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Marketing expenditures comprise a large portion of operating budgets for consumer brands; expenditures that traditionally have not generated predictable returns, which introduces substantial risk to the business from future investment.
As such, businesses and marketing brand leaders need a strategy for allocating marketing funds to maximize value and consistently achieve revenue targets. Yet, they face uncertainty in determining how to allocate those funds, which leads to opportunity costs in under- or over-spending, difficulty forecasting and missed revenue targets.
This problem is amplified for marketers who rely on simple historical return on investment (ROI) measures. Historical ROI fails as a decision-making metric for myriad reasons, including:
- ROI is commonly a point estimate, ignoring uncertainty;
- It fails to capture the marginal value of an incremental investment; and
- It does not reflect potential future changes to the external economic environment.
Furthermore, many methods of calculating ROI rely too heavily on granular, person-level data that are compromised by walled gardens and security regulations.
During this presentation, we will present an approach that enables marketers to make better decisions about investment allocations by modeling the risks of their decisions with respect to revenue and optimal conditions. We will show how multiple scenarios for marketing investment can be compared, with an emphasis on evaluating returns versus risks to revenue forecasts and opportunity costs.
John Busbice is Co-founder and Chief Product Officer at Keen Decision Systems, a software company dedicated to helping marketers make better decisions about their marketing investment. Over the past decade, John has led the development of the company’s flagship product, MIDA, which leverages methods at the confluence of decision analysis, econometrics, operations research and finance.
Prior to co-founding Keen, John spent 10 years as a consultant and statistician working with pharmaceutical and consumer goods companies on problems such as identifying the value of marketing, optimizing marketing resources, pricing analysis, and forecasting. John has a Master of Business Administration from Washington University in St Louis and a Bachelor of Science in Business Administration from Appalachian State University.