Here’s something we know after conducting the marketing performance measurement and management study since 2001: Best-in-Class marketers are relentless when it comes to continuous improvement. How do they know how they stack up? They regularly audit and benchmark. We know this can be expensive—even a small benchmarking study for marketing typically takes at least $20,000. With marketing budgets still feeling the crunch, it makes sense to be a bit more creative when it comes to benchmarking. And that’s where our annual marketing performance study comes in!
There are plenty of studies out there, and only you can decide which ones are worth your time. As a marketer you could probably complete a study every day, but if you are feeling the pressure to prove the value of your marketing, then this survey is for you. With 13 years under its belt and participation from marketing professionals and executives from around the world, in every industry and of all size organizations, we are able to provide a solid view into what Best-in-Class marketers do better and differently when it comes to measuring marketing’s contribution and value.
Given how hard you’re working every day, it’s frustrating when budgets are slashed and programs are terminated. You know Marketing is highly valuable to the business, but can you prove it? If you can, you may be among the ranks of the Best-in-Class—those marketers who have made marketing relevant to the C-Suite! If you can’t, it’s probably time to make some changes.
Find out how your organization stacks up against the Best-in-Class. Give 15 minutes of your time to participate in the 13th Annual MPM Survey and save the benchmarking dollars.
What does the survey benchmark? The focus of the survey is Marketing Alignment, Accountability, Analytics, Operations, and Performance Management capabilities. Complete the survey, share the link with your marketing colleagues and leadership team, and use the survey and the upcoming results to spark internal dialogue on the state of your marketing!
You can access the survey by following this link: https://www.surveymonkey.com/s/2014MPM_VEM
Jamie, the VP of Marketing at one of our manufacturing companies, in a recent conversation expressed excitement about securing someone from the finance group to support marketing data and analytics. “It took 2 years of lobbying but now we’ll be able to make better and more informed decisions,” said Jamie. To which I replied, “Awesome!”
Then, in my usual fashion, I asked a series of rapid-fire questions:
- What decisions are you hoping to make and in what priority order?
- What and where is the data that they will be accessing?
- What is the data capture and management plan?
- Is he just going to start delving into the data( A.K.A. boiling the ocean to see what treasures await) or are there specific insights about customers or the market that you want to gain?
- How will his contribution be measured?
- Is his role specifically digging into and analyzing data- and if so for what?
- Will he serve your team in a broader capacity a.e marketing ops, performance management and reporting?
Well, you can see the line of questioning.
Jamie said, “Whoa, I didn’t really think about what he was going to do or how, I just knew we needed someone who was comfortable with data and analytics because this isn’t my strong suit.” I said, “Adding this capability to your team is a great win, and demonstrating how it will prove and improve the value of marketing will create an even more important win. Now that you have this person, it might be a good idea to take some time to think about and decide function’s scope, role, purpose, etc.”
Jamie said, “Yeah, these are good questions and getting off on the right foot and in the right direction is really important for the team and for him. It almost took a miracle to get this person; we won’t get a second chance at it.”
Jamie asked if we could schedule a meeting next week to discuss things further. I said, “Of course, it would be our pleasure. In the meantime, your person may find our Marketing Operations: Enabling Marketing Centers of Excellence and from Intuition to Wisdom: Mastering Data, Analytics and Models white papers helpful .” As we set a date for our next call, Jamie said in closing, “ Downloading these as we speak.”
Marketers everywhere know they need to increase their analytical and accountability prowess. However, this effort is only worth the investment of time, people and money if you can use these capabilities to drive strategic decisions, actionable recommendations, and improve and prove marketing effectiveness. In fact, we believe the line between marketing analyst and marketing strategist will increasingly blur. Strategists need the analytics to stay ahead of emerging opportunities, respond quickly to unexpected threats, and make timely decisions. Analysts need to think about how they build their models and leverage their analysis for the same purposes.
The challenge according to recent research from Econsultancy and Lynchpin, is a majority of marketers worldwide say that less than half of all the analytics data they collect is actually useful for decision-making. Their studies found that just one in 10 companies thought a strong majority of analytics data was helpful, and less than a third said somewhere between half and three-quarters of all data was useful. Over a third of study participants said analytics were not integrated at all with their business plans. The results of our recent metrics, data, and analytics study are similar. Best-in-Class Marketers embrace analytics and leverage the insights they derive to both improve and prove the value of marketing. Access the executive summary the MPM Path to Better Marketing Results for free with registration.
Recently we’ve been asked about measuring brand equity. This metric is increasingly important given the brand impact of social media, word of mouth, social networks, etc. As are result, we turned to some of the pioneers in the brand measurement space to provide a foundation for how to measure brand equity in a customer-driven environment.
Longtime marketing veterans may recall that in the early 1990s David Aaker grouped brand equity into five categories:
- Perceived quality,
- Brand loyalty (the degree to which a buying unit concentrates its purchases over time on a particular brand within a product category; that is, buyers’ intentions to buy a brand as their primary choice),
- Brand awareness (the ability of a potential buyer to recognize or recall a brand as a member of a certain product category),
- Brand association (anything “linked” in memory to a brand), and
- Proprietary brand assets (such as patents, trademarks, channel partners, etc.). K.L.
Brand equity-related research defines strong brand equity as: customers have high brand-name awareness, maintain a favorable brand image, perceive the brand to be of high quality, and are loyal to the brand. According to Aaker, brand loyalty adds considerable value to a firm because it provides a set of habitual buyers for a long period of time. In 1993, Kevin Lane (K.L.) Keller coined the term customer-based brand equity as the “differential effect of brand knowledge customer response to marketing the brand.” Customer-brand equity occurs when buyers have a high level of awareness and hold some strong, favorable and unique brand associations in their memories. In 2004, W. G. Kim and H. Kim found that strong, positive customer-based brand equity has a significant influence on the financial performance of the firm.
Research continues to suggest that in our customer-centric environment the two dimensions that have the most significant effect on brand equity are:
- Brand association/image
- Brand loyalty
Since most marketers will continue to have limited money, time, and people, it is important to be able to prioritize and allocate resources across the brand equity dimensions. So while according to BtoB Magazine, brand awareness is the second leading objective of US B2B marketing efforts, if your resources are constrained, your time and money might be better spent on improving and measuring brand loyalty and brand image. These two dimensions will have the greatest impact on improving brand equity and are therefore the best leading key performance indicators. As brand loyalty and brand image move to the right, so will brand equity.
Measuring Brand Loyalty
In 2006, Alain Samson, from the London School of Economics and Political Science, published an article in the International Journal of Market Research, “Understanding the Buzz That Matters: Negative vs. Positive Word of Mouth.” He suggested a new equation for measuring brand loyalty that includes both Positive (P) and Negative (N) word-of-mouth (WOM), He argues that PWOM is a good measure to capture both loyalty and advocacy among existing customers, and that NWOM may also have a strong effect on purchase decisions by potential customers. His new metric is called the “LSE Net Advocacy Score.” and combines the Net Promoter Score with reported NWOM, and is calculated as follows:
LSE Net Advocacy Score = NPS – NWOM
(NWOM refers to the percentage of customers reporting making very negative comments in the past 12 months.)
According to Samson, a two-point increase in the Net Advocacy Score roughly corresponds to a 1 percent increase in revenue growth.
Measuring Brand Image/Association
There are a number of ways to measure brand image/association including personality list (Jennifer Aaker 1997), projective techniques, laddering methods (Reunolds and Gutman 1988), and the Zaltman Metaphor Elicitation Technique (Zaltman and Higie 1993). All of these techniques are designed to help you evaluate the strength of, and favorability to, an association with a brand.
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.