Solutions for Marketers Using a Zero-Based Budgeting Approach

February 26, 2020 Zhelko Genev

Previously published in Customer Experience Magazine

The growth of zero-based budgeting has changed the game for marketers. Besides operating in an increasingly complex, fragmented environment, they’re now expected to consistently quantify the value of their marketing tactics.

Employing an effective testing strategy can help marketers address both of these challenges. More on that later. First, let’s take a look at zero-based budgeting and its impact on marketers.

Starting from Zero

Traditionally, planning a new budget simply meant looking at revenue and expenditures from the previous accounting period. Zero-based budgeting, according to Investopedia, is an approach in which “all expenses must be justified for each new period. The process of zero-based budgeting starts from a ‘zero base,’ and every function within an organization is analyzed for its needs and costs.”

The advantages of zero-based budgeting from an overall organizational perspective? Long-term growth and a positive balance sheet. From a marketer’s perspective, though, the practice can make life more difficult. In particular, marketers must provide a rationale—and secure executive approval—for every ad and asset in their budget. And before launching a new campaign or trying a new tactic, they must make a convincing case for how it will help the business.

It doesn’t exactly sound like a breeding ground for innovation and creativity, right? Not so fast…

Finding the Right Fit

In the face of tightened budgets and growing marketing complexity, there’s never been a greater need for accurate measurement of marketing efforts. By showing their campaigns are producing a solid ROI, marketers improve their chances of getting the funding they need for the next budget cycle.

There are a number of solutions available to help marketers analyze performance:

  • Marketing mix modeling provides insights into the historical performance of each channel so marketers can adjust their budget as necessary.
  • Multi-touch attribution highlights how well a specific channel or tactic is working in-market, so adjustments can be made while campaigns are still running.

Both solutions offer measurement across multiple campaigns and programs. They can help answer questions such as, “Where and how much should I invest?” or “How can I optimize the creative or channels of campaigns in flight?”

However, meeting the demands of zero-based budgeting means justifying costs at every step. Success requires embracing a test-and-learn approach.

Where the Answers Lie

Every day, marketers are looking to answer specific questions or support targeted initiatives, such as, “How much did our end-of-summer sale actually move the needle?” “Has our rebranding campaign been a success?” or “How well did our ads targeting boomers perform?”

The key to finding the answers is short-term tests that leverage actual data (e.g. credit and debit sales, store sales, loyalty cards) to gauge impact. Analyzing a particular digital or print ad or a local TV campaign gives you the freedom to scale up if it performs well or to change gears if the results aren’t there.

The first step in conducting a test is to identify a control group of stores (or consumers) that are as similar as possible (in terms of purchasing behavior, demographics, geography, etc.) to the test group of stores (or consumers) that will be exposed to the marketing campaign. Once the marketing campaign is over (a campaign should be at least six weeks long), calculate the impact—i.e. “lift”—based on the differences in performance between the test and control groups.

By measuring lift, marketers can gain sharper insights into which consumer segments and campaign elements are generating the greatest response—and make better-informed decisions in the future.

Acing the “Moment of Truth”

It’s no secret that consumer behavior has changed radically over the past decade. Consumers have become accustomed to omnichannel shopping—and expect the same exceptional experience across all touchpoints, physical and digital.

Before the dawn of the internet, marketers aimed to capture consumers at the “moment of truth,” as defined by Jan Carlzon, then president of Scandinavian Airlines, and author of 1987’s Moments of Truth. “Any time a customer comes into contact with a business, however remote, [the business has] an opportunity to form an impression,” Carlzon said.

A.G. Lafley, then chairman, president, and CEO of Procter & Gamble, expanded on the concept in 2005. He described two moments of truth, the first of which is when the customer is looking at a product, in a store or online, and deciding whether to purchase it.

Fast-forward to 2011, when Google coined the term “zero moment of truth (ZMOT),” which it claimed was “changing the marketing rulebook”:

“It’s a new decision-making moment that takes place a hundred million times a day on mobile phones, laptops and wired devices of all kinds. It’s a moment where marketing happens, where information happens, and where consumers make choices that affect the success and failure of nearly every brand in the world.”

That is, the buyer journey no longer begins when someone sets foot in a store, visits a website, or speaks with a customer service agent over the phone. Rather, it begins when he or she researches a product online prior to making a purchase. As a result, brands have had to divert conversion resources from in-store promotions to digital marketing, online video, TV, and other upper-funnel channels.

Marketers, in turn, are tasked with proving their tactics are persuading consumers to take a desired action at various points in the buyer journey. By measuring incremental lift through short-term tests, they can do just that. Better yet, marketers will know they’re connecting with the right consumers at scale while generating an impressive ROI to help their marketing organization overcome the challenges of zero-based budgeting.

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