One of the chief problems is that metrics often obscure value.
 Business success occurs in the marketplace, not in Excel or in
Powerpoint.  It’s easy to get so caught up with key performance
indicators that you forget about performance in the real world.

Managing a business is different than managing a budget.  The outcome
of an investment is not solely, or even primarily, a function of
efficiency.  It matters where you invest. Resources allocated to a good
business will work harder than those that are put towards a bad one.
 That’s why it’s crucial to rightsize investment.  Here’s a quick guide.

Building a Portfolio Matrix to Evaluate Category Strength

First, the obvious.  Some businesses are inherently better than
others.  A good business makes lot of money and grows rapidly.  A bad
business brings in poor revenues and grows slowly or not at all.  That
simple truth, more than any fancy math, is key to successful investment
(and, curiously, often overlooked in marketing circles).

Fortunately, most business categories are monitored so it is
relatively simple to evaluate the overall health of the business and
create a portfolio matrix.

The chart above shows a basic template.  The overall category value is
plotted against the change in category value (i.e. growth or loss) and
centered on the average.  High value/high growth businesses are ones in
which you want to aggressively invest while you might want to cut back
and increase margin in low growth/low value categories.

Of course, these are just general guidelines and there are often more
factors at play.  I, for instance, have a preference for small
categories that are growing quickly and will tend to invest more in
them.  However, as a general framework it’s a good place to start.

Benchmarking Investment

Once you have evaluated the quality of business categories in the
company portfolio, you need to benchmark marketing investment.
 Historically this has been a fairly easy exercise, but as I’ve previously explained, there’s good reason to believe that much activity goes unmonitored these days.

With that said, it’s still possible to come up with a reasonably
accurate picture by adjusting reported numbers according to known facts
on the ground.  Once you do, you can plot media investment onto the
portfolio matrix.  The result will look something like this.

  

Here, it becomes possible to spot opportunities.  For example, category
4, in the low value/low growth sector has a disparately high level of
investment while the much higher growth category 2 is underinvested.
 Mismatches like these are fairly common as many marketers base their
budgets on historical levels which lose relevance over time.

Targeting Aggressivity

The final step is to turn the analysis into an actual marketing
budget.  One of the obstacles to effective investment is the use of
irrelevant benchmarks, such as historical expenditure or targeting an
arbitrary percentage of revenues.  While they may be tidy from an
accounting perspective, they have little to do with what’s going on in
the marketplace.

One of the most useful guides to setting marketing investment levels
that I have come across is the aggressivity index, which helps to align
growth goals with market share.  It can be easily calculated as follows:

Aggressivity index = Market share / expenditure share

All other things being equal, an aggressivity index significantly
above 100 will tend to promote market share growth while an index of
significantly less than 100 will be consistent with declining market
share.

Overlaying aggressivity targets onto the portfolio matrix gives us a
good guide to rightsizing marketing investment.  Often, marketers who
are allocating large budgets to a category overlook the fact that they
are not actually supporting their market share just as seeming low
budgets can be, in fact, quite aggressive.

I have found that concrete aggressivity targets, combined with more conventional reach and frequency analysis, BDI/CDI
analysis and category projections are an extremely effective way to
align marketing strategy with business goals.  Moreover, regression
analysis has indicated that aggressivity is an effective predictor of
marketing success.

Art and Science

In Good to Great management guru Jim Collins
found that the most successful corporate performers tend to use fewer
metrics not more.  That’s because numbers aren’t nearly as useful in
providing answers as they are in helping us ask the right questions.  Creating efficiency and creating value are two different things.

Has there been a technological change that we expect will alter the
dynamics of a category?  Were there product launches in the recent past
that skew the analysis?  Do we expect the product line to be more
competitive in the next year or less so?  These are all qualitative
questions that we need to take into account.

That’s why I’ve found the portfolio matrix to be so helpful.  It
provides a clear snapshot of the business environment so that we can get
to the infinitely more important (and more fun!) discussions of what we
want our marketing strategy to achieve and what tactics will most
likely get us there.

Strategy, ultimately, is about choices.

– Greg