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Accountability Marketing
Focusing your marketing and communications investments to achieve bottom-line results

By: Tim Riesterer

Tim Riesterer is president & CEO of The Brady Company, an integrated marketing communications firm specializing in programs that improve sales channel productivity for industrial and medical business-to-business clients worldwide.

What does a person gain from all his labor at which he toils under the sun?
     King Solomon
Many company executives ask themselves a similar desperate question each year around budget time:  “what does my business gain from all this money we spend on communications and advertising?”

No one wants to believe they toil (or, in this case invest) in vain.  But, many company leaders remain skeptical of the amounts of money requested to fund proposed marketing communications programs.  To defend themselves, they set up a veritable budget obstacle course.  Designed, they hope, to help separate the needs from the wants.

You know the scenario:  Marketing communications or advertising managers submit budgets for the coming year, then spend weeks supplicating and negotiating with management, keeping their fingers crossed until they see what is approved. 

Each has their own techniques for convincing management to allocate adequate resources for their projects.  Most communication managers say they have to educate management regarding  the going rate for things because management does not always understand what it takes. 

Valid or not, communications managers are missing the whole point.  The real question keeping CEOs up at night is not how much their advertising costs.  They want to know how they are going to deliver continued bottom line growth in the face of highly competitive markets and decreasing profit margins.

Right where it counts

To maximize their impact, communications managers need to put their corporate hats on when it comes to planning and budgeting.  Instead of the “here’s what it takes to do communications programs” pitch, they must clearly demonstrate how their efforts will help solve the company’s most pressing business problems.

There must be a single-minded rallying cry for company executives and communicators that says:  “We are not in the business to make marketing communications programs.  We are in the business to sell stuff -- profitably.  Therefore, we need to work toward ensuring that every promotional dollar we spend counts toward a measurable return on investment.”

Call it accountability marketing. While not officially part of the business world’s lexicon, it has arrived in spirit and attitude among CEOs industry wide.  This article presents two of the most significant accountability marketing lessons businesses need to learn in order to focus their communication and promotion investments right where it counts.

Accountability Marketing Lesson #1:  “The Market Share Fallacy”

The lessons of accountability marketing are not always easy ones.  The first thing to accept is that not every prospect is a good customer.  Looked at another way, not all sales volume increases are good for the bottom line.  Proof positive are the companies in nearly every industry witnessing a steady profit decline, despite setting new sales records.

In the face of this grim reality, one question persists:  Why do companies continue to consider increasing market share as the leading measure of business success?  When the reality is that chasing after market share represents a potentially serious black hole of misplaced and misappropriated marketing resources. 

Here’s one example:  Upon close examination, one of our clients discovered that 200 of its 1,000 customers in the last two years were responsible for 52 percent of the company’s equipment orders.  The last 500 (half) of the company’s customers provided only about 20 percent of the order volume.

While the company enjoyed a record sales year in 1997, it actually posted the second lowest income total in the last six years. A customer-by-customer profitability analysis is still in progress, but one can assume that the cost of obtaining a good share of these customers -- to gain desired market share -- was significantly detrimental to the bottom line.  Not to mention the drag on resources that could have been applied to reinforcing relationships with the most profitable accounts.

Most company executives will intellectually ascend to the idea that not every prospect is a good customer.  Yet, those same company executives will be hard-pressed to alter their market-share-at-all-costs strategy, as long as they are on sales budget.  As a result, they will not challenge their predominantly market share-based communications investment.

This is evidenced by the fact that the majority of promotional budgets still go to mass-marketing/volume oriented programs.  These include advertising, trade shows, point-of-purchase displays and publicity, which are funded with little to no consideration of whether they reach good customer prospects or bad.

The following is a list of recommendations for improving companies’ marketing and communications investments in new customer identification and acquisition:
  • Customer analysis and segmentation

    Rank existing customers in terms of volume and profitability.  The key is to  determine the exact value each one represents to the company.  With that  information companies can identify their top, middle and bottom segments.
     
  • Top value behavior profiling

    Develop profiles of your top value segments to determine which characteristics  continually manifest themselves in your best customers.  Take care to ensure that  your profiles identify traits that can be used to help identify and target similar  prospects in the rest of the market.
     
  • Market analysis and database development

    Behavior profiles are a much better tool for identifying which prospects represent  the best business opportunities.  Match these against available market databases that  offer categories for segmentation.  Those prospects that make the cut should then be  telequalified to validate the list quality, identify the decisionmakers, and further  characterize the company.
  • Perform database marketing

    With a measure of confidence, you can now directly address a highly targeted list of  prospects.  The goal is to begin a dialogue between these high potentials and  your company through response-oriented communications.  Each response and  subsequent contact should continually advance the sales cycle. 
This is what distinguishes database marketing from direct marketing.  In direct marketing, each campaign usually stands on its own.  In database  marketing, each initiative must build on the previous customer contacts.  As your  prospect profile builds, the more effective the program will be toward influencing  sales.

Ideally, the entire program should be linked to field automation to integrate the  sales channel as a part of a closed-loop system. Salespeople can access the  customer profiles and updates to keep tabs on progress.  Also, the system can  proactively  alert proper representatives when new information qualifies prospects  as hot sales opportunities. 

In the end, companies will not sacrifice volume growth.  In fact, a highly concentrated program focused on only the best prospects should help shorten the sales cycle.  And, most importantly, the company will be acquiring business that allows them to stay in business. 

Accountability Marketing Lesson #2: “From zero defects to zero defections”

Debunking the “market-share-at-all-costs” approach creates a natural segue to another significant accountability marketing lesson:  customer retention and expansion. 

Year after year, marketing executives write campaigns, rewrite plans, and adjust budgets all with the noble goal of building sales by adding new customers.  But profits continue to suffer. Why’s that?


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In addition to the unprofitable new customers discussed in lesson one, existing customer turnover rates are in the double digits, according to Business Marketing magazine.  Fierce competition, price wars, and savvy marketing tactics are creating more customer disloyalty.  Here’s some startling facts from a recently published book, “Beyond Customer Satisfaction to Customer Loyalty”:
  •  15-40% of customers who say they are satisfied defect from a company each year
     
  •  Loyal customers provide higher profits and more referrals
     
  •  Loyal customers protect your market share position
     
  •  It costs 5-7 times more to find new customers than to retain current customers

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As a result, the author estimates, companies that increase their customer retention by as little as two percent will see a bottom line return equivalent to cutting their operating costs by 10 percent.  In the book, “One-to-One Future,” the authors speculate that a five percent reduction in customer loss could add as much as 100 percent to the bottom line.

Both books exclaim that these consequential calculations literally demand a new business paradigm:  “a shift from zero defects to zero defections”

The following is a list of recommendations for improving companies’ marketing and communications investments in retaining and expanding their valuable customer relationships:
  • Review your marketing and communications plan

    Identify programs designed to acquire customers vs. those targeted to keeping  current customers.  Evaluate how much time and money is being spent in each area.   Ask yourself if the numbers square with your most profitable opportunities,  particularly in light of the information you just read in this article.
  • Coordinate the various silos of customer activity

    Retaining customers requires internal coordination. The efforts of all departments that have some relationship with the customer must be aligned with the company’s customer relationship strategy.  This includes sales, customer service applications  or technical support, and product development.  Marketing and communications need to ensure that messages are unified.
     
  •  Customer analysis and segmentation (already accomplished for lesson one)

    Rank existing customers in terms of volume and profitability.  The key is to  determine the exact value each one represents to the company.  With that  information companies can identify their top, middle and bottom segments.  You  will market and spend differently for those customers that account for a  disproportionate share of your income and profits.
  • Perform database marketing

    As in lesson one, database marketing is the number one communications medium  for turning good customers into long-term assets.  A customer database will include  an entire profile on that customer -- and be updated regularly by all the customer  relationship departments, based on their contacts.

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According to the book, “Strategic Database Marketing,” companies can then use this living database to augment lifetime value of customers in five ways:
  1. Retention rate:  An ongoing and responsive dialogue with good customers,  using a variety of direct tactics (email, intranet, mailings, telephone), helps  reinforce their purchase decision and instill a greater sense of loyalty.
     
  2. Referral rate:  Existing customers influence others to become customers.  Word of mouth is the most powerful marketing available.  Carefully crafted database  marketing strategies can influence this process and expand referral rates through a system of rewards and motivations.
     
  3. Sales volume:  Loyal customers tend to buy more.  They will buy upgrades,  companion products, and new products.  Database marketing can influence the  total buying patterns of existing customers by making the right offer to the right people at the right time.
     
  4. Direct costs:   In some cases, database marketing can reduce direct costs by  changing the channels of distribution or affecting the renewal process.  Proactive database marketing can not only improve retention and upgrade sales, but improve revenue significantly by creating direct selling opportunities for appropriate  accessories, value-added services and annual contracts.
     
  5. Marketing costs:  Database marketing often makes it possible to reduce  marketing costs to existing customers or prospects selected by modeling and  profiling.  Companies routinely mail mass offers each year only to find that profits  increase by mailing to targeted prospects -- just a fraction of their lists.
Reducing the cost of sales

Exposing the market share-at-all-costs fallacy and keeping good customers from defecting from your company will go a long way toward achieving profitability objectives.  Proper investments in marketing communications are essential to driving these bottom-line results.

There is tremendous power in programs designed to:  identify and acquire new prospects; retain and expand current customers; develop and support the sales channel; and create brand images that truly help the company sell.   If done correctly, these programs will have the cumulative effect of helping reduce the actual cost of selling by shortening the sales cycle and maximizing the effectiveness of expensive field sales staff.

© Copyright 1999, Tim Riesterer, The Brady Company

Other Articles by Tim Riesterer

The author assumes full responsibility for the contents of this article and retains all of its property rights. MarcommWise publishes it here with the permission of the author. MarcomWise assumes no responsibility for the article's contents.

 

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