optimal marketing

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Optimal Marketing

by Marcel Corstjens and Jeffrey Merrihue

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Harvard Business Review

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The Idea in Briefthe core ideaThe Idea in Practiceputting the idea to work

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Article Summary

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Optimal Marketing

A list of related materials, with annotations to guide furtherexploration of the articles ideas and applications

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Further Reading

Samsung spends a billion dollars a year on marketing. Heres how it knows its putting every dollar in the right place.

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Optimal Marketing

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The Idea in Brief The Idea in Practice

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To build a leading brand, you must invest your marketing funds wisely. For global consumer-products companies, those in-vestment decisions are especially difficult.

For example, how do you compare the po-tential ROI from marketing pain relievers in Germany versus shampoo in the UK? And even if you succeed in identifying the highest ROI opportunities, how do you en-sure they get the lions share of your global marketing budget?

Do what Samsung did, say Corstjens and Merrihue. With $1 billion to spend annually on marketing worldwide, the company rig-orously analyzed data to identify category/country configurations promising the best returns. It then reallocated funds from low-ROI configurations to high-ROI ones. And it overcame managers resistance to reallocations by making a compelling case for change and adjusting managers perfor-mance expectations to align with their units projected profit potential.

By knowing where to put every marketing dollar, Samsung became the fastest-growing global brandboosting annual sales 25% between 2001 and 2002.

Corstjens and Merrihue recommend these guidelines for maximizing return on your global marketing investments:

ANALYZE THE DATA

To allocate your marketing dollars wisely, compare the growth prospects of diverse categories in diverse countries, and the growth prospects of countries themselves. Product-category statistics include penetra-tion rates, market share, profitability, media costs, and competitor dynamics. Country statistics include population level, per-capita GDP, and growth forecasts.

Example:Samsung placed its category and country data in one easy-to-access marketing re-pository called M-Net. It then built pre-dictive models to identify where and how todays marketing investments would yield the highest future returns. Through simulations, it tested a variety of market-ing allocation scenarios.

LOOK FOR ROI/RESOURCE MISMATCHES

Use your data analysis to uncover mismatches between the amount of marketing support some product/region configurations receive and those configurations relative growth and profit potential.

Example:

Samsungs M-Net revealed three mismatches:

Overinvestment in North America and Russia. These regions got 45% of the com-panys global marketing budget, yet their profit potential merited 35%.

Underinvestment in Europe and China. The regions received 31% of the global budget but merited 42%.

Overinvestment in three product cate-gories. Mobile phones, vacuum cleaners, and air conditioners got more than half of

Samsungs total marketing budgetstarving categories like DVD players and refrigerators of support they needed to realize their significant growth potential.

These mismatches were threatening tens of millions of dollars in future profit growth. To correct them, Samsung decided to reallocate $150 million of its marketing budget from more mature categories and regions to those offering major untapped potential.

OVERCOME RESISTANCE TO REALLOCATION

Most category and country managers will per-ceive a reduction in their marketing budget as a vote of no confidence, no matter how clear the logic behind it. Moreover, they will likely argue that a reduction would undermine their ability to succeed. To get them on board with your reallocations:

Dont rely on robot reallocation. Consider managers experience, insight, and intuition before making changes. And involve them in the decision process: youll help minimize their resistance.

Personally meet with all managers who would be affected by your reallocations. Present the case for the companywide ben-efits of reallocating marketing resourcesin terms of increases in overall profitable revenue growth, margin, market share, and share price.

Set lower targets for managers who will be losing funds and higher targets for those gaining resources.



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Optimal Marketing

by Marcel Corstjens and Jeffrey Merrihue

harvard business review october 2003 page 2

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Samsung spends a billion dollars a year on marketing. Heres how it knows its putting every dollar in the right place.

When Eric Kim, executive vice president ofglobal marketing operations for SamsungElectronics, joined the company in 1999, heaccepted a daunting challenge: build the Ko-rean manufacturers brand into a force thatwould rival industry leader Sony in revenue,prot, and prestigewithin ve years.

It wasnt going to be easy. At that point,Samsung was arguably the biggest consumerelectronics maker that consumers had neverheard about. The company had competed forthree decades mainly as a behind-the-scenessupplier of computer monitors and semicon-ductors to more powerful multinationals. Evenas it increasingly went to market with its ownbranded PDAs, mobile phones, and DVD play-ers, Samsung was considered a low-cost pro-vider, with low visibility to match. Kim neededto make Samsung a household word, and onesynonymous with innovation and quality.

He was given a marketing budget of a billiondollarsa great deal of money but, consider-ing how many regions and product categoriesthat sum had to support, not an endless supply.

Kim and his team would have to ensure thatthe companys budget allocation would reapmaximum returns on each dollar spent, whichwould mean devoting relatively more marketingresources to opportunities that offered signi-cant near- and long-term potential return oninvestment, and less to opportunities thatwere bound to generate lower ROI.

But thats an extremely difcult feat in aglobal-scale company. For example, one typicalmultinational consumer-products manufac-turer, Johnson & Johnson, currently sellsproducts in 180 categories in 250 countries. Tounderstand where its wasting marketing moneyand where its resources could be put to betteruse, Johnson & Johnson would have to gathercritical data on some 45,000 different productcategory-country combinations (for instance,pain relievers in Germany and shampoo in theUnited Kingdom). On a smaller scale, confec-tioner Mars sells products in 12 different catego-ries in 138 countries, and networking-equipment manufacturer Cisco Systems sellsproducts in 11 categories in 125 countries.



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Samsung faced a similarly complex chal-lenge. Selling 14 product categories in morethan 200 countries, the company had to op-timize its marketing investment across 476category-country combinations.

This is the story of how Samsung solvedthat problem. Undertaking an intensive 18-month project, the company gained theability to determine accurately which mar-kets should receive precious resources andwhich shouldnt. It created the processes andachieved the organizational buy-in to actswiftly on that determination. In short, itbegan earning maximum return on itsmarketing investment.

Sizing Things Up

As Samsung began the process of evaluatingwhere its marketing resources should be in-vested worldwide, the rst barrier it faced wasan information decit. Management neededto compare not just the growth prospects ofdiverse categories in diverse countries, butalso the growth prospects of the countriesthemselves, a Herculean task. Samsungwould need to analyze critical country-specicstatisticslike population level, GDP per capita,and growth forecastsas well as category datalike penetration rates, market share, profitability,media costs, and competitor dynamics.

In most companies, information like thiscan be found only by searching across manydepartments, categories, and countries. Insome companies, critical pieces of data cant befound at all. That was the case at Samsung.Data were collected sporadically and analyzedeither exclusively within a country to comparecategories or exclusively within a category tocompare countries. Kim had signicant in-fluence in determining product categoriesand countries marketing budgets, but 14Seoul-based category managers made the spe-cic decisions about how category funds wouldbe distributed to individual regionsand eachregion had its own methods of collecting andanalyzing data.

With little, if any, standardization of data,Samsung couldnt make valid comparisonsacross regions. There was no way to determine,for instance, how potential sales of DVD play-ers in the United States stacked up againstpotential sales of camcorders in Japan. Ithad information for fewer than 30% of thecategory-country combinationsand even this

information was diffuse. Getting to thepoint where the company could make ap-ples to apples comparisons across catego-ries and countries required a systematicand aggressiveeffort to collect, cleanse, andharmonize data.

Samsungs goal was to place all the data formaking informed allocation decisions in a sin-gle easy-to-access site: an innovative marketingrepository called M-Net. The company gath-ered critical data for each region in which itoperated (for single large countries, such asAustria and Switzerland, or regions that con-sisted of smaller, related countries, such as theBaltic countries of Latvia, Estonia, and Lithua-nia). The data included:

Overall population and population oftarget buyers;

Spending power per capita; Per capita spending on product categories; Category penetration rates; Overall growth of categories; Share of each of the companys brands; Media costs; Previous marketing expenditures; Category protability; and Competitor metrics.Samsung also collected benchmark data,

which would help the company compare itsspending with minimum industry investmentthresholds in each country and for each typeof media (television, print, radio). Finally, Sam-sung tapped its internal expertsbrand manag-ers, category managers, and the likeandfound ways to represent and catalog the knowl-edge they had accumulated over the years.

Simply gathering all this information was aformidable task, and that was only the begin-ning of the process. Samsung still had tomake sense of ita tall order given the sheervolume of data, the relationships that hadto be accounted for, and the number ofvariables involved. And the company had notundertaken this data collection simply to get asnapshot of its current opportunities and allo-cations. It wanted to be able to evaluate allpotential allocation scenarios that might yield ahigher return on investment.

Clearly, the complexity of the task was be-yond the computational powers of the humanbrain. The next step, then, was for the com-pany to build reallocation technology intoM-Net to facilitate managers analysis of thedata. Using analytic engineswhich could

Marcel Corstjens

is the Unilever Chaired Professor of Marketing at Insead in Fontainebleau, France, and a founder and director of Inseads Ad-vanced Consumer Goods Strategy program for senior executives. He is the coauthor with Judith Corstjens of Store Wars: The Battle for Mindspace and Shelfspace (John Wiley & Sons, 1999). Jeffrey Merrihue is a global manag-ing partner in Accentures marketing sciences practice in London.



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draw relevant historical data from Samsungscorporate systems, including past sales vol-umes and revenues by product and by countryfor the past ve yearsSamsungs marketingexecutives were able to conduct comprehen-sive, in-depth analyses of the results of theirrecent global marketing investments. Evenmore important, they could build predictivemodels that would help identify where andhow todays marketing investments wouldyield the highest future returns. And, becauseM-Net included a simulation capability to

answer what-if questions, Samsung couldtest a variety of scenarios by changing anycombination of variables. (See the exhibitMisallocations Revealed for a sample ofM-Nets output.)

All the category-country combinationsSamsung considered to have high potentialsome 60% of the total possibilitieswere sub-jected to such analysis. (The lower-priority40% of category-country combinations werealso analyzed, but for these the companyrelied on informed assumptions to ll in the

Misallocations Revealed

Samsungs M-Net system produces graphical depictions of the companys allocation chal-lenges. In this chart, we see the total marketing budget for Product 1. The horizontal axis shows how Samsung had planned to divide its investment in that product category across the countries in which it is sold. For ex-

ample, 15% was to be devoted to marketing it in Italy. The vertical axis represents M-Nets recommendationsfor instance, that 22% of these dollars should go to the Italian market. (Bubble size reects M-Net calculations of a markets relative prot potential.) Every bub-ble above the dotted line, like the one for

Italy, represents an area where Samsung should devote more resources than it planned to. Opportunities below the line should have their budgets cut. Charts like this one helped Samsung discover misallocationsand, just as important, convince affected managers to accept change.

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data elds). Four months into the project, thebenet of undertaking it was quite clear.

Computer-Generated Truths

The analysis revealed that there were seriousmismatches between the amount of market-ing support some products and regions werereceiving and the relative growth and protpotential of those products and markets.Samsung made three critical discoveries:

1. It was signicantly overinvesting in two regionsthat offered relatively low growth potential. NorthAmerica and Russia, between them, were re-ceiving 45% of Samsungs global marketingbudget. Yet, in considering the product andregional factors mentioned earlier, Samsungdetermined that those markets prot poten-tial merited only 35% of the budget. Thesemarkets were important, but their protpotential simply didnt justify their getting thelions share of scarce marketing funds.

2. Samsung was signicantly underinvesting intwo regions that offered higher growth potential.While Samsung was funneling more moneythan necessary in support of marketing inRussia and North America, it was underin-vesting in two regions that showed morepromise: Europe and China. Together, theywere receiving 31% of Samsungs globalmarketing budget. But, based on prot po-tential, the optimal marketing allocationfor Europe and China was 42%. That wouldmean a signicant increase in the size oftheir budgets.

3. Three of its categories were siphoningprecious marketing funds from several other cate-gories that were important to future growth.Samsung discovered it was devoting morethan half of its total marketing budget to justthree categories worldwidemobile phones,vacuum cleaners, and air-conditioning units.As important as these categories were, thatmeant that other categoriesincluding cam-corders, DVD players and recorders, televi-sions, color PC monitors, refrigerators, andVCRswere being starved of the support theyneeded to realize their signicant growthpotential. The M-Net analysis revealed that,for optimum results, combined marketingfunding for mobile phones, vacuum cleaners,and air-conditioning units should be reducedby approximately 22%, and the bulk of thatreduction should be reallocated to supportemerging products.

All told, the analysis revealed a stark truth:Serious imbalances in marketing funding werethreatening tens of millions of dollars in futureprot growth. To correct these imbalances,Samsung would have to reallocate approxi-mately $150 million of its marketing budgetfrom more mature categories and regions tothose that offered signicant untapped poten-tial. Of course, such a reallocation would notbe simple; trade-offs would be necessary. Butthe analysis gave top managers the condenceto do something they might not have decidedto do on their own: reduce the investment inSamsungs largest market (the United States)to free up the investment necessary to achievehigher European returns. Company executives,who made no secret of their quest to close thegap between Samsung and Sony, had to admitthat the existing allocation of marketing fundswas not advancing that goal, and Samsungslargest market no longer offered the greatestgrowth potential. It was clear from our analy-ses that we could no longer allocate marketingresources the way we had in the past, Kimnoted. There was no way that we could con-tinue to grow without a methodical approachto ensuring that marketing investments weretargeted at the highest return opportunities.

Organizational and Political Hurdles

The results of the analysis gave Samsung execu-tives valuable insight into where theyshould and shouldnt spend on marketing.But making change in a complex and far-ungorganization is rarely as simple as determin-ing the best logical course of action. To under-stand Kims remaining challenge, consider howmarketing resources are usually allocated.

In a typical multinational, there are coun-tries or categories that historically have con-tributed a large proportion of the companystotal revenues but now are essentiallytapped out because growth has stagnated orthe market has become saturated. Yet, be-cause of the size and past success of the do-main, the manager of that business stillwields considerable powerand often ex-ercises that power to secure more market-ing resources than the domain merits. Itsdifcult for senior executives to counterthose demands because they almost alwayslack the objective data to show that thecompany as a whole would be betterserved by moving some resources to other



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areas. The fallback position is usually big-ger gets moreregardless of future potential.

Fueling the problem is the fact that mostcompanies compensation systems reward cate-gory and country managers based on localgains, not systemwide optimization. Its adeeply rooted practice. In many companies,the traditional approach to entering a newmarket has been to send an executive to acountry to build a successful businessand tomeasure that success by the executives protand loss. After years of this practice, companiesnd themselves hobbled by dozens of semiau-tonomous businesses around the world, theleaders of which care little about company-wide revenue growth because they continue tobe evaluated and compensated only on the

performance of their own units. For mostcompanies, the trend has been to move from ageographic model toward one comprising glo-bal category teams. But this hasnt solved theproblem; it has simply shifted it. Now, the basisfor self-serving internal competition is not thecountry but the category.

In Samsungs case, the company did nothave to contend with autonomous businessunits to the extent that a Procter & Gamble orUnilever does. Samsung adheres to the highlycentralized, command-and-control model thatis traditional in Asian companies. Neverthe-less, the company did have a measurement andrewards system that encouraged category man-agers to grow their own businesses without re-gard for others. That, Kim knew, would make it

The Allocation Process,THEN AND NOW

1. Category managers campaign for incrementally larger annual marketing budgets.

2. HQs marketing management responds based on incomplete information, tradition, and gut instinct.

3. Outsized increases go to the biggestmarkets and the squeaky wheels.

4. Over- and underinvestments are rampant yet no one knowswhere or by how much.

5. Marketings total budget appears arbitrary and indefensible.

6. Top management grows increasingly uncomfortable with the overall marketing investment.

1. Critical country- and product-category data are collected into M-Net, the companys Web-basedmarketing data repository.

2. Using M-Nets analytical engines,corporate marketers identify high-potential country-category combinations.

3. What-if scenarios are tested to determine the most effective allocation of marketing resources.

4. The allocation is refined based on insights of field marketing managers, then finalized by HQ.

5. The fact-based case for the allocation is presented in meetings with field managers.

6. Senior management gains confidence in its level of marketinginvestment.

The traditional approach to budgeting and planning

The fact-based approach to budgeting and planning

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politically difcult to reallocate the marketingbudgets in the ways suggested by his teamscomputer-aided analysis. Any attempt to re-duce a particular categorys budget wouldsurely spark resistance from the categorymanager, whounder the existing rewardsstructurewould rightly argue that headquar-ters was undermining his ability to succeed.

Samsung executives soon discovered thatthis phase of changing the budget allocationwould rely far less on technology and muchmore on communication, old-fashioned leader-ship, and people skills. It was absolutelyessential to get the business-unit marketingexecutives to buy into the ndings and theprospective changes.

It helped that Kims team was more than re-spectful of these leaders knowledge and opin-ions and was willing to be exible, to a degree.Despite emphasizing facts, Samsung recog-nized that it was impracticaland potentiallydangerousto rely on robot reallocation.With M-Net, managers for the rst time wereable to make comparisons that they couldnton their ownsuch as the marketing supportfor televisions in Brazil versus support for DVDplayers in France, instead of simply televisionsglobally versus DVD players globally (whichwould obscure dozens of lower-level optimiza-tion opportunities). But those insights wereonly a starting point and not the last word.Kim knew that adjustments to conclusionsmight have to be made, so he provided plentyof room for experience, insight, and intuitionto be considered before any changes would beimplemented. Samsung conducted 121 meet-ings and workshops with marketing executivesaround the company to test and hone its nd-ings. The marketing executives considered thesenior teams fact-based recommendations forthe reallocation process and offered their feed-back at these events. The workshops alsohelped the team gain the support of business-unit marketing executives by involving themin the decision-making process.

Once the ndings were validated and thechanges identied, it was time to roll out thenew allocations to the eld. Kim knew he wasstill bound to meet with resistance; after all,the changes would involve taking money fromone manager and giving it to another. Mostpeople would perceive a budget reduction as avote of no condence, no matter how clear thelogic behind it. Therefore, Kim decided that he

and his team would personally meet with allthose affected to present the case for the com-panywide benets of reallocating marketingresources (in terms of overall protable reve-nue growth, margin boosts, market shareincreases, and share price improvement).

In a project such as this, theres no substi-tute for effective communication when itcomes to implementing change, Kim told us.We knew that it would be difcult, if not im-possible, to get people to accept our new ap-proach unless we sat down with all the keyindividuals to thoroughly explain what wewere doing, why we were doing it, and how itwas critical to the future success of Samsungglobally. It was also important to gain inputand make improvements based on the con-siderable knowledge and experience of theregional and category managers.

Indeed, Kims road show proved to beinstrumental in implementing the allocationchanges smoothly. The eld managers appreci-ated upper managements honesty andwillingness to take the time to explainwhat was being done and why, as well as theopportunity to ask questions and makerecommendations. Given Samsungs command-and-control culture, it would not have seemedout of place if the corporate ofce had simplymandated the changes and expected compli-ance. Perhaps thats why a more personaltouch was so effective in making the cate-gory and country managers part of the pro-cess; by enlisting their support Samsungminimized their resistance.

Samsung also helped its cause by recognizingthat it had to develop new ways of evaluating,compensating, and developing employees af-fected by the changes. How would the NorthAmerica manager be rewarded if his budgetwere cut in half? The company certainlycouldnt expect the same rate of growth in thatmarket. Samsung executives recognized thechanges by setting lower targets for those man-agers who would be losing funds and highertargets for those gaining resources. And, -nally, to ensure that people losing resourcesdid not view the change as a criticism of theirperformance, the company encouraged therotation of marketing executives through avariety of jobsgiving key executives thechance to work in different market situations,including lower- and higher-growth markets ofvarious sizes.

Samsungs marketing executives were able to build predictive models that would help identify where and how todays marketing investments would yield the highest future returns.



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The Worlds Fastest-Growing Brand

The marketing allocation project, combinedwith the launch of a new global brandingcampaign in 2001 and the introduction ofattractive new products, has generated con-siderable benets for Samsungnot the leastof which are continued growth in key coun-tries and categories and enhancement of theSamsung brand. Samsung is among the topve leaders in the global market for mobilephone handsets. It has also made signicantgains in the markets for camcorders, at-panel computer monitors, DVD players andrecorders, and digital TVsall categoriesthat Sony currently leads. In categories notdominated by Sony, Samsungs market shareperformance is equally, if not more, impres-sive: from tenth to third in digital musicplayers, from eighth to second in LCD moni-tors and TVs, and from unranked to eighth inportable DVD players.

Samsung also has experienced markedincreases in its global brand equity. Accordingto a recent study by marketing consultancyInterbrand, Samsung now has the fastest-growing global brand. Between 2001 and2002, the companys brand value increased30% to $8.3 billion, moving from 42nd to 34thplace worldwide. As reported by Business-Week, during that period, Sonys brand valuedropped 7%, from $15 billion to $13.9 billiongood enough for 21st place but clearlyaffected by Samsungs efforts.

Annual sales at Samsung rose 25% be-tween 2001 and 2002, from $27.7 billion to$34.7 billion. Net income also increasedsharply during that period, from $2.5 billionto $5.9 billion.

But are such results sustainable? Samsungthinks so; the company is committed to insti-tutionalizing its new approach to marketing.It has invested in the people and systemsnecessary to ensure that analytic rigor is partof all future marketing-allocation decisions,so that the company can continuously up-grade current and expected prot returns onits various marketing investments around theworld. This means that Samsung can makereal-time adjustments to its plans as opportu-nities evolverather than investing the samemoney year after year in stagnant categoriesor countries or overinvesting in promisingyoung countries and categories at the expenseof cash cows.

Marketing Science Applied

Misallocation of marketing resources is en-demic to many large companiesparticularlythose producing branded consumer products.In interviews with senior executives at morethan 20 leading global companies, we foundwidespread frustration on the matter. Manycomplained that determining where and howmarketing budgets should be allocatedletalone making the necessary changesseemedvirtually impossible.

Its not impossible. Samsungs experienceshows that a company willing to take a morerigorous and analytical approach can pinpointits most promising opportunities to sell specicproduct categories in specic countriesanddetermine how best to allocate scarce market-ing resources to support them. It also showsthat the inevitable organizational and politicalissues that come with budget reallocationsneed not derail such an approach. A companymust anticipate the impact of the changes,then effectively eliminate the organizationalbarriers and help those affected understandthe reasons for the changes and gain theirsupport for the program.

Finally, Samsungs results underscore thevalue of aiming high with any attempt tooptimize marketing investments. Some com-panies have deployed strong systems at thecountry level, where a country manager caneasily move funds from one category to an-other. This typically has resulted in localimprovementsbut too often at the expenseof company growth. Samsung not only per-formed its analysis globally, it also was successfulin moving funds to the highest-opportunitycountries and categories. This wouldnt havebeen possible without the involvement of theteam led by Eric Kim; as the companys topmarketing executive, he had the ability towield inuence across category, region, andcountry boundaries. As a result, Samsungsbenets were much greater than they wouldhave been had the effort been limited to asingle region or a handful of categories.

Not long after Kim took the reins as Sam-sungs global marketing chief, the companyschief nancial ofcer challenged him to provethe value of its $1 billion marketing invest-ment. With his analytical approach to market-ing allocation, Kim met that challenge. Butmore important, Kims fact-based marketinginitiatives are helping to guide Samsungs



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future marketing investment to build on theprogress the company has already made. IfSony isnt looking over its shoulder yet, itshould be.

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Further Reading

A R T I C L E S

Distance Still Matters: The Hard Reality of Global Expansion

by Pankaj Ghemawat


September 2001Product no. R0108K

As you evaluate the ROI of marketing your various products in different countries, con-sider the factors that make a country a more or less desirable place to develop a new market. The greater the differences be-tween your country and another country along four dimensions, the greater the risk in marketing a product in that nation. The four dimensions are: 1) cultural (languages, ethnicities, religions, and social norms), 2) administrative and political (financial and legal institutions), 3) geographic (existence of common border, waterway access, trans-portation and communication links), and 4) economic (consumer incomes; costs and quality of natural, financial, and human resources).

How Global Brands Compete

by Douglas B. Holt, John A. Quelch, and Earl L. TaylorHarvard Business ReviewSeptember 2004Product no. R0409D

Allocating enough marketing resources in high-ROI regions is key to your global branding strategy. But what you do with those resources is equally vital. Tempted to customize your marketing to local prefer-ences? Be careful: consumers in that country may view global brands as higher quality than local counterparts. How to determine when to emphasize your brands global characteristics and when to create a local brand identity? Assess consumers attitudes in the country where youre considering mar-keting your brand. For global citizens, a companys global success signals quality and innovativeness in its brand. These consum-ers also expect transnational companies to behave responsibly on the environment, consumer health, and worker rights. Global dreamers also see transnational brands as high quality but care less about social re-sponsibility than global citizens do. Antiglo-bals are skeptical that global brands deliver high quality, and they dislike brands that preach American values. Global agnostics evaluate global and local brands along the same criteria.



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