October 15, 2007
Analyzing ads | A chat with strategic marketing consultant Dane Somers on calculating the return on your advertising dollars
By Sara Donnelly
Despite the some $400 billion U.S. businesses spend annually on advertising, tracking those dollars with return-on-investment strategies remains a relatively new, and controversial, concept. In a recent survey of the nation's top marketers conducted by the Association of National Advertisers and Marketing Measurement Analytics, as reported earlier this month in the business marketing magazine Direct, more than 40% of marketers polled said it's almost impossible to measure ROI for strategic use, and less than a third say their companies can effectively measure ROI on advertising and apply it to marketing strategy.
But Dane Somers, a Maine Marketing Association board member and a strategic marketing consultant, says there are simple ways Maine businesses can track ad dollars. What's more, Somers says using ROI techniques to get the best bang for your marketing buck is critical to your company's bottom line and long-term success.
Mainebiz spoke with the Windham-based Somers ˆ who works as an adjunct professor of strategic marketing at the University of Southern Maine and as executive director of the Maine Lobster Promotion Council ˆ to talk about how to catch the eye of your most valuable customers. The following is an edited transcript.
Mainebiz: You've worked in marketing and advertising for more than 25 years, including time spent in New York City, Boston and now Maine, for clients ranging from sole proprietorships to Fortune 500s like Cadbury Schweppes. Do Maine businesses trying to gauge the success of their advertising strategies face any unique challenges?
Dane Somers: Only that you're in a challenging business environment because you've got a low population base. You have to consider the fact that Maine has 1.2, 1.3 million people ˆ in the city of Phoenix, there are two million people, just in the city. So the challenges for a Maine business are magnified by the fact that we live in a rural state and we're far away from the major markets, so it just makes it that much more important that you're very strictly focused and you don't waste many of your marketing dollars ˆ you make them count.
How do most businesses figure out how much to spend on advertising each year?
Some businesses just look at the general industry. They say, "Well, other people in the industry are spending five to six percent of their revenue on advertising [or] marketing so I guess to keep up with our competitors we have to do the same." Which is kind of a silly way to do it, in my estimation. Others take a look at how much [they] can spend on advertising. Particularly if you're just starting out ˆ "It looks as if we'll have an extra $5,000 to $10,000 this year, if we spend it on advertising, maybe we could increase sales and double that." And both those approaches, in my opinion, are fatally flawed because they don't answer the question of what your objective is and what you're trying to accomplish.
OK, so what should businesses consider when they advertise?
If you're looking at it from the standpoint of this is the core of any marketing and return-on-investment approach, it is "How much is a customer worth?" And if you ask nine out of 10 businesses, they may give you some answers, but when you probe a little bit deeper, most of them aren't sure. That's the essential basics of calculating any return on investment. What you're hoping to do is put more money in the cash register. Where does that money come from? It comes from the customers. Much like advertising, if you're familiar with the old terms of reach and frequency, the same sort of concept is applicable to customers ˆ how many customers do I have? That's my reach. If I get 500 customers a week coming into my sandwich shop or gift shop, that's my reach. And secondly, how many of those are actually spending money or how often do they come in?
If you're a sandwich shop, you might see people every day, but if you're a gift shop, obviously much less frequently. But you can measure that. That's the start of calculating your marketing return on investment ˆ what is my goal? I want to increase dollars in the cash register and to do that I've either got to increase the number of customers coming in or increase the value in the transactions I have with those customers, so I can do either A or B or some combination of both, which will translate into more profitability for the business.
When sales increase, how do you know it was thanks to your advertising?
Well, that's part of having a good set of measurements. It's like anything ˆ you have to have a way of measuring before you can manage. That's where it gets complicated. If you're advertising in five different newspapers, you really have to have some way of measuring where your new business comes from. That can be as simple as asking people when they come into the store.
You have an opportunity at every point of transaction with the customer. When you're taking money from the customer, you're engaged with the customer. It doesn't take much to ask them, "Oh, by the way, do you mind if I ask how you happened to come in here today? Did you see any of our advertising? And if so, then, well, do you remember which publication that was in?"
Again, you don't have to have a degree in accounting to do some kind of measurement like that, you can just jot it down in a little notepad and you can come back and say, "You know what? It's not a perfect survey, but I've surveyed 200 customers over the last couple of months and 80% of them say it's because they saw the ad in Mainebiz and only 20% of them say it's because they saw the ad in the Maine Sunday Telegram, and I'm spending five times as much for the Maine Sunday Telegram ˆ I don't think I'm getting my money's worth there."
How should a business define a successful ad campaign? Is it one that breaks even or must it make a profit?
My target is always 100% profit ˆ if I spend $10,000 [advertising], I want to target so that I think that I have an opportunity to earn $20,000 net, pre-tax profit.
The reason that I say you should look at 100% profit is because you're not always going to hit that, but if you start out and say, "Well, I just want to break even," for me that's a recipe for disaster because not everything is going to work out that way.
So you're sitting in your gift shop and you need more customers. You know you need to launch an ad campaign. How do you figure out who you need to target, what kind of person you want? Is that critical?
It's absolutely critical. Whoever's responsible for making this decision about spending money on advertising has to take ownership of that whole process. And part of that is understanding the customer. In the example of the gift shop, if you run the gift shop and you're the sole proprietor, you're in a perfect situation because you see every customer that comes in and you get to talk with them. You get to see, are they mostly women, are they mostly men, are they older, are they younger? So you do your own kind of demographic survey so that when you go to place advertising, you can say, "You know what, most of my best customers are female, over 40, who are not native, they're tourists. So who reaches that group the best?" I have a much better chance of being successful if I've done my homework.
Not everybody is in that situation. On the other end of the spectrum, if you have a company with 2,000 employees, [you might be] big enough and sophisticated enough to actually have people to do research on your customers, to do the number crunching and so forth, [so] that they're specialists in identifying the media that's reaching your high-end customer. Most businesses in Maine fall somewhere in between. But that doesn't mitigate the need for the responsible action. You need to know who are your customers, which customers are most valuable to you.
What about businesses without storefronts? How would they understand and track their valuable customers?
At every point of contact with customers, you have the opportunity to gather information. It doesn't have to be as sweeping as a formal survey. Say you're selling something online, if you're spending $1,000 a month to drive traffic to your website, there's lots of analytical tools to ask questions ˆ who are these people, where do they come from, how long do they stay on average? Just taking the fundamentals from the people who do place orders, you have an opportunity to gather information from them not in an intrusive way, but, "How did you hear about our website?" It's amazing how many people don't even ask that.
So you've identified your customer base and figured out how you define an ad campaign's success. Now how do you make sure the design of your advertisement is effective?
Once again, I keep coming back to the very fundamental: Ask your customers. If you're in a place where you have direct interaction with your customers, there's no reason in the world why you would not poll you customers and say, "Look, I had an ad person make up a couple of print ads for me, could I ask your opinion. Just look at these two real quick and tell me what your opinion is." Most people like to be asked their opinion, they're not going to be offended by it. If you're a large company with the resources then you should be doing consumer focus groups. You should be doing surveys about every advertising campaign, without exception, because when you're involved on a day-to-day basis, you have a bias.
It's a little bit more difficult when you get to television. You can't produce a television commercial for $30,000, $40,000, probably, minimum, and then ask them if you think it's any good, so you always do storyboard presentations and you can do that with your customers.
How have you witnessed strategic marketing change over the past quarter century?
The ways that strategic marketing has changed is just due to the sheer intense level of competition. Everybody needs to be a better manager just to survive in this environment, there's much less room for mistakes and much more attention on not strictly bottom line but building valuable relationships with customers over time. I think even multibillion-dollar companies today are scrutinizing [their advertising strategies].
But Dane Somers, a Maine Marketing Association board member and a strategic marketing consultant, says there are simple ways Maine businesses can track ad dollars. What's more, Somers says using ROI techniques to get the best bang for your marketing buck is critical to your company's bottom line and long-term success.
Mainebiz spoke with the Windham-based Somers ˆ who works as an adjunct professor of strategic marketing at the University of Southern Maine and as executive director of the Maine Lobster Promotion Council ˆ to talk about how to catch the eye of your most valuable customers. The following is an edited transcript.
Mainebiz: You've worked in marketing and advertising for more than 25 years, including time spent in New York City, Boston and now Maine, for clients ranging from sole proprietorships to Fortune 500s like Cadbury Schweppes. Do Maine businesses trying to gauge the success of their advertising strategies face any unique challenges?
Dane Somers: Only that you're in a challenging business environment because you've got a low population base. You have to consider the fact that Maine has 1.2, 1.3 million people ˆ in the city of Phoenix, there are two million people, just in the city. So the challenges for a Maine business are magnified by the fact that we live in a rural state and we're far away from the major markets, so it just makes it that much more important that you're very strictly focused and you don't waste many of your marketing dollars ˆ you make them count.
How do most businesses figure out how much to spend on advertising each year?
Some businesses just look at the general industry. They say, "Well, other people in the industry are spending five to six percent of their revenue on advertising [or] marketing so I guess to keep up with our competitors we have to do the same." Which is kind of a silly way to do it, in my estimation. Others take a look at how much [they] can spend on advertising. Particularly if you're just starting out ˆ "It looks as if we'll have an extra $5,000 to $10,000 this year, if we spend it on advertising, maybe we could increase sales and double that." And both those approaches, in my opinion, are fatally flawed because they don't answer the question of what your objective is and what you're trying to accomplish.
OK, so what should businesses consider when they advertise?
If you're looking at it from the standpoint of this is the core of any marketing and return-on-investment approach, it is "How much is a customer worth?" And if you ask nine out of 10 businesses, they may give you some answers, but when you probe a little bit deeper, most of them aren't sure. That's the essential basics of calculating any return on investment. What you're hoping to do is put more money in the cash register. Where does that money come from? It comes from the customers. Much like advertising, if you're familiar with the old terms of reach and frequency, the same sort of concept is applicable to customers ˆ how many customers do I have? That's my reach. If I get 500 customers a week coming into my sandwich shop or gift shop, that's my reach. And secondly, how many of those are actually spending money or how often do they come in?
If you're a sandwich shop, you might see people every day, but if you're a gift shop, obviously much less frequently. But you can measure that. That's the start of calculating your marketing return on investment ˆ what is my goal? I want to increase dollars in the cash register and to do that I've either got to increase the number of customers coming in or increase the value in the transactions I have with those customers, so I can do either A or B or some combination of both, which will translate into more profitability for the business.
When sales increase, how do you know it was thanks to your advertising?
Well, that's part of having a good set of measurements. It's like anything ˆ you have to have a way of measuring before you can manage. That's where it gets complicated. If you're advertising in five different newspapers, you really have to have some way of measuring where your new business comes from. That can be as simple as asking people when they come into the store.
You have an opportunity at every point of transaction with the customer. When you're taking money from the customer, you're engaged with the customer. It doesn't take much to ask them, "Oh, by the way, do you mind if I ask how you happened to come in here today? Did you see any of our advertising? And if so, then, well, do you remember which publication that was in?"
Again, you don't have to have a degree in accounting to do some kind of measurement like that, you can just jot it down in a little notepad and you can come back and say, "You know what? It's not a perfect survey, but I've surveyed 200 customers over the last couple of months and 80% of them say it's because they saw the ad in Mainebiz and only 20% of them say it's because they saw the ad in the Maine Sunday Telegram, and I'm spending five times as much for the Maine Sunday Telegram ˆ I don't think I'm getting my money's worth there."
How should a business define a successful ad campaign? Is it one that breaks even or must it make a profit?
My target is always 100% profit ˆ if I spend $10,000 [advertising], I want to target so that I think that I have an opportunity to earn $20,000 net, pre-tax profit.
The reason that I say you should look at 100% profit is because you're not always going to hit that, but if you start out and say, "Well, I just want to break even," for me that's a recipe for disaster because not everything is going to work out that way.
So you're sitting in your gift shop and you need more customers. You know you need to launch an ad campaign. How do you figure out who you need to target, what kind of person you want? Is that critical?
It's absolutely critical. Whoever's responsible for making this decision about spending money on advertising has to take ownership of that whole process. And part of that is understanding the customer. In the example of the gift shop, if you run the gift shop and you're the sole proprietor, you're in a perfect situation because you see every customer that comes in and you get to talk with them. You get to see, are they mostly women, are they mostly men, are they older, are they younger? So you do your own kind of demographic survey so that when you go to place advertising, you can say, "You know what, most of my best customers are female, over 40, who are not native, they're tourists. So who reaches that group the best?" I have a much better chance of being successful if I've done my homework.
Not everybody is in that situation. On the other end of the spectrum, if you have a company with 2,000 employees, [you might be] big enough and sophisticated enough to actually have people to do research on your customers, to do the number crunching and so forth, [so] that they're specialists in identifying the media that's reaching your high-end customer. Most businesses in Maine fall somewhere in between. But that doesn't mitigate the need for the responsible action. You need to know who are your customers, which customers are most valuable to you.
What about businesses without storefronts? How would they understand and track their valuable customers?
At every point of contact with customers, you have the opportunity to gather information. It doesn't have to be as sweeping as a formal survey. Say you're selling something online, if you're spending $1,000 a month to drive traffic to your website, there's lots of analytical tools to ask questions ˆ who are these people, where do they come from, how long do they stay on average? Just taking the fundamentals from the people who do place orders, you have an opportunity to gather information from them not in an intrusive way, but, "How did you hear about our website?" It's amazing how many people don't even ask that.
So you've identified your customer base and figured out how you define an ad campaign's success. Now how do you make sure the design of your advertisement is effective?
Once again, I keep coming back to the very fundamental: Ask your customers. If you're in a place where you have direct interaction with your customers, there's no reason in the world why you would not poll you customers and say, "Look, I had an ad person make up a couple of print ads for me, could I ask your opinion. Just look at these two real quick and tell me what your opinion is." Most people like to be asked their opinion, they're not going to be offended by it. If you're a large company with the resources then you should be doing consumer focus groups. You should be doing surveys about every advertising campaign, without exception, because when you're involved on a day-to-day basis, you have a bias.
It's a little bit more difficult when you get to television. You can't produce a television commercial for $30,000, $40,000, probably, minimum, and then ask them if you think it's any good, so you always do storyboard presentations and you can do that with your customers.
How have you witnessed strategic marketing change over the past quarter century?
The ways that strategic marketing has changed is just due to the sheer intense level of competition. Everybody needs to be a better manager just to survive in this environment, there's much less room for mistakes and much more attention on not strictly bottom line but building valuable relationships with customers over time. I think even multibillion-dollar companies today are scrutinizing [their advertising strategies].
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