The Age of Marketing Evaluation

Any money spent within an organisation or business requires accountability to the various stakeholders (Ewing 2016), thus marketing expenses are viewed as an investment that pays returns, although many marketers oppose this concept (Ewing 2016). As John Wanamaker so accurately put it “half the money I spend on advertising is wasted; the trouble is I don’t know which half”. So finding out what works and what doesn’t will assist marketers in determining best value for money marketing (Sharp, B. 2013). So how you ask? In the following we will take a look at various marketing metrics used to evaluate marketing success, and relate them to the success of Lego’s marketing initiatives.

Financial Metrics

Financial metrics include profit contributions, profit margins, return on investment (ROI) and Customer Life Time Value . These measures aim to show the financial benefit of marketing. Return on investment is the most popular of these metrics and the definition is clearly understood through the following equation:

ROI = (Returns – Investment)/Investment

So basically if we were to assume that Lego invested $1 billion on their marketing mix then their ROI would have been $6.2 on every $1 spent on marketing in 2003 (refer figure 1). However, in 2013 their ROI would have been much more attractive at $24.4 on every $1 spent.

Figure 1: Finiancial Metric – Sales Revenue/Profit Contribution

The main flaws of ROI is that it fails to show the value of marketing on retaining existing market shares (Sharp 2013). ROI does not tell us what would have happened without marketing. Ambler and Roberts (2008) argue that marketing is like a maintenance item such as cleaning or gardening. It is something that is a need and therefore not an investment.

Furthermore, smaller marketing campaigns tend to yield a better ROI ratio as opposed to larger marketing campaigns (Sharp 2013). However larger marketing campaigns yield larger overall profits; which is what shareholders require. Therefore using ROI as a measure leads to marketers using smaller marketing campaigns.

Additionally, ROI depicts marketing campaigns that target existing customers as being more successful than campaigns that target new customers. A successful business must target both new and existing customers, however ROI measures may discourage marketers from attracting new customers (Sharp 2013).

Another issue with ROI is that it is generally calculated on an annual basis. In some cases, marketing campaigns don’t yield returns until many years into the future. For example, Lego invested heavily into the marketing of “Lego Factory” in 2005 however they only reaped the rewards from this investment from 2006.

Buying Behaviour Metrics

Buying and Behaviour Metrics aim to discover what customers do. Some of the metrics include: sales, market sharmarket share, market penetration, purchase frequency, share of category requirements (SCR), Solely (100% loyal customers), Retention rate, Customer complaints and recommendations. Figure 2 below shows Lego’s success with regards to their market share.

Figure 2: Buying Behavior Metrics – Revenue

It clearly depicts that the marketing campaigns conducted in 2002-2004 did not reap rewards until 2007. By 2012, their revenue and market share was ahead of Hasbro. Furthermore, during the recession of 2008 Lego maintained their expenditure on marketing. This expenditure is what saw them grab a large market share during this tough period. Theory suggests that maintaining expenditure on marketing during tough economic times actually benefits the company in the long term (Ewing 2016). However, in business the opposite occurs; marketing is still top of the list for funding cuts during tough times (Ewing 2016).

Memory Metrics

Memory metrics aim to discover what customers think and feel about a product or brand (Sharp 2013). This includes: brand awareness, brand image associations, mental availability, attitude, customer satisfaction , service quality, intention to buy and recommendation. The primary source of these metrics is via the use of surveys. Although it is noted that it may not be all that accurate because people don’t always report what they do.

LEGO undertook such a survey after the re-launch marketing campaign of their “Star Wars” sets. The main event of this marketing campaign was organised in Time Square New York where Lego promised to revel a secret. Leading up to the event kids and their parents were encouraged (with the use of prizes) to visit stores or use their own LEGOs at home to construct whatever they thought was the secret. Clues were given away on the “Yoda Chronicles” mobile app, Facebook, Lego YouTube Videos and adds that ran on the cartoon network. Once they constructed what they thought the secret was they were asked to post photos of it on Lego’s microsite. This made the kids become part of a digital nurturing stream in which the company could continue to engage with them until the time of the big reveal (O’Loughlin 2014).

This process revealed key memory metrics as follows:

• 66% of consumers unfamiliar with the “Yoda Chronicles” were aware of it by the end of the campaign (brand awareness)
• 56% said they were likely to purchase LEGO after the event (intention to buy)
• 90% said they would share the experience with friends and family (recommendation)

(O’Loughlin 2014)

Financial metrics later revealed the following:

• 43 % rise in sales of the LEGO “Star Wars” line month over month after the event
• 3% increase in sales

(O’Loughlin 2014)

Customer profile metrics

Customer profile metrics are used to identify who the customer is. This includes things such as age, gender, income, location etc. (Sharp 2013). Lego was able to gather this information by having customers log-in to the microsite such as the one mentioned earlier. In turn this information assisted marketers in segmenting targeting and positioning (Lacobucci, 2014).

Lego was gathering this information for a long time and not only from the above event (Ringen 2015). This is why they added products such as DUPLO, LEGO and FRIENDS which are catered for young females. This in turn was a major reason as to why Lego was able to increase its market share (Ringen 2015).

Marketing behaviour metrics

Marketing behaviour metrics refer to the documentation of a company’s marketing activity and its competition. This will allow the company to understand what works and what doesn’t for making  better informed decisions about their future marketing activities. It is evident from the Ashcroft 2015 case study that Lego have stored marketing information over time; some of which are available to us and evaluated by others as shown in this site, this site and even this site.

Physical Availability

Refers to how easy it is for a customer to purchase a product or item. In the case of Lego it refers to whether the item is in stock and readily purchased from outlets regardless of where in the world you are. Lego have worked hard at ensuring supply meets demand by increasing their production facilities as shown in figure 3 below. Furthermore, numerous Lego Lands across the globe act as a point where kids can come and enjoy the Lego experience.

Figure 3: Physical Availability – Increasing production capacity

Conclusion

It is clear that Lego have evaluated their marketing strategies and know what works well for them, such as the advertisements below. Their success over the past 10 years is proof of this effort. However, the world is continuing to evolve and so is the competition. As such it is imperative that Lego continue to evaluate the success of their marketing campaigns so that they can continue to make good marketing decisions into the future.

 

By: Mayuraj Chandrakaran (212530654)

 

References

Ambler, T, & Roberts, J 2008, ‘Assessing marketing performance: don’t settle for a silver metric’, Journal Of Marketing Management, 24, 7-8, pp. 733-750, Business Source Complete, EBSCOhost, viewed 2 October 2016.

Anon, 2016. [online] Adespresso.com. Available at: <https://adespresso.com/academy/blog/lego-content-marketing-experience/&gt; [Accessed 2 Oct. 2016].

Anon, 2016. 7 Secrets to the Lego Marketing Campaigns … Effective Marketing?. [online] Digital Spark Marketing. Available at: <http://digitalsparkmarketing.com/lego-marketing-campaigns/&gt; [Accessed 2 Oct. 2016].

Ashcroft, J., 2015. The Lego Case Study 2014. [online] The Lego Casestudy. Available at: <http://www.thelegocasestudy.com/uploads/1/9/9/5/19956653/lego_case_study_2014.pdf&gt; [Accessed 2 Oct. 2016].

Kolowich, L., 2016. Building a Playful Brand, Brick by Brick: The History of Lego Marketing. [online] Blog.hubspot.com. Available at: <http://blog.hubspot.com/agency/history-lego-marketing#sm.0000j4a2nj71zfocrfg2j34kq4wv4&gt; [Accessed 2 Oct. 2016].

Lacobucci, 2014. Marketing Management. 4th ed. Mason OH USA: Cengage.

Mike Ewing, MPK732 Marketing Management, Deakin University, lecture 10, September 2016

O’Loughlin, S 2014, ‘THE MEASURE OF SUCCESS’, Event Marketer Magazine, pp. 50-54, Business Source Complete, EBSCOhost, viewed 2 October 2016.

Ringen, J., 2015. How Lego Became The Apple Of Toys. [online] Fast Company. Available at: <https://www.fastcompany.com/3040223/when-it-clicks-it-clicks&gt; [Accessed 2 Oct. 2016].

Sharp, B. (2013) Marketing Metrics Marketing: Theory, Evidence, Practice. Oxford University Press, Melbourne, Australia.

The Price of X

I remember struggling to wind up the windows in my dad’s old Toyota Corona and asking him “why don’t we have a car that has those electric windows” and my dad replied with “those are expensive cars and we can’t afford them”. From then on I associated these expensive, innovative and high quality cars with brands such as Mercedes Benz and BMW.

Come 2016, there is a new player in this segment; the all-electric Tesla. Tesla brought the first commercially successful electric car to the Market. They currently sell 2 models and are about to release the third; the Tesla X.

The Consumer

Tesla have positioned themselves as a premium (luxury) car manufacturer (Tesla 2016) with the rare benefit of being completely electric. The electric car consumer is summarised below:

• Urban and suburban lifestyle with a home and garage
• 84% men
• 51% aged 45-64 and 33% aged 18-44
• Educated – 43% of users have post graduate degree vs. 25% of gen market
• High Income – 77% of buyers with income over 100K (US)
• Concerned about environment and effects of fossil fuels
• Only drive short distances, less than 100 miles per day
• 5% were previous Toyota owners (25% including Lexus)

The company is positioned in the industry as follows:

Figure 1 – Tesla Positioning

Pricing Strategy

In the following we will take a look at the pricing strategy around the Tesla X. The first aspect to consider is selecting the pricing objective and it is clear that Tesla’s objective for the model X is “Product – Quality leadership”. The model X is a Luxury SUV and its segment rival prices are shown below in table 1. As additional features are added to the vehicle the prices increase as expected. The model X starts at a price range that competes with its competitors but also extends to prices beyond its competitors.

Table 1 – Tesla Model X vs Competitors

Figure 2 – Tesla Model X Positioning

Based on the above table the pricing strategy employed by car manufacturers in this category is known as Value Pricing. This is where the perception of value determines the price and not the cost. Price is set by customers’ willingness to pay, minus markdown (Lacobucci 2014). This is generally used in situations where the demand is inelastic as illustrated in the figure below. The inelastic graph shows that as we vary the price from P1 to P2 or P3, there is no significant change is quantity sold i.e. Q1 Q2 Q3. However, the elastic graph shows that changing the price from P1 to P3 significantly changes the quantity sold. Only a small change in price P1 to P2 equates to a small change in quantity.

Figure 3 -Price Elasticity

Furthermore, it can be argued that it is far easier to raise the price as opposed to lowering the price because it meets the expectations of the luxury consumer. This is because consumers will perceive a reduction in price as a reduction in quality/value and harm the brand (Scholz 2014). Therefore, luxury cars reducing their price may actually cause a reduction in Quantity.

Thus the high end strategy is the most appropriate strategy to use for Tesla due to a number of reasons as outlined below:

Like Tesla’s other vehicle; the model X is a great product that cannot be compared to other vehicles. It’s as fast as a sports car, yet as spacious as a SUV and as energy efficient as a motorbike. Customer benefits are optimised not sacrificed in this vehicle and as such a high price is appropriate (Furtwengler 2010).

Their target consumer is the high income individuals with a lot of money to spend. These individuals in general are prepared to pay more to get the best quality product. This can be as a personal function of self-fulfilment to reward oneself. It can also serve a social function of bringing prestige and social esteem to the owner (Scholz 2014).

Telsa’s most expensive model of the X is far more costly than any of its competitors. This gives the customer the image that Tesla have a vehicle that is far superior to all other vehicles and positions them as a more luxurious vehicle than its competitors.

Furthermore, Tesla have a fixed price on their cars, there is no negotiation. As such there is no feeling of remorse from customers once the purchase is made. This lack of discrimination, helps build a loyal customer base.

The Future

Tesla are at the early stages of their life cycle and currently positioned as a luxury car producer. It can be argued that this is mostly to do with their production capacity at present. Their actual company motto is: to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to consumers as soon as possible. This could potentially mean prices may drop in the future when they are able to mass produce, thus appealing to a larger customer base. However, how this transition is made successfully, is yet to be seen.

By: Mayuraj Chandrakaran (Raj)

References

Furtwengler, D 2010, Pricing For Profit : How To Command Higher Prices For Your Products And Services, n.p.: New York : American Management Association, c2010., DEAKIN UNIV LIBRARY’s Catalog, EBSCOhost, viewed 17 September 2016.

Iacobucci, 2014. Marketing Management. 4th ed. Mason OH USA: Cengage.

Scholz, La 2014, Brand Management And Marketing Of Luxury Goods, n.p.: Hamburg, Germany : Anchor Academic Publishing, 2014., DEAKIN UNIV LIBRARY’s Catalog, EBSCOhost, viewed 17 September 2016.

Greenwashing Developments

The other day I came across an article that spoke of a new residential development on the outskirts of Melbourne’s CBD. Located in Yarra Bend, this 16.46Ha development will be home to 2,500 new residences upon completion. The homes would range in price from $1.48M to $2.1M and will be constructed by the developer Glenvill.  Apart from being discouraged on ever being able afford a family home close to the city, the thing that caught my eye was the “Green Marketing”.

As an environmental engineer working in the development Industry, I wanted to find out if this was an authentic green development or if Glenvill were conducting some sort of “Greenwashing”. Greenwashing is defined as the act of making consumers perceive an organisation as being environmentally sustainable without actually being so. It is something that happens all too common in the world these days and it really irritates me to put it in a nice way. Examples include Coco-Cola green can, BP logo re-design, clean coal and many more.

The Green Customer

Environmental issues have been of greater concern to consumers since the 1990s – the decade of the environment (Jenkins Kähler 2015). These consumers want to do the right thing and make purchases that are environmentally sustainable. Segmenting to this customer is a form of psychological segmentation.

Let’s face it, unless you have been living behind a rock like Tony Abott, the “Green” consumer is only growing in volume, presence and stature. Firms that do not produce green products and services will risk losing credibility in the eyes of many consumers. On the other hand, firms that do use green marketing strategies will be able to take advantage of environmental consumerism (Finisterra do Paço, Barata Raposo & Filho 2016 p17-25).

Market research shows that half of consumers are willing to pay a premium for “Green” products (Jenkins Kähler 2015). There has also been many other successful sell out of other green developments such as the Commons, Nightingale and Mullum Creek. Furthermore, corporations discovered that they could create loyal customer bases by exceeding regulatory compliance and becoming environmentally proactive (Jenkins Kähler 2015).

Targeting Green Consumers

Based on the above, it was clear that Glenvill have decided to target the high end, “green consumer” segment of the market. They have attained this via numerous Green aspects to this development as listed below:

• Low energy lighting and appliances
• Solar panels with Tesla Powerwall batteries.
• Rainwater tanks for re-use
• Water efficient appliances and fittings
• Compost bins
• Interconnected bike paths
• Charging stations for electric cars
• Brownfields development, i.e. building over an existing development. Thus it’s not being built over an existing forest or grassland and destroying natural habitats.

The above will result in water reduction of 43%, landfill reduced 80%  and the potential to reduce energy use by 34%. Based on this an independent body, the UDIA has marked it as the most environmentally sustainable development in Australia; rewarding it the highest possible rating under the EnviroDevelopment Scheme.

Green Product Leader

Thus Glenvill’s have positioned their Yarra Bend development and themselves as a Product Leader. A company that prides themselves on quality and innovation (Iacobucci 2014). This is also evident from the fact that the houses being sold in this development are priced at $1.48M to $2.1M compared to its surrounding area where house values are on average $1.285M. This positioning also stands true to their corporate vision as follows: “Glenvill Homes create inspired homes that are defined by their aesthetic sensibility, quality of finish and purity of vision”

Alternative marketing strategy such as one that lead to a positioning of customer intimacy could have worked well for them. This is one where the company tailors their product to particular customer needs. Thus customers could have chosen to have the sustainable items listed above or not. Another option would have been operational excellence, however this would not have been an ideal positioning for the company. This is because the it does not line up with the company vision, nor the high end suburb profile.

Time will tell as to how successful this development actually is with regards to positioning themselves in this manner. In the past, some developments achieved high ratings in design stages, however a lack of follow through during construction meant many fell short. Hopefully Glenville can follow through, otherwise they could face monetary penalties let alone a hit to their reputation.

Published By: Raj Chandrakaran (212530654) for MPK732 – Deakin University

 

References

“Fears Of ‘Greenwashing’ In Property Developments”. Domain. N.p., 2016. Web. 6 Aug. 2016. http://www.domain.com.au/news/sustainable-developments-in-question-as-offtheplan-buyers-get-greenwashed-20160722-gq8qw7/

Finisterra do Paço, Arminda M, Mário Lino Barata Raposo, and Walter Leal Filho. “Identifying The Green Consumer: A Segmentation Study”. J Target Meas Anal Mark 17.1 (2009): 17-25. Web. 6 Aug. 2016. http://link.springer.com/article/10.1057%2Fjt.2008.28

Iacobucci, D., 2014, Marketing Management (MM4): Student Edition, South-Western: Cengage Learning, Mason.

Jenkins, A, & Kähler, K 2015, ‘Green marketing’, Salem Press Encyclopedia, Research Starters, EBSCOhost, viewed 5 August 2016.

Johanson, Simon. “Melbourne’s First Tesla-Town Built In Mega Alphington development”. The Sydney Morning Herald. N.p., 2016. Web. 6 Aug. 2016. http://www.smh.com.au/business/property/melbournes-first-teslatown-to-be-built-in-mega-alphington-development-20160729-gqgr0w.html

Scott, K., 2016, Paying more for milk could save struggling dairy industry: farmer says. [Online] Available from: http://www.abc.net.au/news/2016-05-17/how-consumers-can-help-farmers-during-the-milk-price-crisis/7420644 [Accessed 2nd August].

“Solar-Powered ‘Tesla Town’ Coming To Australia”. Domain. N.p., 2016. Web. 6 Aug. 2016. http://www.domain.com.au/news/solarpowered-tesla-town-coming-to-inner-melbourne-20160721-gq9nbh/

“World’s First ‘Tesla Town’ Coming To Australia”. EcoWatch. N.p., 2016. Web. 6 Aug. 2016. http://www.ecowatch.com/worlds-first-tesla-town-coming-to-australia-1932026880.html