Executive summary

Promoting profitability

By Robert Shaw

Over $1 trillion is spent globally every year on marketing. And yet, despite marketing’s importance in driving revenue and cash flow, many organisations have done little to measure the effectiveness of their spending on advertising, direct mail, promotions and public relations activity.

A new approach called value-based marketing (VBM) is beginning to change that, argues Robert Shaw, an expert in marketing metrics. It “shines a light into revenue streams and profit pools” and seeks to manage marketing’s financial contribution, rather than its creative input. Procurement’s role in making VBM happen is an important one, not least because it is instrumental in establishing performance targets and measurements for external agencies.

Research into firms that believe they are managing marketing for profit suggests they do five key things well:

approach planning differently from their peers;

review confidence in these plans rather than just their financial performance;.

put revenue streams “under the microscope” using econometric analysis;

select different measures and manage data differently;

use optimisation tools to allocate marketing resources in a way that maximises value.