Home > Change, Customer Acquistion, Customer Expansion, Marketing > It’s Time to Make Marketing Dollars Work Smarter

It’s Time to Make Marketing Dollars Work Smarter

As we embark on another year with an uncertain and fragile economy looming, one thing is certain: most marketers are wasting money.  In the Web 2.0 world, and given the measurability of all things digital, at least it’s not as bad as the old lament:  “I know half of my money is wasted; I just don’t know which half.”  Nevertheless, many heads of marketing, especially at companies with broad product portfolios, are suffering from being far too egalitarian in how they allocate budgets by treating all budget centers and customer or prospect opportunities more or less equally.

But all customers are not created equal. Your best customers buy more of your products, are more loyal, less price sensitive and willing to recommend you more often to others.  So why are we not dramatically tipping the balance to the “20” in the “80/20” rule that can not only generate more revenue per invested dollar, but also more profit?

The main reason is the curse of entitlements and how established businesses generally approach the budgeting process by assuming that the prior year’s budget is the baseline – wherein each department or budget manager is entitled to some increase over the previous year.   This old-fashioned type of thinking typically leads to incremental vs. extraordinary improvement, and reinforces a “business as usual” vs. a “break from the pack” mentality, not only in terms of how budgets are allocated, but also regarding what market share gains are actually possible.   Geoffrey Moore addresses this level of stasis in his new book, “Escape Velocity: Free Your Company’s Future from the Pull of the Past”.  He says: “When organizations begin their strategic planning effort by circulating last year’s operating plan, they reinforce the inertial properties of the resources as currently allocated.”  To break away from the pack, Moore argues, companies need to be laser-focused on what they invest in and concentrate the maximum resources on strategies and investments that can create separation from the competition.

If one accepts the notion that all investments will not have the same impact and return, it’s not a big leap to realize that all customers and prospects should not receive equal shares of a budget.  The target segments and existing customers that have the highest revenue and profit potential should receive a disproportionately larger share of the marketing budget. One of the more important contributions to this type of non-traditional thinking is V. Kumar’s book, “Managing Customers for Profit”.  The quote from David Aaker on the back cover sums up Kumar’s approach best: “This book shows how a focus on Customer Lifetime Value (CLV) can change management toward long-term results by providing a fresh perspective on customer targeting, retention, and loyalty…it shows you the way toward strategic customer thinking.”

One of the key concepts that Kumar brings to light is how to transition from a product centric to a customer centric approach to marketing.  Rather than “peanut butter” the marketing budget across products equally, Kumar demonstrates how to target customers with higher profit potential and how to manage and reward existing customers based on profitability.   Kumar’s approach is also more holistic than many traditional methods that merely focus on lead generation and customer acquisition, in that he views customer value across a continuum, or lifecycle, prescribing a range of tactics for marketing resource allocation to optimize acquisition, growth and retention of a company’s most valued customers.

So, what’s this mean to you? If you haven’t already established your 2012 marketing budget and parsed out the allocations in a traditional fashion, where everyone gets their fair share approach, then consider a more radical or zero-based budgeting approach that can foster greater marketing efficiency and increased revenues and profitability.  If you are already locked in to the old way of doing things, who says it’s too late to shake thing up a little?  Marketers need to be agents of change, and there’s no better time to drive change than in the New Year.

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  1. January 31, 2012 at 3:58 am

    Thanks for the informative article. Escape Velocity http://www.escapevelocitybymoore.com is right up there with Crossing the Chasm. Companies can’t look at last years numbers and think they will apply to this years profits. Inovation is the key. Thanks again!

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