How to Measure Market Response to Advertising

Member Lifetime Value (MLV) is a calculation used to understand the value of existing and potential members. Learn how this measurement can evaluate branding advertising and other non-direct marketing programs.

 

By

 

Measuring market response to advertising is different than measuring direct response, and can provide a way to understand difficult to track branding advertising and other non-direct marketing programs. Using a Customer Lifetime Value (CLV) calculation (or in the case of credit unions, Member Lifetime Value (MLV)) is recommended by Dr. Dominique Hanssens, Bud Knapp Marketing Professor at UCLA Anderson Graduate School of Management at UCLA. As presented at Market and Sales Logic’s recent media retreat, measuring MLV is a way to quantify and understand more than just the direct response to a marketing effort. It is a way to understand the value of an existing member, the value of a potential member, and a multitude of market factors impacting both, including different marketing and media channels.

Acquisition and retention marketing have several important benchmarks for measuring success. One of the most important is determining which marketing techniques yield the highest return on your investments (ROI) – not just the immediate ROI, but also the MLV, which affects the long-term worth of the credit union. Once those facts are uncovered, the marketing budget can be optimally allocated to increase revenues, profits and member lifetime value.

Ryan Zilker (RZilker@amerfirst.org), AVP of marketing for American First Credit Union in California, attended the MSL media retreat and applied Dr. Hanssens’ MLV formulas to member data shortly thereafter. The simple formula he applied for MLV is:

MLV = M/(1-r)

Where “M” is annual margin and “R” is retention rate. What he found was a quick way to monitor how MLV changes over time. Finding the delicate balance between the two variables is known as “optimizing.”

Astrid Rives (AstridR@FPCU.org), Manager of Marketing for Financial Partners Credit Union enlisted her executive team following the retreat to participate in a test pilot to employ MLV analytical software that will build an MLV model specific to Financial Partner’s marketing, financials, and member profile. Software developed at Dr. Hanssens' direction by Barbara Lewis and Dan Otto of MarQuant Analytics will be used for the test pilot. Already proven at large financial companies such as Wachovia and Allstate insurance, Financial Partners hopes to get a much better understanding of what media channels drive their MLV in order to optimize their marketing for 2005. Results of the pilot will become available in January of 2005 and a case study will appear in the January 31 edition of CreditUnions.com

Optimizing Marketing Spending Scenario:

Kristin Witzenburg is CEO of Market and Sales Logic, headquartered Southern California. Market and Sales Logic provides a cooperative network for credit unions to buy media together, resulting in bulk rate cost savings, leveraged campaigns, and individual credit union brand return. Market and Sales Logic has recently teamed up with Dr. Hanssens and former students and consultants Barbara Lewis, MBA and Dan Otto, MBA, co-founders of MarQuant Analytics, to bring the concept of MLV to credit unions in order to optimize media efficiency. Kristin Witzenburg can be reached at (310) 212-9950 or kwitzenburg@marketandsaleslogic.com.

 
 

Nov. 22, 2004


Comments

 
 
 
  • The customer equity approach optimizes on total long-term contribution and not ROI. Since we are using a diminishing returns to scalemarket response, the next dollar invested in marketing is not as efficient as the last dollar invested. The highest ROI occurs at the first dollar invested in marketing. You may make $0.75 on that dollar but $400,000 on a million is much more appealing.
    Anonymous
     
     
     
  • I don't understand the graph. It appears that the current return is better than the optimal return for each media channel. That doesn't seem right.
    Anonymous