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Marketing Investments: Three Tips for Increasing Operational Efficiency
Get more dollar value by paying less, going lean, and outsourcing more.
For the rest of the August 2006 issue of CRM magazine please click here
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An increasingly complex environment is eroding the impact of marketers' investments. Extensive media fragmentation, combined with the sheer volume of messages, makes it nearly impossible to reach today's consumer. The outcome is no surprise: Direct marketing response rates are declining, while the average cost to generate a sale--whether through prime-time TV or one-to-one marketing--continues to rise.

In this situation CMOs face growing pressure to deliver improved performance for shareholders. They must squeeze more productivity from each campaign, more output from each employee, and more return from each marketing dollar.

CMOs can achieve some of this by managing customer interactions in an integrated way (The Tipping Point, May 2006). Additionally, leading companies now go beyond this approach to attack marketing efficiency. Following are three time-tested operations principles that help drive rapid performance improvements and kick-start organizational change efforts.

  • Pay less for what you buy CMOs must take a hard look at what they buy, from whom they buy, and what they pay. A leading specialty retailer spent $100 million with more than 200 printers, driven in part by ever changing marketing needs (e.g., new direct mail creative). On closer examination, however, the buyers discovered that most projects were reasonably predictable in format, timing, and quantity. A robust, corporatewide bidding process reduced spend on predictable projects by 20 percent. In addition, a fact-based vendor-screening process was developed to generate an additional 5 to 10 percent savings on other projects.
  • Apply lean principles to improve marketing processe Lean is based on a very simple premise: Whenever work is done some value is added; some value is also lost, typically in the form of waste, variability, or rigidity. By reducing these sources of loss, all of which occur in common marketing processes, lean improves efficiency and productivity.

    Waste is the most obvious source of loss. Common examples include drawn-out campaign development processes with too many handoffs and inefficient test designs that drain scarce resources from the direct marketing budget.

    Variability creates exceptions, delays, and poor quality. Codifying and implementing standard processes like list generation are critical to overcoming this issue.

    Rigidity can be a huge problem when companies face unforeseen threats like a new competitive offer and are unable to redeploy resources and implement a fast-track process without undermining regular business.

  • Outsource activities that others can do more efficientl Outsourcing offers three benefits--lower costs, faster time to market, and improved quality. A compelling business case for outsourcing should rest on these, but the decision also needs to consider the function's strategic importance and the availability of internal skills and capacity.

    The clearest cases for outsourcing are functions with limited internal capabilities. If the function is highly strategic, it should be outsourced to one or more high-performing, cost-efficient suppliers. If nonstrategic it should be outsourced at low cost or, if possible, eliminated altogether.

    More controversial is a highly strategic function with significant in-house capability where external providers may offer improved cost, time, or quality. Cases differ, but the optimal solution is often to insource while improving competitiveness with outside suppliers. Nonstrategic functions where the organization excels (a rare case) may offer a new business, expansion, or spin-off opportunity.

    Improving marketing efficiency challenges even the highest-performing organizations. However, experience proves that focusing on the three levers above can generate significant, sustainable improvements.

    Kishore Ponnavolu is a principal at and David Rosenberg is an alumnus of McKinsey and Company.

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