The Paramark method
Sep 1, 2023
Summary
Marketing has existed for centuries. Approximately 1–2 percent of global GDP (nearly $1 trillion) is spent on marketing. Yet, it still isn't easy to understand the impact of that investment on business outcomes. This is why we're building Paramark — read our launch announcement here.
We're also sharing our methodology to help businesses improve their marketing. This method will help you identify growth opportunities in a repeatable and sustainable way.
The first step is to define marketing's purpose — Market Penetration — and find ways to measure it in the long- and short-term.
The second step is to align on the questions that'll drive impact, including return on marketing investment, where to invest next, and how much of marketing's contribution is truly incremental.
The third step is to clarify short- and long-term marketing investment budgets.
The fourth step is to build a comprehensive measurement capability, including Marketing Mix Modeling, Incrementality Testing, Scenario Planning, and Forecasting.
The fifth step is to align your cross-functional partners on this methodology, including validating the need, planning the implementation, and executing the plan.
So, give it a read, and tell us what you think!
1. Define marketing's purpose and measure its long-term impact
Why does Marketing exist?
At a high level, marketing's purpose is straightforward: increase market penetration. But it's important to make sure your team is aligned and in agreement about what that means in terms of goals and metrics for your business.
Market Penetration is defined as the percentage of buyers in your category who are also your customers. There are two primary ways to increase market penetration:
Acquire buyers who have previously not bought from you
Defend against competitors who are stealing customers away from you
Ideally, your team would align on a direct measurement of market penetration — but getting accurate data isn't always possible. Even when it's possible, it's usually a lagging indicator. That means it takes multiple quarters or years to see movements in those measures.
Instead, we recommend measuring two proxy metrics that have been shown to predict market share — Share of Search and Share of Traffic. Les Binet's work inspired this recommendation (see here).
Here's how it works:
Share of Search. Pick the top competitors in your category. Find the volume of branded searches for yourself and each of your competitors. Calculate the percentage of branded searches for your business over the total branded searches for your category. Plot this over time.
Share of Traffic. Repeat the same process but switch branded searches with total website traffic. For businesses that rely primarily on mobile apps, change to searches and downloads on the mobile platforms where you compete.
Share of Search works well for brands with unique names — if yours is generic, consider Share of Traffic instead. Brand awareness is another option, but comes with many of its own pitfalls. We'll be sharing a guide on this in the coming weeks, so subscribe if you're interested in getting access.
Remember that these measures are tracking the long term impact of marketing. Don't expect these to change in days, weeks, or even months. It takes multiple quarters and years to see meaningful movement.
It's important both to track the long-term effects of marketing investments and to agree with your executive leadership on the necessary short-term metrics. That's the next step!
2. Align with leadership on the answers that drive impact
Having laid down high-level goals, you should then build consensus on what to measure and what questions you'll answer with those measurements, before delving into further detail.
Aligning on these questions will foster trust with cross-functional partners and reduce redundant efforts as you launch this capability. Even if you aren't receiving these questions from executives and finance now, you'll likely be receiving them soon.
After consulting with hundreds of marketing and finance executives, we have compiled the most common questions in the list below. We suggest you begin with this list.
At Paramark, we begin each engagement with a workshop where we explore our clients' current best-guess estimates of the answers to these questions, a discussion of the current tools and methodologies used to answer them, and a discussion of Paramark methodologies and brainstorming related to the change management process to move the organization toward science-backed methodologies to more accurately and efficiently answer these questions.
Experimentation and wrong turns are an inherent part of marketing; however, we always evaluate the potential risks and costs of errors (short-term and long-term) for your organization. Upon completion of the workshop, our customer is provided with a tailored marketing measurement change management roadmap, which we use to steer our engagement and modify as needed on a quarterly basis or after any major business changes.
What's the return on marketing investment?
This question is the most fundamental yet difficult to answer: what is the return on investment in terms of revenue and margin when investing $X in marketing? On the surface, it may seem straightforward, but it can be surprisingly challenging to untangle the many factors that influence revenue.
Where should we invest the next dollar?
Modern marketing is akin to a portfolio of investments, with marketing leaders serving as capital allocators. On a quarterly and monthly basis, they, in conjunction with their finance counterparts, must consider the most effective way to deploy additional capital into channels and strategies that have the highest probability of yielding the greatest return.
How much of marketing's contribution is truly incremental?
Incrementality is one of the least understood concepts in marketing. It is a quantitative measure of the contribution of a specific marketing channel or campaign to your goals, in isolation from others. To gain a better understanding, one should consider the volume of sales that would be lost if a given marketing campaign didn't exist. This points to the potential causal relationship between a marketing activity and sales.
How frequently will measurements be updated?
The business environment changes constantly. New channels, new trends, and new competitors emerge, and existing channels change in ways we can't predict. It's critical for marketing to have a way to understand how the answers to these questions change over time and adjust their investments accordingly. Using a future-proof measurement methodology that can adapt to such changes is important.
How much should we be investing in marketing?
Different levels of investment can have drastically different outcomes, which don't grow linearly as a function of investments. This concept of saturation curves is especially apparent when analyzing data at the channel and campaign levels. Understanding when a channel stops delivering returns is an important insight to share with channel managers and other colleagues.
How confident are we about hitting our business goals?
Forecasting the impact of marketing on the next quarter is essential for scaling businesses, as predictability is key. While there have been considerable advances in sales forecasting, the same can't be said for marketing, both in B2B and B2C contexts. It's time to bridge this gap.
With the inclusion of these six answers, every board meeting, quarterly business review, and weekly marketing metrics review will be improved tenfold. It'll enable a focus on outcomes that are truly important, rather than simply outputs.
3. Clarify your short- and long-term marketing investment budgets
The debate around brand and performance is finally over. Les Binet's and Peter Field's work in The Long and the Short of It and the Ehrenberg-Bass Institute's work in How Brands Grow, both point to the importance of a balanced approach between short-term sales and long-term sales. LinkedIn's B2B Institute has further strengthened the evidence for this.
These publications reveal two fundamental truths:
The 95–5 rule. Around 95 percent of buyers in a given category aren't currently in the market. Proactively engaging these buyers helps to ensure sustained growth and long-term sales.
Long-term investments influence the short-term but not vice-versa. Marketing that focuses on long-term growth is beneficial in generating short-term sales, whereas marketing that only targets short-term sales doesn't have a positive effect on long-term sales.
In light of these findings, it's critical for fast-growing businesses to invest in both short-term and long-term marketing strategies. Short-term refers to buyers who are in-market and long-term refers to buyers who aren't yet in the market but will be in the future.
Before embarking on measurement, it's important to recognize these differences between short-term and long-term and set budgets accordingly.
4. Build a comprehensive measurement capability
Now that you and your team have aligned on the long-term measure of success and the top questions you want to answer, it's time to start laying the foundation.
There are five key ingredients here, and we'll cover them in more detail below.
Measure the right target metric
Understand the incrementality of your marketing investments
Invest in experimentation to increase accuracy and precision of your insights
Engage in proactive scenario planning and forecasting
Ensure alignment within the company regarding marketing measurement
Measure the right target metric
Choosing the correct target metric is the most critical step in the process. Poor selection of this metric can be detrimental to the success of the entire measurement strategy. Although other metrics can and should be monitored, the focus should remain on the primary metric that'll guide the marketing team's efforts.
We recommend that your target metric:
be directly influenced by marketing activities,
follow marketing activities as soon as possible, and
be how you measure marketing's impact on the business
These guardrails are in place to prevent external factors (e.g. sales experience or product onboarding) from impacting your calculations. Additionally, we advise monitoring the conversion rate from marketing's target metric to the end business result to ensure the quality of the target metric is upheld.
The sales cycle of your business will also influence the choice of target metric.
Short sales cycles
Businesses with a short sales cycle (e.g. consumer-based) typically choose sales as their target metric. However, there are other factors to consider, such as the first-time user experience and the speed of sales/product changes. It may be beneficial to focus on higher-funnel metrics (e.g. traffic, signups, installs) as well. Additionally, depending on geographic reach and product variety, you may wish to separate the target metric into these dimensions.
Long sales cycles
For businesses with a longer sales cycle (e.g. B2B), it's wise to select different target metrics. Examples of suitable metrics include traffic, leads, and new pipeline.
There's a great deal of discussion occurring in the B2B marketing circles about transitioning away from traffic and leads. While we understand the impetus for this sentiment, we can't endorse it. This discussion arises because some B2B marketing teams focus solely on generating traffic and leads without considering the conversion rate of leads to pipeline or sales. Monitoring conversion rates can easily fix that error.
Focusing solely on pipeline or revenue isn't a sound strategy either. When sales cycles are lengthy, you need to generate traffic or leads well before customers may be in the market for your product. Additionally, as we noted in Step 3, only 5 percent of your target market is likely to be actively considering your product at any given time. To remain top-of-mind when the other 95 percent are ready to purchase, you must focus your marketing investments on those that audience, knowing that you won't see a change in pipeline or revenue in the short term. Choosing an alternative target metric will better serve you.
Understand the incrementality of your marketing investments
Incrementality refers to the true incremental contribution of a specific marketing channel or campaign to your sales. Said another way, it's the answer to this question — if a marketing campaign didn't exist, what volume of sales would you lose as a result? It points to the potential causal relationship between a marketing activity and sales.
Touch-based attribution ≠ Incrementality
Marketing teams have traditionally relied on touch-based attribution to gain insight into which investments influence sales. This method became popular with the emergence of digital marketing in the early 2000s, and is based on the idea of a "touch" - typically a digital event such as a click.
This concept works by tracking clicks on various assets and linking them to an identifier (usually based on cookies or UTM codes). Subsequently, attributing sales to a particular channel or campaign is based on the "touch" that occurred before purchase. Attribution software vendors offer various methods, such as first-touch, last-touch, or multi-touch. Despite the chosen methodology, this approach isn't without significant flaws. For more information on attribution errors, please read this.
Additionally, simply because an asset was clicked before a conversion event occurred doesn't guarantee that the event wouldn't have happened without the prior click. Rand Fishkin's parable effectively demonstrates the potential pitfalls of touch-based attribution.
Marketing Mix Modeling uncovers incrementality
Marketing Mix Modeling (MMM) is a statistical and machine learning technique designed to evaluate the incremental impact of marketing on sales. By analyzing the components of the marketing mix, MMM enables marketers to identify which elements are most effective. MMM stands in stark contrast to touch-based attribution, and provides a robust foundation to answer the six questions identified in Step 2.
The core advantage it offers over touch-based attribution is its ability to:
Understand true incrementality of channels and campaigns
Compare brand and performance channels and campaigns
Compare online and offline channels and campaigns
It has the added advantage of relying on far fewer data points than touch-based attribution. The only data required is daily or weekly impressions and costs across all paid, owned, and earned channels. The simpler data requirement reduces the costs of data tracking, collection, and normalization inherent in touch-based attribution. Two to three years of data is sufficient; however, the longer the timeframe, the more accurate the insights. For more advanced organizations, increased granularity concerning product and geographical levels can be beneficial to gain more precise knowledge.
While Marketing Mix Modeling has existed for a while, it's either been too expensive, too hard to implement, or too hard to operationalize. That's no longer true. Read more about it here.
Invest in experimentation to increase accuracy and precision
Marketing Mix Modeling is a foundational component of understanding incrementality. If you're starting from scratch, we recommend starting with that investment.
However, it has some limitations:
Marketing Mix Modeling finds correlation, not causation. These insights can be used as hypotheses to test causal relationships.
Marketing Mix Modeling doesn't provide precise point-in-time insights. Its generated insights should be seen as an overall representation of the period (week, month, or quarter), rather than specifically at one point.
Due to limited data, newly established channels may prevent marketing mix models from accurately estimating their impact.
Experimentation is a key tool to overcome the above mentioned challenges and enhance the accuracy and precision of marketing mix models. While experimentation is already a common practice among product, growth, and web teams, it has yet to become widely adopted in the marketing field. It's time to embrace this practice.
There are three primary difficulties with marketing experimentation.
Firstly, it's difficult to conduct statistically valid tests on external platforms due to the limitations of creating appropriate test and control groups.
Secondly, sophisticated math and statistics are often required to interpret the data.
Lastly, there's a potential for misinterpretation of the results.
We've seen the best marketing teams invest disproportionately in experimentation and use the results to fine tune their marketing mix models and marketing investments. We've written a detailed guide on how you can, too. Read it here.
Proactively run scenario planning and forecasting
The fourth ingredient is the practice of proactive scenario planning and forecasting.
Most marketing leaders have extensive experience working with their finance and sales (in B2B) counterparts to forecast the upcoming quarters, as this concept isn't new. Terms such as base-case, best-case, and worst-case are likely ingrained in their memories.
Until now, existing forecasting methodologies have primarily relied on sales inputs or simple marketing inputs, without accounting for the marginal returns of additional marketing investments or interactions between various marketing investments.
Marketing Mix Modeling and experimentation facilitate deeper dialogue between marketing and finance teams when considering topics such as:
forecasting sales for the next quarter based on planned marketing investments,
evaluating the effects of scaling investments across different channels,
determining the ideal investment allocation to maximize short term sales, and
determining the most efficient way to reduce the budget while minimizing the effect on sales.
Here's a recommended planning cadence:
Quarterly budget setting. Use the marketing mix model to determine optimal budgets for each channel. Afterwards, confirm and communicate the budget.
Quarterly experiment roadmap reviews. Collaborate cross-functionally to prioritize marketing experiments before the start of the quarter to ensure enough time for running meaningful tests.
Monthly business reviews. Analyze data from Marketing Mix Modeling and Incrementality Testing to compare actuals to targets by channel.
Weekly optimizations. Use in-platform reporting to refine strategies (e.g., creative, audience, bidding) to remain within established quarterly budgets.
Daily observability. Monitor in-platform reporting to ensure everything is performing as expected across all paid and owned channels.
5. Align your entire company on the methodology
If you've read this far, you're likely asking how to align all of your cross-functional partners on this methodology. Alignment is the fifth and final ingredient to consider.
Aligning efforts across marketing, finance, and sales is contingent upon building trust. Depending on the level of trust between these departments, the process may be fast or slow. If there is a large deficit of trust in the marketing data, there's a need to invest significant time upfront to bridge that gap. While this may be perceived as a difficulty, it is an opportunity to initiate a dialogue about a more expansive measurement strategy driven by data and experimentation.
Establishing trust in the initial stages is essential for achieving long-term success. This guide outlines the steps necessary for establishing consensus within your organization.
Validate the need
Schedule a meeting to discuss the drawbacks of the current approach. Refer to this guide or supplemental information from this blog to aid in the discussion. Gather representatives from finance, marketing, and sales (if applicable) to support the transition to a new methodology. Seek executive sponsorship from your CMO and other members of your executive team to finalize the initiative.
Plan the implementation
Once executive sponsorship is obtained, a phased implementation plan should be designed. Begin with the identification of the primary target metrics. Subsequently, design the details of a marketing mix model including the input metrics, cadence, and dimensions. Then, lay out your experimentation framework for paid and owned channels, including the scope and frequency of testing. Finally, align on how often you'll run forecasts and the methodology you'll use for scenario planning. An analyst and data scientist are required to carry out this planning successfully.
Execute the plan
Ensure that any changes are implemented gradually and cautiously. Maintain the current methods and procedures until you and your cross-functional colleagues are comfortable with the new approach. Don't underestimate the cultural impact of the transition.
When you are prepared, select a definitive cut-off date. Marketing Mix Modeling and experimentation results are unlikely to align with touch-based attribution. To avoid conflicting insights, it's necessary to commit to MMM and experimentation and discard touch-based attribution.
Once you launch, the real work begins. You'll gain invaluable insights into what works and what doesn't. It's essential to ensure that all cross-functional partners understand this and are committed to this process for the long-term.
Future proof your marketing measurement!
Change can be challenging, and we understand that there may be reservations about this newly implemented measurement methodology. However, after conducting primary research, expert interviews, and our own research and development, we're confident in the efficacy of this methodology, because it is, by far the best way to orient the organization around incrementality
Here are three reasons this is the obvious future of marketing measurement:
Scientifically sound. Academic research and practical application have shown that statistical and experimental approaches are vastly superior to touch-based attribution techniques.
The best companies already do this. Many leading marketing teams have already embraced this approach, including those in the consumer, retail, ecommerce, and B2B sectors.
Future proof. These methodologies aren't channel-specific, and their effectiveness won't be hindered by changes in media consumption habits, privacy regulation, or web technologies in the foreseeable future.
If you're interested in implementing this methodology at your business and need help, please reach out for a free consultation.
