This article was originally published on the ANA’s website. Click here to view.
Discussions about improving marketing effectiveness can often focus on the different measurement approaches and advanced analytics tools that marketers should employ.
While these are crucial, it is equally important to consider the goals you are targeting, the data you require to reach them, and the behaviors that will ensure quality data continually informs your investment decisions.
This can be hard, however, when data is a byword for complexity and marketers are under pressure to demonstrate effectiveness now as well as over the long term. To help you and your team overcome these challenges, here are six things we recommend:
1. Know Your Goals
Before you dive into data, take a step back. Now more than ever, marketing needs to drive growth and demonstrate its value to the wider business. One way you can do this is by ensuring your goals align with your company’s strategic objectives and KPIs.
One retailer we work with framed a campaign that focused on changing price perception in the short term around the company’s growth driver of providing inspiring, healthy, and affordable food. If your goals are more aspirational, it is particularly important to ensure they are linked to more concrete metrics.
By tying goals back to metrics such as brand perception, price per unit sold and sales volume, you get clarity about what you want to achieve and how you can grow the bottom line, and ensure your work resonates with the C-suite. Crucially, it also confirms what data you need to collect and measure.
2. Find the Gaps
Having a clear understanding of the data you have and the data you need to reach your goal is the next important step. Performing a gap analysis with a MECE (mutually exclusive and collectively exhaustive) framework is an approach that can help to work this out. If your goal is to increase sales, for example, do you have granular, near-time data about how customers respond to your marketing campaigns?
Data about how specific audience groups in different geographies behave depending on the channel, creative, partner, or weather can significantly boost effectiveness by enabling you to make tactical decisions at speed. But it’s important to recognize that not all gaps can be filled overnight. Thinking in terms of the best available data, which meets your immediate needs, and the best possible data, which builds best-in-class assets over the longer term, is a pragmatic way to improve the quality of your data.
3. Augment and Enrich
Knowing how to augment and enrich existing data sources can improve visibility, speed-to-insight, and decision-making. Marketers can do this is by considering what data sources are available beyond those related to brand and media. For example, diverse audience data can reduce bias in your analyses, supply chain data can help to ensure products are where they are needed with marketing investment to support them, while demand signals can provide more accurate sales forecasts.
It’s important to remain focused on the end goal so that you avoid overinvesting and end up with a lake of redundant data assets; you’re unlikely to need 50 different metrics to help forecast how consumer spending patterns may change, for example.
4. Be Privacy-First
While government regulation and privacy restrictions have created data privacy challenges for marketers, you can still thrive in this fast-changing environment. Being committed to a privacy-first approach is a good starting point, as it makes you balance the trust you want to build with your customers with the security and transparency needs of your organization. While it’s important for brands to know their customers in a privacy-first way, it’s equally important that consumers can feel it too.
5. Ensure Equitable Access
With a foundation of quality, privacy-first data in place, it is essential that all relevant stakeholders can access it. Data silos remain a challenge in many companies and removing them is key to delivering insights that drive growth. Technology, such as machine learning, automated data ingestion, analytics tools that sit behind firewalls, or dashboards that provide a business-wide view of data, can help to do this.
However, if it is also stuck in a silo then its potential will be severely restricted. To ensure technology adds value, more people need to have equitable access to more data. It’s crucial that all stakeholders can make “apples to apples” comparisons.
6. Prioritize Change Management
Even if you have enacted the preceding five recommendations, effectiveness over the long term will be difficult unless data-driven behaviors become embedded in your organization. We know from experience that many companies don’t focus enough on change management.
It can be a hard journey to undertake, but it is essential for success. Key ingredients include clear communication, training and support for employees who are not data specialists, controls where necessary, and ongoing analysis.
Contact Gain Theory to learn more about how you can become more data-driven.
Photo by Josh Calabrese on Unsplash.
This article was originally published on the ANA’s website. Click here to view.
What are marketers concerned about right now? Recent discussions I’ve had with CMOs from a range of industries have revealed three consistent themes:
- The business environment remains uncertain amid rising interest rates and a looming recession.
- Inflation is real for everyone, but its influences vary widely depending on the consumer segment you are targeting.
- Marketing is almost always the first budget to get cut when a firm is facing financial pressures.
Let’s go a bit deeper into each of these in turn and look at what they mean for marketers.
Conflicting Objectives
Central banks around the world are continuing to raise interest rates to tame inflation. In December, the U.S. Federal Reserve, the Bank of England, and the European Central Bank all raised interest rates by 0.5 percentage points. Further rises are expected.
But, alongside ongoing geopolitical and supply chain challenges, the likely result of these rises is a recession in many parts of the world. Global growth is forecast to slow to 1.7 percent in 2023, according to the World Bank, down from 3 percent just six months ago.
Consequently, there is no getting away from the fact that this puts central bankers, who are enabling demand destruction, at odds with marketers, who are in the business of demand creation.
Different Strokes for Different Folks
Nevertheless, inflation is a challenge for marketers because it is very visible to all consumers. Goods and services that are purchased often, such as food and healthcare, are particularly vulnerable to it because the price that consumers pay is a recent memory. As a result, consumers on a tight budget may try other brands or reduce consumption.
However, it is important to remember that not all consumers are the same. Some sectors do benefit despite high inflation – luxury car manufacturers Bentley and Rolls Royce both recorded record sales in 2022.
Defense versus Offense
CMOs know from experience that marketing budgets are often under threat in challenging, uncertain environments like the one we’re in. Over two-thirds, 69 percent, said budgets would either shrink or remain at 2022 levels, according to this World Federation of Advertisers report.
But they also know that you can’t go dark for long periods and give competitors the opportunity to increase their market share. There is a balance to be struck between defense and offense – the question is: Do you know what is the best approach for your business?
To build resilience, get deeper insights, and ensure you have the budget you need to succeed, there are three things you should consider.
- Use foresight to improve decision-making. One of the most effective ways to build resilience is to have a more accurate picture of what will happen in the future. If you know that certain consumers are going to be squeezed financially, then using simulation to analyze what would happen if you were to cut your prices by 5 percent, or demand signals to get a better understanding of future sales opportunities can give you an edge over your competitors.
- Get more granular audience insights. Understanding where, when and to what extent different audience groups are interacting with campaigns across all channels, creatives, and partners in near time is another differentiator. Knowing that a brand-focused creative works on a particular social media channel with, for example, gen Zs in a specific city or region can significantly boost effectiveness. To deliver this, you need the right measurement system in place.
- Give the c-suite data-informed marketing insights. Marketing metrics often struggle when moved out of marketing department presentations and into the boardroom. Linking marketing performance to sales and profits or showing what would happen to sales and profits if advertising budgets were to be cut are approaches that marketers need to ensure they resonate with senior leadership.
Contact Gain Theory to learn more about how you can implement these action points.
Photo by Christina at #WOCinTechChat
This article was originally published on Warc’s website. Click here to view.
The question of how long it takes for advertising to pay back is a pertinent one for marketers currently. With many consumers enduring a cost-of-living crisis and many businesses wary of a recession, marketing budgets are being scrutinised for potential cost savings. Advertising budgets are a big and obvious target for cuts, particularly if the return on investment is deemed to be lacking. But should they be?
The CPG industry, or FMCG if you prefer, is an interesting sector to analyze. Precise data about the amount CPG brands spend on advertising is hard to come by. According to one report, they account for 6.7% of total ad spend in the US. What we do know is that, historically, this media supports CPG companies’ listings, helps favourable positioning on shelves, makes innovations easier to launch in store, supports brand awareness and, in some cases, the company’s stock price as well.
But we also know that CPG advertising rarely pays back in the short term – that’s to say the period that an ad is live and roughly 2-3 months after. To demonstrate this, it is important to use the right metric. I recommend analyzing the ROI at margin – a metric that applies a profit margin to the incremental revenue delivered by advertising. Using this, we take account of all the costs associated with an uplift in sales to deliver a truer picture of how advertising impacts the bottom line. Gain Theory data, based on the performance of over 200 brands over the last few years, shows that the average short-term ROI at margin is only 0.43. The minimum is is 0.12, while the maximum is 0.96.
This is problematic given most marketers – over two-thirds in the US – use return on advertising spend to measure campaign outcomes and determine future ad spend. If the campaigns they are measuring do not pay back over the short term then they risk making crucial decisions based on sub-optimal data. The question is, how long does it take for CPG advertising to pay back?
A longer than expected payback
To find out, we lent on our expertise in advanced analytics and decades of experience working with CPG brands to study food and drink companies in Europe and North America. Using a statistical model – distributed lags within an unobserved components analytics framework – we were able to project how the impact of an initial response to this group’s advertising is spread out over time. A key consideration when doing our analysis, which used data from January 2022 onwards, was using an appropriate discount rate to convert future income streams from advertising back to present value.
The chart below reveals our findings, with each line representing a brand in one country. On average, it takes 94 weeks for CPG advertising to deliver a positive return at margin. This means that a campaign that ran in the Summer of 2022 could still be having an impact in Spring 2024. The earliest payback is 61 weeks, meaning even the best-performing brand does not see a return within a year. The longest payback period – for a large brand in a stable, mature (ie, low-growth) market – is 150 weeks.
It’s important to note that the greater the profit margin, the quicker the advertising pays back. Equally, when the lines begin to dip down they are still contributing a return, albeit in small quantities. However, the further we go into the future, the harder the discount rate bites.
The study threw up other interesting findings. It confirmed that more creative ads have both a stronger short-term ROI and pay back more quickly over the longer term. More worryingly, brands in mature, low-growth markets and a small number of large brands struggle to generate a return from advertising over a two-year timeframe unless it is backed by new product development into adjacent markets. As always, size also matters. With a couple of notable exceptions in high-growth categories, the bigger the brand, the quicker the advertising pays back.
Gaining confidence
The most important takeaway is that advertising does boost the bottom line of CPG companies in the majority of cases. But this needs to be tempered by the fact that it does not happen in the short term – in many cases it takes longer than a year.
Of course, some brands never see a return on their advertising. In these instances, ad spend should be cut unless there is definitive proof that this would see the brand de-listed, re-positioned on shelf, or suffer other adverse consequences.
Overall, however, CPG brands must be cognisant of the fact that while cutting advertising budgets can be an easy source of cost savings, they risk sacrificing revenue and profit both now and in the future. Armed with this knowledge, marketers can have confidence when having conversations with senior stakeholders that budgets should be more protected.
Contact Gain Theory to understand what the advertising payback is for your brand.
Photo by Andrae Ricketts on Unsplash.
This article was originally published on the Marketing Week website. Click here to view.
Belgium might not seem the obvious place to look for evidence that marketing effectiveness is more important than ever, but if you can succeed in this country of 11.5 million people, you can succeed in a lot of other places too.
The reason? Not only do local marketers have to navigate three official languages and two distinct geographic regions, but Belgium is also one of only two countries in the EU to practise wage indexation. In other words, the wages of workers are linked to inflation by law. One million employees are set to receive an automatic pay rise of 11.59% in January, according to one report.
This is an added headache for companies in Belgium, which are facing the same rising energy and supply-side costs as everywhere else in the world. Alongside the cost-of-living crisis that is limiting consumer spending power currently, this has created a perfect storm for marketing departments.
“The biggest challenge we’re facing is budgetary pressure,” says Annelore Van Hove, Head of Media & Channel at Delhaize Belgium, the country’s second-largest food retailer. “Luckily, we have a very strong VP of Marketing who makes sure our voice is heard with senior management.”Marketing effectiveness is a key gauge the team relies on to make its case. “For me, marketing effectiveness is about proving we can deliver a high ROI,” says Van Hove. “If we can show that we are increasing the revenue the business earns on every euro spent on marketing, the last thing they will do is cut the media budget.”
Changing price perception
Having opened its first supermarkets in 1867, today Delhaize operates hundreds of stores at the premium end of what Van Hove says is a “very competitive” €31 billion market. The current macroeconomic pressures have only increased competition between the players, as consumers change their behaviour.
After seeing customers spending less in-store earlier this year, for example, Delhaize decided to introduce more entry-priced products, expand its high-quality own-brand range, and focus on loyalty programs.
For the marketing team, this meant a significant change of tack. Previous campaigns had followed the 60/40 rule on long-term brand building and short-term performance, but the situation on the ground means that ratio is shifting towards parity.
“It’s difficult because we’ve managed to successfully build our brand over the last five years,” says Van Hove. “Our core audience is people who want to eat premium quality food, but the reality is they were buying more basic products from our competitors than from us.”
As a result, one of this year’s key campaigns focused on changing price perception over the short term. The omnichannel “Little Lions” campaign showcased the value of 500 of Delhaize’s most purchased own-brand products. This was not without risk, says Van Hove, because “people know that we are not focused on low price traditionally”.
But the marketing team were able to frame the campaign around one of the company’s strategic growth drivers– providing inspiring, healthy, and affordable food options for all. It paid off, with a 15% increase in Little Lions product sales after just one month. The company has increased the number of products in the range to 600.“We found the sweet spot between brand positioning and the economic situation,” says Van Hove. “Now, we are trying to build a more long-term story by adding content, such as recipes, and linking it all back to how we make healthy eating affordable.”
Linking media performance to sales
To improve the effectiveness of its campaigns, Delhaize leans on market mix modelling (MMM) and attribution tools. “I always say that marketing is not an exact science, but we’re trying to base it more on facts and figures and be more analytical,” says Van Hove.
One way Delhaize is making this a reality is by using Sensor, Gain Theory’s multichannel, privacy-compliant attribution solution, in three key areas. First, in concert with its media agency, Delhaize determines an optimal plan for how and when to spend campaign budgets at a granular level, such as which channels, partners, and audiences to target.
Second, Delhaize uses it to optimize campaigns. The marketing team were struggling to understand what was working on its busy social channels, notably Facebook and Instagram, for example. Sensor was able to show which messages were having an impact on which audiences on which channel, enabling the company to make tactical, in-flight decisions.
Third, it measures how marketing is performing in a language that senior stakeholders understand. “Sensor is the only tool I know of in Belgium that links media to sales,” says Van Hove. “In combination with MMM we have improved effectiveness every year for the past four years – during this period, ROI has increased by 60%.”
As well as providing proof that marketing is working, it has led Van Hove to something of a Holy Grail – a higher media budget in 2022 compared to 2021. While she admits it is too early to say if this will happen again in 2023, it shows that success is possible, even in a surprisingly tough market like Belgium.
Contact Gain Theory Senior Partner Sam Fellows to learn more about Sensor and other marketing effectiveness solutions.
This article was originally published on The Drum website. Click here to view. You can listen to the related podcast ‘How are marketers balancing privacy and personalisation?’ on Spotify and Apple Podcasts.
Measuring the effectiveness of media campaigns over the short term continues to be a significant challenge for marketers. On the one hand, privacy regulation and changes to how tech companies manage data have rendered solutions such as multitouch attribution (MTA) obsolete.
On the other, marketers are still under pressure to make sure every ad dollar works as hard as possible amid macroeconomic uncertainty and consumers moving into an expanding universe of digital platforms.
The good news is there is an approach that can square this circle and deliver granular, privacy compliant insights when marketers need them.
An uneven global playing field
Although Google has again pushed back the date on which third-party cookies will be phased out in its Chrome browser, the direction of travel remains clear. Moves by the world’s largest technology companies to limit the extent to which online consumer behaviour can be tracked on their platforms demonstrate that the destination is a privacy-first world.
At the same time, regulators around the world continue to bear down on companies that do not comply with a smorgasbord of privacy legislation. The UK’s Information Commissioner’s Office fined a catalogue retailer £1.48 million for breaking data protection and electronic marketing laws in October, for example.
The implications for MTA, which has promised to determine the value of each digital touchpoint an individual consumer makes on the way to a sale, are clear – it is no longer fit for purpose in a world where access to user-level data is no longer guaranteed.
But marketers remain unsure about the best way forward. While 92% of CMOs at multinational companies are prioritising an ethical approach to their use of data, half do not know what this means when it comes to the processes and practices they need to apply both internally and across their marketing supply chains, according to a World Federation of Advertisers report.
The power of granular geographic data
Access to privacy compliant data that enables all media to be measured and optimized on a timescale that gives marketers the insights to demonstrate the effectiveness of their campaigns is possible.
The glue that underpins this data is geography. Think about the delivery information that accompanies every ad placement. Whether it’s a 15-second TV commercial that runs on a particular network during a specific time slot, a digital display ad that features on a dedicated section of a website, or a paid social media campaign, each contains information about where the individual media impressions were served.
In the UK or US, for example, delivery metrics for every ad placement can be accessed at the postcode or Zip Code level. Crucially, this data does not contain personally identifiable information (PII). Unlike MTA, this means that it is compliant with data protection regulation by default.
When you layer key KPIs, such as sales metrics, and other factors, such as local economic conditions, promotions, and weather on top, you can start to build up an accurate picture of how your campaigns are performing across a large, statistically significant number of micro-geographic areas.
What not everyone realizes is that there is relative homogeneity at a postcode or ZIP code level – in other words, there are striking similarities between people who live close to one another. This means that marketers can compare how ads resonate in micro-geographies based on key characteristics, such as age, gender, income, occupation, and more.
Want to compare how successful your paid social campaign was with high-income males in one city versus another? Geographic media delivery data combined with other privacy compliant information enables you to analyze its impact at this granular level.
Introducing foresight into your marketing strategy
But as well as providing you with hindsight about the past, these insights can also help you with present and future campaigns. Getting information in near time – via data automation and advanced modelling methods – allows us to understand performance across different geographies. This means you can optimize campaigns on the fly. If an advert is working in well in one area but not another, for example, or with one audience but not another, you could change the underperforming creative unit or pull the campaign entirely and reallocate the budget.
By understanding audience performance across micro-geographies, you can improve who you target in the future and maximize performance. To enable this, it is important to focus on audience attributes that are buyable within programmatic media platforms. These attributes ensure that your measurement-to-insight-to-activation loop is a complete circle.
Crucially, all this can be done while using data that is compliant with a privacy-first approach to build trust with consumers.
One global automotive manufacturer used Sensor, Gain Theory’s multichannel attribution solution, to measure and optimize across omnichannel campaigns that aimed to increase test drive numbers and, ultimately, sales of a specific vehicle. By identifying demographic attributes to target and household income filters to apply, Sensor was able to explain car-buying behaviour and media responsiveness. All told, test drives grew 18% and $56 million in incremental sales were generated.Measuring the effectiveness of media and advertising may feel like a complex and daunting prospect in the current data and privacy environment, but a tried and test approach, based on granular geographic data, can deliver improved results for advertisers and peace of mind to consumers.
Request a Sensor™ demo by contacting us here.
This article was originally published on the Ad Age website. Click here to view.
I spend a lot of time talking to marketers about how to make their media investments work harder and reduce the pressure they’re under from other stakeholders. Given current events, it’s no surprise that the need to understand their audiences better is front and center of these conversations.
In a recent article, the International Monetary Fund noted that the global economy is facing “an increasingly gloomy and uncertain outlook” amid slower growth, higher-than-expected inflation and war in Europe. The repercussions of this backdrop for consumers are profound: Their purchasing power is reduced. Marketers who are experiencing media inflation and budget cuts themselves are facing implications that are just as clear. They need more reliable and timely insights about audiences’ changing behaviors to help their organizations through these testing times.
This uncertain picture is complicated further by ongoing changes to the data economy. As two MIT Media Lab professors wrote in this Harvard Business Review article, consumer mistrust, government action and market competition are converging to force businesses to make fundamental changes to how data is sourced, managed and used.
Unlocking faster, smarter, deeper insights
Marketers know all too well the challenges surrounding this trend. For example, from a measurement perspective, multitouch attribution tools are no longer fit for purpose in a privacy-focused world. While marketing mix modeling remains a reliable way to measure the long-term, strategic impacts of media campaigns, what’s missing is a way to measure where, when and to what extent consumers are interacting with campaigns and delivering growth over the short term.
The good news is that there is a solution to help solve this conundrum. Here at Gain Theory, we’ve developed Sensor, an innovative tool that provides deep insights about audiences that marketers can use to optimize all their media on a weekly or monthly basis.
Sensor has been delivering real-world results for several years. One multinational beverage company, which measures the relative effectiveness of its media spend across digital platforms, credited Sensor with delivering a 30% year-on-year improvement in media ROI.
In addition, a global automotive manufacturer, which used Sensor to measure and optimize an omnichannel marketing campaign, saw the campaign deliver $56 million in additional revenue and a 2.5% uplift in margin.
Crucially, companies like these are benefiting from being able to measure the impact their media investments are having on audiences with privacy-compliant data.
Want to compare how successful your paid social campaign was with high-income males in Miami versus low-income males in San Francisco? Using granular geographic data, every ad placement on every channel can be analyzed on a daily basis. It can also be combined with other data such as local weather, economic indicators and promotions to create deeper insights.
Want to know how effective your radio advertising is at driving different audience groups to shop at your online store, compared with ads served on podcasts? Thanks to cross-channel analysis, this data can be displayed on a dashboard that enables marketers to make smarter investment decisions.
Want to see if millennial moms and Gen X moms respond differently to TV ads about the same product but with different creative on two different networks? You can measure the effectiveness of ad placements at a number of levels, including creative, network and partner, to understand how each one resonates with a specific audience group at a granular level.
Three key business benefits
Having a more in-depth and timely understanding of who is interacting with your media, as well as how and when, enables you to do several important things to drive growth.
First, you can act tactically to improve ROI—for example, determining if a campaign, channel, creative or network is resonating with one audience group but not another, so you can change the one that is underperforming or reallocate the budget.
Second, you can make investment decisions more quickly by gaining access to relevant data in a matter of weeks.
Third, you can build trust by using data that is compliant with a privacy-first approach to advertising. As every marketer knows, this is now a strategic necessity.
Request a Sensor™ demo by contacting us here.
Photo by Ryoji Iwata on Unsplash.
This article was originally published on the ANA website. Click here to view.
Marketing teams around the world are thinking long and hard about the “R” word. From New York to London, it’s hard to avoid stories that predict an upcoming recession. This report from the World Bank warning that the risk of a global recession in 2023 continues to rise is just one recent example.
Amid such forecasts, marketers are asking some fundamental questions as they fight to retain their budget. Conversations we’ve had with heads of growth and customer acquisition at e-commerce and direct-to-consumer brands have revealed they are under pressure from the C-suite to help them navigate the uncertain macroeconomic environment. In particular, they want to know: How will a recession impact my business? What can I do now to soften the blow?
Economic predictions, including those that aim to determine which indicators will anticipate how a specific brand is impacted by events such as a recession, are notoriously difficult to get right. But there are techniques that can be employed to help marketers prepare for what might be coming down the track.
How to estimate the impact of a downturn
For one client, Gain Theory used a “composite series” comprised of various time series selected from a wide range of economic indicators and sectors. Based on this, we were able to estimate the decline that an economic downturn between September 2022 and March 2023 would have on two KPIs – total order volume and the number of customers signing up for their service – at varying degrees of confidence.
Knowing the impact of events on key metrics is important, but it’s just as crucial to have a plan of action that enables you to mitigate any deviations from business goals and expectations from the C-suite.
Based on the modeling, we recommended our client increase their media budget in Q4 2022 and provided them with an appropriate mix of channels, partners and publishers they should target. Instead of purely focusing on growing the market, which is less realistic in the current circumstances, we put more emphasis on protecting and growing market share against targeted competitors.
The importance of using hindsight, insight and foresight
But we don’t just rely on foresight. Experience gained by working with brands during the last global recession in 2009 has informed many of Gain Theory’s recommendations to current clients. As well as knowing what the impact on a brand might be, for example, we know that shifts often happen on a consumer and segment level, which is why the right mix and distribution of the incremental budget is key.
History shows that customers who purchase less frequently and spend less on average can disappear, while others are likely to reduce either frequency or basket size. The flip side is that businesses can gain new customers who are trading down from more premium brands or are altering their behavior. Think about those consumers who, when inflation rises, move to a supermarket that offers more value brands, choose to order takeout instead of visiting a restaurant in person, or trade down from a premium spirit brand to a mid-range alternative.
To understand the impact of these different purchase behaviors, we can simulate potential scenarios. This helps to inform how to adjust media messaging, creative, promotions, and pricing strategies to maximize the potential of these changes in behavior. For example, messaging to existing customers can be tweaked to raise awareness of products that cost less or highlight promotions, free trials can be promoted to take advantage of potential new customers, and sign-up processes can be simplified to make switching quicker and easier.
Why “wait and see” is not a strategy
We understand that these are worrying times for marketers and the brands they work for. But waiting to see what will happen is not a strategy. The good news is that the proactive steps outlined above enable brands to ensure their business is in the best possible shape, whatever the economic picture looks like in the future.
Using data-informed analysis of how KPIs will be impacted and a practical plan of action to adjust marketing campaigns, ambitious brands can deliver growth even in a recession. Contact us to learn more.
A unified system fuses hindsight, insight and foresight to help manage short and long-term decision-making for an uncertain future
Planning for future uncertainty is a hot boardroom topic. It’s especially true now as we continue to deal with the fallouts from the COVID-19 pandemic: dramatic changes in customer behaviour, shifting media consumption, supply chain challenges and overall economic upheaval.
History shows that, in times of disruption, organisational resilience depends on adaptability and decisiveness. Yet many organisations base decision making on hindsight (understanding what happened) and insight (understanding why it happened).
Living in a VUCA world
In a world now plagued with volatility, uncertainty, complexity, and ambiguity (aka a “VUCA” world) – hindsight and insight are no longer sufficient to accelerate sustainable growth and gain competitive advantage.
To quote Professor Klaus Schwab, the founder and executive chairman of the World Economic Forum: “The pandemic represents a rare but narrow window of opportunity to reflect, reimagine, and reset our world.”
We now have an opportunity to reimagine how we manage uncertainty and navigate towards accelerated and sustainable growth. To do this, organisations need foresight.
From uncertainty to manageable risk
Foresight takes uncertainty and turns it into manageable risk. It considers what is most and least likely to happen in the VUCA world and reveals the signposts and probabilities of them happening.
Some fascinating examples of foresight already exist. Who would have foreseen, for example, that the Chinese e-commerce platform JD.com would outplay its competitor Alibaba by reliably delivering goods when lockdown hit (and increasing revenue by 21 per cent in the first quarter of 2020) while Alibaba struggled to find couriers. Recruiting the right volume of couriers at the right time required foresight.
Whether it’s the shift to hybrid working, skyrocketing growth in e-commerce or chip shortages affecting the supply of new vehicles, VUCA events will continue to affect all organisations for the foreseeable future.
Scenario analysis by McKinsey shows that a single, prolonged supply-side shock would wipe out between 30 and 50 percent of one year’s earnings (EBITDA) for companies in most industries. The same study classified different types of shocks based on their impact, lead time, and frequency of occurrence, ranging from theft and common cyberattacks to pandemics and climatic events such as hurricanes. But knowing which possible events to focus on is not an easy task.
The goal to accelerate digital transformation via online selling and marketing started in 2013 for L’Oréal. When the COVID-19 pandemic hit, the company was well positioned to shift ad spend online. In the first quarter to the end of March, ecommerce sales grew 53% in comparison to the previous year. L’Oréal had invested in this future lever of growth and it paid off handsomely at a time of unforeseen market upheaval.
Diagnosis before cure
But how do you continue to make good decisions and successfully plan in a VUCA world? First, it’s important to understand what types of challenges your organisation is likely to face. Before you can cure, you must first diagnose.
Are you facing volatility resulting from an unpredictable supply chain? Or uncertainty caused by new entrants competing with your products? Or complexity due to regulation changes? Or ambiguity raised by not knowing if the current vaccine will protect the population against new variants? Knowing the type of challenge, or combination of challenges, you face is an essential first step.
To make data-informed decisions that accelerate sustainable growth, organisations need faster, smarter, insights that are unified into a single version of the truth to understand what has happened, why it happened and what to do next.
Foresight is key to the unified version of the truth; it enables decision-makers to war-game and simulate; scenario plan and optimise; identify and track leading indicators and to understand the risk and impact of “wild card” events.
A single system for all-round future confidence
We have a unified decision-making system at Gain Theory – HiFusion – that fuses hindsight, insight, and foresight, across all sources and levers of growth, both known and unknown. It identifies long-term strategic opportunities and answers near-term tactical performance questions.
In the HiFusion decision making system, there is a rich arsenal of foresight techniques to uncover future states of demand depending on the VUCA challenge faced:
• Future Back Thinking: defining the desired future and then working backwards to identify the potential specific actions and signposts that connect the desired future to the present. For example, setting a target to be net zero carbon by 2030 might involve several potential actions such as planting more trees or swapping to solar power. However, the signposts, such as famine and food shortages, might indicate that planting trees is no longer an option and that we need to switch to solar power as land costs soar.
• Delphi Method: developed by Project Rand in the 1950s, the method uses a group of experts who anonymously and repeatedly reply to questionnaires about the future, receiving feedback as a statistical representation of the group’s response. The aim is for the group response to converge after each iteration of the questionnaire, ideally resulting in consensus of expert opinion. While the overall accuracy is mixed, the method is used when looking at long-term trends in policy making and technology development.
• War Gaming Simulations: simulating different competitive settings and the impact on consumer demand. For example, the increase in demand for used vehicles during the chip shortage, depending on the duration of the shortage and the actions of competitors.
• Forecasting: projecting future events by taking signals from the past mixed with likely future states caused by internal and external factors and shocks, such as pandemics, international tension, climate change and competitor threats. For example, how will grocery evolve to meet the challenges of rising interest rates and potentially lower demand in 2022/23?
• Lead Indicators: measurable signals that provide an early warning system or prediction of what the situation could be in the future. For example, new car registrations used to be a reliable lead indicator of economic strength and consumer propensity to spend. But in the face of supply constraints, how reliable is this indicator today?
• Scenario Planning: making assumptions on what the future is likely to be and how your business performance might be affected, for the purpose of creating a more robust strategy. Often scenarios are run under “what if?” assumptions to work out the best possible path. For example, looking at the impact on both short and long-term sales and profit resulting from pulling all advertising in the final quarter of the year.
• Trend Analysis: collecting qualitative and quantitative information to spot patterns or new trends, and thus paint an indicative picture of what might happen. These trends can often be used later in scenarios. For example, Wunderman Thompson’s “The Future 100: 2022” which forecasts 100 trends to watch in the coming year or GroupM’s “This Year Next Year” forecast of ad spend, used to augment media response curves in future marketing campaigns.
By fusing hindsight, insight and foresight, HiFusion enables organisations to identify future sources of growth and give confidence to decision-making across all levers of growth. It enables organisations to invest in the right data sources, technology, and methods to confidently answer questions around:
• the role of brand equity and customer experience in maintaining price resilience
• the short and long-term impact of investments
• drivers of customer choices and product trade-offs
• identifying and tracking signals that provide an early warning system
• targeting new audiences based on their motivation
• acquiring new customers in a cookie-less world of walled gardens
• conducting complex multi-test-and-learn experiments at scale
• preventing customer churn
• growing spend from existing customers by making the right recommendations
• …and, ultimately, judging correctly what is likely to happen in the future.
HiFusion creates a holistic loop to support strategic decision-making by weaving foresight, insight and hindsight across time horizons and a range of stakeholders. It unifies tactical execution, plus annual and longer-term strategic planning into a single measurement system.
In a VUCA world, navigating the range of future possibilities to accelerate sustainable growth requires an organisation to invest with confidence. Foresight gives us the ability to manage uncertainty and, ultimately, create and tap into future states of consumer demand.
By knowing tomorrow, we can disrupt today.
This article was originally published in Campaign – click here or download the PDF on this page.
In our fifth episode of our Ask the Experts series titled “Agile Decision Making”, Claudia Sestini, Global CMO of Gain Theory, discusses best practices and advice for being agile in the face of changing priorities with a full panel of industry experts.
With regards to measuring marketing efficacy at speed, Claudia Sestini asks:
“With a greater focus on e-commerce sales channels now, should marketers pivot media strategy to drive digital footfall?”
Panel Guests:
Georgia Thodey, Head of Brand and Media Planning at NatWest Group
Matt Hill, Research and Planning Director at Thinkbox
Matt Chappell, Senior Partner at Gain Theory
Key Takeaways:
- Digital is the key destination, so it’s important to ensure brands are there, easy to find, and easy to navigate as customers are searching.
- Digital is the end destination for sales; however, a customer’s journey doesn’t necessarily start there.
- Consumers begin to consider purchase decisions before the sale, so when planning media strategy, marketers need to focus on the principles: build awareness, build consideration, and keep your brand top of mind.
- Give people a reason to talk about your brand by putting the right message in front of the right customers in the right place at the right time and in the right context.
- Customers are fulfilling purchases digitally, but a brand’s advertising needs to create mental availability and put your message everywhere your customers are consuming the media—whether online or offline—particularly during lockdown.
- Using 2020 as an example, the same principles for media strategy still apply. Overall, the advice is to find where your customers are consuming their media and place the right messages to them in those places at the right time. This year in particular, we have all spent a lot of time at home, so investment in OOH advertisements has fallen.
Other topics addressed in the “Agile Decision Making” Ask the Experts Session:
- Media allocation decisions across brands
- How to pivot marketing strategy, at the right pace and place
- How TV advertising is changing for more agile decision-making
- How to measure marketing efficacy, at speed
To stream the full video click here.