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Optimizing Marketing
The Ideas-To-Demand Chain
by
Robert Shaw and Philip Kotler
Marketing is the least efficient process in business today, while at the same time being one of the most important. Yet within it there is a business process that can be simplified and streamlined. Robert Shaw and Philip Kotler describe a comprehensive framework for auditing and transforming for long-term efficiency embraced by giants such as Diageo and l’Oréal.
Not a company in the world exists where top executives don’t worry about future demand, or don’t waste substantial money on ideas that were intended to boost or sustain profitable demand, but didn’t. More than 100 organisations, in all sectors and sizes, took us into their confidence and spoke candidly about how they struggle to drive demand while at the same time controlling costs.
We have distilled the essence of how the best differed from the worst, and encapsulated it into a performance-improvement framework that can be used by any company in any market. Most organisations have an overly complex and under-controlled process. We are developinging a new process called the Ideas-To-Demand chain (I2D), with less complexity and better controls. This article provides a framework for diagnosing and rethinking your I2D, making the process faster, transparent, reliable, cost-efficient and results oriented.
What is the Ideas-to- Demand chain?
The I2D process can be pictured as shown in the diagram above; it is the mirror image of the supply chain and contains all the activities that result in demand being stimulated. Yet unlike the supply chain, which has successfully delivered economies of scale through process simplification and process control, marketing’s demand chain is primitive and inefficient. In many firms it is fragmented, obscured by departmental boundaries, invisible and unmanaged.
Complex, wasteful and risky chains
Few people fully understand the sheer size, complexity, wastefulness and riskiness of the processes by which ideas stimulate demand. As a company grows in size its costs in managing ideas, production, distribution and demand explode. Management should assess these costs and work towards improving efficiency. The steps in the assessment are described below.
Rethinking the whole process
Here are some suggestions:
- Embrace new roles and beliefs. Arts and humanities graduates who conventionally seek marketing jobs widely believe ideas ‘thrive on chaos’; they put up with mountains of waste, delays and cost overruns. They say, ‘If we are more efficient, finance will take away our budget.’ No they won’t. They say, ‘Marketing is too complicated to measure.’ No it isn’t. There is a willingness to suspend belief about numerical tests and experiments if an idea is attractive, and there is a tendency to bury dead ideas and mistakes. Rethink the way money and resources are allocated. Money should be allocated to maximise profitable incremental demand. Yet from our discussions with dozens of organizations,
it became clear that budgets
were not being allocated in this way.
‘What did we spend last year?’ was
the commonest criterion. Profit
increases led to budget increases, not
vice versa, and pet projects would be
funded in the face of contradictory
factual evidence.
The best solution is to use quantitative
optimization techniques to make a
cold, objective assessment of the profit maximizing
allocation.
- Rethink Ideas. Manage ideas as a
portfolio. Conventional organisations
usually have a stage-gate process for
managing individual ideas. Yet managing
individual ideas effectively does
not ensure that resources will be allocated
effectively.
In the case of Unilever, creating new
ideas is central to its strategy; but it is
also systematically cutting its portfolio
of brands, products and stock-keeping
units. One of the key processes that
keeps creation and cutting in balance
is portfolio management. Not only do
managers have to make predictions for
each idea (in a similar way to Diageo),
they also review the entire set of ideas
as a portfolio. The portfolio is assessed
by scoring ideas in terms of consumer
attractiveness and technical difficulty.
- Share ideas and encourage collaboration. Ideas that are being
worked on by different departments,
locations and business units are
shared, to disseminate them faster
around the organisation and to reduce
the reinvention of the wheel. This has been done at Motorola, the $37 billion global company with a long history of creating innovative products and services. Its ideas were scattered across regions, countries and
business units. And they were stored in emails, Word documents and spreadsheets, without any easy way of sharing and collaborating. Today, they have implemented a common ‘ideas bank’ so that managers share ideas and encourage collaboration.
Rethinking production
- Outlaw wasteful production. The
production process itself is very wasteful.
Agencies rework roughs and
rewrite copy over and over until it satisfies
the critics in the marketing
department, the sales team, general
management and the corporate
lawyers at each stage, losing some of
its originality and meaning.
And the more waste generated, the
more agencies are paid, so they seldom
draw clients’ attention to the
issue. The answer is to monitor
rework and scrap, analyse the root
causes and outlaw working practices
that are generating high waste levels.
- Reduce and simplify production
checks and controls. Multiple production
checks and controls are useful
only when the risks are high. Yet conventional
production processes for
advertising, direct marketing and
other activities are replete with checking
and control steps.
Dozens of people spend time and
energy critiquing work in progress,
from juniors to the CEO. These multiple
checks consume time and labour,
and even the cost of checking and
rework may even exceed the cost of
the collateral being produced.
The answer is to map out the
processes, find out who the signatories
and reviewers are, check the legal
implications of checkpoints and then
robustly cut any checks and controls
that are not absolutely essential.
- Reallocate work to where it’s
done most effectively. Production
work is often parcelled up around only
a few powerful agencies (WPP,
Publicis, Omnicom) who monopolise
the entire chain for key activities, such
as advertising or design.
But they seldom provide consistent
support across all parts of the chain,
for all brands and products. Consequently
many clients are renegotiating
agency contracts to split away any
activities where agencies are providing
weak support – media, production or
ideas – and they are finding alternative
new suppliers who can do a better
job than the dominant agency.
Conversely, there are examples of
the opposite problem (ie large companies
that have hundreds of advertising
and other marketing services agencies,
which are unmanaged and inefficient).
This can lead to consolidation into
fewer larger agencies.
Production specialists can offer
cost-effective solutions because of
their investment in the latest technologies
for workflow management.
Specifically this includes project
management and digital asset management;
offshored arrangements to cut
costs; translation specialists in 40 languages;
special terms and technology
integration with local production
houses; multilingual local supervisory
teams; sophisticated project reporting
for clients; and transparent job costing
and billing practices.
Compared with these specialists,
most general agencies are dinosaurs.
Rethinking distribution
- Monitor and control media selection
and buying. Another common
practice is for media selection and
buying to have lax supervision. Prices
and value for media are in constant
flux. The solution is to demand much
greater transparency from the media
buyers and owners: clear media briefs,
rolling media plans, reviewing final
media buys against planned buys,
media invoices and proof.
Already it is becoming common
practice for media auditors to carry
out annual reviews, but companies are
also starting to recognise that bringing
the monitoring and control in-house
is a more satisfactory solution.
- Outlaw wasteful distribution. The distribution process generates yet
more mountains of waste. Promotional
kits, brochures, leaflets, gifts, all
enter the distribution chain.
They are distributed to sales people,
intermediaries, stores, bars and other
points of distribution with the message,
‘Please see that this is used effectively.’
And from then onwards, they
are neglected.
Rethinking demand
- Attribute demand patterns scientifically. Attribution of demand patterns
to their underlying causes may
be difficult, but it’s possible with scientific
tools and analyses. Demand
patterns rise and fall, oscillate, vacillate
and jitter in ways that are baffling
to the casual observer.
They are nudged and bumped and
pushed and pulled by many forces and
factors, many of which are not reported
in detail to management.
- Enhance demand forecasting.
Demand forecasting in many organizations is remarkably crude. Drivers of demand, ideas that enter the I2D, are often neglected in demand forecasting. And supply chain managers often complain about the inaccurate demand forecasts they receive from sales and marketing. The solution to this is to enhance forecasting by giving
early warnings of all the demand-driving activities.
Making the changes stick
Between 1997 and 2008, we studied and observed more than 100 organizations.
Some were studied continuously over five or more years, allowing us to observe how their working practices developed and evolved with the passage of time. All talked candidly about what worked effectively and what didn’t.
Most revealing were their comments
about failed attempts to transform
I2D. The mistakes are all there
waiting to be made, and it’s important
to be vigilant and avoid them.
Common ones are:
- junior people in charge of reforms
- people issues overplayed or underplayed,
and
- sloppy implementation.
Junior managers, such as market
researchers or procurement managers,
were often given the job of transforming
marketing efficiency. However,
they lacked the authority and experience
needed to push through widespread
reforms – and were successfully
resisted by the majority.
Sloppy implementation was another
problem. We heard slogans about efficiency
and return on investment, and
we saw mission and vision statements
– but without project plans for implementing
the reforms, little progress
was made.
Change was optional, sloppy
processes were tolerated, measurements
were inaccurate or late, complexity
was allowed to persist and benefits
were not seized.
Yet a minority successfully implemented
widespread efficiency improvements
and made the changes
stick.
Key themes were:
- hands-on top executives
- people must change
- new or improved systems.
CMOs or their deputies spent part
of their working week making sure
that the reforms were pushed through;
they rolled up their sleeves, and poked
in their noses.
While junior staff organised the
mechanics of the change programmes,
streetwise CMOs didn’t leave them
alone for long periods. They got
actively involved in making sure that
the changes were made, and that they
were stuck to.
People knew they had to change and
they knew it wasn’t optional. In one
case, the company decided its senior
team lacked sufficient commercial skill
and hired a new team with the requisite skills. Systems were introduced or improved in three areas: workflow management, financial reporting and digital asset management. Although some efficiency gains could be made with no new systems, the biggest wins seemed to come with new systems.
Regardless of any potential pitfalls, we are encouraged by the successes of
companies that rethought their I2Ds. Companies that approach the demand
chain as an opportunity similar to the supply chain – with thoughtfulness, commitment and strong executive leadership – will succeed at it and reap
substantial benefits.
Two examples of optimized thinking
L’Oréal is one of the world’s largest cosmetics companies, employing more than 52,000 workers in Europe and the Americas. Before 2005, the company’s USA luxury products division’s forecasts suffered from all the problems mentioned. That year, it overhauled forecasting and set up an early warning system, gathering information about ideas in the pipeline – from the sales teams, marketing planners, pricing teams and sales promotions planners. This has enabled radical improvements in the accuracy of demand forecasts.
Diageo, the £10 billion global drinks company, has introduced a firm-wide process, known as Activity Evaluation, to ensure that all ideas deliver a positive return. Managers must forecast the cost and out-turn of an idea before they implement it, and must include in the proposal a description of how the return will be measured. Successful ideas are then measured and actual results compared with predictions.
Assessing the I2D chain
Idea assessment. Find out how many new products, new varieties, flavours, colours or packages are being produced:
how many advertising campaigns, brochures, direct mail shots, press releases, sponsorship events and activities, telemarketing
scripts and web pages, banners, and other internet activities, conference speeches, exhibition stands etc.
Production assessment. Map out the steps of your production projects. At the simplest, all that occurs is the brief, the
supplier selection and a final sign-off. How many people can delay, obstruct or veto? Lawyers, sales people, procurement
officers, senior executives, board directors and sometimes external regulators and civil servants. Discover how many
external suppliers are involved in the production process: agencies, printers, internet firms, designers and photographers.
Ask how many image and text files are created and saved, and how many more are licensed from image libraries.
Distribution assessment. Find out how many media spots you purchase annually, and check how carefully they are
selected and whether all the spots are really on target. How many sales staff and managers are responsible for distribution
of brochures, promotional materials, sales kits, exhibitions, events and conferences? – Investigate how much material
is effective. If you work through a channel, how much of your material really gets distributed?
Demand assessment. Ask how many demand streams – products, markets, segments, regions and locations – have
to be monitored and tracked. Combine them as a matrix and you may be looking at millions of little streams of
demand, all needing to be monitored. Find out who owns the responsibility for stimulating these demand streams, and
ask who can tell you how much growth has come from their ideas. What methods are they using to analyse demand?
Are they doing it rigorously, taking into account all the key factors, or do they say it’s impossible to analyze?
Robert Shaw is the Honorary Professor of Marketing Metrics at the Cass Business School, London, UK. Philip Kotler is Philip Kotler. |
