In 2000, the Advertising Research Foundation probably didn’t realize that their report about marketing’s ability, or lack thereof, to measure its value and contribution would initiate numerous studies, conferences, and products on the topic. This year’s joint VEM/ITSMA Marketing Performance Management Survey* , which looks at how marketers and C level executives would rate marketing’s value, revealed that 85 percent of the nearly 400 study participants are seeing increased pressure for marketers to measure marketing’s value and contribution.
A key component of the annual study looks at the comparison of the number of marketers earning an ‘A’ grade from the C-Suite for their ability to impact the business and measure their value with their counterparts who are falling short. The grades remained relatively consistent with prior years, with only a quarter of the marketers earning an ‘A’ for their ability to measure and report the contribution of marketing’s programs to the business.
By now one would think this journey would be nearing completion, but there appears to still be plenty to learn. Over the years, the study has revealed that ‘A’ marketers exhibit a number of differences from their colleagues–they are better at alignment, accountability, analytics, automation, assessment, and alliances. The investments in these capabilities and how they approach the work of marketing has enabled them to serve as value creators for their organizations. On the other hand, the marketers in the “middle of the pack” focus more on enabling sales, and the laggards operate primarily as campaign or program producers. In this day and age, with all the technology that marketers have at their fingertips, it begs the question “Why can’t ‘B’ and ‘C’ marketers get close to C-level executives and show their value?”
Become a Value Generator
Marketing organizations that create value are proactive. The ‘A’ marketers hold themselves accountable for contributing to business outcomes even if senior leadership doesn’t. They believe it is their responsibility to identify, investigate, evaluate, recommend, and prioritize market and customer opportunities. These marketers implement continuous change to maximize the organization’s success, and enable it to stay abreast or ahead of market, customer, and competitor moves. ‘B’ and ‘C’ marketers don’t seem to do that, don’t ask the right questions, or don’t know how to show their value.
Make Marketing Performance Management a Priority
According to the data, organizations that are performing well when it comes to customer value and business growth, are those where the marketers excel at performance management. ‘A’ marketers prioritize performance management, establish a clear roadmap for performance improvement, and focus on aligning marketing to the business not just sales. They have regular two-way dialogue with senior leadership and are motivated to select and report on the metrics that matter most.
Here are three qualities of this elite group that any marketing organization can emulate:
- Be a business person first, a marketer second
- Provide customer and market insight to inform business strategy, in addition to enabling sales
- Tap experts to hone skills and improve capabilities
Join the conversation with VisionEdge Marketing and ITSMA in our webinar, The Link Between Performance Management and Value Creation, Tuesday, June 17th, from 10:00-11:00am CST.
*VEM has been conducting the survey for 13 years. ITSMA has co-sponsored the survey for the past three years.
Customers are the most important part of any business, and keeping them happy should be at the top of your list of priorities. If your organization is among those that have created customer experience maps, kudos to you and your team! If not, and this is an itch you want to scratch, read on for five (5) tips to help you undertake this important initiative.
Before we offer advice for mapping the customer experience, it might be useful to make sure we’re all on the same page in terms of what we mean by customer experience. At VisionEdge Marketing, when we refer to customer experience we mean the points of interaction between the customer and an organization. These touch points include, but are not limited to, interactions associated with pricing, purchasing, servicing, payment/billing, support, and delivery of your organizations offerings (goods and/or services).
How customers evaluate their experience is based on their perception of the actual performance of the organization at that point of interaction compared to the customer’s expectation. In 2005, James Allen from the Harvard Business School revealed that while 80% of businesses state that they offer a great customer experience, only about 8% of customers feel similarly about their experience. Understanding this perception versus the expectation, and the gaps across all experiences, enables you to create customer experience performance targets and key performance indicators.
Customer experience mapping is a vehicle for capturing the perceptions versus the expectations across all points of interaction, ideally for each customer segment and/or persona. The mapping process should enable you to develop processes and skills designed to deliver an experience that sets your organization apart in the eyes of your customers, hopefully resulting in customer loyalty and becoming advocates for your goods/services.
Many organizations often mistake creating a process map with creating a customer experience map. While similar, their focus is quite different. A process map describes your company’s internal processes, functions, and activities and generally uses the company’s internal language and jargon. A customer experience map describes the customer experience in, and only in, the customer’s language. What makes customer experience mapping challenging is the fact that the customer experience is typically quite complex, because it cuts across divisions, departments, and functions.
Here are five key steps to help you create your customer experience map:
1. Start with the universal touch points that can be applied across all your customers (you can create more specific experience maps as time goes on)
2. Make a list of all the touch points. For each touch point write a description, method of interaction, and customer expectation. We have found that this step is best accomplished by:
- Involving as many people as necessary, including members of your customer advisory boards, to identify all touch points
- Holding working sessions and conducting interviews to capture and incorporate the expected and actual emotional, experiential, and functional experiences for each touch point
3. Document your learnings and produce a visual illustration (map)
4. Use the map to identify areas working well and those that need improvement. Focus on those areas that are known as “moments of truth,” those crucial interactions that determine whether the customer becomes or remains loyal
5. Build a plan to address James Allen’s “Three D’s,” which he believes enables organizations to offer an exceptional customer experience:
- Design the correct incentive for the correctly identified consumer, offered in an enticing environment.
- Deliver the proposed experience by focusing the entire team across various functions.
- Develop consistency in execution.
Sometimes organizations need help with this, which is why there are experts out there! Don’t be afraid to ask for help–this is an area you do not want to ignore.
We know–models can be intimidating. But as the need to add analytics and science to our work continues to increase, models have become one of the primary vehicles every marketer needs to know how to develop and leverage. If you’ve already dived into the deep end on models, congratulations. On the other hand, if you’re just dipping your toe into the water, have no fear, because while there may be a bit of a current, it is time to venture forth.
Mathematical models help us describe and explain a “system,” such as a market segment or ecosystem. These models enable us to study the effects of different actions, so we can begin to make predictions about behavior, such as purchasing behavior. There are all kinds of mathematical models-statistical models, differential equations, and game theory.
Regardless of the type, all use data to transform an abstract structure into something we can more concretely manage, test, and manipulate. As the mounds of data pile up, it’s easy to lose sight of data application. Because data has become so prolific, you must first be clear about the scope of the model and the associated data sources before constructing any model.
So you’re ready to take the plunge–good for you! So, what models should be part of every marketer’s plan? Whether a novice or a master, we believe that every marketer must be able to build and employ at least four models:
- Customer Buying Model: Illustrates the purchasing decision journey for various customers (segments or persona based) to support pipeline engineering, content, touch point and channel decisions.
- Market Segmentation or Market Model: Provides the vehicle to evaluate the attractiveness of segments, market, or targets. More about this in today’s KeyPoint MPM section.
- Opportunity Scoring Model: Enables marketing and sales to agree on when opportunities are sales worthy and sales ready.
- Campaign Lift Model: Estimates the impact of a particular campaign on the buying behavior.
These four models are an excellent starting point for those of you who are just beginning to incorporate models into your marketing initiatives. For those who have already developed models within your marketing organization, we would love to know whether you have conquered these four, or even whether you agree these four should be at the top of the list. As always, we want to know what you think, so comment or tweet us with your response!
Many marketing organizations today have an influencer marketing strategy. The purpose of this strategy is to help with customer acquisition (number and/or rate) and rate of product adoption. The findings in the 2013 Influencer Marketing Survey support this perspective, “influencer marketing is seen as a customer acquisition and lead generation practice not a brand exercise.”
This strategy entails establishing and tapping relationships with people that are perceived by the market and customer to have the ability or power to affect or sway other people’s thinking or actions. Influencers exist within every ecosystem – these can be members of the press/blog community, analysts and industry thought leaders, industry experts, trusted advisors, etc. The breadth, quantity and quality of your influencers will impact the success of this strategy.
Before we jump into how to measure influence marketing, we’d like to respond to a question we’re frequently asked, “What is the difference between influencer marketing and public relations?” The answer to this could be its own article, so to quickly explain the difference, we turned to our friend Chris Aarons (@Chris_Aarons), an expert in implementing influencer marketing strategies.
Chris says, “The simplest answer is that public relations is about communicating your messages to and with members of the press (and some PR firms include bloggers as well) to spread information or news. Whereas, influencer marketing focuses on identifying and securing credible third-parties with extensive networks, who may not necessarily be members of the press, to drive engagement and/or marketing objectives.” We’ll leave it to you to tweet with Chris on how you feel about this explanation!
Back to influencer strategy management… Relevant metrics include:
- Activity-based: number of influencers, types of influencers, and the degree of engagement by each influencer
- Pipeline: deals and wins, influencer contributed lead and acquisition cost, sales cycle impact, and influencer lift
Ultimately, what you want to know is whether influence or sway is impacting customer acquisition, and if so, how much and how fast.
Should this be a viable strategy for your organization, you may want to think beyond counting, and create a way to measure influence. In the social world, various organizations are creating influence metrics. But influence occurs both on and off line, which means you need to be able to measure influence/sway beyond the “social digital world.” As with many key performance metrics, an influence metric is comprised of several measures.
So how might we construct such a metric? Conceptually we can posit that influence is derived from two variables, quality and impact. The equation would look like:
Influence = Quality (%) x Impact (#)
In addition, factors that affect each of these variables include the following:
- What percentage of the desired influencers participated?
- How prominently did they feature your company/product? Assign percentages to these or others you if you prefer [Top billing or stand-alone article/blog, subject line mention or tweet, quote in general or related article, participation in LinkedIn Discussion]
- What is the overall sentiment/tone of the influencers’ content/conversation/discussion? Assign a percentage to each of these positive, negative, neutral
- Quantity – the total number of tweets, shares, likes, comments, click throughs, etc. generated by the influencers
- Penetration – how many of the targeted markets/communities were reached (for example – LinkedIn Groups, click throughs to links)
Add up your quality factors, add up your impact factors, and then multiply the two sums. Start by collecting the data and establishing your base line. Monitor the change in your influence metric and analyze the impact of each factor on the score. Once you complete these steps, it will be necessary to evaluate the relationship between the influence score and your number and rate of customer acquisition.
In his book, The Effective Executive, Peter Drucker explained the difference between efficiency and effectiveness: “Efficiency is doing things right. Effectiveness is doing the right things.” He strongly advised focusing first on effectiveness before efficiency. Along with outcome-based and leading-indicators metrics, Marketers also need both efficiency and effectiveness metrics. Here’s an easy way to distinguish whether your metric is one or the other:
- If the metric is measuring how well you squeeze out waste or cost or measure maximum output for input, it’s most likely an efficiency metric. Marketing spend, ROI, and cost/per lead, lead/rep are examples of efficiency metrics.
- If the metric is measuring how well you are contributing to or producing a desired result, it is most likely an effectiveness metric. Share of preference, share of wallet, products/customers are examples of effectiveness metrics.
As we have learned from over a decade of research on marketing metrics, many marketers are doing a good job of establishing, monitoring, and managing efficiency metrics and not as good of a job with developing, measuring, and managing effectiveness metrics.
This propensity to focus on efficiency metrics ultimately creates a problem for marketing. You can be improving efficiency, which has nothing to do with whether or not what you are currently doing is the right thing to do, while not actually becoming less effective. Effectiveness is about achieving the right result, or being on the right path. When we are positively impacting and contributing to the right result, then we earn our right to participate in strategic conversations.
It may be easier to identify, track and manage efficiency metrics but that may not be the only reason we see more efficiency related metrics. Many people assume that they are on the right track so if and when there is a problem, they address it by trying to make the process more efficient without questioning whether they are going in the right direction. But if you are going in the wrong direction, becoming more efficient will actually make the problem worse. For example, let’s say your company wants to grow its revenue by some amount. As a marketer, you believe you can affect this by producing some additional business from existing customers. So, you are monitoring and improving the inquiries, deals, cost per new deal, etc. The company is growing but its market share is declining. Why, because the growth opportunity is really outside the existing customer segment. So while marketing is becoming more and more efficient at generating business from existing customers, the company’s market share is actually declining and the competitors are achieving greater market dominance.
What’s really important is effectiveness. In the end, it doesn’t matter if your business is spending the least amount possible or your demand-generation initiatives are streamlined. What matters is whether marketing is solving the right problems and moving the right business needles.
Before you start thinking about how to improve your efficiency, step back and think about how marketing is expected to move the needle and measure its effectiveness. Don’t misunderstand, efficiency is extremely important and you will need efficiency metrics. Improving efficiency can make a difference, but only if you’re on the right path. And the only way to know that is to have effectiveness metrics in place as well. Efficiency is important, but powerless without effectiveness. Effectiveness opens the door for efficiency.
How do you calculate CLV? There are various approaches but here is a simple way to calculate customer retention equity or CLV:
- Determine the average retention rate of your customer base.
- Compute the average expected duration of a relationship with a customer using this retention rate.
- Determine the average per period margin and costs that are associated with retaining this customer.
- Multiply the period net profits by the number of periods the relationship lasts.
Here’s an example:
- Suppose for the past four years your retention rate for a set of customers has been 60%, 61%, 62%, and 61% over a 4 year period. This equates to an average retention rate of around 61% (i.e., 61 = (60+61+62+61) / 4).
- Analysis reveals that the expected relationship duration for the average customers is 1/(1-average retention). (1/1.61). In this case that is 2.56 years.
- After analyzing the historical data over the same 4 year period, the firm has determined that the average margin is $7500 and the average costs over this period $750. This equates to a net margin of $6750
- Expected retention equity is $17,280 ($6750*2.56).
Calculating customer retention equity demonstrates why it makes sense to invest in keeping customers. It’s a very interesting way to get a handle on your customer portfolio and to segment your customers. By improving revenue per customer and customer retention, while lowering cost to acquire and serve, you can positively impact CLV.