Accountable MarketingPresentation for "Selling Mortgages" Seminar, 14 June 2004

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Accountable Marketing Effective evaluation of
marketing activities for ROI
Mungo Dunnett Managing Director, Mungo Dunnett
Associates
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Background

• I run the main sales and marketing consultancy
  operating in the UK mortgage market
• And have dealt with significant number of
  Building Societies and Banks, on issues of
• Cross-selling
• Retention
• Databases
• Profitability
• What interests me are issues of strategic clarity
  and commercial efficiency
• How can you operate more efficiently?
• How can you generate more profitable revenue?

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The role of profit

• Success is (usually) determined by
• Incremental profit over time
• Or incremental surplus to protect and grow
  solvency
• Generated by a combination of product holdings,
  margin and longevity
• Sales, marketing and servicing decisions ought to
  be driven by these factors
• But are they understood?
• Must track the responsiveness of customers to
  different activities
• Does it drive incremental profit? (not simply
  retention)

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Why bother measuring?

• To make sure that your organisation is
• 1) Spending its marketing budget wisely
• 2) Making money from its gross mortgage lending
• And if youre not asking the right questions
• You will be acquiring mortgage business through
  price (best buy rates, procuration fees, etc)
• And on a treadmill rate-sensitive business
  particularly in the non-traditional channels
  correlates to attrition
• If you are aiming for long-term sustainable
  profit you must know the effect your customer
  acquisition is having on your bottom line

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The purpose of marketing

• Marketing is not an end in itself
• It is not enough simply to build a brand
• Or to create consumer awareness
• Or to fill the branches with posters, and the
  post with junk mail
• The purpose of marketing is to facilitate selling
• It identifies the most effective approach to the
  market
• It provides the ammunition for the organisation
  to sell
• It brings customers to the salesforce who close
  the sale
• Marketing is there to support the sales force
  they depend on each other

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Instead of which marketing is its own worst enemy

• All too typical scenario
• Marketing are charged with hitting sales targets
• It is essentially a marketing communications task
  (the production of collateral)
• Where the rate and the channel management is
  doing most of the work
• Marketing budgets dominated by mandatory
  communication tasks
• Marketing driven by market share metrics, not
  profit
• And minimal evaluation is done to demonstrate the
  cost-effectiveness of marketing activities in
  driving sales
• The result marketing budget seen as a soft
  target
• And marketing frequently not represented at top
  table

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The answer deal in facts

• Marketing is a critical function for the
  organisation
• It is the place where future strategy should be
  emerging
• It is the place where trends in the customer base
  should be identified
• It is the place that steers and supports the
  sales function
• If you are not dealing in facts
• You cannot deliver any of the above effectively
• And you cannot even defend your budget because
  you cant prove that it is being effectively
  spent
• The key role is Finance demonstrate the link
  between your function and the bottom line

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Facts (1) understanding the links to profit

• Marketing departments that can deal robustly in
  issues of profit gain real credibility with
  Finance
• This is not simply pricing committee debate on
  individual product launches
• Typical situation relatively poor understanding
  of actual profit drivers
• Pricing decisions based on broad Treasury
  assumptions
• Acquisition and servicing costs usually deemed
  too hard to determine or too political

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Revenue and cost evaluation

• Revenue evaluation entails identifying the real
  underlying trends
• Which customers are buying? What is their
  cross-purchase history? Their balance size?
  Their retention pattern? Their risk profile?
• Revenues balance x weighted margin x longevity
• Basic costing to 80 robustness will quickly
  identify key margin issues
• Determine all basic costs
• These elements make radical differences to
  long-term income (think Wilfredo Pareto)
• Make sure the gearing is working for, not against
  you

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Facts (2) understanding purchase propensity

• Understanding profit will tell you which
  customers would make the organisation the most
  money
• And starts to question (or confirm) commercial
  strategy
• But you also need to know which customers are
  most likely to buy (and why)
• This entails some relatively simple data analysis
• Which allows you to focus the resource allocation
  in the right areas
• The marketing budget can now be better focused
  on those most likely to respond and be profitable
• And the same focus applies to sales and service

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Without the facts it becomes entirely generic

• Those lenders who have not created the necessary
  management information tend to be those whose
  marketing is the least distinctive
• And the least effective?
• Dependent on best-buys
• Without knowledge of where you should focus (for
  cost-effective acquisition, or incremental
  profit)
• You will inevitably be talking in generic terms
• And any customer is a good customer
• The result an industry whose marketing is highly
  undifferentiated and lacking in real impact

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Testing and evaluation

• So the decision process for marketing activities
  (and budget allocation) should be dominated by
  the intent to drive (or sustain) profit
• Marketing is a commercial function, not
  operational or administrative
• But the other element that must be considered
  from the outset is the absolute necessity to
  evaluate
• To protect yourself (and your budget)
• To ensure that results will improve
• There are two common mistakes in evaluation

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First mistake not bothering

• An amazing proportion of marketing activities are
  never evaluated at all
• Why is this?
• Because nobody asked for an evaluation?
  (Dont wait to be asked!)
• Because there wasnt time?
  (Get the next campaign out of the
  door)
• Because the turkey doesnt want to vote for
  Christmas?
• If marketing isnt evaluated, getting further
  budget is a lottery
• Because no evidence is provided of its
  effectiveness nor the reliability of the
  marketing department

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Second mistake not identifying incremental sales

• Find out would the sales have occurred anyway?
• Understand residual sales level
• Control cell of customer not exposed to marketing
• Subtract this sales level from live cell sales
  level, to show incremental sales level
• Three usual outcomes
• 1) Marketing made a noticeable difference
• 2) Little difference, but try again with some
  variation
• 3) Dead duck forget it and move on
• Other ways of measuring

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Measuring above the line advertising

• Campaign management techniques work easily for
  direct marketing or localised initiatives
• But are harder for press, radio, posters, TV
• These are often unevaluated or tracked in terms
  of awareness (which is not sales, and not profit)
• The answer select customers who bought during or
  shortly after the marketing activity, and ask two
  questions
• Did they see the marketing?
• Did it play a significant or crucial role in
  their purchase?
• Build research budget into marketing activities

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Measuring for return on investment

• Once incremental sales have been measured, the
  most important activity is possible
• Measuring the incremental profitability generated
  by the whole exercise
• Critical to establish the complete cost
• Includes all expenditure relating to the activity
• Total incremental revenue (npv or Year 1) minus
  total cost
• Many apparently successful campaigns fail here
• The sales were, in the main, not incremental
• Or the costs were prohibitive

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Without testing and learning the damage done

• Where activities are not measured
• There is no organisational memory when the Head
  of Marketing changes, all previous learnings are
  lost or deemed subjective
• But also mistakes will not be recognised,
  examined, and learned from (and the activities
  stopped!)
• And successes will not be recognised and
  understood and are likely to be dumped through
  subjective opinion
• All too rare a culture that prides itself on
  learning, evaluation and improvement
• Resource pressure time and people squeezes
  measurement a real false economy

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An iterative process

• Marketing is an iterative process
• It will never be executed perfectly first time
• Good marketing a combination of common sense and
  scientific rigour
• Vital to build test-learn-improve into the modus
  operandi
• Will deliver systematic performance improvements
• And visible, unquestionable bottom line
  improvements
• The failure of any given marketing activity in
  generating a positive ROI is not reprehensible
• But failure to learn from failure is

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Summary

• Get the facts to protect your budget, and to
  ensure that the marketing is focused properly on
  commercial impact
• Understand the profitability of the customer base
  by product and by channel
• Understand the purchase propensity
• This will tell you where to focus
• And will allow you to measure financial results
• Plan for measurement dont let firefighting
  sink you
• Make your marketing look and feel different!

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Questions
OXFORD AND EDINBURGH
Mungo Dunnett Associates 11 Polstead Road, Oxford
OX2 6TW Tel [phone] Email
info_at_md-as.com Web www.md-as.com