Truly Maximize the ROI of Sales' and Marketing's Expenditures With Demand‐Driven Planning

• DOI: http://doi.org/10.1002/jcaf.22099
• Author: Alan Dybvig
• Date: 01 November 2015
• Published date: 01 November 2015

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© 2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22099

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Truly Maximize the ROI of Sales’

and Marketing’s Expenditures With

Demand-Driven Planning

Alan Dybvig

This article is

divided into

four sections:

(1) Origins of demand-

driven planning;

(2) Current status of

two ddp applications:

marketing-mix mod-

eling and demand-

driven forecasting;

(3) Limitations of

mmm and ddf and

how an OIS addresses

them; (4) Conclusions.

ORIGINS OF

DEMAND-DRIVEN

PLANNING

Traditionally,

demand is the criti-

cal independent vari-

able in the planning

process; it is demand

as expressed in the

forecast that drives the process.

However, the essence of demand-

driven planning is the opposite,

where demand is treated as a

dependent variable driven by sales

and marketing expenditures.

The author first encoun-

tered the demand-driven con-

cept more than 10 years ago

while doing research for what

has become the product that

creates an optimized income

statement (OIS).

Itwas in a working

paper for the Sloan

School of Manage-

ment by John D.

Little, “Models

and Managers: The

Concept of Deci-

sion Calculus.” The

article describes

an online model

for use by product

managers on adver-

tising budget ques-

tions. The objective

was to size and

allocate advertis-

ing expenditures,

and the model was

appropriately called

ADBUDG.1

In Little’s paper,

he describes the

data required for

generating the “sales

response to advertising func-

tion” and its shape (Exhibit 1).

Interestingly, the mathemati-

cal expression in this model

remains the most common one

35 years later.

This is a follow-on article to the author’s JCAF September/

October 2015 article titled “Optimizing the Income State-

ment With Advanced Analytics to Truly Maximize Profit …

and More: Reimaging the Enterprise Master Plan.” (See

http://onlinelibrary.wiley.com/doi/10.1002/jcaf.22082/

abstract for a copy.) In it, the author observed that is

possible to think of the optimized income Statement (OIS)

from a demand standpoint—as an optimized demand-

driven plan (ODDP). This article elaborates on this premise,

including: (1) how sales and marketing activities drive

demand/forecast as a dependent variable; (2) how an OIS

not only truly maximizes profit but also truly maximizes

the return on investment (ROI) of sales and marketing

expenditures. (As described in the previous article, the

OIS proof-of-concept model improved ROI between 28%

and 158%), (3) how an OIS aligns the entire organization’s

annual planning effort by driving much closer cross-

functional planning collaboration, particularly between the

chief financial officer (CFO) and sales and marketing. This

collaboration will take the firm, under the CFO’s leader-

ship, to the “next generation” of annual planning, tha t is,

for the first time ever, truly optimized.

© 2015 Wiley Periodicals, Inc.

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