E-commerce Insights: Multichannel Planning Is a Complex Endeavor
Scratching your head over the interaction between your online and offline marketing efforts? Not sure how much to advertise online? Unclear of the true impact of your catalog mailings? You’re not alone. This column won’t completely solve these puzzles, but it’ll offer some relevant ideas.
How Much to Advertise
First, assume you’ve already established your high-level financial goals, either for your online program or for the business as a whole. Such goals should be specific, numeric and time-based. Be sure the whole team understands and buys into these goals, and works toward meeting them each week. Typical goals are profit-and-loss-based, and include a revenue and an earnings component. Rapidly growing companies also may have a cash flow goal.
Build a planning P&L statement based on these goals. Usually, a marketing P&L stops at marketing contribution since marketing typically isn’t held accountable for fixed costs and overhead. If your margin doesn’t vary greatly across your marketing efforts, this planning P&L effectively helps you understand the trade-off between marketing expense and resulting sales.
I find it helpful to discuss sales in terms of absolute dollars (volume) and marketing expense in terms of a percentage of net sales (efficiency). Expressed as a percentage of sales, the marketing spend becomes the advertising-to-sales ratio (A/S). Don’t allow different departments to use different assumptions for margin or variable cost (e.g., do vendor co-op funds reduce marketing expense, or rather reduce cost of goods?). Task your finance team with ensuring marketing and merchandising use consistent numbers.
Your programs in aggregate should meet your efficiency goals. Allow your marketing team leeway to cross-subsidize programs within the portfolio at their discretion. If you require every program to meet your target efficiency, the portfolio as a whole would be too efficient, leaving potential revenue on the table (see Figure 1 below). Dig deep and make sure your team can explain which laggard programs they’re propping up and why. Good explanations are “testing new opportunities,” “trading some efficiency for increased volume” or “strategic considerations.” Bad explanations are, “We don’t know,” or, “We’ve always done it that way.”