Whether it’s coming from the C-Suite or the Marketing Organization, the drive for measuring marketing performance is gaining momentum. In a recent study by the Advertising Research Foundation, “enhanced return on marketing investment” was revealed as one of the top priorities CEOs set for their marketing and research functions. Sadly, progress in measuring marketing performance continues slowly. A survey of over 1,000 senior executives by the CMO Council revealed that 80% of the respondents remain unhappy with their ability to measure marketing performance — yet greater than 90% rate the measurement process as a high or moderate priority. Likewise, over the years, research conducted by VisionEdge Marketing (VEM) has yielded similar findings. A most recent study conducted found only 9% of respondents were satisfied with how well their organizations are tracking performance.
What’s the big deal? Companies have been conducting marketing activities forever. Why is metrics receiving so much attention and interest? Metrics drive and enable the organization to see what is working and helps them to adjust and bridge the gaps when needed. Measurement is at the center of improvement. Measurement can provide timely feedback, enable corrective action, provide focus, and give the organization the ability to design, map and monitor processes, and adopt best practices. Today’s budgets and resource-constrained environments mandate organizations be able to discern which marketing efforts make a difference.
So does measuring matter? It is proven that companies with formal marketing performance systems outperform companies who lack systems. The CMO Council study found companies with systems achieve 29%, 32% and 37% better sales growth, market share and profitability, respectively. These outcomes continue to be the focus for most organizations. Participants in VEM’s study indicated that growing and acquiring new customers in existing markets is the number one factor to their company’s success in 2005. Forrester Research polled 176 firms and found similar results. Their study identified three critical business objectives : increasing sales from existing customers, expanding the customer base, and raising customer satisfaction. These business outcomes serve as the basis for both marketing strategy and metrics.
Marketing can measure a never-ending menu of items that consume a tremendous amount of energy, time and resources. Marketing must focus on the most relevant, essential and valuable actions as the basis for metrics and performance reporting. Yet metrics developed at most companies don’t show a high correlation between marketing activities and business outcomes. A Marketing Metrics framework must demonstrate how Marketing enables the organization to realize business outcomes. Marketing must transition to Outcome-Based Metrics, or face becoming merely Sales support and lose its ability to influence organizational strategy.
Establishing metrics and reporting the marketing function’s impact on the business requires having the infrastructure, people, systems, process and skills in place. Systems are needed to capture data and translate this data into meaningful information. Processes need to be developed and managed for measuring marketing performance and reporting on results. And without a culture of accountability and people with the right skills, the systems and processes will be for naught. The marketing curriculum at today’s universities typically includes courses that address measuring direct marketing and online marketing effectiveness, but there are few courses specifically designed around measuring marketing in general. A solid infrastructure will make all the difference in your organization’s ability to measure marketing performance. With the infrastructure in place, you will be able to develop a metrics dashboard.
Dashboards can provide visual monitoring and a feedback system to track progress and connect marketing to business outcomes. Likewise, they can provide insight into performance, foster decision- making and align strategy with implementation. A good dashboard maps out the relationships between business outcomes and marketing performance. To ensure your dashboard correlates marketing with metrics, begin with business outcomes and the most important measures that will indicate success.
The responsibility falls to those of us with “passion and experience” to model the way. We must set aside budget to invest in systems and processes. We must establish a discipline around measuring and a culture of accountability. And we must demand measurement training. Only when aligning measurement and metrics with business outcomes, tracking and reporting progress, and ensuring the organization is both measurement competent and proficient, can Marketing take its rightful place at the executive table and influence the organization’s strategic direction.
Seth Godin, and lesser known folks, suggest that anyone can be a marketer. And you know it appears to be true. We have biology, art history, anthropology, and various other degreed folk practicing marketing. Maybe that’s why the marketing profession isn’t as well thought of as we would like by the C-Suite.
It doesn’t matter what industry you go to, the perception of marketing by the C-Suite is often lackluster. For example, the 2010 HealthLeaders Media Industry Survey found that the largest disparity between marketing executives and CEOs is their opinion about the quality of marketing at their organizations. Marketers seem quite pleased with their work, with most ranking it “very strong” (30%) or “slightly strong” (41%). CEOs’ opinions, on the other hand, are less positive, with just 11.5% selecting “very strong”. Our own studies mirror these findings. As do a myriad of other studies, such as the Deloitte Study that highlighted perspectives on marketing effectiveness based on 271 in-depth interviews. Forty-seven of the 66 CEOs (70%) indicated that the role of marketing needs to be better articulated in their organizations, with strategic planning and the steps associated with it being among the most important skills needing to be address by their marketing organization.
Regardless of the size, whether an organization is for or not-for profit, whether it is B2B or B2C, whether it is a services or product company, whether it is local, regional, national or global, every organization needs marketing to help generate revenue, preferably at a good return on resources invested. Certainly someone without a marketing or related degree or extensive marketing experience CAN be or become a good marketer, especially if the company offers a quality product and/or service that solves a real problem, that is price competitive, convenient to buy, well positioned and promoted.
But isn’t that what marketers usually address; identifying the needs of the customer in order to create products and services that meet these needs, to ensure a competitive advantage and competitively position the product, service, and organization, and so forth? A person serving in the role of marketing who can’t address the basics of marketing is actually doing more harm than good. That seems like a high price for an organization to pay for our cavalier approach to the profession.
BUT IF someone has the skills, knows what questions to answer and is able to acquire the answers, then sure, they have what it takes to be a marketer. Which takes us right back to the premise of this article – Marketing is a discipline and a profession. Most professions and disciplines have some level of skills and performance requirements. From health care professionals, to accountants and lawyers, to electricians and plumbers, there are clear standard of skills and performance requirements and expectations.
It’s not uncommon for many B2B organizations to believe that if someone has the domain experience they have the making of a good marketer, or to bring people in from the field or product organization or to hire someone out of school with a degree in the domain to perform marketing. By the time these people can really do the “work of marketing”, these organizations may have missed important market windows. So maybe on the job training and self-teaching don’t work well for organizations with limited runways, budgets and resources who can’t afford a lot of trial and error when it comes to market validation, traction and penetration.
For the sake of the discipline and profession of marketing, perhaps it is time to ensure that people entering the marketing profession come with at least a standard set of capabilities.
Yes anyone can become a great marketer by graduating from the school of hard knocks, having terrific mentors, learning from peers at conferences or by taking courses and reading books along the way. In fact, even the best of marketers should continue to hone their skills through these channels. But organizations that accept the idea that anyone can be a marketer should take this approach knowing they may pay a high price with many hidden real and lost opportunity costs.
What do you think, can anyone be a marketer?
In his book, Kotler on Marketing (1999), Phil Kotler claimed that, “Marketing has the main responsibility for achieving profitable revenue growth for the company (pg 18).” Kotler suggests that achieving profitable revenue growth is derived from finding, keeping and growing profitable customers. His premise is that finding, keeping and growing profitable customers form the basis of marketing’s role: We can easily connect finding a customer to customer acquisition and keeping and growing to customer penetration and growing customer value. These three components can be squarely aligned with three specific business outcomes: market share, lifetime value and brand equity. What company doesn’t want to see market share, customer lifetime value and equity continue to improve over time? Most every company wants to be a dominant player in its market however that market is defined. Most every company wants to retain its customers and increase their lifetime value. And ultimately, most every company -whether private or public – wants to increase its shareholder value. This depends on high brand equity. The higher the brand equity, the greater the shareholder value.
We can use these three roles – market share, lifetime value and brand equity as the gauges by which to monitor marketing. We then deploy the appropriate marketing objectives and strategies needed to move the needle on each gauge. The more effective the strategies and the better they are executed; the more positive impact marketing can have on improving each outcome.
Moving the Needle
Let’s examine these three business outcomes more closely. Our ultimate objective is to move the needle of each gauge. To do this, we need to know the variables of performance and/or performance indicated we need to affect that will impact each outcome. We will need to be able to measure the change and connect our work to the change. We will need quality data and metrics. For each outcome there is a specific set of variables.
Market share is generally defined as the company’s share of total sales of all the products within the category in which the company’s brand/products compete. The share number is derived by dividing your company’s product/brand sales volume by the total category sales volume.
MS = Brand Sales Volume
Total Category Sales
Indicators that your company is gaining share over the competition include the following variables.
1. First, more and more potential customers must be made aware of your offer. You must own a share of voice, which is the relative frequency, weight and quality of your communication compared to the competition and clutter.
2. Once potential customers are aware of you, they must put you on the short list of consideration. You must have some share of preference, the second variable to monitor.
3. Increasing the extent to which your channel partners recommend and sell your products versus competitive alternatives – this is known as share of distribution -the third variable.
Two other variables are important factors:
4. The rate at which you attract and acquire new customers.
5. The rate of your growth compared to the growth of the category. The actual numbers of customers you acquire, as well as the rate of acquisition, are key. While you may be able to have consideration, if the customer doesn’t select you, you cannot gain share. You now have five quality measures. Strategies and tactics that positively impact these variables will ultimately affect your market share.
Acquiring a customer is just the start. The next key business outcome is to keep this customer and grow its value. Each customer is worth something, and typically the longer you keep the customer the more that individual customer is worth. Most companies know how long they need to keep the customer to recoup the cost to initially acquire that one customer. Customer lifetime value (LTV) is a powerful metric and a meaningful business outcome. If your company is merely a revolving door for customers, your profitability will suffer. Lifetime value is the net profit each customer contributes to the business over its entire time as a customer. Research suggests that companies with higher lifetime value customers spend less money on servicing customers can increase their prices more easily and can enjoy more referrals (a lower cost of acquisition).
The simplest LTV calculation (there are several) is total revenue received from the customer while a customer minus the costs of providing that customer with products/services. You will need to include costs of goods sold, selling costs and support costs. Using average costs per unit, while sufficient for calculating overall LTV, can be deceiving if using LTV for customer segmentation purposes, because the selling costs and support costs vary dramatically by customer.
Growing LTV is the ultimate indicator of a good return on marketing. In fact, return on marketing investment (ROMI) can be calculated by subtracting the last year’s LTV from the current year LTV and dividing the sum by the current years marketing investment.
ROMI—LTV current year—LTV previous year
Four variables will help move the Lifetime Value gauge.
1. Tenure. The longer a customer is a customer the more likely they will continue to be a customer.
2. Frequency. The more frequently they purchase the greater the likelihood their lifetime value will grow.
3. Advocacy. Advocacy measures the degree your customers are loyal, serve as a referral and actively endorse your company and your products.
4. Share of wallet. This is your share of the customer’s budget allocated for your types of products/services that you secure. It is a valuable way to measure your ability to compete. Your goal is to have your customers spending more of their allocated budget on products and services from your company as opposed to spending it with competitors.
Perhaps a few examples will help illustrate this concept. It is one thing for a customer to consistently buy the same brand of dishwashing soap, printer paper, medical device, or test equipment again and again. This is purchase frequency. But let’s say your company has several products, that is, you make and sell dishwashing soap, paper towels, toilet paper, shampoo, toothpaste, and so on. Most households buy a variety of these products. The company captures a greater share of this customer’s wallet the more of these products the buyer purchases from the same company. The concept applies to any company whether they make medical devices, provide financial services or sell software and services.
The last variable is loyalty. It’s one thing to have a satisfied customer, but it is another to have a loyal customer–a customer who is very unlikely to switch and is highly likely to refer. Again, when marketing focuses on strategies and tactics that improve these measures they will ultimately move the lifetime value needle.
We can now discuss the last marketing metric and business outcome, brand equity. At this point, we are successfully acquiring customers and keeping them. There are numerous and complicated ways to measure brand equity. We’d like to suggest something simpler that drives home the contribution marketing makes. Brand equity is the sum of the value of your customer franchise times your price premium. Therefore, the greater the value of your customer franchise–which is the aggregate value of purchases from all of your customers who repeatedly buy your brand and the more you can command for your product/service relative to competing offers within your category, the higher your company’s brand equity.
Brand Equity = Customer Franchise Value * Price Premium
In addition to these two quality measures, three other variables impact brand equity. The rate at which new products are accepted, your product’s profit margin compared to the profit margin in the category, and your overall net advocacy score. The advantage of a strong loyal customer base is that these customers are often the first to adopt your newest products and services thereby improving the rate of new product adoption which impacts the time to revenue for a new product. Existing customers give your new offer reference-ability and momentum. Existing customers are more likely to adopt a new product quicker and will help pave the way to entering adjacent markets.
With these quality measures, every marketing professional and executive, can be both accountable and at the same time impact the company’s strategic direction. By measuring and monitoring these factors and keeping an eye on the gauges, marketing can begin to understand whether strategies are having an impact and how well tactics are being executed. And more importantly, we can take a seat at the executive table and participate in a meaningful discussion about the business rather than a tactical discussion about trade show logistics, ad placements and e-mail conversion rates. While these activities are important and still need to be monitored, they won’t get us a seat at the executive table. And while focusing on these quality measures and key metrics won’t stop the CFO from asking questions about ROI and costs, it will help change the dialogue to one that is about the impact of the marketing programs as a whole on the business.
Measure What Matters
We began this discussion about the need for marketing to be more accountable and to develop quality metrics. Hopefully as a result of this article, you have some new ideas on how to focus marketing metrics around business outcomes and how to develop quality metrics that will help you provide insight into how marketing is making a contribution to the company and how to demonstrate that contribution to senior management. So in closing, we leave you with these three final thoughts:
Stop talking about improving marketing performance and accountability and start taking action.
Even if you don’t have all the data, start with what you have, define your data gaps and develop a plan to close these gaps.
Stop reporting on activities. Using activities as a dashboard doesn’t give your leadership
team the information they need to make important strategic decisions.
Use the measures we’ve posited to develop your dashboard. Measures that matter are those that help your company make decisions and take action. When used this way, marketing metrics enable a firm to seize a competitive advantage.