April 30, 2007

What does the following formula mean to you?

Vs = A / At

In case you are not familiar with these variables, let me explain. They are a measurement of your share of voice in advertising, thus:

Vs = your share of voice, expressed in percentage terms
A = your advertising for a given product
At = Total advertising for a given product

How to calculate it? Suppose $100 million is spent on ads for portable music players overall and your company spends $5 million to promote its own player. Your share of voice would be 5%.

How important is share of voice? According to John Davis, author of Magic Numbers for Consumer Marketing, share of voice is vital. His rationale: "Advertising does have an influence on perception and a high share of voice can lead to an increased awareness which, ultimately can lead to increased sales and market share."

How many email marketers participate in this share of voice discussion? Your programs potentially touch millions of your customers and prospects. The cadence in which you do this can stagger many marketing executives, and your ability to track response at an individual, segment, cell, DMA or product level should make common advertising measurement discussion a real eye-opener. But when email marketing represents only 3% to 4 % of the advertising budget, how do you gain participation in this discussion, much less infer how email can increase your share of voice through increased exposure to customers and the market? And when people can't agree on the value or meaning of simple actions such as a click on an email, how do you influence calculations like share of voice, reach, or gross rating points?

Answer: it starts with expanding how you discuss measurement, and elevating the discussion to more than a cause-and-effect, month-over-month statistics story. The channel influence and the stacking effect of email and other media on a purchase tends to blur who should get the credit, making it even harder for channels to distinguish the sale from influence. But we must remember email is not a single anonymous impression; it has more influence on how you spend and justify your budgets than you think.

Here's another formula:

ASR = Ea / S

ASR = Advertising-to-sales ratio
Ea = Total advertising expenditures
S = Total sales

If email accounts for 20 % of the revenue for your business yet your email spend only accounts for 3 % of the total advertising budget -- how do you bring this to the table? If you look at the average ASR by business type, you will see variations that could change dramatically. Here are some verticals* ( a little dated, but they still illustrate the point) that are aggressive with online marketing and commerce in general, yet have dramatically different advertising-to-sales ratios:

Department stores: 3.6 %
Books/Publishing : 7.3 %
Women's clothing stores : 2.8 %
Grocery stores: 1.0 %
Computer and office equipment stores: 0.8 %.

*http://company.news-record.com/advertising/advertising/ratio.html>

Why? Is it about optimization of advertising dollars? Can you use this ASR to illustrate how a shift in spend to email can influence this over time? Some industries are more heavily vested in more expensive offline media/channels, but there is no doubting each industry's use of digital channels and the need to show how each influences this efficiency of reaching the masses.

These are fun calculations to play around with; it's fun to project your hypothetical influence on each, complete your analysis and review with this formula below and you'll certainly have a better chance at increasing that 3% email marketing budget.

PPC = (I x CR x Cr x Sa x Pm) - Ca

PPC = Profit per campaign
I = Impressions
Cr = Click through rates
Cr = Conversion rate
Sa = Average sale
Pm = Profit margin
Ca = Advertising costs

This is bound to make the measurement discussion with executives and finance departments go a bit more smoothly.

by David Baker
Courtesy of http://www.mediapost.com

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