Biggest bang for your buck assessing the effectiveness of marketing spend

Transcription

1 Biggest bang for your buck assessing the effectiveness of marketing spend By John Sargeant (Senior Consultant) and Stuart Speding (Head of Lubricants Practice) Introduction Yet again lubricant businesses find themselves living in interesting times. With volumes and margins under pressure, it s more critical than ever to ensure that marketing budgets are deployed effectively. But even within an overall declining market outlook we can often find segments which are growing and which play to our own marketing strengths. Optimising marketing spend against in-year performance delivery is being hotly debated within many leadership teams. It s the old sales vs. marketing story how to support existing revenues while positioning for the longer term. In this paper RPS proposes that it is the responsibility of marketing to challenge the organisation to make choices, and not just at a country level. Whereas a geographic lens may have been sufficient in the past to identify investment attitude it is now no longer sufficient to cope with the market or channel dynamics. Once marketing targets are agreed, by regularly monitoring marketing contribution organisations can check not only are we on plan but also is the longer term strategy working?. rpsgroup.com/downstream 1

2 Investment attitude goes beyond the border Many marketing companies only look for growth through a geographic lens. In many cases, where the organisation is perhaps limited to a handful of products or channels of trade, this is perfectly adequate. At a country level, everyone can spot growth in the likes of China, Brazil or Indonesia. But lubricants does not have a simple business model. There are major differences between automotive and industrial lubes. There are critical differences between the drivers of demand in OEM workshop and Retail channels. And there are fundamental differences in the resource management required between direct vs. indirect routes to market or between B2B and B2B2C. So if we are looking to describe our business portfolio in a meaningful way we need go beyond geography. But as a first step we might segment our geographic markets. There are many terms used to do this but they boil down to essentially three major headings which we can call Grow, Maintain and Optimise. Grow markets show encouraging signs of rapid, material growth into the longer term (and are worth above-average investment); Sustain markets are places where it s worth participating but not worthy of too much resource build-up; and Optimise markets are places where we need to consider how we can manage for value and potentially exit. The judgement as to which market falls into which portfolio segment will of course depend not just on their macro characteristics but also the competitive position which we can command within the market. But geography is only the first consideration. A similar analysis, related to channels, is required to be able to complete a full portfolio assessment. The channels have the answer We find that market maps provide more insight than simply where the volume is and where it will be in the future. They can also guide our investment across our marketing portfolio. That said, they are deceptively simple in design. In the diagram below you can see that it splits the automotive lubricants market into several channels and identifies how much of the sales to each channel come direct from the marketer or through a distributor. Market X 2% 4% Lubricants Market Transport Market Industrial Market (2%) (5%) Direct Channel Distributor Channel 7% Auto Specialist Forecourts Independent Workshop Light Servicing Mass Merchandisers OEM Auth Workshop Off Road Transport On Road Transport (2%) (5%) 3% 7% 4% 4% (5%) 3% rpsgroup.com/downstream 2

3 The illustrative example above shows a market where growth is coming predominantly in channels where final customers rely on influencers, like the mechanic at a workshop or other Choose It For Me (CIFM) channels within the passenger car sector. Similarly, On Road is driving commercial growth. It also highlights the increasing role in this example of the Distributor channel which will demand a focus of marketing support capability development. These channels are receptive to B2B investment plans, backed by the right amount of brand pull to support sales. Adding the overlay of scale (i.e. volume and gross margin) then gives the marketer a complete picture from which to build a comprehensive view of investment attitude. This process is valid for all markets and to apply a blanket approach driven through a single geographic lens would be to potentially walk away from an incremental margin opportunity. In the end the assessment of the channel is the critical capability as there will be pockets of growth in Grow, Maintain & Optimise countries just as there will be channels that have maybe matured. This is where marketing need to challenge the organisation to make choices across geographies, across channels and across channels within geographies. With the investment attitude clarified the mechanics of determining investment level can now be developed. It is an art not a science.... Or at least that is what most marketers would claim when it comes to articulating proposed marketing budgets. The reality is that there are many ways to tackle the issue of Return on Investment (RoI) or marketing effectiveness. No one should ever claim that they have the total solution as the variables and assumptions become impossible to manage. You can however approach the activity methodically using a series of lenses to make the final judgement. Budgets can be allocated as a percentage of either turnover or gross margin based upon historic levels or industry benchmarks where available. Within the Lubricants sector we would always recommend adopting the gross margin route which takes out the vagaries of cost of goods movements. However, in setting levels due attention is required to the predominant models in play in any given Lubricant market B2B2C or B2B. B2B2C will demand a capability and spend around the more traditional marketing activities of advertising, sponsorships, promotions (ASP) and other consumer based brand building activities. Clearly this helps underpin sales where there is a significant element of Choose It Yourself (CIY) behaviour. In some developing economies for example the pre-dominant model is Choose It Yourself / Do It For Me (CIY/DIFM). Developed economies are more aligned around Choose It For Me / Do It For Me (CIFM / DIFM). In these markets B2B capability is more critical with the brand being maintained almost as a licence to operate. B2B investment is less concerned with ASP and more with developing sales and account management capability. The catch is that often B2B capacity building is not necessarily treated as part of the marketing budget. Going through each of these steps in turn - the market maps, agreeing our investment attitude and the right business model and then applying some benchmarks can create robust marketing plans to deliver long term strategy as well as in-year performance. rpsgroup.com/downstream 3

4 But is the plan effective The impact of marketing on top line delivery is, as stated earlier, very difficult to quantify definitively. Over the years organisations tend to adopt a hybrid of KPIs to try to determine their Return on Investment (RoI). We find that marketing contribution can provide valuable insight into the effectiveness of marketing spend. It simply equates to gross margin minus marketing spend and when combined with volume and profit measures it can often reveal powerful insights. The simplified illustrative example below depicts the performance of a growth market over the period of strategy implementation. Investment levels were pegged above average and clearly the business has been successful at growing volume and by implication gross margin. However, when you view performance through the marketing contribution lens you can deduce that the return on the marketing dollar has diminished over the years and you can pin-point areas where intervention or re-classification of investment attitude may be required. Volume Gross Margin Marketing Spend Marketing Contribution Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Once marketing contribution has identified problem areas at a high level, you can drill down to performance delivery within channel, segment or even campaign. Although the temptation may be to only review vs. inyear delivery, identifying the lifetime customer value is perhaps the most powerful way to build an informed view of marketing spend and effectiveness. For example, in the instance of a cross market acquisition campaign a number of mediums can be chosen (internet, mailshots, outbound telesales etc.) each of which has associated costs. Having defined the typical lifetime customer value for the target segments, cost reward ratios can be identified and hence create clear targets for the campaign itself. Obviously post-campaign a review mechanism will be required. Understanding marketing contribution at the high level is insightful it can direct lines of enquiry - but it s only when the discipline of measuring marketing spend is matched to the activity set that real breakthroughs can be made. In the diagram above, although marketing contribution is declining the data may not capture the fact that strong, viable relationships may have been developed with major players in the market (e.g. dealer group, retailers) over the period. By providing these insights marketing will not only be challenging the organisation appropriately, but it also gives it the tools to make an informed decision. rpsgroup.com/downstream 4

5 So are you getting the best bang for your buck? Growing, or simply maintaining performance in the current market means organisations will have to call upon a wide range of capabilities and marketers should be up to challenging themselves as well as the strategy to deliver maximum returns with optimum expense. More than anything, companies will be looking for evidence that gives them the confidence that they are on the right strategic track. They need to be able to justify their investment portfolio and marketing spend. If they can, provide this assurance, marketers can continue to help shape the agenda and drive the business forward. The level of insight we describe here is always valuable but especially so when budgets are under pressure and all parts of the organisation are likely to go under the microscope. For further information, or to arrange an exploratory conversation with one of our senior specialists, please contact Stuart Speding - Head of Lubricants Practice, RPS Energy M E stuart.speding@rpsgroup.com W rpsgroup.com/downstream 5

6 About RPS Downstream RPS Energy a global energy consultancy RPS Energy is part of RPS Group, a FTSE 250 company with a turnover of $700m and 4500 employees One of the world s leading suppliers of independent technical and commercial advisory services, project management and transaction support to the international energy industry Over 30 years international experience and a resource base of over 1000 technical staff and associates We carry out 500 projects in 100 countries each year for clients including Governments, NOCs, IOCs, Independents, and Financial Institutions worldwide RPS Energy operates from main locations in UK, Ireland, the Netherlands, USA, Canada, Brazil, United Arab Emirates, Singapore, Malaysia and Australia The Downstream Consultancy business of RPS Energy has provided advisory services across the value chain from Refining, Trading and Supply, to Commercial Fuels, Lubricants and Retail Our experience and capability have supported a large number of strategic investment and business improvement projects for downstream companies worldwide Deep sector knowledge and project delivery The focus of our support is on optimising business performance and maximising growth potential Our teams are made up of highly experienced, industry professionals with unparalleled depth of knowledge and a strong track record of delivering incremental value and process improvement for worldclass companies in major markets around the world We work closely with our clients to understand their issues and find effective ways of improving their business. We then craft solutions that ensure we also build enhanced, long-term capability Given the unique combination of deep sector experience and market insight we are able to offer tailored, pragmatic solutions and deliver actionable plans to help our clients achieve and sustain their business goals RPS Downstream Consulting Offers rpsgroup.com/downstream 6

7 Lubricants Project Credentials RPS Energy has deep experience in the lubricants sectors and has recently undertaken a large number of market studies and advisory projects for leading lubricants players worldwide. Our team of sector specialists with considerable practical business experience and insight has enabled us to deliver highly qualified and uniquely differentiated consulting services. Some of our recent assignments are as follows: Brand Positioning and Pricing In order to maximise value extraction from their chosen focus markets and sectors, RPS designed and executed market evaluation and strategic value mapping programme on behalf of a global lubricants player to assess their current perceived positions on brand, cost, quality, and pricing in end consumer market. Output included value propositions, pricing strategies and an aligned brand positioning. Such programme has lent a context to RPS to develop clear brand strategies based on our strategic Brand Evaluation Framework to help our client grow their market and margin shares in line with their desired brand positioning and sector aspirations. Business Organisation With the NOC client seeking to re-organise and transform its downstream operations to improve returns, RPS acted as subject matter expert (SME), providing leading specialist knowledge and expertise to formulate a new market strategy. Business Expansion Following the completion of an in-depth market assessment RPS identified potential opportunities to access new high value segments and customers for our client. Acting as trusted advisor, RPS has developed a strategic business plan which includes an option to leverage the complementary strengths of the two major global lubricants brands and form a winning JV. Automotive Lubricants Market Studies Our client, a global supplier of lubricants and fuels additives, wished to better understand the end user channels in order to further develop their own forward strategy. RPS analysed the trends impacting demand in the various channels and provided insight into the forward demand projections. Detailed market maps were produced out to 2017 for 6 major European markets along with India and Russia. Market Entry Delivered a detailed review of a potential material new market for a global lubricants player, covering market characterisation, pricing and margin analysis, and competitor analysis. The study concluded with recommendations for the highest value segments to enter and the most appropriate go-to-market approach. This has facilitated a further work to support the confirmed strategic segments of choice, which delivered a strategic evaluation of segment value propositions, route to market models, price positioning and brand destination statements Market Entry Study To support a client s market entry strategy into the Middle East, RPS performed a detailed market assessment of the downstream sectors that included: Setting up a market leading Retail presence Creating a lubricants business (including manufacturing) rpsgroup.com/downstream 7