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Marketing Productivity, Efficiency and Profits

	Many executives appear to use Greenspan’s phraseology of “productivity”.   Productivity leads to efficiency, which leads to increased profitability.  There are many rules and productivity standards that can guide executives in most areas of a P&L or balance sheet, the one area that is seldom reviewed in a planned manner, are measurements of marketing efficiencies.  What management usually does is simply adjust this area by overall performance ratio (e.g. sales are forecasted 10% up, let’s increase marketing proportionally). Yet, proven quantitative tools are available to more accurately make such adjustments, and in the process, most probably increase corporate returns.
A recent study completed by SMS confirmed that Hawaii executives are interested in such efficiencies in the marketing area.  Some of the key highlights from the survey:  32% of Hawaii companies do not advertise at all  Of those that do advertise . . . o 67% spend less than $1,000 per month on advertising (excluding production) o 27% use a full service advertising agency o 37% of the companies do everything in-house o Currently, a majority of dollars are spent on Network TV and Daily Newspapers o Most important attributes in selecting a media: Insure impact on target market Quality of audience reached Cost per thousand (Thank you to Mr. Jim Rautio for permission to use these numbers)
Our definition of the marketing profession is: “optimizing corporate profits by fulfilling consumers’ needs in the most efficient manner”.  To achieve the optimum return marketing professionals first identify their target market/segment.  A segment is a part of the population to whom the product being marketed provides more highly desired benefits, and therefore is more likely to buy the product/service.
How do we define segments?  By looking at specific demographics, psychographics, or behavioral differences between groups.  I will use financial services data from the 2000 SMS Hawaii Market Study as my example through this article.  More than 96% of Hawaii adults have a relationship with at least one financial institution.  It is a mass-market service.  However, below are the demographic age characteristics of two Hawaii institutions.
		Though the age composition of each institution looks similar, institution A’s 65+ age group only represents 20% of its customer base, whereas 30% of institution B’s customers are 65+.  However, composition alone is not enough, because when reviewing composition you are comparing yourself against yourself.  At SMS we use an Index, to calculate a company’s composition strength to the size of that segment in the population as a whole.  For example, if 20% of the population is over 65 years of age, but 30% of customers are 65+, that means that we are stronger in that segment. Our strength in the category is calculated by taking our proportion over the population’s proportion (30%/20%*100+Index) and get an index of +50%.
Based on the above, the following conclusions can be reached:
The primary market segment for Institution B (assuming this conforms to corporate goals) is the 65+ groups.   Secondary segment would be the 50 to 64 age group.   The rationale for this choice is: the primary segment index of +60% indicates that for every dollar spent against this segment a return of +60% will be achieved versus targeting the population as a whole.  This is a measurement of efficiency.

	Conclusion:  By tightening the target market, marketing budgets can be tightened without jeopardizing market or sales performance.

Another means of demonstrating how marketing efficiencies can increase corporate returns, is by analyzing one of the most elusive expenditure categories in the marketing mix—advertising dollars.  Modern media planning tools are available to financially quantify alternative media option. As an example, here are financial institutions A & B.  We arbitrarily selected 12 different leading media (radio, print and television).  We identified the primary targets to be current users of each institution’s services. One of the tools available in modern Reach & Frequency programs is media optimization.  Below are some of the results of such analysis.  Please note—all media plans are based on identical media and identical rates.
If the marketing goal is 60% reach:
Target =  25+ Adults Target =  Institution A Target =  Institution B Total Cost $5,920 $4,320 $6,550 GRP's 252 186 266 Average Frequency 4.2 3.1 4.5 Effective reach -- % reach 3+ frequency 34% 31% 41% Cost per Reach effective 3+ $0.02 $0.05 $0.27	Conclusion:  This is an efficient media selection for Institution A,      but not  for Institution B. Furthermore,  Institution A can save more than 27%,   by targeting appropriately,  versus going after a mass market.
Same principles apply if the goal is frequency. If we average frequency target at 4:
Target =  25+ Adults Target =  Institution A Target =  Institution B Total Cost $5,620 $5,120 $5,750 GRP's 231 236 227 Average Frequency 4 4 4 Effective reach -- % reach 3+ frequency 33% 36% 39% Cost per Reach effective 3+ $0.02 $0.05 $0.25	Conclusion:    Again, the media plan will  be most financially viable  for Institution A.

Though many elements of the marketing mix are creative in nature, a majority of decision-making tools are quantitative, and have a direct impact on the bottom line.  In today’s economic environment, a savings of 0.25% is important, especially if it is controllable, and has no detrimental impact on overall corporate performance.