Get out of the bubble. Look outside the company to set an effective marketing plan.
The frog sitting in the well sees only the well while the frog sitting on top of the well sees the entire world.
- How should marketing resources be allocated?
- Are communications expenditures realizing an adequate return on investment?
- Which customers have the greatest lifetime value and potential future value if properly managed?
The answers to these core questions about the effectiveness of marketing are often internally focused. For example, some companies decide on marketing budgets based on a comparison with last year’s budget, and others grant them based on business unit success.
Something is missing when companies focus internally and only indirectly consider the external competitive environment. Accurate answers to the key questions often depend directly on the competition (e.g., its offers, how much and what it is spending on, and the relative productivity of the dollars spent compared to competitors).
Of course, competitive information is limited and harder to collect, and the next move of competitors can only be predicted. Yet, what is available often has strategic value. Spending allocations can have differential impact on consumers depending on the presence and strength of competitors. A dollar spent on advertising by a cellular company with six major competitors had a different impact than when the market had three major competitors due to consolidation.
The levers that were most effective in the fast growth stages of the market that were geared toward new customer acquisition may be less effective in a more mature stage when retention and stealing from competitors are paramount. Yet another set of competitive issues arises when new players emerge from outside the traditional market. Some dimensions of competitive intelligence can be important including the selection and strategic intent of marketing investments, the productivity of alternative investments, and the linkage of customer response to financial outcomes and metrics.
How are your competitors reaching your customers?
One way that competitors vary is in how they use different marketing levers. Their ability to influence customers at various stages of the purchase process depends on the tools they have available to them (e.g., mass media, direct mail, and alternative sales and distribution channels). More tools are not necessarily better. Some companies use several different marketing levers (e.g., B2B marketers that use mass media, dealers, distributors, and Internet) while others focus on just a few (e.g., direct mail specialists in the publishing business that make limited use of TV advertising).
The goal is to utilize the right levers to influence customers in ways that are strategically important to the business. For example, competitive research might reveal that a main competitor is spending lavishly on video, only to see very low view numbers. Correlating this to social media usage, you may find that they are not promoting their video across multiple platforms. You can seize the advantage (exploit the weakness) by integrating video and social thus, out executing the competitor.
Another key factor is differentiation. Finding your quintessential uniqueness is relative to your competitors. How can you be different from something when you don’t have a current understanding of what those somethings stand for? If you don’t know your competitors messages, methods and positioning strategy it is impossible to differentiate yourself.
Why are these distinctions important? All these marketing stimuli (and more that haven’t been mentioned) are touch points with the customer and can enhance or detract from the customer relationship and ultimately influence buying behavior. A way to achieve competitive advantage is to select and deploy the levers that differentiate you from your competitors. Knowing what is working and what is not for your competitors will let you determine how you can create a competitive advantage by exploiting their weaknesses.
Relative vs. Absolute
One way to look at marketing effectiveness is to characterize the expenditure and outcome of marketing action in absolute terms. For example, if $X is spent on advertising and cash flow increases by $2X, then this is judged a success. If customer lifetime value grows by $Y as the result of retention efforts that cost S.5’Y. then this is successful. In many situations this kind of analysis is a major step toward making marketing financially accountable. However, while objective and factual, it may not tell the whole story.
Further investigation might reveal competitive issues that could lead to different decisions. For example, a recent sales analysis of a consumer product revealed that advertising had a positive return on investment when looked at in absolute terms: The dollars spent on advertising were more than offset by the revenue and profit generated from this investment, based on time series regression modeling.
On its face, this would suggest that performance was good and that the tactics for the next period ought to be based on this successful outcome. However, a second level of analysis of the relative performance of this brand and competitors showed a very different story. While the brand was generating more volume, it was losing share in a period of heavy category growth. The primary competitive brand was much more effective at using its marketing expenditures to capture share and revenue (profit could not be observed). The implications from the second level analysis (conducted with a more sophisticated competitive sales modeling tool) are quite different from the first.
The company is incurring significant opportunity cost by failing to look at its relative performance. If this marketplace pattern continued for longer periods of time, the brand could fall farther and farther behind, while management felt it was doing well. Clearly some strategic redirection was needed to explicitly consider competition.
Choosing Your Competition
Segmentation is usually designed to support differential resource allocation and marketing treatments to different types of customers. Often, a part of the segmentation process is an evaluation of the strength of competitors within each segment. Rather than choosing to compete against the strongest competitor, a marketer might look for segments where it can compete more effectively.
A recent segmentation study for a major consumer healthcare brand identified segments based on consumer needs, value, and brand affinities. All three criteria were used to select targets for future marketing efforts. One segment was eliminated from consideration because it was very well-served by specialist brands that delivered higher quality products at higher prices.
At the other extreme, two segments were identified as especially price sensitive and favorable toward low-priced brands. However, one of the two was relatively favorable toward the major brand and unfavorable toward price brands, and thus selected as a target. A marketing effectiveness perspective provided a framework for choosing appropriate tactics within each segment and setting success metrics accordingly.
For example, the price-oriented segment would be approached through a particular channel strategy that aligned with the buying requirements of this type of consumer. An appropriate way to measure success would be to measure it within that channel mix with particular emphasis on performance relative to price brands. Other segments that were selected based more on their expressed needs would be evaluated on how they responded to messages that addressed the benefits they were seeking compared to other premium brands.
Total market evaluation metrics (e.g., market share) would not accurately show how well the segmented strategies were working. Within-segment evaluation based on different competitive alternatives more appropriately reflects marketing actions’ effectiveness. Competition plays a significant role in understanding and improving marketing effectiveness. It’s likely to be especially important when competitors have different access to and expertise in particular marketing levers and when consumers respond differently to these levers.