments. We turn to surrogate end points to at least suggest that these investments are worthwhile - in order to direct funds our way from the killjoys in the finance department.
There is another important factor affecting funding of marketing budgets - internal competition amongst brands. Some marketers reading this will know what I mean when I refer to "a cuckoo product". Most companies have one.
A "cuckoo product" is a product, which, like the cuckoo itself, kicks the others out of the nest and takes their resources. This is usually because the organization believes it to be their best opportunity to bring in revenues. So, they throw the kitchen sink at it - and the other brands suffer from a lack of investment as a result.
(I have worked in a company where senior management proudly tell everyone that "product x is everything". Which I find a completely foolish and frightening statement to make. Because, by definitiion, if one product is "everything" then everything else is "nothing" and who wants to work for an organization which is so dependent on one egg in the basket?).
One of the biggest challenges facing marketers when planning their budgets is to wrestle funds away from their internal competitor brands. If you are managing a brand with peak year sales potential of 1/10th of that of your internal competitor brand you are going to be in for a hard time.
You can go on about ROI but be sure that you will struggle to objectively demonstrate this. And anyway, over what time period are we looking when we set out to demonstrate ROI? Sometimes you have to invest heavily up front to gain rewards later on - this may not be within the same fiscal year. Is that o.k? a promise of ROI tomorrow? In most cases companies want to have it today, or even better still, yesterday.
Many marketers make it even harder for themselves by requesting budget and then failing to perform the activities that it was intended for. Good organizations spot this quickly and redistribute funds to other areas. Some wait until year end and then re-paint the staff canteen.
So, I would add the following points to those covered in the article:
1 The personal credibility of the marketer requesting the funds will have a major bearing on how well the brand is funded.
2 The internal competition amongst brands is a major determinant of funding
3 Not all marketers are charged with managing a P&L account. If they were then we might see more prudent investment.
4 The relationship between cause and effect is poorly understood
5 Most marketers adversely affect their ability to secure funding for their brands by not doing what they committed to do.
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