Return on Marketing Investment for Small Business can exceed Big Business

Warrillow & Co., who was recently acquired by The Conference Board, comments in their most recent e-Mail newsletter about the ability of small business to survive in the tough economy because, unlike their larger corporate counterparts, most small businesses are not dependent upon bank borrowing to improve return on equity. Marketingwitz is thrilled to see that Warrillow appears to be thinking about balance sheets over income statements, as suggested in an earlier (3/16/08) MarketingWitz post.

ROMI, return on marketing investment, can be very favorable for business with healthy balance sheets in turbulent economic times. Most small business operate with positive cash flow and thus are not as dependent on the banks for day-to-day operating capital, and only 11% of small businesses, per Warrilow, rely on bank loans to acquire or start.

With more and more layoffs in the corporate section, and 516,000 new unemployment claims last month, look for a surge in new startups. The economic rebound will start on Main Street, not Wall Street.

Marketing Benefits the Community

Today's Post is a bit of a diversion from our core topic, but still an observation of Marketing. I was in attendance at a local awards ceremony last evening where organizations were being honored for programs that represent collaboration to enhance the local community. It was great that four recipients were a collaborative client team that I've worked with, but what influenced me as I listened and learned about what various organizations were doing for the local community, was that it reinforced a fundamental belief that there is a great deal of good to done in the world. And, importantly, the marketing professionals can and do play an important role in many of these achievements. As I listened, I was encouraged by the passion and commitment demonstrated by the individuals who comprise these collaborative efforts. So, my message to everyone today is that while marketing may often be demonized and, at times may be used for less than honorable goals by less than honorable people, marketing can and is often applied for the betterment of consumers and citizens. Go Marketing!

Are You First In Line? Marketing during Recession

How often have you heard the question “should we increase or decrease our marketing and selling expenditures when the economy softens?” We’re in recession. The politicians may not use the word, but it’s clear that the market has slowed and growth has stalled. Today, with business orders soft for many companies, there is concern about how long the economy may be in the doldrums. The value of the dollar remains weak (and I have a trip to Paris in a month!), Bear Stearns is getting a bailout, and 8% of mortgage holders can’t make their monthly payments. Many project a protracted slowdown before a recovery. So what do you do with your marketing budget as you try to protect your profits?

You may be looking in the wrong place for the answer. The answer may well lie in the state of your balance sheet rather than your income statement. We’ve all seen it: sales are soft and in order to achieve our net profit for the fiscal year we reduce expenses. When sales soften, marketing and advertising budgets are among the first to go. It’s the easiest, least painful expense reduction in the income statement. It typically means the fewest reductions in labor costs as well. At the same time (how often have you heard this?) business leaders will say “I know I am mortgaging future sales and wish we could have kept our marketing spending at current levels. I wish we could spend even more.”

Take a look at your balance sheet. The answer to your approach to marketing and sales spending during this soft economy may be answered, in part, by the health of your overall business as indicated by your assets and liabilities, not your revenue and annual profit lines. If the economic slowdown has strained your existing capital resources and you’ve taken on additional debt burdens to fund your operations or growth plans it may make sense to hold back on marketing and sales expenses. But if you’ve been taking care of business and your balance sheet remains relatively healthy despite a near-term slowdown, and if you believe the economy will eventual begin to heal, accelerated (or at least maintaining) marketing spending may be an advisable strategy.

Why? As the market turns and returns from negative growth businesses will experience increases in orders and production requirements, inventories will build, labor requirements will begin to increase and the flow of dollars through the economy will increase. Whether your business delivers goods and/or services to consumers or businesses, those customers will begin to increase demand for your needed product. You need to be first in line when that demand occurs. You need to be positioned so that the customer reaches out to you to meet that need at the very moment that they are ready to return to the market. Be prudent, but stick with your customers through the tough times and they will stick with you through the good times.

Marketers talk of being first in “mind share”. You want to be in position to be the first among your competitors to be contacted. Better yet, you want to be in contact with your customers when they recognize their need to place an order. If you’ve taken care of your balance sheet, now may be the time to use efficient, effective marketing strategies to tighten relationships with your customers.

Are you first in line?

If this was interesting, take a look at Seth Gdin's comments about how to craft your story during a recession.

Marketing Metrics - The Old and The New

As the year comes to an end it is a good time to ponder what is old and what is new. My previous post focuses on what is new, looking at some of the top marketing trends for 2008. Today I want to make a brief comment about making the distinction between the old and the new.

I read an a recent article in Chief Marketer which discusses "a new way to allocate marketing resources". The article focuses on an excellent description of an approach that suggests three key stages of marketing optimization: 1. Campaign optimization, 2. Contact optimization (using predictive analysis on your customer data to optimize communication over a business cycle), and 3. Market Mix optimization (correlating sales data with marketing efforts across the enterprise). The approach outlined makes sense, but is it really new? Haven't marketers been pursuing the Holy Grail of market mix optimization for more than 40 years? The theoretical approach isn't new. It's old. What is new is the advancement of technology, allowing more sophisticated databases, data anaysis and insight development. The theory and the stages aren't new, our improving capabilities to achieve them are.

Top 10 Marketing Trends - Another List for 2008

Everyone's got to have one. Here's mine. It's brief.

In no particular order, watch these trends in 2008:
10. Mobile Marketing. We're still in the experimentation mode. Look for more advanced promotional marketing, and movement beyond the test and learn stage. Cellfire has been doing some cool promotions - I tried it just to prove to my teenagers that I could download a coupon on my cell and get a free burger...

9. Green. Continued enthusiasm for a green world. See earlier post on Sustainability and the Spiral of Expectations.

8. Creativity. It's time to get creativity back in our marketing programs. Not just great creative (the art) but creativity as marketers, bringing new approaches and ideas to the market. There's so much untapped potential with the capabilities marketers have today versus just a few short years ago. Let's make s--t happen!

7. Investment Thinking. Marketing measurement is ready to hit the mainstream and move beyond lip service. Of course, this is a theme of this Blog so of course I believe this to be true. It's not that creativity doesn't matter - it matters a lot. But as a means to an end, and the end must be measurable.

6. Mass Is Dead. We've all heard it. It's true. The writer's strike, if it lasts, will be the proof. No one will miss network or even major cable shows after a while.

5. Direct is Alive. Online or offline, direct connection with consumers is where the action will be. The ability to converse with your customer in a 1:1 opt-in world is like finding a haystack full of needles.

4. Integrate. Integration of marketing processes into the selling process. Integration of all marketing element from strategy through execution, across media, web, promotion, packaging, etc.. It's all about marketing systems. Connect the dots so it all makes sense, then measure every step.

3. Narrowcast. Such a cool trend. Micro-media networks are like micro-breweries. You may not always like the taste, but you have to experience them. Look for targeted messaging to grow rapidly as networks expand and begin to appear in places you've never thought of -- how about your local bank or dry cleaner?

What, no #2 or #1? I told you I'd try to keep it short. And leaving out #1 and #2 might spark your own creativity. What else will happen in 2008?

Outlive the 23-Month CMO Hurdle.

In an earlier post MarketingWitz notes a report that CMOs are short-lived, lasting 23 months on average. Marketing Witz: Marketing Executives are Short-term. How can Markerting survive? Are CMOs performing that poorly across the board or are they just performing the wrong role? Return on the marketing investment is as much a function of defining the return as measuring the investment. If the CMO is measuring return on the role differently than the CEO then the inevitable turnover will continue.

As CMO, do you view your role to be the prinicpal driver of profitable new growth via new customers and increased sales among current customers? Do you define your role as steward of the brand, enforcing brand positioning and brand communication consistency? Do you view your role as advisor to various constituencies across the organization? Are you the face of the company with the media? If you answered "yes" to most or all of the these questions you are in good company with other CMO's. But CEOs are likely to view the first question as the only truly meaningful measure of marketing return. The other functions are simply marketing approaches to help deliver on the objective of increasing sales and profits. Measuring marketing results based on increased brand awareness or level of internal brand consulting activity is merely an internal marketing process metric while delivering increased sales and profits is the focus of the CEO. Be sure your CMO objectives are clearly defined and in line with the goals of the CEO, and outlive the 23 month hurdle.

Marketing Performance and Sales Incentives Should Relate

It may be just as important for marketing programs to provide measurable incentives to sales teams and employees as is it is to have measurable metrics for consumer response to promotional programs. Does the sales team know what is expected for effective implementation of a program or how proper product placement at retail will be evaluated? Is the compensation system set up to reward the proper behavior? The sales team will respond when they understand the objectives in a clearly communicated manner, and understand WIIFM (what's in it for me). They will respond more rapidly and effectively when there is a clear line of site between their day to day performance metrics and the promotion objectives.

The obejctives and metrics for the implementation team, usually a sales team, must be clear and measurable. Even better if the incentive compensation, either cash or non-cash, is immediate. By immediate, this means that the award for the behavior is linked as closely in time to the performance. Think about it, wouldn't you like to be paid for a job well done as soon after the task is performed as possible, rather than waiting for a possible year end bonus?

Marketers sometime fail to integrate their metrics with the internal processes of the organization, especially the selling systems and procedures. By coordinating with the internal processes the marketing team can generate greater overall support, be viewed as team players, and more readily achieve their business objectives.

Marketing metrics: Process vs Progress Measures

It is amazing to see how often business owners, salespeople, and marketing professionals confuse process with progress, especially when it comes to evaluating the success of a marketing initiative.

One important distinction in the use of marketing metrics that should always be made clear is the difference between process metrics and progress metrics. What does this mean? Process metrics report on either activity generated by the team (e.g. we’ve spent six weeks building the marketing site for the promotion and the will be ready to launch in five days), or on actual consumer behavior change within the total selling cycle. Think of the latter as progress moving consumers or B2B purchasers through the buying cycle, perhaps from an initial prospect to a qualified prospect. Progress metrics are more tightly tied to the business results, and are generally more readily interpreted by those outside the marketing organization. Inquiries generated, sales produced, number of existing customers cross-purchasing the new product line, are examples.

The line between process and progress metrics is not always perfectly clear. For example, increasing the number of qualified customers may be a process metric when viewed as part of the complete customer relationship cycle. In a business with a clearly defined historical conversion rate, this can be treated as a progress metric (really, qualifications x conversion = sales).

When considering measurement of marketing program results, give consideration to the choice of metric to be used. Both process and progress metrics are valuable tools. It is important to understand the distinction, if only to maintain the rigor of your thinking. The closer you can get to measuring progress versus process, the stronger your evaluation of the program.