As the countdown to DMX Dublin on March 25th continues, Adworld continues its series of insights from some of the panelists and speakers at the event. This week Paul Dervan, CMO of the National Lottery writes about the importance of econometric modelling.
In every role I’ve had in the decade, the first thing I’ve done is set out to do better work. Try to understand what most needed attention, and address that. Sometimes it was brand positioning. Sometimes media planning. Very often the creative. Not these days. Today, the very first thing I do when starting a new role is calculate a definitive number on the payback of our marketing spend. So – how much profit do we get back for every dollar, pound or euro spent?
Marketers tend to shy away from metrics. I see eyes glaze over when I start to ask about measurement. I suspect that when marketers signed up to their wonderful, interesting and creative marketing careers, they didn’t have things like negative binomial distribution or double jeopardy in mind. I most definitely did not.
But without a number, we can’t make progress. We can’t improve on the number. We can’t go asking for more money even if we believe we have a tremendous opportunity to grow market share, or launch new products, or whatever. The urge is to go fix some creative or media planning, or other low-hanging fruit. No doubt they can be tackled in parallel – but calculating payback would be top of this list.
Almost two thirds of CMOs do not successfully demonstrate their marketing return on investment. This does not go down so well with the board. Professor Patrick Barwise, once reminded an audience that CEOs and CFOs have a similar mindset to Ed Deming – “In God we trust, all others must bring data.”
This is where Econometric Modelling comes in. If we’re willing to invest the time and some budget, we can calculate much profit are we contributing to the business. Not just that answer. We can start to understand what parts are working and which bits are working less well. It wasn’t that long ago that I was dismissing Econometric Modelling as pseudo-science. Without Econometric Modelling, there was at least one campaign last year I would have killed. It appeared less effective when looking at the early sales figures and our other research data points. But with rigorous modelling, we realised the campaign was creating good profit and a positive Return on Investment (ROI).
There is probably some truth in the accusation that we just prefer to make advertising. Professor Tim Ambler once said that marketers prefer to “make the runs than keep the score”. He added that “perhaps this is how it should be”. Of course, making ads is more fun than spreadsheets. But Ambler is right – ‘making the runs’ is what creates real value for companies. This is what we’re paid to do. Marketers are just not great at proving it. So we end up with situations where it takes longer to get an ad signed off than it did to write it.
Our role model here must be Direct Line Group in the UK, the company responsible for three brands – Direct Line, Churchill and Privilege. They set up a marketing effectiveness team that analysed what factors drove sales at each brand, measuring the contribution of brand and acquisition activity over the short and long term. Ultimately the team was able to show with confidence that their marketing had contributed £46m profit to its home and motor insurance businesses.
They explained that if they had made budget decisions on a purely short-term basis, they would have disinvested their Churchill brand at this point. When just measuring the short-term profit contribution, the ROI of their brand marketing was contributing just £0.45 for every £1 invested. So, a negative ROI. But they were able to measure the long-term contribution, too, which gave them an additional ROI of £0.63 – bringing them to a positive contribution of £1.08. This was a number that was commercially sustainable to continue supporting the brand with marketing.
Marketing Effectiveness may not be an area of expertise for most marketers. Not the thing that helped you get to where you are today. But don’t put it on the long finger. Make it a priority to find out what the number is, so that you can get on with the hard work of making the runs that will improve that number.
Wherever I’m asked if I know of any world-class Econometric Modellers, the first name I give is Louise Cook. She was first recommended to me by Peter Field, one of the world’s leading Marketing Effectiveness experts. It is an absolute coup that the Marketing Institute has managed to persuade her to come answer the many questions that marketers have. She has buckets of experience, no ego and is an absolute pleasure to work with. If you want to know if modelling is suitable for you, come along. Also come if you want to understand how it works, what it costs, how much data you need, how long it takes, what the main hurdles are, what is it best suited for and what it cannot help with.
Paul Dervan is CMO of the National Lottery and will chairing a panel at the forthcoming DMX Dublin event to discuss econometric modelling. The panel will also include Louise Cook, Managing Director of Holmes & Cook; Dr. Grace Kite, Managing Director at Gracious Economics; Michael Dargan, Head of Consumer Marketing at AIB and Ronan Brady, Managing Director of Data at Core.
To book a ticket for DMX Dublin, click HERE