Module 8 : Manage Marketing Resource Allocation

Marketing Accountability

• Rising importance: Marketing managers increasingly need to justify actions and demonstrate impact.

• Big Data Era: Impossible for managers to hide behind absence of data.

• Two main approaches to managing resource trade-offs: Anchoring and Adjusting (old) vs. Attribution Approach (new, links decisions to ROI).

Anchoring and Adjusting Approach (Old)

• Definition: Relying on marketing outcomes to attribute a budget without looking at the link or relationship between resources and outcomes; a heuristic.

• Examples of heuristics:

    ◦ Percentage of profit (or sales) method: Marketing budget varies with past profits/sales. Issue: Budget goes up when things are good, down when marketing is needed most. Does not optimize relationship between activities and outcomes.

    ◦ Competitive parity: Spending the same as competitors. Issue: Doesn't optimize resources; a cheaper, well-conceived campaign can be more impactful.

• Overall: Triggers organizational inertia, not recommended.

Attribution Approach (New & Recommended)

• Definition: Measuring the relationship between marketing resources and marketing outcomes (e.g., how salesforce/advertising changes market share/sales).

• Purpose: Allocate resources to optimize desired outcomes, avoid waste, implement proactive strategies.

• Two types of tools:

    ◦ Experiments (A/B testing):

        ▪ Question: Does a specific action change consumer behavior?.

        ▪ Method: Compare a control group (no action) with an experimental/treatment group (action applied), measure delta in a dependent variable (e.g., willingness to buy).

        ▪ Validity: High internal validity (little other factors explain delta if random samples). Results can be extrapolated if samples are representative. Large online companies do regular experiments (e.g., Facebook).

    ◦ Response Models:

        ▪ Question: What is the incremental quantitative impact of a 1% change of a key marketing input on a performance output?.

        ▪ Method: Use historical data to build statistical models linking marketing resources (e.g., pricing) to outcomes (e.g., sales).

        ▪ Automation: Can be built manually or using automated allocation models (e.g., ADBUDG), with machine learning increasingly automating them.

Marketing Metrics

• Definition: Key performance indicators used to check efficiency of marketing decisions or sales/marketing teams.

• Two main types:

    ◦ Specific Metrics:

        ▪ Intermediate Marketing Metrics: Close to the customer, capture effects of marketing decisions for short feedback loops. Examples: consumer satisfaction, service quality, brand awareness, customer retention, customer loyalty.

        ▪ Accounting Metrics: Sales, growth, costs, profits. Important but can have long delays between marketing intervention and actual impact.

    ◦ Aggregate Metrics (Financial): Track marketing performance over time, benchmark competitors.

        ▪ Net Marketing Contribution (NMC): Profit after sales and marketing costs. Key indicator of marketing resource allocation problems.

        ▪ Marketing ROS (Return on Sales): What portion of sales is profit.

        ▪ Marketing ROI (Return on Investment): What portion of sales and marketing costs is profit.

• NMC is most useful: Decomposing NMC with specific metrics shows that increasing it isn't just about cutting budgets, but also strategies to grow market share, grow demand, or negotiate better with distribution.

• Correlation: Strong relationship between operating income and NMC for companies with a marketing mindset (e.g., Apple).