All About Marketing by Market Directions

Part 1. Introduction-- Marketing Art or Science? ............................................................................. 2 1.2. Marketing Defined...................................................................................................................... 2 1.3 The Traditional 4Ps of Marketing................................................................................................. 2 1.4 Marketing as a Commodity .......................................................................................................... 3 Table 1 – Increase in Consumer Choice .............................................................................. 3 1.5 Marketing’s History and Evolution ............................................................................................. 3 Chart 1 – the Evolution of Marketing .................................................................................... 3 1.6 Marketing Works .......................................................................................................................... 3 1.7 Conclusion— Marketing Art or Science....................................................................................... 4 Part 2 – Marketing’s Progression ....................................................................................................... 4 2.1 Management - Brief History ........................................................................................................ 4 2.2 The 1980’s Environment............................................................................................................. 4 2.2.1 Nike rises in the 80’s ........................................................................................................ 5 2.2.2 Consumer Expenditure Survey ........................................................................................ 5 2.2.3 The Plight of U.S. Automakers......................................................................................... 6 2.3 Lessons Learned-- Emergence from the 1980’s ....................................................................... 6 Chart 2 – U. S. Passenger Car Market................................................................................. 6 2.3.1 Progression to the 1990’s ................................................................................................ 6 2.4 The Consequences–................................................................................................................... 7 2.5 Marketing’s Reputation ............................................................................................................... 7 2.6 U.S. Advertising Spending –Ad-Spend....................................................................................... 7 Table 3 – U.S. Ad Spend by Industry ................................................................................... 8 Table 4 U. S. Ad Spend by Company................................................................................... 8 Part 3. Current Trends – CRM and Metrics....................................................................................... 9 3.1 Is CRM marketing’s latest trend?................................................................................................ 9 Tables 5 & 6 – AFLAC 2001 Annual Report....................................................................... 10 Part 3.2 Marketing Metrics Applied - AFLAC.................................................................................. 10 3.2.1 AFLAC Background - .................................................................................................... 10 3.2.2 Calculating Name Recognition ROI .............................................................................. 11 3.3.3 Did the duck pay? ........................................................................................................ 11 Table 7 AFLAC ROI Calculation ......................................................................................... 11 Part 4 Conclusions and Lessons Learned........................................................................................ 12

Part 1. Introduction-- Marketing Art or Science? In addition to our first Newsletter, Market Directions’ “All About Marketing” is provided here in a Whitepaper format. This whitepaper gives our readers and customers an understanding of marketing from theoretical, practical and historical perspectives; in hope that this knowledge contributes to your own marketing success. Our goal is to help you gain insight into marketing’s origin and direction and to discover why organizations market the way they do in the new Millennium. A customary beginning to any discussion about marketing begins with--- Marketing— art or science? Those who consider it an art — usually advertisers, copywriters, marketing communications—and those that consider it a science— usually engineers, finance professionals, MBAs— ponder this quandary based on their own background or the background of the company’s CEO. Whatever your view, the debate continues and recent studies, surveys and writings indicate that the perception of marketing has changed and many academics and practitioners have capitalized on this trend. A quick search in Amazon results in 86,781 marketing publications. What is it that so many people have to say about marketing? Investigating the topics, the most popular marketing publications (popular based on Amazon standards) have two basic themes — “The End of Marketing As We Know It, and, “Marketing Metrics” – measuring marketing’s impact and holding marketing professionals accountable to the bottom line. These writings made me wonder: ‘What has changed about marketing?’ Do my clients practice marketing differently than they did ten years ago? What created an end to marketing as we know it, and “what is it we already know about marketing?” Well what most of us know about marketing is what we learned in school and what we do everyday as marketing professionals, as product managers, project managers, account managers, customer service reps or as anyone else involved in bringing a product to market or creating value for customers. Marketing for most takes form based on the department in which we have accountability too. If you are in Finance, then marketing is pricing, ---

Investor Relations, marketing takes the form of communications ---Engineering, marketing is the product, ---An Account Exec., then marketing is collateral materials and if you are in Sales--marketing is closing the sale. Most marketing practitioners are involved in the tactics of marketing. That is, it doesn’t matter if marketing is an art or science, people just do their job and contribute what they can based on their budgets, skill set and the top down messages of what constitutes getting the job done. Within these top down messages most marketers on the front-line understand what their top executive’s view of marketing is, without an official debate. It is our goal in writing this publication that we address the importance for strategic direction in marketing while still understanding that most marketers employ tactics in order to get the job done. This divide is significant because it is this disconnect between strategy and tactics that has contributed to the change in marketing’s perceptions. 1.2. Marketing Defined In order for marketers to gain a perspective on what marketing is a review of today’s definition of marketing and how it evolved can explain a lot. --The U.S. official keeper---The American Marketing Association (AMA)--- defines marketing as: “an organizational function and a set of processes for creating, communicating and delivering value to customers and managing customer relationships in ways that benefit the organization and its stakeholders.” This definition of marketing was unveiled in August of ’04 and developed by the AMA through input from academics, practitioners and marketers across North America. 1.3 The Traditional 4Ps of Marketing Most of us are familiar with the definition of marketing in relationship to the 4Ps---Product, Promotion, Place and Price—-- these elements are associated with the definition that most of us learned in school — This definition of marketing was compiled in the 1980’s and reads:

“Marketing is the process of planning and executing the conception, pricing, promotion and distribution [place] of ideas, goods and services to create exchanges that satisfy individual and organizational objectives.” At first glance it appears as though in today’s definition of marketing the AMA has abandoned the 4 Ps of marketing ---but re-read this definition restated below and you will plainly see that the 4Ps are still part of the definition. The change to marketing’s definition is the inclusion of “organizational function” and “managing customer relationships.” “Marketing is an organizational function and a set of processes for creating, [product] communicating [promotion] and delivering [place] value [price] to customers and managing customer relationships in ways that benefit the organization and its stakeholders.” The current definition reflects writings throughout the 90’s and the new millennium that address marketing not as isolated operations performed by the marketing department but as the purpose of the organization and what an organization really does. 1.4 Marketing as a Commodity

1.5 Marketing’s History and Evolution In the 1920’s when marketing first became a separate management function, and when the AMA first defined marketing it was defined as a “selling process”. At that time the American Marketing Association originally defined marketing within the concept of sales: “Marketing is the performance of business activities that direct the flow of goods and services from producers to consumers.” However, somewhere along the line, consumers began to distrust sales people, organizations reacted by changing their titles from sales reps to account executives to business development, etc. No matter what they call, sales still has a bad rep. Current thought, 2001, Alan Mitchell, in “Right Side Up” (2001, Harper Collins) states: “We are entering a new era… where the dominant form of marketing revolves around helping buyers to buy, rather than helping sellers to sell.” The chart below highlights the evolution of marketing from production and the exchange of goods and services to today where marketing has taken shape as ……. ….. well how would you describe it?

While marketing’s traditional definition within the 4 Ps stresses tactics, the new definition defines marketing as an organizational function which creates benefits. The definition includes the customer by stressing value, i.e. in a world of commodization of products and services, what do customers really need? Does an organization sell customers what they need, what they want or what the organization determines that the customer needs and wants?

Item

Early 70’s

Late 90’s

Vehicle Models

140

260

Websites

5 Million+

McDonald’s Items

Running Shoes Styles

285

Radio Stations

7,039

12,458

Table 1 – Increase in Consumer Choice The table indicates that companies have introduced more choices for consumers than ever before. Is this a demand from consumers or the practice by organizations’ to hit a moving target? i.e. if we offer varied products will we eventually appeal to everyone?

Chart 1 – the Evolution of Marketing

1.6 Marketing Works However you define marketing, whether you think it is an art or a science, one thing you have to believe is that marketing works. Some examples of marketing that has worked (outside of advertising, or the Promotion P). Microsoft, whether marketing to consumers or businesses has captured its market th share through the 4 P of PLACE – distribution of its product through the manufacturers of PC’s – the consumer makes no conscience choice. Cabbage

Patch Dolls, distributed in the 1980’s --- ugly, but what caught the attention of little girls and collectors was the unique naming of each doll and “adoption certificate,” an example of focusing on the P – Product— filling an emotional need. Cisco’s market share slipped from 72 percent in the third quarter of 2003 to 58 percent in the third quarter of 2004. Over the same period Juniper Networks grew its market share from 20 per cent to 36 percent. Juniper Network’s marketing tactics--- innovation and distribution, they concentrate on delivering to the cable and phone companies rather than individual corporations. And you can’t leave out WalMart, their marketing tactics – P – Price. Of course you can probably think of just as many stories or case studies where marketing tactics did not work. But when it doesn’t work and when valid marketing techniques are followed, a trail is left behind to determine what went wrong. A prime example is the story of New Coke, a marketing disaster--- or was it? Sergio Zyman, former CMO, The Coco-Cola Company writes in The End of Marketing As We Know It — “By bringing Classic Coke back and, positioning ourselves with straight forward advertising we were acknowledging our consumers’ power in the marketplace and openly bowing to their demand.” Once New Coke was released and the public outcry was “give us back old Coke”, the company reacted, re-looked at its research, received a huge amount of PR (it was the top story on the Network’ evening News) and in 77 days re-released Old Coke. 1.7 Conclusion— Marketing Art or Science Marketing like its definition has progressed and changed since the beginning of industrialization. And to begin to understand the marketing concept the question— marketing art (from the Latin Ars, skill) or science (from the Latin for knowledge) must be answered. Well we somewhat circumvent this debate insofar as our answer is that we believe it is both. Marketing is a science in that its practice must begin with a quest for knowledge by gathering facts, making observations and performing experiments. The results must be organized in such a way that is measurable and meaningful. Marketing is an art in that creativity should be stirred from the information

derived from the science. It is the art of marketing that requires skill to implement strategies and tactics that evokes an experience by the consumer which is relevant. As this article progresses we will revisit the art— science debate and highlight current trends toward marketing as a science, make an analysis of why this is so and present more documentation as why it is both.

Part 2 – Marketing’s Progression Part 2 discusses the progression of marketing alongside modern management theory and practice, the business environment of the last two decades, case studies, consumer expenditure survey and the impact of marketing on— everything.

2.1 Management - Brief History Modern corporate management began as a concept in 1908 with a book published by Henry Fayol where he identified “management” as one of the six undertakings of the organization. Since then, like marketing, management has progressed over the decades and has its own debate: are good managers --- born or taught? --- Well this is a marketing article so we will spend little time on the history of management. But it is important to understand management along side marketing because “marketing evolved as a result of applying management concepts to distribution and selling,” according to Peter Drucker, the management guru of the 60’s 70’s… and today. In the decades preceding the new millennium there were unique business environments which led to changes in the practice of management and marketing. One continuous cry was that American Corporations had to change— change or be out of business. A historical perspective of the business environment, like history, is important to understand, so that previous lessons learned can help shape today’s marketing efforts. This section looks at the decades of the 1980’s and 1990’s to see where American Corporations have come from in order to understand where they may be headed. 2.2 The 1980’s Environment The 1980’s --- Tom Peters and Robert Waterman’s “In Search of Excellence.” If you were working or buying in the 1980’s you will remember the effect that foreign competition, especially the

Japanese, had on American markets. American products were viewed as inferior because of poor quality and U.S. companies’ self-confidence was at its lowest ebb. Thus, remember Quality Circles, TQM? Companies bulking up their ‘Q’ files in an attempt to improve quality in everything. To fully understand the marketing and management environment of the 1980s you have to first understand the business environment. Mergers and Acquisitions (M&A’s)— companies were scurrying to keep stock holders happy in order to avoid take over. Therefore companies focused on financial measurements such as, market share, EPS, and share holder value. Supply side economics and tax cuts were the political scene affecting business. Pricing by foreign competition was considered unfair due to subsidies from their governments. Within marketing, companies were focusing on quality and

price, within management, redesign, change, and to excel financially— outsourcing, relocation, and downsizing changed the U.S. Corporate structure to this day. While organizations were struggling to redefine themselves and reacting to global economics, U.S. marketers were scrambling to “position” their product or service in the mind of the consumer, Guerilla Marketing via the “war room” explained American Corporations view of the world. --- U.S Corporations were waging a War --- A 1981 book on Positioning: The Battle for Your Mind became the marketing bestseller for the 1980’s. (Jack Trout, Al Reis, 1981, Houghton Mifflin) Since then marketing emphasized the tactic in which marketers create an image or identity in the perception of target markets.

2.2.1 Nike rises in the 80’s The 1980’s begins marketing and advertising as most of us know it. For instance, Nike’s marketing tactics in the ‘80s, ventured that the public would accept sneakers as fashion statements. With its “Just Do It” campaign, and technological advances, Nike was able to increase its share of the domestic sport-shoe business from 18 percent to 43 percent, from $877 million in worldwide sales to $9.2 billion in the ten years between 1988 and 1998. As for Nike’s success, in the words of Scott Bredbury, Nike’s 1987 executive responsible for implementing some of their success strategies: “Reckless innovation is not a good strategy. Consumers want change. We're insatiable. At Nike we never changed the core value of the brand. A review of the Consumer Expenditure Survey (CEX) indicates that in the 1980’s consumer’s did begin to pay more for footwear as a percent of total expenditures. Perhaps?, Nike, really did “Just Do It” and actually increased consumers perceptions about the cost and image of sneakers and did not just cannibalized the market share of its competitors. 2.2.2 Consumer Expenditure Survey The CEX tracks consumer spending as a percentage of total expenditures by expense category. Line 6.0 identifies apparel spending as a percentage of total consumer spending. Line 6.1 highlights how consumers spent their dollars on footwear. There is a substantial increase in dollars spent from 1985 to 1995 and again in 2000 by consumers on footwear. However, by 2003 this spending is below 1985 levels.

Follow the trends of lines 7.0 to 7.3 in the CEX. Today, U.S. Consumers are willing to spend more of their dollars on the cost of a car, and less on maintenance and fuel. Americans spent less of their dollars on automobile purchases only in 1990 and have increased this spending continually over the last 13 years. Table 2 – Consumer Expenditure Survey

Nike, like many other U.S. Corporations’ sales have increased as a result of entrance into foreign markets and have set their sights on China. It would be hard pressed to believe that a slogan such as “Just Do It” would be effective where proverbs such as, A journey of 1,000 miles begins with a single step is part of the cultural psyche. Additionally, in January 05, the NBA signed a marketing agreement with Li-Ning, one of China’s international brands of sports shoe and apparel which allows Li-Ning to feature NBA players in its advertising. Point being is it time for Nike to look deeper into its core brand image? rebates and lower interest rates account for one-

2.2.3 The Plight of U.S. Automakers

half of this amount.

As a marketer and consumer I cannot pretend to know the answers for U.S. Automakers quest to regain market share. But as a marketer I do know that the answer is within marketing.

30.7M The story the U.S. Auto industry is an important aspect of U.S. economics, policy (Chrysler’s Lee Iacocca was the first to acquire a $1 Billion bail out from the U.S. government) trade deficit, --- and the answers lie within in the grasp of the marketers. 2.3 Lessons Learned-- Emergence from the 1980’s Some industries and some companies emerged successful from the 1980’s. U.S. Automakers are still struggling for higher quality and more market share. Nike emerged successfully, but what’s ahead for them? Will Li-Ning be the next Nike? Other companies that did not emerge from 1980s include Digital Equipment Corporation, Wang, Bethlehem Steel, (actually the whole U.S. Steel Industry). Share of U.S. Passenger Car Market 100% 80% 60% 40% 20% 0%

As a

researcher I know: • U.S. Automakers have steadily been loosing

Year

19 75 19 77 19 79 19 81 19 83 19 85 19 87 19 89 19 91 19 93 19 95 19 97 20 04

Industry articles, financial publications and analysts site U.S. automakers concentrating too much on financials --- not the customer --- CEO’s rise from the ranks through Finance, so they concentrate on financial measurements… return on equity, shareholder value, etc. These are not customer satisfaction measurements. U.S. car makers have diversified into other areas, the most profitable being their financial services division, perhaps a loss of focus?

• U.S. Vehicle recalls rose 61 percent in 2004 to

Market Share

U.S. Automakers, the Big 3 ---in the 1980s U.S. Corporation’s began to fear Japanese competition and this was very apparent in manufacturing and specifically the Automobile Industry. U.S. Automakers were slow to react to the oil shortages of 1970’s and higher gas prices. Japanese manufacturers already had fuel efficient, sleek designs and better quality to offer American Consumers. Did U.S. auto manufacturers ever recover from the 1980’s? The battles began and the war is still raging, market share for domestic automakers was below 60% for the first time ever in 2004. The chart below highlights small passenger vehicle market share by U.S. Corporations, and the Japanese.

Big 3

Japanese

All others

market share since the 1980’s • U.S. consumers have steadily been paying more

Chart 2 – U. S. Passenger Car Market

for the purchase of vehicles since the 1990’s • The U.S. Auto Industry employees 1.3 million

2.3.1 Progression to the 1990’s

workers, nationwide • U.S. Auto Production represents more then 3 percent of U.S. GDP • U.S. Automakers spend over $3,000 per vehicle on marketing and incentives in the form of

The decade of the 1990’s -- pre Y2K – business process reengineering – defined by Hammer and Champy as “the fundamental reconsideration and radical redesign of organizational processes, in order to achieve drastic

improvement of current performance, in cost, service and speed.” This is what American Corporation’s feared in the 80’s from global markets: lower cost, higher quality and the speed at which foreign competitors could meet the demand of changing consumer preferences and it took them almost a decade to meet this challenge head on. Companies began to re-engineer, by the mid 90’s companies were supposed to be downsized, right sized, and thriving. Communications technologies brought the world to our desktops and access to information came at the speed of light. The technology boom— companies abandoned some of the lessons learned and strived for market share --- at any cost. Operating in the red was considered acceptable as long as you were selling to customers via the internet and putting dotcom after your name. Everyone wanted to get rich quick and between 1990 and 2000 more than 4,700 new companies debuted on America’s stock exchanges. Corporate scandals appeared in order to appeal to the stockholder. The bubble burst, from Wall Street to Main Street, stocks fell, companies vanished as fast as they appeared, and over night dotcoms lost their appeal. And while all of this was happening IT spending unbridled in preparation for Y2K. After the bubble burst and budgets cut, a new wave of downsizing begins and the economy slips because companies lost focus— on the bottom line, on the customer, on their core business. Traditional companies were not responding to the demands of the customer and new players emerged and they differentiated themselves mainly through price, i.e. Wal-Mart, and the commodization of products and services. 2.4 The Consequences– As a result of growth, expansion and divestiture in the decades leading to the new millennium, marketing budgets were rewarded, this is because what marketing departments were doing seemed to work. However, marketing tactics did not work for all of the people, all of the time. There were winners and losers. The verdict is still out on whether the U.S. auto industry is a winner or loser. But one truth that history has taught is that marketing matters. Marketing is important, relevant, and can make or break whole companies, industries and economies. Three major advances for the consumer happened in the new millennium as a result of

business in the 1990’s all which needed to be legislated; First, a national DUE NOT CALL LIST; Second, Sarbanes Oxley and; Third, Anti Spam Legislation. Surely, if U.S. Companies do not learn to listen to the customer, more of their business will begin to face legislation. What we know about marketing is— that it has changed from the concept of production to sales (push to the customer) to the concept of positioning (creating an image) within the 4 Ps of the marketing mix. We have also seen how marketing has evolved alongside management practices, an example of success and failure and the importance of marketing to the organization, the economy and policy. Companies are now just beginning to emerge from the 1990’s and an economic recovery. So what’s next? 2.5 Marketing’s Reputation Recent surveys, studies and articles suggest that marketing and marketing professionals have lost their credibility due lack of accountability from the 1990’s and to marketing’s latent adaptation of technology. Marketers, concentrated on promotion, advertising, selling, then focused on th beating foreign competition and to finish the 20 Century lost focus of good business measurements— all which lead to current thought that marketing must be more accountable. Marketing must become a science. Marketing’s reputation has a history of spending. Spending on advertising in the U.S. will reach over $140 billion by the end of 2004. (The Economic Times, Online Edition August 2004) This is an increase of almost ten percent over 2003. Remember where this discussion began? “The End of Marketing as We Know It” Well this is the title of Sergio Zyman’s (Former CMO of Coca Cola) book and premise. Additionally, he has “The End of Advertising as We Know It.” Both of which are getting notice from the advertising agencies they target as dinosaurs at their craft. 2.6 U.S. Advertising Spending –Ad-Spend U.S Advertising agencies, like other U.S. corporations, have had plenty of Mergers & Acquisitions and have become huge conglomerates. The industry has grown to over $90 billion in annual revenues. The data show an increase in Ad-Spend at a faster rate than growth in sales, confirming the

bromide in 2003 that when times get tough, the tough step up their marketing.

Table 4 U. S. Ad Spend by Company 2003 Advertising Spend in Billions

% Change

Rank

Top Ten Leading National Advertisers

General Motors Corp

$ 3.4

-1.4%

Procter & Gamble Co.

$ 3.3

24.3%

Table 3 – U.S. Ad Spend by Industry Rank

Top Ten U. S. Advertising Spending

2003 Media Billions

by Industry

% Change from 2002

From 2002

Automotive

$18

8.2%

Retail

$16

6.3%

Time Warner

$ 3.0

6.0%

Movies, Media, Advertising

7.6%

Pfizer

$ 2.8

10.6%

DaimlerChrysler

$ 2.3

14.1%

Medicines & Proprietary Remedies

$ 6.8

18.7%

Ford Motor Co.

$ 2.2

-0.8%

Walt Disney Co.

$ 2.1

18.1%

Food, beverages, confectionary

$ 6.4

0.4%

Johnson & Johnson

$ 1.9

10.9%

Financial Services

$ 6.2

10.6%

Sony Corporation

$ 1.8

12.0%

Home Furnishings

$ 5.9

10.1%

Toyota Motor Corp.

$ 1.6

8.4%

Telecommunications

$ 5.5

14.1%

Table4 Source: Advertising Age, June 28, 2004

Personal Care

$ 5.0

13.6%

Website:

Airlines, Hotel, Car Rental

$ 4.6

.7%

Autos, the biggest ad category at $18 billion grew only 8.2% in total advertising from 10 automakers in the Top 100. Advertising not only dropped at GM, but fell 0.8% at Number Six, Ford Motor Co.

http://www.adage.com/news.cms?newsId=40827 In part this reliance on ad-spend is why there is a general consensus that marketing has lost its relevance at the board level. The advertising spending of Top 100 company’s has increased at a faster rater than their sales. The 9% growth in ad spending compares to 4.8% growth by the Top 100 in 2002 and a 1.3% decline in spending in 2001. Does this data confirm the notion that when marketers face tough times, they do what they know best— advertise?

According to two surveys of marketing executives by BtoB Magazine (June 2004) the conclusion was that “the marketing profession is struggling with something of an inferiority complex” and “CEO’s have a low level of confidence in their marketing department.” Articles with this same thought also have appeared in recent publications including: Philip Kotler, “Marketing and the CEO: Why CEO’s are Fed Up with Marketing,” Strategy, May 3, 2004, and; Done E. Schultz, “Marketing Gets No Respect in the Boardroom,” Marketing News, November 24, 2003— whose titles speak for themselves. These conclusions may be the result of writings from marketing theorists and consultants including Regis McKenna, who, states; “… advertising’s dirty little secret: it serves no useful purpose.” (Relationship Marketing, 1991) This theme

is reinforced again in 2004 on a PBS FRONTLINE when media analyst and correspondent Douglas Rushkoff opens the show entitled “The Persuades” (In "The Persuaders," FRONTLINE explores how the cultures of marketing and advertising have come to influence not only what Americans buy, but also how they view themselves and the world around them.) that; “There is an age-old anxiety among advertisers that they are wasting their money, that they cannot know whom they are reaching and with what impact." If marketing consists of four major elements (price, promotion, place and product) — the 4 Ps, than advertising alone cannot account for entire marketing budgets. And with consumers bombarded with messages from all mass mediums, advertisers have abandoned financial measurements over awareness, perception and entertainment value in order to justify their budgets.

Given these writings, attitudes and divergences from core marketing fundamentals marketing is being pushed into a science identity, rather than as an art. The emphasis on science comes from the quest for marketing departments to join their Finance, Accounting, Human Resources and Purchasing Departments, etc. in adapting technology— technology that will implement CRM and calculate the ultimate marketing metric.

Part 3. Current Trends – CRM and Metrics CRM – Customer Relationship Management – this is a term that has gained significant attention, without significant execution. When most organizations use the term CRM— they are referring to an integrated software product that manages data about customers. However, a true marketer should view Customer Relationship Management as exactly what it utters: a relationship with your customers. Usually the result of current CRM efforts is a customer contact via a front end telemarketer or a mailer to a customer that attempts to cross sell a product based on past purchases. It’s the same as when you buy a product or book on Amazon, and it states that “people who bought this item also bought…” CRM is a $3 billion industry and has grown by over 700% in the last three years. And with huge players like Siebel, IBM, Oracle CRM, and SAP CRM you know that there are budgets to support the CRM model of marketing and to carry it out as an IT function. 3.1 Is CRM marketing’s latest trend? — Yes! -- Is it sufficient to direct the whole organization into doing business as a marketing organization? – No!-Software is not enough and CRM should be called what it really is -- data mining, database management, sales tracking, etc. Certainly a necessity in today’s information age….. organization’s should have a grasp of the make-up of their customers—but this should not be the end point. Implementing a CRM system does not differentiate a company or make it more competitive; its a company’s innovation (4th P, Product) and its marketing strategy – and implementation of the marketing tactics it supports - that drives a company. Peter Drucker states this as the purpose of a business; “because its purpose is to create a customer, the business enterprise has two—and only two—basic functions: marketing and innovation.”

Marketing metrics is the second trend in today’s marketing organizations—this is in an effort to enforce greater accountability by marketing. The “chosen” metric that consultants, scholars and marketing gurus have decided upon is Marketing ROI. This metric seems to have taken on the designation of “holy grail” in the quest for measuring marketing’s success. With an emphasis on measured metrics, some companies have moved their marketing dollars into direct marketing campaigns, i.e. direct mail, internet and QVC, where there is an immediate impact on sales and an immediate determination that the sale was a result of an action. Direct marketing spending is over $2.0 trillion annually, according to studies by the American List Counsel and The Direct Marketing Association (DMA). Some organizations simply use traditional marketing measurements such as; market share, growth and profit measurements to determine marketing success. Other organizations are looking for the magic software that assists them in determining ROI for marketing campaigns. Others say that it is too difficult a calculation because of the unknown variables such as awareness and image related elements. Claims are made that marketing ROI is more complex than financial ROI due to awareness and image related measurements. To view marketing as an investment, Marketing ROI must be put into place in order to benchmark it against other investment alternatives. The basic concept of ROI is relatively simple: Income

= ROI

Investment

However, determining the elements which make up ROI’s computation represent a variety of views which reflect different objectives. The calculation for ROI restated is this: (total benefit - total costs) = ROI total costs

Though, calculating marketing ROI is straight forward— it is the set of assumptions that cause conflict with respect to “total benefit.” This is difficult to deduce for an effective marketing campaign because benefits happen in the long and short term. Additionally, if a marketing campaign’s one goal is to raise consumer awareness, how is this quantified and does consumer awareness benefit the company’s bottom line?

Policies (thousands)

Annualized Premiums (MM)

Tot New Premiums (MM)

Average Associates

Average NEW Sale Per Assoc

% Change in Associates

% Change in Average Sale

2003

8,885

$3,043

$1,128

17,180

$65,658

-3%

2002

8,077

$2,674

$1,070

15,869

$67,427

18%

-4%

2001

7,031

$2,238

$919

13,069

$70,319

18%

2000

6,119

$1,861

$712

10,757

$66,189

18%

1999

5,480

$1,592

$555

8,807

$63,018

10%

1998

5,056

$1,393

$482

7,918

$60,874

11%

1997

4,693

$1,216

$401

7,376

$54,366

10%

1996

4,389

$1,060

$327

6,665

$49,062

1995

4,230

$954

$279

6,121

$45,581

10%

1994

4,119

$877

$246

5,489

$44,817

Average Associates w/o Duck????#

Year

Average NEW Sale Per Assoc [SAME]

NEW PREMIUM SALES WITHOUT DUCK (MM) +

DIFFERENCE DUCK v NO DUCK

2003

16,504

$65,658

1,084

2002

14,376

$67,427

969

101

2001

11,833

$70,319

832

2000

9,688

$66,189

641

Tables 5 & 6 – AFLAC 2001 Annual Report One of AFLAC's many strengths has been the effectiveness of its advertising campaign. Our unique advertisements, featuring the popular AFLAC duck, have produced a dramatic increase in AFLAC's visibility. As a result, our sales and recruiting have benefited from advertising, as has the general awareness of AFLAC and its products.

# Forecast for Number of Associates represents average growth of previous four years. + Average sale remains the same, but number of associates changed. Part 3.2 Marketing Metrics Applied - AFLAC

3.2.1 AFLAC Background -

One overwhelming example of determining if name recognition is worth its weight in sales is AFLAC. You know “the Duck.” Imagine you are V. P. of marketing at AFLAC, how would justify spending millions on an ad campaign that uses a duck? AFLAC’s goal for The Duck— name recognition, and in recent surveys 90 percent of U.S. Households do recognize the AFLAC name. However, only about 30

The American Family Life Assurance Co.,— AFLAC--

$11.4

billion

insurer

providing

supplemental insurance to more than 40 million people world wide.

The company sells policies to

employees of nearly 300,000 payroll accounts in the U.S. It is the largest foreign insurer in Japan, insuring one out of four Japanese households.

percent of those consumers know what the company sells.

3.2.2 Calculating Name Recognition ROI To demonstrate how ROI can be calculated for name recognition ,delving into AFLAC’s Annual Reports, 10K’s, press releases and news articles to gather data that could be used to calculate the ROI for

Introduced the Duck in December 1999 –

the investment in “The Duck.”

Adspend 2000 - 2003 $30 Million

These are the high level factors that would determine an ROI calculation.

AdSpend 2004 $50 Million Technology Investment– $60 million 2001 to 2004 Increase Sales Agents – over 10 percent per year since 2000 Prior to 2000 under 10 percent per year

3.3.3 Did the duck pay? Expected ROI – 15 percent --- just a guess 2000 $30 M 2001

$30 M

2002

$30 M

2003

$30 M

2004

$50 M

Now GEICO, on the other hand spends $300 million on its advertising. This analysis may produce totally different results.

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TOTAL SPEND $170 Million Total benefit = x Total Cost = $170 MM X-170/170 = .15

Table 7 AFLAC ROI Calculation

If AFLAC anticipates a 15 percent ROI, X has to equal 195 Million over five years, that is $195 million in incremental sales. That’s about $40 Million per year. In other words, the management at AFLAC had to make a bet that an investment of $30 M would produce $40 million in additional sales per year. The difficult part, is not determining sales but attributing a new sale to the result of the advertisement. To do this some assumptions have to be made as to “what would have happened without the duck?” Past averages of total sales and total sales agents can help determine what might have happened without the duck. Of equal importance to making this decision is “how much of total assets does $30 MM represent?” AFLAC has over $10 billion in revenues and $700 to over $800 MM in Net Earnings. $30 MM is only a fraction of the total company and could almost be considered discretionary spending.

Part 4. Conclusion and Lessons Learned Our goal is to help you gain insight into marketing’s origin and direction and to discover why organizations market the way they do in the new Millennium. By gaining insight and perspective of the past, your marketing future can flourish as the result of trials and errors of those who have tried it all before. We concluded that marketing, done well, should be viewed as a science. Not that there is no creative involved, but the science should be the higher priority which supports the creative. Marketing’s definition has changed as the corporate environment has changed and as academics collect and analyze data about corporate results. Marketing’s reputation is one that has not traditionally had a place in the board room. But since marketing has begun to act more like a science than an art, this is changing. ROI calculations are an important role for marketing product managers and marketing executives. Relationships need to be forged between marketing and finance in order to prove to the rest of the organization that marketing can finance itself. The current trend is marketing is CRM, customer relationship marketing. While the name implies that company’s are focusing more on customers, the practice itself has become and IT project and not a customer service project. However, more companies are turning to other marketing metrics, including customer satisfaction and loyalty in order to become customer focused.