Marketing: Return On Investment

Updated: May 6, 2009

Agenda

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Importance of measuring the effectiveness of marketing programs

Different ways to calculate ROI

Real Life Examples

Importance of Measuring ROI

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Creates the ability to understand and communicate the return on your marketing dollars

Helps to better evaluate which programs are the most effective and which need to be modified or eliminated

Assists in getting the resources you need Allows you to have an intelligent conversation

regarding your marketing budget Prevents you from becoming a Dilbert cartoon

The Marketing Process

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1. Market Assessment

2. Competitive Analysis

3. New Product and Offer Creation

12. Media Mix Selection

11.Operational & Systems Planning

17. PR and Internal Comm.

16. Product Pricing and Offer

15. Sales Support

14. Promotions/ Merchandising

13. Marketing Message & Creative

8. Client Understanding & Segmentation

7. Internal

Brand Mgmt.

6. Brand management

5. Brand Development

4. Financial Analysis with ROI

20. Measuring Performance & Quality Control

19. Staff and Partner Management

18. Marketing Role Definition

10. Retention and Process Improvement

9. Experience and Service Management

Effectively Managing the Twenty Activities of

Marketing

Developing Marketing Strategy/Planning Defining Brand Strategy/Managing the Brand

Understanding and M

anaging Clients

Executing the Marketing Plan

Man

agin

g th

e M

arke

ting

Func

tion

Budget Approaches

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Percent of Assets -- “Rule of thumb” formula is 1/10 of one percent of bank assets or $1,000 for every million dollars of bank assets

Incremental Increase -- Adds an “inflation factor” -- usually 2 to 5% -- to previous year’s budget

Budget Approaches

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Comparative Parity -- “Keeping up with the other guys” or spending in line with the competition to retain share of voice position

All We Can Afford -- Marketing/advertising funding is established last in the bank budget process and allocated only those dollars remaining in non-interest expense forecast

Budget Approaches

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Objective and Task -- Marketing/advertising budget based on measurable business objectives and the cost of programs required to achieve these objectives

Factors that Affect Your Budget

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Strategic Direction of Your Bank-Consumer vs Business-Market Segments-Market Share -Growth Goals-Orientation towards Marketing and Branding

Media Costs in Your Markets Number of Branches Ability to provide ROI

A Day in the Life of a Marketing Director: Real Life Examples

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“I think giving away a free DVD player for a free checking account is a stupid idea and will never pay for itself.”

“I do not think that home equity direct mail did us any good, should we save the money next quarter and just drop it?”

“We are projected to sell 46,000 new small business checking accounts this year. How much could we sell next year?”

“I liked our TV commercials, but did they really do anything for us?”

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“I think giving away a free DVD player for a free checking account is a stupid idea and will never pay for itself.”

Calculation of Required Sales Lift (RSL):

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RSL = Offer Cost /(Product Profitability-Offer Cost)

It answers:

How much of an increase in sales volume will I need to pay for my marketing program?

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NO DVD DVD Offer $ $

Revenue (5 Years) 851 851On Going Expense (5 Years) 267 267Set Up Costs 10 10Marketing Costs 46 46Profit Before DVD Offer 528 528DVD Expense (Delivered) 0 61Profit (Full Life) 528 467

RSL (61/(528-61) 0% 13%

What is the lift required on Checking Account Sales to pay for a DVD Player?

DVD Checking Offer Analysis

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“I do not think that home equity direct mailing did us any good, should we save the money next quarter and just drop it?”

Calculation of Return on Investment:

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ROI = Incremental Profit - Marketing Investment

Marketing Investment

It answers:

What kind of return did I get on my Marketing Expenditure?

What should your hurdle rate be?

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Recover the cost of your marketing expenses, or achieve a 100% ROI

Recover your expenses and produce a 20% return on your investment, or a 120% ROI

Double the return on your marketing dollars, or produce a 200% ROI

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60,000 60,000 Response Rate 0.66% 0.80%Cost of Mailing 46,200 46,200Applications 396 480Approvals 178 218Loans Booked 125 153Cost of Home Depot Cards 0 15,300Profit of Loans Booked (Full Life) 292,500 351,900Total Marketing Expenditures 46,200 61,500

ROI (292,500-46,200)/46,200 533% 472%

Mailed 120,000 Home Equity Pieces and Tested $100 Home Depot Offer

Home Equity Direct Mail Analysis

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We are projected to sell 46,000 new small business checking accounts this year. How much could we sell next year?”

Business Checking Projections

Definition of Insanity:

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“Doing the same things over and over again and expecting different results.”

Calculation of Projected Sales Units (PSU):

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PSU = Current Sales Run Rate + New Marketing Programs

It answers:

The collection of marketing activities will generate this number of sales

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2004 2005

Current Branch Run Rate 26,000 26,000New Branch Offices in 2005 0 2,000Special Offer 0 2,500Prospect Direct Mail 4,000 6,000Customer Direct Mail 4,500 6,000Small Business Bankers 3,500 3,500Small Business Specialists 6,000 10,000Telemarketing Program 2,000 2,000Adverse Effects of Competitors 0 -5,000Total Accounts 46,000 53,000

Projections estimate a 15% increase in 2005

Business Checking Projections

We can make a sales goal of 53,000 new accounts if we can have……..

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A new offer to give away a $50 Office Max gift card for the first quarter

Our prospect direct mail budget increases from 1.5 million pieces to 2 million pieces

Our customer direct mail budget increases from 300,000 to 500,000 pieces

We add 10 new sales people

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“I liked our TV commercials, but did they really do anything for us?”

Multimedia Campaign Analysis

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Unaware

Aware

Understand / Value

Consider

Positive Experience

Cross-Sales

Advocate

Accept Information

Seek Information

Active Consideration

Purchase

Commitment

Retain

Recommend

AcquisitionCommunication

& WOM Driven“Rational” and

“emotional” elements

Retention/ Growth

Experience Driven

“Rational” and “emotional”

elements

Acquisition / Retention Process

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Required Actual Sales Lift Sales Lift

Denver 28% 9%Dallas 22% 21%Phoenix 18% 34%

Awareness Awareness Worth Try Worth TryLevel-Pre Level-Post Pre Post

Denver 5% 11% 17% 22%Dallas 10% 20% 26% 24%Phoenix 15% 19% 27% 34%

Multimedia Campaign Analysis

Examine both sales and awareness level changes

Summary

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Focus on creating intelligent conversations with your managers

Build a strong partnership with your Finance Group

Results for programs work best when both the field and Marketing have ownership

Pilot programs are a great tool for testing new ideas and creating realistic projections

Always have your results close to you