DRAFT 5/27/2012 6:58 AM

Marketing ROI
Profitably Activating Consumers Jay Dittmann Vice President, Marketing Strategy Hallmark Cards, Inc. August 10, 2009

Hallmark
Kansas City-based, family-owned company, founded in 1910 $4.4 billion in sales
Ranked in top 100 on Forbes list of privately held United States companies

Social expression industry leader Two primary business segments

North America: US, Canada, Puerto Rico, Mexico, Latin America (export) International: UK, Australia, New Zealand, Japan, Netherlands

Over 16,000 employees worldwide Products distributed in 140,000 retail outlets globally
70,000 in US

Social expression businesses include

Greetings, Ornaments, Party Goods, Gift Wrap, Gifts, Stationery, Albums, Books, Music, Candy, Plush
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Top 10 Chief Marketing Officer Challenges

Measuring marketing's effectiveness on ROI Improve image or brand awareness Coordinate programs across channels Drive customer-centricity thru the organization Increase efficiency & speed to market Collect & manage customer data Align marketing efforts w/ corporate objectives Master analytical marketing techniques Comply privacy, Spam, DNC regulations

Other Lead generation / management

0
Source: Forrester Survey, 2006

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20

30

40

50

60
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Marketing Effectiveness

Marketing
Hallmark has a long, rich marketing heritage

Logo 1st used in 1928 print & radio ads

Started 1952 79 Emmys

Started 1994 14MM members

Launched 1996

Launched 2001 Launched 2006 80MM+ HHs

that was often driven by leadership beliefs or gut

Marketing
Hallmark continues to make significant investments in Marketing ...
TV Direct Online Print PR

supporting our business across a variety of retailers

Marketing
In the late 90s, we started to implement a variety of marketing decision support tools

Planning & Development

Copy Testing
'Parking' Decision criteria Will the ad be able to break through and generate advertising awareness? * Link awareness index (AI) * Brand rating top box (%) * Enjoyment top box (%) * Passive-active mean * Brand cues mean Does ad communicate intended message? * Link total communication Primary message (%) Secondary message (%) * Link main impression Primary message (%) Secondary message (%) Is the ad likely to grow short-term volume? * Link Awareness Index (AI) * Link persuasion 13 14 13 21 8 19 5 16 37 21 53 2 13 47 Z 46 YZ 7.56 XYZ 2.79 XZ 13 48 42 5.84 2.63 8 48 36 3.97 2.80 5 34 22 5.01 2.63 A Hallmark Sound Cards Average X Hallmark Everyday Cards Average Y MB Online Aired Average Z

In-Market
IAG
Ad Performance at Comparable Media Weight General Brand Ad Recall Linkage Promotional Plush (full campaign) 2007 Snow What Fun Sledders 50% 81% 2006 Very Merry Trio 71% 81% 2005 Piano Snowman 57% 74% Keepsakes (one week) 2007 What Will You Keepsake? (15 sec) 40% 72% 2006 "Gig" -Radio & Mp3 (30 sec) 68% 84% 2005 Record Player (30 sec) 60% 78%

Post Analysis
Media Mix Modeling

Tests Markets

Marketing Tracker
TV Ad SN Card 2008 Parking 2007 Wild Thing (re-aired) Promotional Plush 2008 Sweet Talkin' Trio 2007 Hug-a-Bunch CD 2008 Reba McIntire 2007 Josh Groban
*Source: Marketing Tracker

Timing 1/30-2/14 2/1-2/14 2/1-2/14 1/24-2/14 2/4-2/14 1/24-2/14

TRPs 510 511 325 328 200 225

Ad % Prime Awareness* 14% 21% 25% 23% 0% 25% 41% 43% 30% 30% 19% 23%

but we werent always disciplined in how we applied the learning from the tools
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Marketing
That changed as Hallmark focused on building corporate capabilities needed for sustaining profitable growth ...

Business Transformation Capabilities

Consumer Insight Driven Innovation Commercialization

Differentiated Customer Solutions

Merchandising Effectiveness Flexible Supply Chain

Marketing Effectiveness
which lead us to be more disciplined in our marketing decision making
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Marketing As A "Center of Excellence"

Ensure marketing objectives and activities are linked to clearly defined business objectives Deliver marketing plans with high impact and quantifiable results Provide consumer-insight based input for category and customer plans

Leverage fact-based and granular marketing analytics to understand key segments in the marketplace Clarify the consumer targets, objectives, and metrics for each activity
Evaluate marketing activities with both financial (ROI) and non-financial metrics
A foundational component for our Marketing Center of Excellence is the analytic capability to measure the return of our marketing investments ... within a period, across time, and among media tactics
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What is Marketing Media Mix Modeling?

An analytical approach which identifies and measures how various marketing activities impact consumer shopping behavior Models estimate how changes in marketing support relate to changes in retail sales

Models are custom by industry and incorporate many types of variables that may impact sales
Models are based on weekly sales for several years in order to isolate the normal seasonality pattern

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Background History & Benchmarking

Marketing media mix models (M4) are widely used to measure the impact of marketing
CPG companies were the first users in 1980s, but now are widely used in various industries (e.g., retail, automotive, telecom, financial services) Hallmark began using M4 in 2002 to measure the impact of our "Remembering" ad campaign, a national greeting card effort

Companies we talked with used M4 to estimate marketing ROI, but they had different expectations
Payback hurdles varied Considered both short-term and long-term effects of advertising Looked for improvement over prior year ROI

Use complementary measures in addition to ROI

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Whats Included In Media Mix Models?

A marketing media mix model estimates sales impact based on controllable marketing factors, plus uncontrollable but known marketplace factors
Radio Advertising TV Advertising Sales

Print Advertising

Online Marketing 1-to-1 Marketing Retailer Promotions

Controllable Uncontrollable

Economic Trends
Factors

Holidays / Calendars

Store Openings & Closings

Retail Price Category Trends Unusual Events

Management of data is crucial to accurate and credible media mix models

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Seasonality

Model Illustration
A marketing media mix model solves for multiple factors simultaneously

Pricing
Example of Base Retail Sales Total Hallmark Sales Factors
$

Economy $

# of Hallmark Gold Crown Stores Time

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Seasonality

Model Illustration
A marketing media mix model solves for the impact of marketing while controlling for all other known factors

Pricing
Total Hallmark Retail Sales Total Hallmark Retail Sales
Marketing Impact

Economy $

# of Hallmark Gold Crown Stores Time

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Calculating Marketing ROI

Media Mix Models isolate current year sales driven by marketing activity
Factors impacting marketing driven sales Type of media, level of marketing support, timing

Marketing driven sales are a key component of ROI

Marketing-Driven Sales

Marketing Driven Sales

Content or type of offer

Base

Factors which impact ongoing base sales Number of stores

Pricing
Seasonality New product launches Economic conditions

Marketing Driven Gross Margin ------------------------------- = ROI Marketing Investment

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"ROI" Is Different Than "RSI"

Return on Investment Retail Sales Increase
Marketing Driven Sales Marketing Driven Sales

Base 2008

Marketing ROI is simply the return on investment for the sales lift due to marketing. RSI depends on a broader set of factors.

Marketing Driven Sales

Base 2007

Base 2008

ROI = $1.12

RSI = -4%

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Marketing Effectiveness Examples

Marketing ROI - By Media Type

(Illustrative Example)
ROI on Short-Term Marketing Spend Full Year 2008 - ROI on S-T Direct Marketing Spend
PR/Other $2.75

Online

$2.66

Magazines

$2.15

Radio

$2.08

Season Card TV

$1.70

2008 Full Year Short-Term ROI S-T ROI: $1.35 $1.35

Key Promo TV

$1.50

Contributed positively to ROI Goal

1-1 Marketing

$0.96 $0.80

Other Promo TV

Keepsakes TV

$0.63

Newspaper ROP

$0.63

Circulars $0.00

$0.58 $1.00 $2.00 $3.00 $4.00

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Marketing Effectiveness - Overall Impact

(Illustrative Example)
$3.00

PR/Other

Online

Return on Investment

Magazines
$2.00

Radio Season Cards TV

Key Promo TV

$1.00

Other Promo TV Keepsakes TV Circulars

$0.00 $0

1-to-1 Marketin g

$100

$200

Chart shows impact on retail sales (scale), ROI (financial return), and budget (size of circles)

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Marketing Effectiveness - Contribution To Sales

(Illustrative Example)
Store Group 1 Store Group 2 Overall Combined
3115 465 1835 235 1600 +7% 1960 280 1680 +2% 1300 270 1030 Year 2 Year 1 Year 2 +5% 3260 550 2710

2650

1280 230

1050
Year 1 Year 2 Year 1

Market-Driven Sales Base

+145 Total

+80 Base 1 +45 Marketing 1 -20 Base 2 +40 Marketing 2

Group 1: +7% RSI, both strong base and marketing-driven sales Group 2: +2% RSI, weaker base but strong marketing-driven sales
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Marketing Effectiveness
Key principles that have helped us make progress to date include

Discipline
religious about Retail Sales and ROI reviews

Accountability
in individuals objectives agency incented on results

Transparency
results shared broadly beyond Marketing

Granularity
ability to more deeply dig into and cut the data growing company capability asset

Dialog
versus presentation

Action
use learning to influence the next set of decisions
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Marketing Effectiveness
So, we've make progress, but still face a number of challenges including

Leadership buy-in on ROI results

If sales are up, the marketing worked. If they arent, it didnt. Regardless of results, we need more innovative marketing approaches.

Instability in M4 estimates particularly for new media Incorporating other tools to aid in development of marketing strategy Striking the right balance between ROI and other measures Becoming more disciplined in setting goals for each period
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Marketing Effectiveness Evolution

2007 - 2008
ROI Establish a holistic ROI mindset and behavior towards marketing activities and investments across Hallmark

2009 +
ROI

ROO
Shared Hallmark Retail Metric (Examples) Attitudes Hallmark Gold Crown Purchase Intent

Marketing Objective

Marketing Metric (Examples) Ad Awareness

Shared Greetings Metric (Examples) Attitudes Hallmark Purchase Intent

Consideration

Activation

RSI, Brand ROI

Outcome

Transactions with Marketed Items

Marketing Driven RSI ROI

Greetings Usage

Hallmark Gold Crown Transactions

Hallmark Gold Crown RSI

Hallmark Greetings RSI (all channels)

2008 ROI Target -- $1.12

ROI is a key component of a broader ROO approach

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Marketing Framework Summary

Consumer Confidence Economic Unemployment Conditions Gas Prices

Marketing Choices
Strategy Role of Media Timing of Media

Marketplace Retail Performance Consumer Behavior

Marketing Results
ROI RSI ROO

Marketing Investmen t
Total Marketing Spend Spend by Tactic
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