Every year, marketing executives at many large and otherwise sophisticated companies find themselves in an uncomfortably familiar position: rewriting annual plans just months after they are put into execution. This means that within a year, organizations are rethinking brand and portfolio strategies.
The planning process is broken, and here’s why: As marketing executives look at the factors that affect their business, they fail to clearly distinguish between things they can control (“controllables”) and things they can’t (“uncontrollables”).
The central questions in the planning process must be: (1) How can we maximize the impact of things we can control and reduce the impact of those we cannot? (2) How can we improve the interaction between the two?
Many companies have difficulty answering these questions because analytics are not detailed enough to reveal the various and combined effects of marketing initiatives and determine what drives return on investment. According to our 2013 survey of marketing executives, in fact, seven out of ten of them do not believe their organizations have effective advanced-analytics capabilities. So they fail to understand what marketing and sales initiatives have worked and why, and how to plan for growth.
The cost of poor planning is tremendous in terms of time and resources. Energy that should be spent looking ahead to innovation and execution is instead spent looking in the rearview mirror to try to justify poor results and identify their causes.
Building an approach to planning
1. Develop perspective on how to disrupt consumer behavior to drive growth
“Market Map” model quantifies and analytically links consumer behaviors with drivers of choice: situational factors, needs and attitudinal drivers, and loyalty. It identifies strategies for change for the current portfolio.
- Where and how to innovate
- What it take to win, antes and differentiators
- What winning is worth, creating priorities
2. Use analytics to ensure plans are optimized and realistic
- Marketing mix models and ROI analytics: Optimizes marketing spending allocation by effectiveness and cost efficiency
- Volume Due-To (Source of Volume Change): Diagnoses sources of historical change to better manage controllable and uncontrollable factors
- Strategic learning principles: Guides short- and long-term marketing plan development through quantitative scenario planning
Here are three steps for better planning:
1. Understand what actually drives the business
Analytics must do more than just tell you what happened; it must tell you why. Called “due-to” analysis, this approach helps to distinguish controllable and uncontrollable factors and measure how much each affects sales.
By controllables, we mean factors such as marketing spending, product quality, advertising effectiveness, and distribution. Uncontrollables are factors such as competitive activity, general economic conditions, and factors specific to particular businesses, such as the rate of housing starts or the incidence of certain diseases.
If, for example, you increased advertising last year by 2 percent and your sales rose 2 percent, you should be able to determine whether it was due to additional advertising spend, or to other factors such as lower competitive activity, better shelf placement, or more effective promotion. Econometric models allow you to quantify the impact of the factors you can control and those you can’t, and, importantly, how they interact.
One major food manufacturer, for example, was locked in competition with another major brand and its share was sliding. The “due-to” analysis showed that the competitor was biting into sales by moving into print and social media to optimize advertising – a factor the company could not control.
The company then systematically identified which elements it could and couldn’t control and tested each one. This approach spurred the organization to action. What it could do was develop a superior advertising strategy and increase spending to optimal levels. This simple process can be powerful because it often pushes people to move from rote marketing to challenging how marketing is done.
2. Optimize your controllables, minimize your risk
Even if something is beyond your control you can still develop plans and strategies that either mitigate or exploit its effect.
Take the case of a pharmaceutical company whose sales of cold remedy rose whenever the weather was wet. The company could not control how often it rained. But to profit from poor weather, it developed an application that got ads on the radio whenever rain was predicted, while trade responded with aisle displays with “rainy day” headers and provided more off-shelf display room. As a result, incremental sales rose significantly, and ROI on media improved.
Good planning is also about understanding how variables interact. Let’s say your organization launches a new branding campaign to go after a new source of volume. What impact does each initiative in the campaign have on consumers’ understanding of your price/value equation or your ability to challenge competition? Using state-of-the-art simulation tools, marketers can predict the volume they would reach if they were to optimize every controllable and how much each variable would contribute to the overall result. They can test how sensitive each variable is to other variables and predict the effect of moving multiple levers at once, e.g. figuring out how much a company can afford to reduce trade spending if product quality improves and it builds up advertising spend.
These insights, while not foolproof, greatly reduce uncertainty when it comes to planning.
3. Put your money where it makes the most difference
Armed with this analytical know-how, take a hard look at your portfolio and identify the brands whose results, at the end of the day, depend significantly on factors beyond the marketer’s control. These brands just aren’t rational investments and should be ultimately given lower priority or eliminated.
One major client, for example, spent the best part of a decade battling declining sales in its flagship category. Simulations and a sensitivity analysis showed that the company would have to both increase advertising effectiveness to levels it had never reached and promotion effectiveness by double digits in order to hit sales objectives. Those were unrealistic objectives given the potential returns. When they realized this, the client redirected resources towards an emerging category where margins were increasing and managed the flagship category for long-term cash generation. The result was a 5 percent bump in returns.
Instead of spending valuable resources on replanning, marketers should develop the tools and insights required to devise reliable, accurate projections. Plans should be rated according to their ability to tip the balance towards controllable factors. The result will be less time spent at the planning table and better focus of resources on areas where there is better ROI.