August 06, 2006

Optimized Marketing Spend

Last week, DMNews reported on an initiative at Dell to optimize marketing spend across all channels. Database Marketers are good at building tools that help marketers understand the best way to optimize their marketing spend. One of the most convenient and formulas used by Database Marketers is the square root function.

For instance, assume a company generates $10,000,000 of sales on marketing spend of $2,000,000. If the company wanted to increase marketing spend from $2,000,000 to $3,000,000, it is common to take the square root of the increase ($3,000,000 / $2,000,000 = 1.50 increase), and apply that to sales. In this case, an increase of marketing spend from $2,000,000 to $3,000,000 causes a theoretical increase in sales to (1.5^0.5) * $10,000,000 = $12,247,449.
The challenge Dell would have to face is quantifying marketing activities that are not easily measured. For instance, Dell recently started a new blog. How does a Database Marketer quantify the impact of this initiative? How about television advertising? Without good matched-market testing, it will be a challenge to accurately measure the incremental benefit of this form of advertising. If the incremental impact of advertising can accurately be quantified, formulas as simple as the square root function, and a simple spreadsheet, can be used to measure the optimal level of marketing spend. In lieu of having accurate information, let's get your opinion. If Dell had an additional $5,000,000 of marketing spend available to them, how should they spend it?
  • Should they mail more catalogs to existing buyers or new buyers?
  • Should they pay for various keywords on search engines like Google?
  • Should they pay for portal advertising on a site like Yahoo!?
  • Should they pay for television ads?
  • Should they pay for radio ads?
  • Should they pay for newspaper ads?
  • Should they pay for magazine ads?
  • Are there any other advertising avenues you would suggest Dell pursue?
Let's hear your thoughts on this topic!

2 comments:

  1. What I'm curious to know are the details of how effective Dell's blog will really be on sales. As you said, it's difficult to quantify it, but will people just view their blog as another form of advertising and thus view it in the same way as a TV ad? Special Advertising Sections in newspapers and magazines are never as effective as advertisers would hope, and I wonder if the Dell blog will follow a similar pattern.

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  2. Welcome to the blogosphere! I took a peek at your new site, I hope you find the blogging experience to be a positive one.

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