Be specific about your target group

Official documents and corporate memos are often labelled “to whom it may concern”. The RCQ approach requires you to be a little more specific about your target group. In order to quantify the actual “R” component for each marketing instrument, you want to be as precise as possible about your target group. This is because the reach of any one instrument is very different for different target groups, and the total reach of an instrument can be highly misleading. For example, Facebook reported 1.5 billion active users in 2015.⁵ But while Facebook may be well suited to reach a middle-aged audience in Western Europe and North America, its reach among teenagers is fading rapidly.⁶ And while advertising on daytime TV may get you cheap exposure to millions of viewers, are these really the people that matter to you? To get a more realistic reach figure for a particular marketing instrument, subtract those who are not in your target group for a given product or campaign.

The result of this process is often referred to as “relevant reach”. It gives due credit to those media – be they classical, digital, or local – that are best suited to reach your audience, and depreciate those instruments that produce a lot of scatter losses. For example, not all visitors of a car show will be in the target group for all exhibitors. From the perspective of a luxury brand, only a fraction of those who marvel at cars carrying six-figure sticker prices qualify as potential buyers. The devil is in the detail though. It's simple enough for direct media, such as addressed mail. You just send it to people in your target group – period. The same applies to outbound e-mails and calls. By default, total reach gets very close to relevant reach for direct media. But broadcast media – such as TV or radio – are more challenging. At face value, one TV contact looks a lot cheaper than one contact generated through an addressed mailing. This is because TV gives you a lot of contacts that are not relevant. The audience most media agencies work with often includes everyone in a certain age bracket, e.g., 14 to 49. You need to take out all those who don't fit the bill of your target group.

• Demographic: Start by subtracting everyone who is outside the age range of your target group, i.e., too young or too old. And if you are advertising female hygiene products, subtract all men. You get the idea.
• Sociographic: Subtract everyone who doesn't fit the income bracket you are targeting. And as a retailer, be sure to exclude those who live outside the catchment area of one of your stores.
• Psychographic: Subtract all those who don't share the attitudes and values your brand or product appeals to. If you represent a luxury brand, subtract the cheapskates. Note that psychographic data will not always be available.

When you are done, it will become apparent that mass media can be a lot more costly than they appear at first sight. You may be surprised by how little remains of the supposedly high reach of classic instruments, or by how effectively some low-profile niche media reach specific target groups.

Account for missed opportunities to see

Have you ever snuck away from the TV during a commercial break to go to the bathroom, feed the cat, or get a snack for yourself? Yes? Everyone does. But there is a bigger issue at stake here, and it affects the way a marketing instrument scores in RCQ analysis. Even once you have narrowed down total reach to relevant reach for a given instrument, that figure is still somewhat theoretical. It represents opportunities to see (OTS⁷) an advertisement, rather than actual exposure or recall.

For example, it is hard to escape a 60-second trailer that is screened before the main feature at a cinema, especially since many moviegoers consider trailers a part of the cinematic experience. The likelihood that a ticketholder will later recall the trailer can be as high as 80 percent, counting out a few latecomers and those whose eyes are glued to their phones until the movie starts. But what about a billboard by the side of the road? How many times do you drive past that before you even notice it? Most people will need multiple opportunities to see a billboard before they actually notice it, let alone recall what it says. The tune-out effect is typically even higher for online media. Many online ads are displayed outside the area of the screen that is visible to a given user, when the user is not paying attention to the screen, or is away from the computer, tablet, or phone altogether. As a result, multiple ad impressions are required before someone actually gets to see and absorb an online ad.

To get from theoretical reach to actual reach and advertising recall, you need to account for those who should have been reached in theory, but missed their opportunity to see your ad. Ask your media agency to estimate the number of opportunities to see for each person reached (n), as well as the likelihood to recall an ad per opportunity to see (b). Based on this information, you can calculate effective recall, using the formula 1-(1-b)ⁿ. To increase recall in your target group, it is often more effective to switch to an instrument with a higher likelihood to recall per OTS, rather than to increase the number of opportunities to see for a given instrument.

Take a full cost perspective

How much does it cost you to drive to work? Easy. Let's say it's 10 miles from your house to the office. Gas mileage for your SUV is 20 miles per gallon. So you need half a gallon to make the one-way trip. A gallon of regular costs 2 dollars, so your cost for the one-way commute is 1 dollar. That's so much cheaper than public transport! No reason to cram yourself into a smelly subway car. What a relief. But hold on. Are you being honest with yourself? What about the cost of buying or leasing the SUV? What about maintenance, insurance, and depreciation?

The “C” in RCQ is defined as the full cost that is caused by an instrument, often referred to as the “total cost of ownership” for a given consumer touch point. Much like gas consumption for a car, media buying cost is just the most obvious position for a marketing vehicle. While it is often also the largest bucket for classical media, some instruments come with substantial additional cost. For example, the cost of TV advertising includes creative agency fees and production cost. Other instruments may not require you to buy advertising space at all, but can come with their own types of hidden cost. Consider owned digital media, like a Facebook profile or the company home page. Because you don't pay activation fees for these instruments, you might be tempted to think that they give you free reach. But what about that hotshot social media manager on your payroll? What about the research your agency conducts to find out which topics you should tweet about? What about the software licence fee for the content management system that sits at the back end of your home page?

To avoid distortion, you need to include all costs that can be linked to a given instrument – be they internal or external, variable or fixed-step. Don't overdo it though. If someone on your team develops content that is activated both online and offline, their salary should not be attributed to any one instrument, or only proportionally so. For example, the work of your chief storyteller (see last chapter) might be featured in a YouTube clip, an old-school advertorial in a magazine, and in a direct mail campaign.

Using qualified reach and total cost, you can already rank different instruments in your mix according to their efficiency in reaching your target group (Exhibit 5.3). Please note that this is just an example, and that the numbers will be different in another country, industry, or context.

Evaluate contact quality based on your business objectives

Chances are that “total cost per qualified reach” is already a lot more insightful as a metric than anything your media agency will come up with. To make the analysis even more powerful, and create a more differentiated fact base for robust mix decisions, we encourage you to include “quality” as well. It will bring out the specific strengths and weaknesses of different marketing instruments even more clearly. In the context of RCQ, contact quality – or “quality of touch” – is defined as the effectiveness of an instrument in reaching your marketing and business objectives.

Despite the pitfalls discussed above, calculating reach and cost is a relatively straightforward exercise. Quantifying contact quality is a little harder. There are different approaches to doing this with varying degrees of sophistication. Some are more data intensive, others are more intuitive. Most companies differentiate between short-term and long-term objectives and classify marketing vehicles accordingly.

• Short-term objectives: drive revenues, volume, or customer acquisition.
• Long-term objectives: build brand equity and customer retention.

While direct mail is well suited to drive sales, a Facebook profile is more relevant with respect to the long-term performance of your brand. Depending on the content of a given commercial, TV advertising may serve both short-term and long-term objectives. As you evaluate instrument effectiveness, make sure to review any past performance data you may have. Don't hesitate to have external providers – such as your media planner or online marketing agency – assemble and review this type of data for you. Opening rates for direct mail, conversion rates for online ads linked to your e-commerce store, or the average amount of positive buzz generated by viral videos will help you gauge the fitness of these instruments to support the objectives of your company. While some instruments are particularly well suited to convey information (cognitive quality), others are better at evoking emotion (affective quality) or triggering action (behavioural quality). The car show that we mentioned above is a good example of a touch point with high affective quality. While the reach of such events is certainly limited, the opportunity to experience the goods in real life makes shows and fairs much more powerful as touch points than print ads, television commercials, or glossy brochures.⁸

Another option is to evaluate instruments according to their effectiveness in influencing consumers at different stages of their decision-making process. For example, classical media are well suited to generate initial attention and awareness. In-store promotions, POS materials, and online vouchers typically achieve high-quality scores when it comes to direct impact on the purchase decision. In contrast, brand-related events, reward programmes, or online communities are often better suited to sustain customer loyalty. Proven approaches to modelling the decision-making process include the brand purchase funnel (see Chapter 3) and the consumer decision journey (see Chapter 6).

For an even more differentiated view on instrument effectiveness, you may want to assess the instruments with regard to multiple objectives – such as brand building versus sales push – and display the results in a matrix (Exhibit 5.4). In this example, cinema advertising and a Facebook page come out as superior brand strength drivers. In contrast, direct marketing instruments – such as outbound calls and e-mails – receive top scores for their sales impact. Please note that this example is purely illustrative, and that the results of this type of analysis will vary with country, industry, and other factors.

Balance analysis with common sense

So now you have rock-solid RCQ scores for all instruments, right? Why not pour your entire budget into the top five and kick back while those dollars work for you? Bad idea. If you follow the numbers blindly, you run a high risk of shipwrecking your marketing plan in some spectacular way. We've seen it happen. In one case, the marketing analytics team at a retail company spent weeks wrangling advanced analytics to optimize online marketing activities, chiefly because this was the part of the mix for which they had the most detailed performance data. When they were done comparing the impact of pop-up video ads and opt-in newsfeeds, the team realized that online marketing as a whole only accounted for about 5 percent of the retailer's total marketing budget. They had not looked at local leaflets at all – the biggest budget position by far – and a much more important marketing ROI lever than online marketing. But by then, it was time to submit the budget for board approval. They had no choice but to copy over the marketing plan from the year before.

In another case, a maker of consumer goods calculated the ROI for various marketing instruments. Some of these came out negative, and the company duly pulled the plug on those instruments. The trouble was that they had only accounted for the short-term sales effect in their contact quality assessment. As a result, most of the instruments that primarily supported long-term brand equity and loyalty – such as special events and aftersales support – looked bad: high costs, but little to no immediate sales effect. What the company didn't factor in was that a strong brand is the prerequisite of future sales. Before long, the company saw their net promoter scores, repurchase rates, and other loyalty indicators dwindling. Disappointed customers spread the word about their unsatisfactory post-purchase experience, and eventually sales started to drop.

To avoid such mishaps, we encourage you to balance the facts and figures produced by an RCQ analysis with the judgement and the experience of your team. If in doubt, make an informed estimate to get the mix roughly right, rather than precisely wrong. Why not feed experience into the RCQ score itself? One way of doing this is to gather the experts for a workshop and have them assess the most important instruments in your mix in terms of how well they are suited to support your business objectives. To get a balanced perspective, include your fellow marketers, sales professionals, and the most experienced planners from your media agency. You won't have detailed effectiveness data for all instruments anyway, and even supposedly hard figures like actual reach require some estimates, such as the number of “opportunities to see” a person needs before they notice an ad.

In fact, expert workshops come with several side benefits that make them well worth your while – even if they fail to answer all your questions. A face-to-face discussion, for example, will help you uncover and challenge hidden assumptions or die-hard marketing myths. Keep in mind that it can be hard for seasoned brand or product managers to sit and listen while others are judging their campaigns or the mix of instruments they use. So better let people know that a low score for a particular instrument does not equal a reprimand for whoever is in charge of it, or was in charge in the past. An open mind is a key success factor for such workshops. This is especially important if it is the first time a company is developing a joint perspective across instruments. Make sure everybody has their say, and that participants' concerns are not dismissed without discussion. You will be surprised to find how even former antagonists can work their way towards a shared view of what's best for the company. If you play your cards right, participants will walk away as advocates of systematic marketing mix optimization, and help you defend any changes you may need to make against objections from those who feel you are invading their turf.⁹

Create an integrated performance metric

Total reach adjusted to account for contacts outside your target group and missed opportunities to see? Check. Costs calculated to include the total cost of ownership of each instrument? Check. Contact quality evaluated in light of your business objectives and pressure-tested in expert workshops? Check. You are now ready to derive an integrated performance score: the qualified reach per cost (Exhibit 5.5). This score does not replace a media plan, but it is a much more solid base for mix decisions than any rule of thumb. It does justice to the real reach, the total cost, and the contact quality of each instrument. As a common currency, it helps you pinpoint past misallocations and identify opportunities to shift parts of the budget to instruments with a higher qualified reach per cost. In combination with minimum and maximum spending thresholds for each instrument, which advanced analysis as described in Chapter 6 will help determine, RCQ serves as the basis for a fact-based mix recommendation. RCQ scores enable you to challenge the recommendations of your media agency – or past practices and habitual allocation patterns – with quantified facts. Like a traveller in the United States or present-day Europe, you can stop worrying about conversion rates and finally start thinking about the best way to spend your money.