“Only when the tide goes out do you discover who’s been swimming naked.” Warren Buffet
As the economy tightensand money gets more expensive, budgets get squeezed. Unprofitable or unprofitable-looking marketing gets exposed.
Whether you’re one of the many experiencing that pressure, or you’re the mythical marketer getting no-strings-attached money thrown at you, it’s good to have your finances in order. Maybe you can even show how your marketing is a revenue generator and not a cost line to be cut. This is true whether you’re marketing in an owned channel like email or a loyalty program, or paid channels like display and paid social.
Let’s dive into how you can optimize your marketing budget to drive revenue—trunks on, please.
Let’s start with identifying your costs
Costs are usually the clearest part of your marketing to identify (unfortunately). Even so, some areas are often overlooked. There’s a risk of a false economy when reducing marketing spend. You’ll need to balance the savings you’ll see with the impact they’ll have on your customers.
Loyalty & marketing programs deal with customers – and so touch many parts of any organization. They often involve dedicated technologies (loyalty platforms, communications platforms, CDP), parts of customer-facing tech (POS, websites, apps), communications expenses (building, deploying), team time, and of course, rewards, discounts, and incentives. Start with being clear about what costs are on your marketing or loyalty profit and loss statement (P&L), where they come from, and how they are calculated.
How to understand your real costs
For example, you may be charged with the ‘retail value’ of incentives, whether they are discounts or loyalty redemptions. Consider a discount or loyalty redemption that takes $5 off a customer’s bill. What does that really cost your business? If that $5 was part of an incremental purchase, the cost isn’t $5. It’s the cost of the item you gave away for free.
How this works:
Note the difference between these scenarios isn’t the selling price of the item ($5); it’s the item’s cost ($3).
The difference between the $5 discount and the cost of the item probably shows as margin on someone’s P&L. The same goes for loyalty redemptions as well. This may be a great insight that does absolutely nothing to help you if you’re judged solely on the $5 discount value. But it can help guide your thinking around how you manage your discounts or loyalty redemptions and how you communicate your profitability internally.
It’s also important to know what you’re not paying for
Other teams are likely taking on costs for your program in the form of systems to track promotions or staff time & training to deliver the in-store experience, for example.
Even if these costs don’t show on your marketing or loyalty P&L, you should try to find efficiencies within them. Your department is probably not the only department being squeezed. Helping your peers simplify their processes and save costs can win support from the teams that help deliver your program and is good for the business overall.
As you work to find savings, identify which of your costs can be changed, and over what timeframe. What can you address in the next 6 months if that’s when you need the savings? Break down your budget into things you can change this year and things you can’t.
Where are your costs coming from?
Loyalty program value
- For loyalty programs, your core value structure isn’t something you should change without a thorough review. Changes can easily erode customers’ trust. If you do want to make a change, you should consider all elements you should update, rather than simply dropping your value proposition. Read more about how to approach reinventing your loyalty program or talk to one of our loyalty experts.
Martech stack
- Your martech stack and related costs likely can’t be switched out easily. They can be made to provide more value, though, with add-on technologies that reduce your team’s marketing effort. Read more about how to navigate the martech maze and build an effective martech ecosystem.
Campaign promotional budget
- Promotions and even lifecycle campaigns can be tuned up or down. The challenge is finding where it can be done with the least impact on your customer engagement and KPIs. Read more about how to understand your customers at an individual level, so you can send them just the right communication.
What we all wished for...
The right way to approach cost reduction is through improved efficiency.
Whenever we run a promotion for a client, we make sure to add a crucial element to its terms & conditions. We specify that the offer can only be used for incremental purchases. That is, purchases the customer would not have done without the incentive. Discounts are not valid for customers who were going to transact without them.
If only life worked that way...
Hint, hint! Sending offers only to those customers who need them is a possibility with the help of AI. Keep on reading. :)
The reality
It’s a waste of budget to send offers to customers who would buy regardless. But it’s hard to avoid. When customers have missed two expected purchases, they could be considered at risk of churning.
But looking at the data across our specialty retail clients, between 15 to 35% of these customers will reactivate in the next business cycle. A ‘come back’ campaign targeted only on inactivity would mean you’d be paying incentives to 35% of your audience who didn’t need them, but who will happily use them anyway. Read more about how to know when not to engage your customers.
Messaging to customers who don’t need also has costs in deployment, missed opportunities for relevant messages, and opt-outs and disengagement that will cost you money to replace.
You can become more efficient in your marketing through analysis of your past campaigns and test-and-learn plans where you vary your offers & campaign audiences to see what works best – or let AI do that for you. Discover 5 ways you can enhance your marketing results with the help of AI.
But be strategic about your investments. Even among banks, 92% of brands investing in AI fail to connect it effectively to their communications. Consider marketing-focused AI tools that can plug into your existing tech before you over-commit resources. At Kognitiv, we’ve built technologies that track and predict the behavior of each of your customers at an individual level and enable you to send hyper-personalized communication at scale. Learn more about our AI-native loyalty and martech platform.
The impact
As you evaluate which activities to stop, start, or change, make sure you’re considering their long-term as well as their short-term impact.
Short-term impact: A campaign’s short-term impact is the lift it delivers over the campaign period. Most campaign analysis stops there.
Long-term impact: A longer-term view looks at the impact of a campaign on customers’ future lifetime value (CLV).
CLV isn’t a myth
CLV isn’t a myth; ask anyone who’s paying for a mobile plan or Netflix subscription. But it’s not just for subscription businesses. You can think of the CLV as a string of purchases your customer might make stretching out into the future. But getting each of those baskets isn’t a certainty. Each one is a likelihood to happen. If you multiply that likelihood times the value of each basket and add them up, you have a (simplified) definition of lifetime value. As you better engage customers and keep them active today, you’ll increase the likelihood of getting each of those baskets in the future. If you lose them, all of those likelihoods go to zero – and so does their CLV.
That’s why even modest improvements in onboarding, growth, and retention can have big impacts on future revenue, and why it’s the best way to evaluate a campaign’s long-term value. Look for tools or build reporting that will let you find the right customers to reach to capture these opportunities. Our insights and activation tool, Kognitiv Pulse, uses advanced machine learning algorithms to track the CLV of each of your customers and detect early signs of disengagement, so you can proactively respond to changing customer behaviors. Learn more.
A need for personalization
The right customers need to be paired with the right message at the right time. There is no shortage of stats on the importance of personalization, in terms of customers’ expectations, the importance customers place on being recognized and understood, and the value of even small personalization elements on campaign success.ii Read more about the importance of customer-level modeling.
To deliver truly personalized customer experiences, you need to be realistic about where your personalization efforts are now. 42% of executives say that they already have “personalization in their DNA”. If you ask the team delivering it, the rate falls to 19%. If you’re one of the execs, find out if your team has the tools they need to deliver personalization with the people resources available. If you’re trying to deliver but struggling, identify where things are falling down. Concentrate resources to build proof cases for the changes you need to be successful.
Delivering perception along with reality
"If a tree falls in the forest and no one is around to hear it, does it make a sound?”
I can’t answer that question. This is marketing, not philosophy. But I can tell you this: a lumberjack is not going to get their fair share of the budget. Lowering your costs and improving your impact are important; so is making sure that your organization knows the benefits your program is driving.
Let people know
Have good reporting on the metrics that matter to your key stakeholders so you can drive, know, and show the impact of your marketing. Learn 20 key metrics to track the performance of your loyalty program.
When talking about financials, be able to speak finance’s language
Communicating is good but not effective if you’re not speaking the same language.
- If you’re managing a loyalty program, watch your balance sheet as well as your P&L.
- Your relationship with finance is important, and they track the future costs of your points as well as what’s being booked today.
- Understand what your changes will mean for these future costs.
- Share the good news with finance; show them the benefits your spend is driving.
- Ask them to educate you if your costs and revenues don’t wind up on the same P&L, so that you can understand how finance looks at your business.
- Once you’re speaking the same language, communicate with them. Yes, finance hates costs. But they hate surprises even more.
Build from what people are ready to hear
If you’re evaluating your marketing on metrics that don’t align with your organization’s priorities, it’s harder to get buy-in and budget for what you want to deliver.
- Alignment matters. Efficient programs can struggle if the opportunities, market, or customer they were built for are no longer the right target. Learn more about when it’s the right time to reinvent your loyalty program.
- Delivery needs alignment too. If your marketing makes promises that operations struggle to deliver, you’ll underperform. Fighting this with richer offers can make your customers discount-dependent with no natural reason to return.
Happy swimming
At the risk of drowning the metaphor, there’s an ebb and flow between brands focusing on driving growth and managing costs. Understanding the value your marketing delivers and what it costs to make that happen, let you see where you are in the water. Knowing how to be efficient – getting the most benefit for each dollar of cost – lets you swim in the right direction. The right tech can give you flippers. And being aligned with your internal partners and their goals will help you keep your head above water - even as others are losing their shorts. Happy swimming.