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Outsource magazine: thought-leadership and outsourcing strategy | August 23, 2017

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Avoiding the black hole of marketing procurement

Avoiding the black hole of marketing procurement
Thom Mead

John Wanamaker once commented, “I know half the money I spend on advertising is wasted; the trouble is I don’t know which half.” Likely this is often said of marketing as a whole – and in fairness, applies to other business functions as well. Have you struggled with this conundrum when considering your sourcing options for marketing spend? Proper mechanisms to track performance, ROI, and effectiveness need to be in place to ensure that the money spent is adding value and not being spent because you have always done it that way. Having held leadership roles in marketing throughout my career, I have always been surprised to find such controls to align marketing spend with outcomes are noticeably absent in most companies. Some observations and recommendations from my career leading marketing and consulting to marketing leaders at companies large and small follow…

In a past life, I was the president of ACS TradeOne Marketing (now BrandMuscle), a leading provider of high-value marketing consulting, analytics and fulfillment of Trade Marketing/Co-Op/MDF solutions. Core to our value proposition was the use of the raw data derived from performing a variety of services for our clients. The more information we could glean from the data, the more robust and informative was our business intelligence recommendations. We had a huge warehouse of data we were sitting upon that yielded tremendous insights into channel, program and campaign effectiveness of our clients… and sometimes their competitors and the larger market also. I was nonetheless surprised when clients would routinely comment, “That’s nice data, but we’ll do it our way, thanks,” even when what they were doing was not particularly effective.

Maybe I suffer from an overdose of common sense in my business dealings, but it seems to me, that if the data suggests what you are doing is not working and your money is essentially being flushed down the toilet, you should adjust your approach to emphasise more of what the data suggests is working, and less of (or eliminate) what is not working. One, more enlightened client, took an omni-channel approach to its advertising: trying to cover all bases in the hope of connecting with someone…anyone… This is not too much of a problem as a first salvo to test the market then adjust, but it is a seriously flawed approach as an ongoing strategy. Tasked with analysing the data and making recommendations, we suggested shifting their spend heavily to cable TV and away from hard copy print, as the data suggested cable TV was overwhelmingly better at achieving the branding and name recognition objectives the marketing plan was targeting. Previously, the company was a multi-billion dollar company with minimal brand recognition, even in its own market. In just a few short years by doing what the data had shown was effective, and stopping what was not working, the company had become a dominant brand name and a darling of Wall Street for its stock’s performance over the same period.

The concept of “meet comp” (short for “Meeting the Competition”) is often used to justify marketing expenditures across many functional categories. This is a costly approach if not tied to analytics to justify the initial and ongoing expense. Just doing something because another company is doing it, is, well, stupid. From a branding perspective, one of the goals of any branding initiative is to differentiate your company and its products or services. If you are mimicking your competition, you will have minimal ability to differentiate. Following the pack is not a trait of a market leader – yet a surprising number of marketing departments follow this all-too-common practice. To reinforce this, they only hire from their competition, furthering the inbreeding. By ending the insanity and focusing on spending money on what can be shown to help to achieve the business objectives, many companies can either save money, or by redirecting the spending to what does work, can be even more effective.

Eliminate the fraud, waste and abuse (FWA) – period. At ACS TradeOne Marketing, we processed an insane volume of claims for the reimbursement of co-op advertising spend. For the non-marketers reading this, co-op advertising is when a manufacturer reimburses a retailer, channel partner or franchise for a portion of their local advertising spend – per the company’s guidelines. The differences between how premium brands and lesser brands approach this practice was quite revealing. One premium brand would reimburse its franchises 75% of the cost of their advertising, but only if they adhered to the company’s strict branding guidelines. Miss even one of the “style points”, and you would receive no money. Another company in the same general space, but with lower-priced products, took a different approach: for them, just advertise. Even if the logo was the old logo, the name of the company was not in an approved font, the item described was associated with the product picture, or other common flaws, it really didn’t matter. We were instructed to “just pay it” – as long as a claim for reimbursement was submitted and we could verify the advertising actually occurred. Some dealers took full advantage of this approach, submitting claims that were certainly questionable in my mind, and should have required pre-approval if not clearly in compliance. But for this company, whether the promotion was flawlessly executed, or flawed, the payment was the same: 40% reimbursement.

In a given year, our company, serving as fiscal agent for the manufacturers, disbursed more than $2.5 billion to retailers on behalf of our client manufacturers. Not a trivial amount of money. We also identified more than $200 million each year in FWA. Numerous marketing executives would instruct us to “Just pay it! We don’t want to upset our channel partners.” More company controllers would do well to audit this function more closely. One tech giant, the worst offender among our roster of leading company brands, had a FWA rate of greater than 25%. Aside from the savings that could be realised, bad marketing is counter-productive as it dilutes and erodes the brand…which then requires even greater overall spend to counter the damage. It’s like pouring water into a leaky bucket.

Is marketing an investment or an expense? Shortly after I was hired as Corporate VP of Marketing & Strategy at ACS, I was meeting with the Group Executive Vice President of Commercial Outsourcing … who was neither a fan of, nor a believer in the need for, marketing. He asked me to come to his office to discuss the “marketing budget”… for which there were no funds formally allocated in that fiscal year. As soon as I sat down, he asked: “How much should we budget for Marketing? What do our peers spend?”

I said, “It varies. On the low end some are spending about 1%, on the high end it is closer to 5%.”

He replied, “There’s no way we will be spending anything like that here. Let’s try it this way: what’s the minimum amount we need to spend on marketing to be effective?”

I replied, “I’m not sure I understand the question. If it is effective, why do you want to spend the minimum?”

In a pissed-off tone, he shot back, “What???”

His question seemed like an oxymoron to me, so I continued, “If you are spending a dollar, and getting a 73 cent return, that is an expense, and it would be natural to want to lower your expense, cut the waste, and try to get your spend in line with the value you are realising. Conversely, if you spend a dollar and get a $1.25 in ROI, you might be motivated to spend $1.10 to see if you can get a $1.75 return on your investment in marketing.”

To which he replied, “Just give me a f*****g number!!!”

I replied, “One per cent is generally considered the minimum…and since we have never done marketing before we will need to sprint before we settle into our steady race pace – so, I will find a way to get it done with 1%.”

He ended the meeting with, “There’s no way we will spend anything close to that in this company. We don’t have anything budgeted for it now, other than your salary. So if you feel you need to spend money, you can try to justify it to me at that time, and if I agree, I will redirect funds from something else that is underperforming. Now, get out of my office.” That was my third day on the job, but I left the office feeling like it was my last day.

In keeping with my earlier comments, I focused on what was known to work. No fluff marketing like lavish, over-the-top trade show booths, sponsoring a professional athlete, or giving all employees t-shirts with the company name on them. Client entertainment was considered a sales expense. To attend a conference was a marketing expense; playing golf with a client or prospect at the event was a sales expense. No “feel good” marketing like company pens, mugs or a company store of branded items. At ACS, those were considered frivolous and unnecessary expenses. But since all the executives were avid golfers, golf balls with the company logo were considered a necessary marketing expense. Go figure. While we did a full rebranding under my direction, we did not spend money on employee-related marketing… even when it came to the redesigned business cards. They would be given to new employees when hired, but only for managers and above if their role qualified for a business card. If you already had old business cards, you would only get the new card when you need to reorder or get a new role. Since the minimum order was 500 cards, it took up to two years for some to transition. We were frugal to a fault sometimes. Not exactly the preferred approach, but I played with the hand I was dealt.

Marketing is an ecosystem. It is important to understand there are mutually interdependent functions essential to balancing effectiveness with efficiency. The good folks at ITSMA (Information Technology Services Marketing Association) recently made a powerful and insightful presentation. Among the many numerous points their research found is the unhealthy market obsession with viewing marketing simply as tactical lead generation, with a lack of understanding of the many components that contribute to making the lead generation function more effective and efficient. As quality guru W. Edwards Deming put forth, “Knowing what to do is more important than doing something.” Merely hiring low-cost offshore resources to “smile and dial” all day long without priming the market with proper marketing will yield a very low rate of market acceptance. The correct application of balanced marketing will have the added benefit of being leveraged enterprise-wide. If your pre-sales/lead gen team is not particularly effective, likely it is less about the people, and more about the lack of appreciation for, and investment in, the other marketing functions.

Similarly, using the internet to market the company and generate leads can be a highly effective and efficient way to reach a broad audience and achieve a lost cost of prospect acquisition. Conversely, some companies needlessly spend obscene amounts of money chasing the Holy Grail of Internet Marketing…and have little, if anything, to show for their results. The internet is a tool…a channel to market. Its use does not make one immune from the basics of marketing when using it. So before you throw money at the internet as the panacea for virtually eliminating your marketing budget, be sure you have a structured marketing solution in place to truly exploit the technology. Used correctly, the internet can be a force multiplier for marketing. Used in an undisciplined way, internet marketing can be a bottomless pit and can serve to inhibit your go to market efforts.

While every industry has its differences, most businesses are generally more alike than different. By focusing on results, on ROI, avoiding FWA, and not treating the marketing budget as a fund that must be fully spent each year you will be able to cut the fat and improve results. Marketing done correctly is not a collection of unrelated tactical activities. Separating expenditures into “Must Do”, “Should Do”, and “Nice To Do” and justifying each item in each category, you will find you can cut 30-50% of your marketing expense with minimal (if any) adverse impact on your marketing objectives. Those are the kind of results any CEO will appreciate. If you’d like to discuss further, feel free to connect with me on LinkedIn.

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