A Bigger Bang: The New Way to Allocate Marketing Resources

(Direct) Congratulations! You are wisely spending your marketing dollars on single campaigns, and the results show it.

But are you looking at the big picture? Can you budget based on total impact rather than cost per reach?

Many firms can’t. They have complex sales and marketing infrastructures, but they’re still reduced to making educated guesses about where and why to invest.

But there’s a way to do it—an emerging discipline called “marketing optimization.” Simply put, it’s an analytical approach that helps a firm allocate resources across products, channels, offers, creative executions and seasons.

When it’s done properly, marketing optimization allows you to adjust strategies as conditions change. It also can help accommodate budget restrictions and more.

If you have strong CRM and database skills you’re ready to start. You’ll be able to examine individual customer histories and determine the best contact strategy based on potential revenue, personal preferences and behavior.

There are three stages to marketing optimization:

1. Campaign optimization. This first step enables a company to improve response, revenue and profit from individual campaigns using at least one addressable outbound medium. Virtually all direct marketers do this in some way, but few move beyond it to the next stage.

2. Contact optimization. At this point the firm applies predictive analytics to its customer data to support customer-focused communication using outbound and bidirectional media (which allow two-way correspondence with targets). This occurs during a specific period of time—typically, one complete business cycle, which can vary from market to market. The goal is to determine the best mix of message, contact timing/channel, and product/offer for each customer while satisfying business constraints like contact frequency and available budget.

3. Market mix optimization. This occurs when a firm correlates sales data with specific marketing activities for an enterprisewide view. The intent is to measure the impact on sales and profit and use that knowledge to drive pricing and spending.

How does marketing optimization work in the real world? Let’s take the case of a retailer with a customer database and a number of existing models.

• The retailer first employs campaign optimization to boost ROI on direct mailings that promote private sales to its most loyal customers.
• Then it uses the models and other campaign data to determine the best mix of outbound communications across multiple channels (catalogs, direct mail, e-mail, parcel inserts and statement stuffers). This is contact optimization.
• Finally, there’s market mix optimization. The retailer considers direct response communications in tandem with TV, radio, print and outdoor advertising. The purpose? To make sure the dollars spent will drive both short-term sales and long-term brand awareness.

To determine this, the firm studies aggregate transaction data along with competitive, macroeconomic and brand-tracking information to develop a system of models that can size up the direct and indirect effects of various categories of marketing expenses on revenue.

Lisa Hamilton is managing director for direct marketing and leads the analytics team for Harte-Hanks in New York.