The DoubleThink » optimization

The US Census – Mother of all Surveys

Dimitri — Wed, 23 Jun 2010 21:56:38 +0000

Imagine this – a Census worker walks on dirt road deep in the woods somewhere in North Michigan. After half an hour she reaches a bungalow, the 1^st sign of life she’s seen in a while. Just as she pulls out her new 2010 Census form she sees a bag hanging from the doorknob. In it she finds a Census from 2000 … .

This is the story Dr Robert Groves used at the beginning of his presentation at the ARF Audience Measurement Conference in NY yesterday. He runs the US Census Bureau, the government bureau in charge of surveying every household in the US once every 10 years. The Census is used to obtain the vital demographic statistics that are necessary for government planning. Dr Groves’ story and subsequent presentation showed that it is probably one of the biggest logistical exercises in the world.

The scale of the operation is pretty incredible. The government sends out the questionnaires to 140 million households and looks for a 100% completion rate. In this year’s Census 72% of the US households mailed their survey back. That is the same response rate they had when they did the last census 10 years ago. Any direct marketer would dream of having response rates at the same level of 10 years ago so this was a phenomenal achievement. A 1% drop in response rate would have cost the Government $80 million. This is because if you don’t respond by mail, they will send around someone to your house to ask you to fill out the questionnaire. They have a small army of 600k census workers following up on the 47 million households who didn’t respond. This in-person follow-up visit costs the government on average $57. (This includes the costs of handling the 300 assaults on census workers committed by anti-government minded non-responders!). The cost of a response by mail is only 42 cents so with these economics it became crucial for Dr Groves’ team to drive up the response rate.

They did this in a number of ways. First they made the questionnaire shorter which always drives up response rate. Then they added 2 touches to their communications cadence. They sent out a pre-announcement card before the questionnaire was sent and they sent out an extra reminder after the 1^st questionnaire was sent. This apparently consumed the entire printing capacity of the US!! They also paid a lot of attention to language. The questionnaire came in 6 languages and they had completion guides for an additional 59 languages! They also activated 250 thousand grass roots organizations who would work in the local communities to ask people to fill out the questionnaire. This according to Dr Groves was one of the main contributors to the high response rate.

Then they did a marketing campaign which cost them $350 million, an investment they could easily show the positive ROI of (all they needed to achieve break even was a 4% increase in response rate …). This was a fascinating campaign, perhaps the biggest multicultural campaign ever. It included a K-12 campaign designed at informing children of immigrant families about the Census. These children are often the 1^st to learn English in the household and can therefore be the main influencers. The campaign was run by a consortium of ethnic agencies who had to buy media in 28 languages, including Farsi, Armenian, Uruguayan etc. I saw Khmer videos, Indonesian outdoor ads and native Hawaiian posters. I have never seen localization at that scale.

Equally impressive was the use of real time tracking, modeling and optimization. Dr Groves’ team implemented daily tracking studies and performed statistical analysis every night to determine the effect of their media investment on awareness and behavioral intent. This allowed them to identify pockets of the population that were lagging behind. 18-24 year olds were an example. They tend to think the Census is not for them – that it is only for old people … . The team saw this very quickly and acted immediately by sending out targeted messages and by activating grass roots organizations. Dr Groves said the government saved 100’s of millions of dollars through real time tracking and optimization.

At the end of the presentation we got a sneak peak at some early results. The big trends shouldn’t come as a surprise. The population will grow from 309m to 439m in 2050. 20% of all households will be over 65 years old in 2050. There will be significant growth in the Hispanic population from 8% in 1980 to 30% in 2050. The Asian population will grow significantly as well. Apparently 47% of the national fertility in the next decades will come from minorities. We could also see the emergence of a bi-modal income distribution with an increasing gap between 90th and 10th income percentile – $138k vs $12k.

The US Census is a remarkable project. In terms of scale it is maybe only rivaled by the Indian Census which, as I found out on my trip to Bangalore last week is scheduled for the first time in 2011. Imagine surveying a billion people, a large portion of which live in remote, underdeveloped rural areas. I wouldn’t want to be in charge of that job!

How much should you spend on marketing?

Dimitri — Wed, 20 May 2009 15:46:46 +0000

A couple of weeks ago, McKinsey came out with the results of their study on “Measuring Marketing”. In one of their questions they asked whether companies planned to change their marketing budget in the next 12 months. The results are displayed below.

While the overall picture is negative, I was surprised by the spread of these answers. 45% of the companies were planning on reducing their budgets, 27% had no changes planned, 20% of companies were planning on increasing their budget and 9% didn’t know. What is driving these widely different investment strategies? I would like to think that they are the result of thorough analysis and deep understanding of what the effect is of different marketing investment levels on business performance. However, something tells me this is probably not the case.

The truth is that very few companies understand the business impact of spending more or less on marketing. When it comes to setting the marketing budget, most of them use very arcane and rudimentary methods to make multi-million dollar investment decisions. Below is an overview of some of the most popular methods. It’s a long list but it’s by no means exhaustive (if you know of any other articles please post them below). I do think it captures most of the methods companies use today.

1979 – Harry’s Rules

Exactly 30 years ago Harry Henry published an article in the Cranfield Broadsheet that described 15 approaches to determine how much to spend on advertising. They are :

1. Intuitive / rule of thumb – “enough to do the job” based on experience

2. Maintaining previous spend, sometimes inflation adjusted

3. Percent of previous sales – backward looking, compounds failure (or rewards success)

4. “Affordable” – what’s left after cost and profit requirements are met

5. Residue of last years profits – focuses on source of funds, not their use

6. Percent of gross margin – begs question of cost efficiency

7. Percent of forecast sales – most common method used

8. Fixed cost per unit of sales – like % of turnover

9. Cost per customer/capita – mostly business to business

10. Match competitors – assumes they are right

11. Match share of voice to brand share – like the above

12. Marginal return – direct response approach

13. Task approach : define objectives and cost out how to reach them – best in theory but may require modeling

14. Modeling – the most sophisticated approach: not easy

15. Media weight tests – looks empirical but usually difficult to evaluate or replicate.

Ten years later, Simon Broadbent included a very similar list in his book The Advertising Budget (1989).

2003 – Harry’s Rules Revisited

In 2003 Gullen wrote an article in Admap where he introduced 5 steps to effective budget setting. He categorized the budget setting approaches in 5 independent schemes or “budget bearings” as he calls them :

1. Inertia bearings based on usual practices (ie last year’s budget maybe adjusted for inflation)

2. Business bearings based on sensible ratios within the business plan (eg affordability, advertising to sales/volume/margin ratios)

3. Media bearings based on the cost of fulfilling a sensible media plan (eg. Cost of media plan to achieve goals)

4. Competitive bearings based on the spend of competitors (eg match share of voice to share of market)

5. Dynamic bearings based on the observations of apparent effects of previous advertising activity (eg. in market tests, econometric modeling)

2004 – Harry’s Rules Revisited again

In 2004 Dyson wrote another Admap article on “How to budget better”. He outlined 7 categories of methods :

1. percentage of sales : the ad budget is a proportion of last year’s actual sales, or next year’s forecast sales

2. objective and task : objectives are set (turnover, profit, growth) and the budget required to meet these objectives is estimated

3. competitor : the amount spent by competitors is used as a yardstick; a version of this is the well-known rule of thumb that share of voice should be at least equal to share of market

4. affordability : the budget is the amount left after everything else has been accounted for

5. historical : do the same as last year, with an adjustment for inflation

6. executive judgment : basically guesswork, but probably an informal use of one or more of the above.

7. brand led : a more scientific approach that uses research data and econometric modeling.

2006 – Harry’s Rules Revisited one more time

Finally in 2006 Green published an article on “How much should I spend on advertising?” on WARC. He said that there are roughly 2 categories:

1. Task based approaches that start with the financial goals of the brand (eg rules 1-11 in Harry’s list).

2. Resource based approaches that start with what resources are available or assume that what a company has been doing in the past will work in the future brand (eg rules 12 and 13).

As you can see, the methods for setting the marketing budget haven’t really changed in the last 30 years. Dyson quotes research that shows that “advertising as a percentage of sales” is by far the most popular methodology (53% of companies seem to use this approach). That is scary! But it confirms my personal experience. Scientific methods, some of which have been around for a long time and are tried and tested, often seem to play only a very small part in the budget setting process. Marketers tend to stick to the methods they know, even if they know they might be over-simplistic or even wrong.

Will the current recession force them to adopt more scientific methods? I think it will. It has put the spotlight on the marketing budget and there is no place to hide. But over the last 30 years marketers have created some bad habits that might prove to be hard to break.