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Simon James
Global Lead Marketing Performance Analytics, SapientNitro London Simon is a data scientist and global leader of SapientNitros Performance Analytics practice.
One hundred and thirty years ago, prominent Philadelphian department store owner John Wanamaker gave us the immortal Fifty percent of my advertising doesnt work quote.
Its now 2014. The world is a different place. And its still true.
Thirty years ago, there were 4.2 billion people in the world and zero cellular phones. Now there are seven billion people and six billion cellular phone contracts. Seventy percent of smartphone users regularly use their phone on the toilet. It takes no more than a single trip on public transportation to know where eyeballs are looking. No wonder printed media sales are falling! Three years ago, Pinterest launched as just another social photo bookmarking site. In January 2013, Pinterest witnessed 150,000 pins, shares and comments for Swedish fashion retailer H&M the majority of which resulted in dead links and missed e-commerce opportunities. Not only did H&M miss an opportunity; H&M never knew the opportunity existed. The days of producing a television advertising campaign and measuring market share three months later are over. Todays CMO is still expected to provide an ROI on advertising. And be a mobile expert. And a social media expert. And a technology expert. Being a CMO has never been more challenging. The job is not just about making decisions, but being aware of the new options that have been created by the disruptive influence of technology on human behaviour. How can you possibly keep up when Facebook or Twitter could be tomorrows CompuServe?
The term ROI is often misused by marketers. Marketing is rarely seen as an investment. We need to see marketing opportunities as investment opportunities, the way an investor would. We need to understand that the future is not certain; that some opportunities have no historic data. We need a balanced portfolio approach to the marketing mix, to find the ideal trade-off between risk and reward that satisfies the needs of each brand.
Something our ancient ancestors probably used. This is the landing page for CompuServe, the rst major online community. It was launched in 1979 with a second online community called The Source. It was supplanted by AOL and its direct-mail CD campaign in the 1990s.
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A New Approach
an improvement on Wanamakers 50 percent! But if marketing doesnt have some element of risk, you are probably foregoing opportunities to generate growth. Marketers generally believe in certainty. The ROI we received yesterday will be the same tomorrow. But is ROI always the goal? As a single metric in isolation, ROI is merely a measure of efficiency, the return (almost always measured in the short term) on a scarce resource. If you blindly follow the sermon of ROI, you will optimise yourself into a corner, foregoing larger lower ROI projects for small/high ROI ones. What if the scarcest resource in marketing is not budget, but the bandwidth of the marketing department to deliver marketing activity? ROI is a good metric, but it should never be quoted in isolation of context. Like all single metric measurement systems, blind adherence can lead to poor decision making. Given the dramatic changes in human behaviour driven by technology, its a smart move to plan for some uncertainty in the future because the future will be fundamentally different from the past. Forecasting of ROI only works when there is sufficient history. To evaluate possible future investment opportunities for the marketing budget, we need to embrace risk and stop looking in the rearview mirror. A way to mitigate risk is to place a series of bets or experiments at varying levels of risk to create a balanced portfolio. This portfolio will include low-risk items with a proven track record (e.g., TV advertising or PPC where the cost can be managed); mediumrisk items such as changes in creative execution or website redesigns; and high-risk items like a mobile or a social-first strategy. By varying the proportion of the market budget spent on any one activity, you can control the overall risk. Managing risk is a similar concept to Eric Schmidts 70/20/10 for managing innovation at Google, where 70 percent of time is spend on core business, 20 percent on adjacent sectors and 10 percent on the truly new. We are proposing a balanced portfolio that manages and mitigates risk. If your growth targets are extremely aggressive, then that growth is only going to occur by embracing higher risk. If growth targets are relatively modest, then a more conservative approach based on optimising the current plan should be favored, although this is a recipe for inviting creative destruction down on your doorstep. Investing for marketing is starting to imitate a futures market.
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Futures markets are bets on the future value of a commodity. In 18th century Japan, the Dojima Rice Exchange of Osaka merchants would make bets on the future value of rice based on their observations on the weather and its impact on the quality of the harvest. We have known for a long time that mobile and social are going to shape the media landscape for a number of years. Therefore it makes sense to take out options on markets we know are going to grow more important in the future, now. This approach is the very definition of investment in marketing making bets today that are going to pay off in the future. You choose your acceptable level of risk by your choice of which projects to back. Learnings from these bets or experiments are then used to accelerate understanding, funding projects that show signs of growth to maximise your chances of success rather than minimise the risk of failure. If the fear of failure is holding back innovation, you will never achieve your maximum potential. You need a method to minimise the cost of failure to remove the fear factor.
The Wright brothers: magnicent men and their barely ying machine.