Post on 03-Jan-2017
Marketing: Return On Investment
Updated: May 6, 2009
Agenda
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Importance of measuring the effectiveness of marketing programs
Different ways to calculate ROI
Real Life Examples
Importance of Measuring ROI
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Creates the ability to understand and communicate the return on your marketing dollars
Helps to better evaluate which programs are the most effective and which need to be modified or eliminated
Assists in getting the resources you need Allows you to have an intelligent conversation
regarding your marketing budget Prevents you from becoming a Dilbert cartoon
The Marketing Process
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1. Market Assessment
2. Competitive Analysis
3. New Product and Offer Creation
12. Media Mix Selection
11.Operational & Systems Planning
17. PR and Internal Comm.
16. Product Pricing and Offer
15. Sales Support
14. Promotions/ Merchandising
13. Marketing Message & Creative
8. Client Understanding & Segmentation
7. Internal
Brand Mgmt.
6. Brand management
5. Brand Development
4. Financial Analysis with ROI
20. Measuring Performance & Quality Control
19. Staff and Partner Management
18. Marketing Role Definition
10. Retention and Process Improvement
9. Experience and Service Management
Effectively Managing the Twenty Activities of
Marketing
Developing Marketing Strategy/Planning Defining Brand Strategy/Managing the Brand
Understanding and M
anaging Clients
Executing the Marketing Plan
Man
agin
g th
e M
arke
ting
Func
tion
Budget Approaches
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Percent of Assets -- “Rule of thumb” formula is 1/10 of one percent of bank assets or $1,000 for every million dollars of bank assets
Incremental Increase -- Adds an “inflation factor” -- usually 2 to 5% -- to previous year’s budget
Budget Approaches
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Comparative Parity -- “Keeping up with the other guys” or spending in line with the competition to retain share of voice position
All We Can Afford -- Marketing/advertising funding is established last in the bank budget process and allocated only those dollars remaining in non-interest expense forecast
Budget Approaches
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Objective and Task -- Marketing/advertising budget based on measurable business objectives and the cost of programs required to achieve these objectives
Factors that Affect Your Budget
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Strategic Direction of Your Bank-Consumer vs Business-Market Segments-Market Share -Growth Goals-Orientation towards Marketing and Branding
Media Costs in Your Markets Number of Branches Ability to provide ROI
A Day in the Life of a Marketing Director: Real Life Examples
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“I think giving away a free DVD player for a free checking account is a stupid idea and will never pay for itself.”
“I do not think that home equity direct mail did us any good, should we save the money next quarter and just drop it?”
“We are projected to sell 46,000 new small business checking accounts this year. How much could we sell next year?”
“I liked our TV commercials, but did they really do anything for us?”
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“I think giving away a free DVD player for a free checking account is a stupid idea and will never pay for itself.”
Calculation of Required Sales Lift (RSL):
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RSL = Offer Cost /(Product Profitability-Offer Cost)
It answers:
How much of an increase in sales volume will I need to pay for my marketing program?
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NO DVD DVD Offer $ $
Revenue (5 Years) 851 851On Going Expense (5 Years) 267 267Set Up Costs 10 10Marketing Costs 46 46Profit Before DVD Offer 528 528DVD Expense (Delivered) 0 61Profit (Full Life) 528 467
RSL (61/(528-61) 0% 13%
What is the lift required on Checking Account Sales to pay for a DVD Player?
DVD Checking Offer Analysis
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“I do not think that home equity direct mailing did us any good, should we save the money next quarter and just drop it?”
Calculation of Return on Investment:
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ROI = Incremental Profit - Marketing Investment
Marketing Investment
It answers:
What kind of return did I get on my Marketing Expenditure?
What should your hurdle rate be?
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Recover the cost of your marketing expenses, or achieve a 100% ROI
Recover your expenses and produce a 20% return on your investment, or a 120% ROI
Double the return on your marketing dollars, or produce a 200% ROI
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60,000 60,000 Response Rate 0.66% 0.80%Cost of Mailing 46,200 46,200Applications 396 480Approvals 178 218Loans Booked 125 153Cost of Home Depot Cards 0 15,300Profit of Loans Booked (Full Life) 292,500 351,900Total Marketing Expenditures 46,200 61,500
ROI (292,500-46,200)/46,200 533% 472%
Mailed 120,000 Home Equity Pieces and Tested $100 Home Depot Offer
Home Equity Direct Mail Analysis
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We are projected to sell 46,000 new small business checking accounts this year. How much could we sell next year?”
Business Checking Projections
Definition of Insanity:
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“Doing the same things over and over again and expecting different results.”
Calculation of Projected Sales Units (PSU):
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PSU = Current Sales Run Rate + New Marketing Programs
It answers:
The collection of marketing activities will generate this number of sales
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2004 2005
Current Branch Run Rate 26,000 26,000New Branch Offices in 2005 0 2,000Special Offer 0 2,500Prospect Direct Mail 4,000 6,000Customer Direct Mail 4,500 6,000Small Business Bankers 3,500 3,500Small Business Specialists 6,000 10,000Telemarketing Program 2,000 2,000Adverse Effects of Competitors 0 -5,000Total Accounts 46,000 53,000
Projections estimate a 15% increase in 2005
Business Checking Projections
We can make a sales goal of 53,000 new accounts if we can have……..
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A new offer to give away a $50 Office Max gift card for the first quarter
Our prospect direct mail budget increases from 1.5 million pieces to 2 million pieces
Our customer direct mail budget increases from 300,000 to 500,000 pieces
We add 10 new sales people
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“I liked our TV commercials, but did they really do anything for us?”
Multimedia Campaign Analysis
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Unaware
Aware
Understand / Value
Consider
Positive Experience
Cross-Sales
Advocate
Accept Information
Seek Information
Active Consideration
Purchase
Commitment
Retain
Recommend
AcquisitionCommunication
& WOM Driven“Rational” and
“emotional” elements
Retention/ Growth
Experience Driven
“Rational” and “emotional”
elements
Acquisition / Retention Process
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Required Actual Sales Lift Sales Lift
Denver 28% 9%Dallas 22% 21%Phoenix 18% 34%
Awareness Awareness Worth Try Worth TryLevel-Pre Level-Post Pre Post
Denver 5% 11% 17% 22%Dallas 10% 20% 26% 24%Phoenix 15% 19% 27% 34%
Multimedia Campaign Analysis
Examine both sales and awareness level changes
Summary
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Focus on creating intelligent conversations with your managers
Build a strong partnership with your Finance Group
Results for programs work best when both the field and Marketing have ownership
Pilot programs are a great tool for testing new ideas and creating realistic projections
Always have your results close to you