The Sales Threats That Can Cripple Marketing

You Can't Control Gas Prices, Weather or Competition -- but You Can React

By Published on .

Ed See
Ed See
Doug Brooks
Doug Brooks
To hear all the talk about how effective or ineffective traditional media is compared with digital, word-of-mouth and other new media, you'd think all these marketing tactics are the only things driving the sales machine. Of course, they're important. But lost in the commotion is the dirty little secret that for many businesses, marketing affects just 9% to 15% of short-term sales. The rest of short-term revenue is attributed to nonmarketing factors -- all the external factors that affect a consumer's purchase decision, including weather, macroeconomic factors such as gas prices, operational practices and competition -- none of which a marketer can control.

It isn't that marketing doesn't matter. But growing a business is complex, and marketing is just a piece of the puzzle. It's an important piece, certainly. But you can have the best marketing initiatives in the world to drive people into a store, and if cash registers are broken or there are other operational issues, sales may fall. In those situations, you can max out your marketing budget, but it won't move sales until the operational issues are fixed.

Home Depot shopper at checkout
Action plan
STEP 1: EXPLAIN/QUANTIFY
  • Explain brand impact

  • Measure marketing investment
STEP 2: PREDICT
  • Determine impact on sales

  • Develop 'what-if' scenarios
STEP 3: RESPOND
  • Move quickly in face of unplanned events

  • Use 'canned-response' scenarios
Similarly, in today's recessionary economy, you can't market successfully unless you take into account nonmarketing factors such as economic dislocations that may be lowering sales. One way to do that is to create marketing messages that speak to nonmarketing factors, such as a bad economy. A home-improvements retailer, for example, might develop marketing messages that address budget concerns by appealing to the cost savings of "doing it yourself" rather than hiring a contractor.

Don't, however, think that doing everything we've said will dramatically move the needle. When it comes to marketing, judging outcomes is complicated. In fact, you can take every nonmarketing factor into account, yet your marketing may not improve sales short-term. But -- and here's the rub -- it may very well enhance the outcome over what would have happened had you stopped marketing or, in marketing lingo, "gone dark." If you hadn't marketed, your sales may well have dropped. By continuing to market, you at least have neutralized a falloff.

Marketing Management Analytics analyzed the performance of major brands during the 2001 recession and discovered that many were able to limit the recession's impact either by maintaining or increasing marketing spend using relevant and efficient messaging and marketing vehicles.

In fact, in several studies, we've found that by not marketing, companies end up hurting more than helping themselves by eroding what's known as base sales. The base is a proxy for your brand's value and accounts for sales you'd get whether or not you marketed. In fact, we've seen base sales for some brands erode in just three to four months of no marketing. One of the key drivers to this drop in base sales is an increased sensitivity to competitive advertising and pricing -- non-marketing factors.

So what can a CMO learn from this?

ABOUT THE AUTHORS
Ed See is president-chief operating officer at Marketing Management Analytics.
Doug Brooks is VP-business development, marketing and account management at Marketing Management Analytics
Above all, the influence of nonmarketing factors on marketing teaches us the importance of understanding the relationship between the two so that your sales forecast more accurately reflects reality -- including those factors you may not be able to control.

To move from understanding the influence of nonmarketing factors to implementation, follow this three-step process.

STEP ONE: EXPLAIN/QUANTIFY

Having the ability to explain the impact of nonmarketing factors on your brand enables marketers to gain precise measures of their marketing investments. One big-box retailer, for example, took people off the selling floor and reduced the number of check-out attendants, replacing them with self-service checkout machines. The machines had high failure rates and people abandoned the goods because they couldn't check out. Not only can something like this reduce sales, it also can damage your brand. The poor in-store experience frustrated consumers and led them to migrate to a competitor. In this case, marketing was doing a good job driving consumers to the store, but the in-store experience and operational factors led to a reduction in sales.

One consumer-products company, meanwhile, made the decision to increase its marketing budget for the first quarter nearly 25% over the previous year. At the end of the first quarter, the business was flat year-over-year. Senior management's initial judgment was that the new campaign didn't work. Luckily, the marketing team had data that showed the marketing was very effective, and without the new marketing campaign, the business would have been significantly down due to nonmarketing factors.

STEP TWO: PREDICT

When building a marketing plan, marketers need to predict the impact of investments in marketing on sales. Doing this without understanding the current and potential impact of nonmarketing factors is nearly impossible. No one has a crystal ball, but many industry leaders are using advanced analytics as a proxy for a crystal ball.

These marketers are developing conservative, moderate and aggressive "what-if" scenarios during their annual planning processes. These scenarios allow them to understand the impact of both marketing and nonmarketing factors on their business.

Imagine the following scenarios for the housing market: What if the market stays flat, what if it continues to erode, and what if it gets better, while we maintain the current marketing plan? Doing so will enable you to understand how the nonmarketing factors could affect your business and how much you would need to invest in marketing to overcome their potential impact. By doing this, marketers can more accurately answer the question foremost on senior marketers' minds: How much more will we need to spend to achieve sales goals? These scenarios provide marketers with the information to make better decisions about marketing investments by understanding how much to spend on marketing to overcome the impact of nonmarketing factors.

STEP THREE: RESPOND

Because nonmarketing factors have such a significant impact on many businesses, having the ability to quickly respond to unplanned events is critical to business success. There aren't many companies that have the skill and will to do this. Those that do are building "canned-response scenarios" they keep on the shelf just in case something happens that wasn't planned. Doing this requires both understanding how nonmarketing factors will affect your business and, more important, which marketing tactics work best to respond to a change in a nonmarketing factor.

An example of such scenarios is a plan to address what-if possibilities halfway through the year. For example, ask yourself: How does my marketing change if gas prices rise, a competitor significantly increases advertising or the housing market continues to tumble?

Without proper justification of marketing's impact on business results, marketing budgets will continue to fall victim to factors that are beyond marketing's control. Marketers need to gain greater insight into the levers they can't pull so they can quickly respond to them. For smart companies, that means developing a marketing plan that is aware of and sensitive to all the nonmarketing factors of the business.
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