Factor TG Answers All The Measurement Questions

Most of marketing performance measurement comes down to three key questions:

- what is the sales impact of marketing spending?
- what is the value of my brand?
- how should I allocate my marketing budget across channels?

Think of them as the CFO, CEO and CMO questions, respectively. Each question is conventionally answered by a different tool: sales impact is measured by marketing mix models; brand value is measured by brand valuation models; and channel programs are measured by return on investment. Although there is some connection among these tools, they are mostly separate. They are also unavailable to many firms because of high cost and extensive data requirements.

Factor TG takes a different approach, using a single tool to answer all three questions at once. I’ll spare you the suspense: their secret is online consumer surveys. These provide the critical information which is otherwise unavailable to measurement systems.

Specifically, Factor TG surveys identify customer demographics, the advertisements that customers have seen, how customer attitudes have changed as a result, and the relationships between customer attitudes and purchase behavior. With this data as a foundation, Factor TG can calculate the impact of different campaign components, such as advertising medium and creative, on immediate sales and long-term brand value for the individual consumers. It projects from this to the campaign as a whole by adding sales information from company records or third-party compilers and media planning information about campaign costs and audiences. As a result, it can provide clients with reports on:

- the return on investment of specific marketing programs,
- the near-term impact of marketing programs on sales, and
- the long-term impact of marketing programs on baseline demand (which is the functional definition of brand value).

Obviously it takes a fair amount of rocket science to make this all happen. Factor TG must find ways to reach the right audience for its surveys and craft the surveys themselves to capture the right information. Then it must build complex models to estimate how consumer attitudes translate into behavior. It must also correlate survey results with external sales and media information to make meaningful projections at the campaign level. Finally, it must build still more models to estimate the long-term effects of changes in brand attributes.

Some of this resembles traditional marketing mix and brand value models. But while traditional marketing mix models are based largely on spending levels, Factor TG captures a greater level of detail about each campaign, allowing it to measure the effectiveness of individual campaign components much more precisely. Similarly, traditional brand value models give largely static estimates of the importance of consumer attitudes, while Factor TG looks at the results of small changes in those attitudes. This greater detail lets Factor TG provide weekly reports on current campaigns so that marketers can fine-tune their programs in near-real-time. Because the reports estimate both short-term sales impact and changes in long-term base demand, marketers are able to optimize their spending along both dimensions simultaneously.

Of course, this approach has its limits. The most obvious is finding enough people who have actually seen the campaigns being measured. Surveys are easily attached to online campaigns, but otherwise FactorTG must use customer lists, consumer panels or other techniques to locate the 3,000 or so audience members needed for an adequate sample. According to Factor TG COO Margaret Coles, it usually takes an advertising budget of at least $10 million to generate an audience large enough to survey effectively. The threshold could be still higher for certain population segments, such as those over age 65 or lower income groups. When necessary, Factor TG will gather information through non-Web techniques such as personal interviews at events.

In addition, I am personally skeptical of the accuracy of survey data. Capturing attitudes is fairly straightforward, but Factor TG must also rely on consumers to report their purchases and advertising exposures, which they may not recall correctly. Sales and advertising data are critical links in the chain because Factor TG needs them to estimate relations between consumer attitudes, campaign exposures and business results. The focus on survey data also leaves out competitive and environmental factors such as advertising levels, promotions, distribution and over-all demand.

Factor TG largely rejects these concerns, arguing it has proven its techniques to skeptical clients many times. Regarding competitive and environment factors, the company says it could include them in its models but has not found it necessary. In fact, Coles said its models have less than 1% error, although I’m not sure exactly what that is measuring.

A more convincing argument may be that Factor TG needs only to be directionally correct, allowing companies to identify the stronger and weaker campaigns so it can reallocate funds appropriately. This allow continuous optimization of marketing spend even if the precise details are incorrect.

Factor TG also benefits from making very frequent measurements, which allows it to recalibrate it models on a regular basis and thereby keep errors to a minimum. This contrasts with conventional econometric (marketing mix) models, which rely on years of historical data. Of course, frequent readjustment may itself lead to errors if the model overreacts to random variations in behavior. But this is the sort of technical adjustment that Factor TG’s statisticians are no doubt very good at.

Factor TG introduced its approach about three years ago. Major clients have been in the automobile, pharmaceutical and consumer packaged goods industries, which sell through third parties rather than direct to consumers. The company has also done several dozen projects in retail, consumer electronics, hospitality, and financial services. Most clients are advertisers, with some ad agencies and publishers. Initial set-up takes about six weeks, most of which is spent understanding the client’s situation and validating Factor TG’s models with the client’s in-house researchers. Pricing typically ranges from 1% to 3% of the media spend depending on the data volume and complexity of the project. All processing occurs on Factor TG's servers, which clients can access for reports via a Web portal.