An MROI diagnostic reveals savings potential of 15 to 25 percent and additional revenue opportunities of 10 to 15 percent.
Challenge
A leading nonfood retailer was spending a significant share of its revenues on market communication, especially on classical advertising. Executives at the company were uncertain about the value they were getting and asked McKinsey to evaluate the size of the company's total marketing budget, how spending was allocated to different media, and how marketing efforts were influencing the consumer-purchase funnel.
Discovery
Based on the client's high share of voice, the team's ingoing assumption—based on dozens of similar engagements for global retail clients—was that the company would be able to achieve a double-digit reduction of its market-communication budget without sacrificing impact.
Working closely with the client, the team did a comprehensive marketing return-on-investment diagnostic, looking at the client brand's purchase-funnel performance, the overall media mix, and the use of TV, print, and direct marketing.
Making use of single-source market-research data and McKinsey's BrandMatics approach, the diagnostic uncovered opportunities for the client to realign its marketing activities, including:
- reducing and reallocating classical advertising investments
- streamlining campaign planning to decrease production cost
- emphasizing loyalty building versus brand building
Impact
The team was able to confirm that the client could cut more than 10 percent of its marketing budget without a loss of impact. An additional 5 to 10 percent could be saved by using the same above-the-line ad campaigns across multiple geographies with moderate adjustments. The team also demonstrated that increased investments in customer loyalty building would enhance revenues.