You can now quantify your budget allocation decisions.
Every month or quarter, depending on when you plan your ad budget, you probably have market managers screaming for their share of the budget. At the same time, you’ll probably have all levels of management questioning your budget allocations by market. A comprehensive Brand Development Index (BDI) is a great tool to help objectively and quantitatively state your case. By creating a BDI, you’ll have the single tool you need to:
- Accurately and fairly compare your stores’ and markets’ performance against each other.
- Determine where to spend your next ad dollar for the highest ROI.
- Help determine in which market to open your next store for the greatest media efficiency.
As you work with these indexes, you’ll find your decision making is much more informed. A simple BDI will include:
- A Brand Development Index – BDI
- A Store Penetration Index – SPI
- Media Efficiency Index – MEI
To build your BDI, you need the following:
- Target market population of each of your markets.
- Total sales for each of your markets.
- Cost per thousand for one major medium you use, or are considering using, in each market.
The calculations are simple from there. Here are the basic steps:
Add the populations of all your markets. That gives you the total population of your chain. Calculate the percentage of the total population that each of your markets represents. For instance, if the total population of the chain is 5,000,000, and market A’s population is 500,000, then market A represents 10% of your chain’s population. Calculate these same percentages for your sales, stores and media cost per thousand. So you should now have the percentage of population, sales and stores that each market represents relative to your total chain. Now you will calculate the indexes with an overall guiding thought—if market A represents 10% of my chain’s population, it should represent at least 10% of my chain’s sales, stores, etc. That would be an index of 100%.
BDI: Divide each market’s percentage of sales by their percentage of population and multiply by 100 to obtain your index.
SPI: Divide each market’s percentage of stores by their percentage of population.
MEI: Divide each market’s percentage of media CPM by their percentage of population. As you calculate these indexes for each market, you’ll find that some markets index below 100% and some greatly above.The indexes for each market will not match. For instance, you may have a market with a BDI of 200%, which means, relative to the other markets in your chain, your brand is well-developed in this particular market. However, you may also find that this market’s SPI is only 80% which means that relative to your chain, you have fewer stores per population in this market. Therefore, since the BDI is high and SPI is low, the stores in this market are performing well.
Next, you can look at how efficient it is to purchase media in this market. (Note: You measure this index in reverse. The lower the index, the more efficient.) So you might find the index is 90% which indicates that the media cost is efficient relative to your other markets, which may help explain the market’s performance with fewer stores.)