Saturday, January 28, 2006

The Fallacy of Return on Investment in Marketing

I attended the Epson Print Academy in Miami today. Excellent well run event. I learned something and would strongly encourage anyone to go to one of these if they get the chance.

I was pleased that Computer Dealer News ran an article by me in their most recent edition. The following is a slightly different version of the same article:

The Fallacy of Return on Investment in Marketing

By Jim Estill
CEO – SYNNEX Canada

Return on investment in marketing can not be measured accurately. If it can be measured, it can only be measured over a long time.

Do you buy a Coke because it is on the billboard; because you saw the ad on television; because you saw the Coke truck; or because the Coke machine is convenient? Was it the ad this month or last? Or was it to ad you saw when you were 10? Or the nice logo?

The answer is – you probably don’t know exactly why you buy the Coke at the particular time that you do. It is a combination of all these factors that make up marketing that cause the consumer to take action.

The only type of product that can have an instant return on investment in marketing is something that is truly commoditized. If you are selling water and there is no perception that your water is any different than anyone else’s water, then if you do a marketing campaign or a promotion or a price reduction, you can shift share from a competitor. Most manufacturers should actually be spending their marketing dollars differentiating their product. It is much easier to sell “Clean Glacier” water over “bottled city” water if Clean Glacier can sell the refreshment benefits of their brand.

The only companies that should want to commoditize their markets are ones that are truly the lowest cost to produce (not to be confused with lowest price). To sell at the lowest price without the lowest cost is a recipe for failure.

Too often in the computer business, computer companies shift share from one distributor to another without taking share from a true competitor and without earning long term customers. Generally the share shift is not healthy for the manufacturer as it decreases the margin available at distribution and decreased margin at distribution, decreases ultimate interest in the product line and profitability.

What computer manufacturers should use distribution marketing for is to create long-term sales which are much more difficult to measure. As a result, the return on investment in the distribution market (or in virtually all markets)cannot be measured in sales but needs to be measured in “appropriate touches”.

The computer products buying public are influenced through a number of factors. The more the manufacturer can influence these factors, the more probability they have of selling their product.

There is a great book called, Tipping Point, by Malcolm Gladwell that talks about mavens (product experts) and connectors (natural networkers who spread the word). The thesis in the book is by getting products known by enough mavens and connectors; it can cause a product “tip” and become pervasive and successful.

In the computer industry, independent computer resellers tend to be mavens. People turn to them to find out what products are best. Apple has long been a company that promotes evangelists. They used to spend lots of money on these identified passionate supporters who proved to spread the word.

Some of these independent computer resellers are also natural connectors or networkers. Making them favourably predisposed to a product can yield tremendously good results over time. Many computer resellers will recommend one product line over another and can influence hundred of thousands of dollars in sales over time.

I sit on the board of Research in Motion (RIM). When RIM was first introducing their products they spend most of their marketing budget on giving people they identified as mavens or connectors samples of their product. Most stockbrokers qualified. Because the product worked well, they evangelized it and eventually that lead to more adoption and ultimate success.

The next category of mavens and connectors would be distribution sales people. Distribution sales people are typically who resellers turn to when they want information about products. They are also in touch with all of the other mavens in the industry thus making them natural to market to. They have the opportunity to influence or sway sales in a big way. Clearly distribution sales people are more open to their own companies marketing.

All marketing tends to be more effective if it is repeated often. It has been said that the first time a person sees something about the company, they don’t see it; the second time – they are vaguely aware of it; the third time they look at it; the fourth time they read it; the fifth time they absorb; and the sixth time they buy it. All marketing effects occur over time.

Marketing is also best done with multiple medias. It is best to not only send a flyer but to telemarket, email, fax, demonstrate products in trade show, etc. The different messages reinforce each other and different people get different things from different medias.

When spending money with distributors the best place to compare return on the dollar is comparing it to how other marketing monies would be spent and the return received there. Comparing distribution marketing to trade journal advertising:

1. Distribution marketing tends to target real customers, people who have proven they have bought, as opposed to people who say that they are in the industry and might actually be end users, ad agencies etc.

2. Distribution marketing tends to be to current and existing resellers. There is a huge turnover in the reseller base which distributors tend to pick up sooner than trade journals.

3. The recipients of distribution marketing tend to be more open to receiving information since they are already doing business with a distributor. Part of the problem in marketing is moving above the noise and actually getting read. Distributor marketing tends to get read more.

Similar comparisons can be made of almost all vehicles. EG – seminars, trades shows, mailers, emails etc.

I would not be a distributor if I did not believe in distribution. Why do manufacturers use distributors? Simple – it is cheaper and more effective than selling direct. This is primarily because distributors are able to share their overheads among multiple manufacturers. This is similar to the companies that make car parts – they share overheads so GM and Ford etc can buy part cheaper than making them in house.

One of these great savings is in marketing. Distributors use their “warm” and existing relationship and trust of the customer to get them to be open to receiving information. Distributors can do a seminar for 8 vendors for less cost than a single vendor and with much more efficiency (and therefore participation and receptivity) for the reseller. Distributors can send emails, faxes, mailing etc all sharing the costs with other manufacturers.

In summary, the advantages of distribution marketing:

1 – It supports your customer. You need profitable customers to thrive.

2 – It reaches and is read by distribution sales people – key influencers in the sale process.

3 – It reaches proven buyers who are open to receiving information from your company.

Distribution marketing usually yields the best ROI in marketing but these results happen over time.

1 Comments:

At 5:33 PM, Anonymous Kevin said...

Jim,

I recently read tipping point on a trip. I found it a very good read and we too identified customers that are mavens and natural networkers or connectors. R.O.I. on marketing is definitely a difficult item to measure, if you have tips on how to do this, that would make a good post. keep up the great blog.
Kevin.

 

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