By Dr. Andrée K Bates
It’s no longer acceptable for marketers to only provide metrics regarding perception of their brands, recall of key messages, intent to prescribe, or Share of Voice. Given today’s economy, marketers are being asked more than ever to justify their budgets – how did they help drive more business and profit? Senior Managers want to know what the return on the investment is, how they can grow more sales and more profit.
Despite all the talk about giving customer value, social media and ROI, marketing is still stuck in the dark ages on this critical element of the planning cycle: how much budget to put into what activities. The way this is done has not changed significantly in the past several decades. Although one would expect that marketing decisions should be based on a complex analysis of product factors, competitor factors and environmental factors, in reality, many companies still shockingly make these decisions based on either historical spend levels, ‘percent-of-sales’ rationales, or ‘match-the-competitors’ share of voice and spend.
Unfortunately, only a few companies are planning their budget allocations on the expected cost versus impact of achieving targeted objectives for the upcoming year (zero-based). Additionally, only a very few are using any kind of robust analytical assessment to arrive at risk-adjusted budgets associated with probabilities-of-success factors.
Weirdly, in many companies, someone in Finance - with no real understanding of marketing - is asked to determine the overall marketing budget. Often their first thought is “What did we spend last year?” Does it matter? Given how much is changing in our environment, should we not be staying firmly focused on our objectives and how to achieve them, and emphasize what budget put in what areas will provide the highest level of profitable growth? We recommend that when planning your budgets for 2010, marketers follow the following steps to get significantly more ‘bang for their buck’.
1. Stay Focused on Your Sales and Profit Goals
Without focusing on what you want to achieve, how are you going to know how to get there? Figure out your goals in terms of both top and bottom line growth.
2. Create an Analytic Framework
Yes, I know … an experienced marketer can tell a lot from gut feel. However, the environment is changing, and what your gut tells you is often based on your experience. The world is not as it used to be. The blockbuster model is failing, doctors don’t want to see reps like they used to, social media use is exploding, and customer empowerment and knowledge is greater than it has ever been. You need to remove as much emotion out of the process as possible and make all assumptions used very explicit, and then use analytics to figure out how to reach your goals accurately.
3. Use Simulation
The more variables you can account for in a simulation, the more you’ll understand the full impact of your marketing dollars (and promote marketing credibility with finance and the C-Suite). There never is only one answer in any budgeting process. There are a series of overlapping risk and opportunity evaluations that must be made, and a variety of different combinations can lead to a successful outcome. What if you increase this, and decrease this, what will happen?
4. Anticipate the Competitors
How do you know what your competitors are doing and how they will respond? Understanding how you expect to use your marketing resources to create and defend a competitive advantage is critically important in building your case for getting them in the first place. Marketing does not need to be an expense that has to be managed but an investment in the future. How can we invest in it appropriately and thoughtfully to gain competitive advantage? And if we can’t, then we shouldn’t spend.
5. Refine your Activities Based on Results
Sometimes your competitors may do something that causes you to reassess what you are doing. Don’t be stuck in doing something the same way if the results are not what you want. Modify your activities based on your results.
For every budget planning cycle, every Marketing Director is presented with a number of critical questions about their assumptions, and they have a responsibility to build into each year’s plan an appropriate set of data, tests and analyses to provide the answers. Without these, resources will be drained and growth will be stunted, especially in light of the changes in the Pharma environment. Marketers must keep the following in mind when planning their 2010 budgets:
- Know your market share or sales as well as profit objectives
- Figure out what you need to know to get there
- Figure out what analytics you can get that answer these questions and do these now so they can feed into your planning cycle
- Prioritize marketing plans on the basis of value of the result versus cost
- Develop action plans to achieve the results
Pharmaceutical marketers have been doing a lot of the same things for a long time. You may know that if you propose a 5-10% budget increase for your marketing activities, you will get a “yes”, but if you use analytics appropriately, you can show an evidence-based argument for how much budget will get you what result. Marketers should be able to propose budgets on the basis of business goals and get support from Senior Management, and the only way to win that support is by using sophisticated analytics that are not tied to historical data to show you the evidence.