Marketing

Marketing mix resource allocation and planning has assumed

prominence as companies have attempted to optimize spending

across all marketing activities. That’s no surprise, considering

that senior marketing executives are under increasing pressure to

help their organizations achieve organic sales growth with tighter, topdown-

driven budgets and short time horizons to deliver tangible payback

on their marketing campaigns. With less influence over the size

of their budgets, senior marketers must instead attempt to maximize

the impact of the dollars they distribute for programs across multiple

products, markets, channels, and specific customers, using an

increasingly complex mix of new and traditional media.

As a result, companies have looked toward analytical and modeling

techniques in an attempt to better link marketing investments to meaningful

and measurable market responses (and, ideally, to one or more

financial metrics). Packaged goods and pharmaceutical marketers, in

particular, were among the pioneers in exploring marketing mix analytics

and data-driven econometric models. Marketing scholars also have

contributed to a more sophisticated body of analytical and modeling literature

that offers both theoretical and substantive insights for marketxi

ing mix resource allocation decisions and planning practices. In many

respects, marketing practitioners and researchers were early advocates

for bringing analytics to business practice (Kotler 1971).

Nevertheless, changing customer dynamics and advances in

media technology present novel challenges. Nowhere is the challenge

more evident than in the domain of new media that originated in and

is energized by the digital environment. The rapid and ongoing emergence

of new digital channels—from the static online banner ads of

the 1990s to the social media and mobile platforms of the current

environment—has changed the way people consume information and

has left marketers scrambling to address the new digital landscape.

According to a recent report by Booz Allen Hamilton, “digital marketing

still lags the shift in consumer behavior” prompted by the Internet

(Vranica 2007, p. B6). At the same time, the rise of digital communications

channels has focused renewed attention on the efficiency and

effectiveness of traditional media and the extent to which new media

are a complement to or a substitute for television, print, and other

established channels—all with an eye toward optimal allocation of

marketing mix resources through marketing analytics.

“You have to be able to orchestrate a move toward emerging media,”

says Greg Welch, head of the CMO practice at Spencer Stuart. “How do

you take a traditional media budget and figure out not just how much

to allocate to [new] media, but also how to measure it and how to defend

it in front of your peer group?” (O’Regan 2007, p. 14). Not surprisingly,

many companies have adopted a measured approach to the inclusion of

new media in their marketing communication programs until appropriate

analytical and modeling techniques can provide better insight into

their use. The description of marketing analytics contained in this book

offers contemporary perspectives and practices that should provide

direction for these marketing mix decisions.

© THE MEASURED MARCH TO NEW

MEDIA AND MARKETING ANALYTICS

Eighty-plus percent of U.S. consumers are online regularly, and 34%

of their media time is spent online. Still, most marketers devote only

approximately 5% to 10% of their advertising and promotion dollars to

digital media (Marketing NPV Journal 2007).

What are the likely reasons for the disconnect between consumer

media usage and company media spending? Three are most commonly

mentioned: (1) modest budgetary and organizational support

for media experimentation, (2) limited business experience with and

talent necessary to apply marketing analytics to new media, and

xii Introduction

(3) insufficient metrics and marketing analytics to measure the efficiency

and effectiveness of new media alongside traditional media.

Slowly Shifting Budget Priorities

Media fragmentation has stretched marketing budgets in many companies.

So, too, efforts to create coherent integrated marketing communication

campaigns that blend different elements of the traditional

communication mix in mutually beneficial ways have placed greater

demand on marketing resource allocation and budgeting practices.

More often than not, marketers continue to be hamstrung by budgeting

policies that do not necessarily support the unique purchase,

modeling, measurement, and creative requirements of new media.

Moreover, a large portion of the current investment in new media buys

and analytics is new money, signifying that senior marketing executives

are not yet ready to shift significant portions of their communications

budget away from traditional media.

At the same time, communication budgeting policies that explicitly

set aside funds for media experimentation are comparatively rare.

Industry surveys suggest that approximately one-quarter of large U.S.

companies include a designated line item for media experiments in

their marketing communications budgets. As for the amount,

McKinsey & Company offers a rule of thumb: Spend 75% to 80% of the

budget on proven messages that are placed in proven media vehicles

and supported by proven dollars. The remaining 20% to 25% of the

budget should be allocated to financing well-structured media experiments

(Court, Gordon, and Perrey 2005). But there is a hitch. All too

often, many companies lack either marketing professionals with substantive

new media experience or the specialized talent necessary for

conceiving, developing, and delivering digital communications campaigns

amenable to meaningful experimentation and measurement.

The same can be said of the skills necessary for the application of marketing

analytics to marketing mix resource allocation decisions.

New Skills and Structures Are Required but

Not Yet Prevalent

Fewer than 24% of senior marketing executives polled by Booz Allen

Hamilton in 2007 considered their companies “digitally savvy.” A lack

of business experience with new media and the dearth of individuals

with digital talent were cited as the principal reasons for this situation

(Rasmussen, Ude, and Landry 2007). The finding that roughly three

in four companies lack the requisite experience and knowledge to

engage the digital environment has meant that senior marketing

Introduction xiii

executives must often consider restructuring and repopulating their

organizations. According to McKinsey’s David Court (2007, p. 29):

Many of the skills, such as expertise in the business use of social

networking, in digital marketing, or in emerging markets, require

a degree of specialization that complements the generalist capabilities

of traditional marketing managers. As a result, many companies

will be forced to restructure their marketing and sales

organizations by creating centers of excellence for key marketing

capabilities and, perhaps, by outsourcing marketing activities

requiring specialized skills, just as some CIOs rely on external ITdevelopment

resources. Not surprisingly, almost 75 percent of the

chief marketers polled at a recent CMO summit (organized by the

Marketing Science Institute and McKinsey) agreed that the skills

they needed were becoming so specialized that their organizations

would have to operate quite differently in the future.

In a parallel fashion, new technical skills and organizational

structures are necessary to bring marketing mix analytics and datadriven

econometric models to bear on marketing decisions. Davenport

and Harris (2007) emphasize the importance of top-notch analysts

familiar with the latest advances in data-collection technology and

quantitative analysis. But they forewarn that analysts must express

complex ideas and methodology in simple terms and interact productively

with marketing decision makers if their talent is to yield better

marketing resource allocation decisions. From an organizational perspective,

companies such as IBM and Procter & Gamble have created

Centers of Excellence to house the marketing analytics capability

within their organizations. That said, many marketers still lock in on

agreed-on metrics to measure performance and refrain from investing

in resources required to build an analytical capability.

Pandora’s Box of Metrics and Marketing

Analytics

Concern about insufficient metrics and marketing analytics to measure

the efficiency and effectiveness of new media has drawn attention

to broader questions related to the evaluation of all media performance

indicators and the applicability of existing marketing analytics

(Bahadur et al. 2007). Call it a virtual Pandora’s Box. The number of

metrics is not the issue, as new metrics for both traditional and

emerging media metrics are being proposed at a breakneck pace (see,

e.g., Bucklin, Rutz, and Trusov 2008). Nor is there necessarily a

shortage of marketing analytics for different aspects of marketing mix

xiv Introduction

resource allocation and planning (Farris et al. 2006). The true challenge

for marketers is determining the quality and appropriateness of

these metrics and marketing analytics—in the context of integrated

marketing programs—and whether they provide the insights needed

to make resource allocation decisions across media.

Without clear metrics that matter and transparent analytical models,

senior marketing executives are often at a loss justifying their recommendations

to redeploy their marketing mix spending. They need

new approaches for linking the marketing spend to financial outcomes—

either directly (increased sales) or indirectly (word-of-mouth

referrals that lead to customer acquisition). In a 2006 Forrester

Research survey, more than 40% of the marketing respondents said

that it was too early to tell if they could measure success from their

interactive display ads and search marketing programs, even though

those were two of the most heavily adopted interactive media (Haven

2007). Not surprisingly, quantifying and measuring the value of marketing

programs and investments was identified as the top challenge

facing senior marketing executives for 2008, according to a recent poll

commissioned by the CMO Council (2008).

© PURPOSE OF THE BOOK

Marketing Mix Decisions: New Perspectives and Practices was prepared

in response to numerous requests by senior marketing executives and

marketing research professionals, at various forums sponsored by the

American Marketing Association, to address a pervasive and recurring

issue in their companies—namely, marketing mix resource allocation

and planning and the application of marketing analytics. This topic

has gained momentum as executives have begun to explore and recommend

the use of new media as part of their integrated marketing

communications programs.

Senior marketing executives and marketing research professionals

are the principal audience for this book. The perspectives, practices,

and applications described in its content tend to be problem oriented

and focus on common issues, questions, and situations faced

by marketing practitioners. In this regard, three of the articles provide

useful perspectives on the state of knowledge and practice with regard

to marketing mix resource allocation and planning. The remaining two

articles present evidence-based company case studies that focus on

marketing mix resource allocation initiatives and results. When

appropriate, the articles offer insights into the possible application of

marketing analytics to new media. The five articles contained in the

Introduction xv

book draw on extensive author experience and knowledge as well as

original field-based research.

This book also should be of value to the marketing scholar and

educator community. According to Myers, Greyser, and Massey (1979,

p. 29), “Understanding practice, and contributing to it, can lead to

major contributions to knowledge development.” Ideally, the perspectives

and practices provided in this book will motivate further scholarly

inquiry into the theory and practice of marketing mix resource

allocation and planning and will stimulate interest in the inclusion of

new media in scholarly research and teaching.

© REFERENCES

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xvi