How External Variables Impact Your Marketing ROI

How External Variables Impact Your Marketing ROI

Seeing the whole picture

Today we have so much data at our fingertips that it’s hard to determine which variables to focus on. When measuring your marketing ROI, the first thought is often to look at the internal data (sales, advertising spend on individual channels, etc.). Over the years we’ve found that including external variables is the key to seeing the whole picture. This makes sense when you really think about it. Marketing doesn’t operate in a vacuum, right? In other words, there are things influencing your marketing ROI outside of your direct control. By better understanding how external variables affect your business, you can leverage this information to optimize your marketing. Let’s look at a case study of how an outerwear company uncovered this truth first-hand.

Background

An outerwear company came to us looking to determine the key factors, and their relative weights, which are contributing to changes in sales. Like many Return on Marketing Investment (ROMI) studies, there are many contributing factors to consider. Our client wanted to pay special attention to a specific external variable, the weather. They wanted to see if weather patterns have an impact on sales.

We started by evaluating the results of “heavy-up” advertising spending in 4 test markets. The 4 markets were purposely chosen to reflect a range of weather areas. We found that weather did have an impact on sales. More specifically, we found that sales (demand) increased when the average monthly temperature dropped below a specific value. Each market had a different “temperature trigger point”.

We also found that other key economic indicators such as construction and agricultural conditions were drivers of sales (which makes sense given the vertical industries that an outerwear company would target).

Along with looking at the impact of external variables, we looked at their overall marketing spend. It’s important to understand that marketing is not linear, but rather functions like an “S-Curve”. By determining their current location on the “S-Curve” we saw that they should be spending more. They weren’t utilizing their full potential and were leaving profits on the table.

Why this is important information

When conducting a ROMI analysis, the client is typically motivated to identify their marketing “trigger points”. These “trigger points” can take various forms.

  • Saturation point (aka point of diminishing returns). The point at which each advertising dollar spent has less and less of an impact.
  • Minimum spend – Identifying the minimum you have to spend to see any lift in sales
  • External variable trigger point – “When external variable X reaches a certain point, I need to do XYZ”

By identifying the external variable trigger points for each market (when the temperate drops below a specific value), our client used this information to increase advertising spending at the right times of the year (and at the correct locations); and shift around inventory to optimize distribution.

In other words, they now know, “When external variable reaches Point X, I do XYZ”.

They optimized their marketing ROI by better understanding the impact internal AND external variables have on their sales. It’s hard to find those key trigger points when you’re not looking at the whole picture.

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