One of the reasons cited for WPP plc’s revenue slow down and subsequent 13% drop in share price yesterday (after the full year results announcement) was the impact of “the short-term focus of zero-based budgeters, activist investors and private equity [….]”. We can all imagine companies cutting ad spend to meet short term profit and cash flow targets and this may bounce back if companies see revenues falling and/or market share losses as brands lose mindshare. However, if zero-based budgeting is done properly and is underpinned by a robust and accurate analysis of ROI for each component of promotional activity it may be that ad spend will fall further and the exploration of digital channels accelerate (see chart above). This is inevitable because zero-based budgeting, if done with the required analytical rigour, will reveal where promotional activity is simply wasted because the ROI is below zero. Few people doubt that that 30-50% of promotional spend is wasted but without smart analytics no-one knows which 30-50% to cut.
In high margin industries like pharmaceuticals the tendency has been to adopt a belt and braces approach just in case. Witness the rapid exploitation of digital promotional activities because technology allows it. In reality there are no guarantees that digital channels will boost sales. Indeed, some studies have revealed that digital promotion can confound the impact of traditional activities.
For digital to be effective or indeed to supplement some traditional channels we need to pass three practical tests.
1. Is our customer base homogeneous or, as some studies suggest, are digital responsive customers a completely different cohort or sub-group?
2. Do our digital activities reinforce and complement our traditional messages or in fact detract from and confound our traditional marketing efforts?
3. Are our digital activities producing an additional sales return or in reality are we lulled by the perceived cost advantages of digital into polluting our market with unwanted noise and in fact confusing or switching off our customers?
If zero-based budgeting is to have any meaning it must include analysis of all promotional activities, including digital. Not to do so is equivalent to launching yet another “have you got PPI initiative?” to an already overworked and increasingly sceptical customer base.
In conclusion, the shift to zero-based budgeting is welcome only if done in conjunction with rigorous analytics. The move towards digital channels of promotion is subject to exactly the same caveat. The pharmaceutical industry has an additional motive for considering zero-based budgeting; surely it cannot be seen to waste resources on unnecessary promotion when its product pricing to tax-funded payers is under so much scrutiny.
The author was a Pharmaceutical Analyst at Lehman Brothers for 23 years as well as being involved with the PharmaFutures projects www.pharmafutures.org but is now writing independently. Stewart Adkins is a Director of Pharmaforensic Limited www.pharmaforensic.co.uk a company that uses leading edge statistical methods to quantify the impact of promotional activity on sales.
A training programme on data organisation and visualisation within the pharmaceutical industry, that I shall be hosting with a colleague, has forced me to reflect on the current state of play within the commercial departments of pharma. Dashboards that display KPIs have become commonplace but I wonder whether the analytical engine that drives those KPIs is actually fit for purpose. The development of visualisation software has been positive but have the pretty dashboards given a spurious legitimacy to the analytics that underpin them. In other words have we become so obsessed with the visual output that we fail to question the robustness of the analytical input?
Observations from various commercial and data science conferences suggest that there remains a strong reliance on Excel as the analytical engine for many dashboards. Excel, while being an excellent spreadsheet package is not suitable for statistical analysis of most pharmaceutical data. The chart at the top of this article shows quite graphically, albeit stylistically, how one could generate strong correlation coefficients from a dataset and still get the wrong model. Exploration and visualisation of your dataset is necessary before your choice of model to apply to the data. Is this done routinely or have we become reliant on Excel and visualisation software to drive some of our most important and expensive commercial decisions?
If you are involved with this area can you answer a few simple questions to help shed more light data exploration? Your thoughts on even a few of these would be helpful.
1. What software do you routinely use in your office to present visualisations of sales and marketing data AFTER analysis?
b Power BI
d. some other visualisation package – please name
2. What software/techniques do you routinely use, if any, to visualise and understand your data before BEGINNING your analysis of sales and marketing data?
3. What are the five most common problems you have to deal with when starting your analysis of sales and marketing data downloaded from your CRM system?
4. How do you deal with data cleaning eg duplications of customer names.
5. What relationships between input variables (eg face to face calls, group lunches, clinical conferences etc) and sales per postal brick do you normally expect to see? Eg straight line, Vmax, exponential, s-curve, cubic, other polynomials?
6. What are your main frustrations with respect to providing/presenting data to senior sales and marketing management?
Stewart Adkins was a Pharmaceutical Analyst at Lehman Brothers for 23 years and was involved with the Pharmafutures projects.