Chapter 22: Managing Marketing Metrics

The need for marketing metrics
• Corporate trend for greater accountability of value added
• Discontent with traditional metrics
• Availability of ICT and Internet infrastructure

What marketing metrics should do
The chain of marketing productivity

What marketing metrics should do
More than ever, marketers are being pressured to deliver hard data on how their efforts increased the company’s bottom line. This trend seems to be global.8 A focus on metrics can mean the difference between a marketing department that is considered highly valuable and one on the brink of extinction.

1 Marketing metrics should be financial.

2 You cannot drive a car, or a company, by looking in the rearview mirror.

3 Marketing actions may have both short- and long-term effects.

4 Looking only at aggregated, or average, tendencies among customers may mask impor- tant shifts among customer segments or even individual customers.

5 Independent metrics should be moved from separate measures to causal chains, thereby facil- itating the direct measure of marketing activities as evaluated by their effect on the bottom line.

6 No company exists in a vacuum and value is most often reached in competition with com- pany rivals.

7 Marketing metrics should be able to deliver objective data

The chain of marketing productivity
Regarding marketing as investment implies that the marketing assets in which the company invests should be identified.Also, it should be understood that these assets contribute to profits in the short run and provide potential for growth and sustained profits in the long run.

Effectiveness versus efficiency

Measuring marketing performance and productivity
Counting-based metrics
Accounting-based metrics
NPV
Outcome metrics
Counting-based metrics
Counting-based metrics include, for example, number of complaints, sales, headcounts, number of customers, number of orders and new hires.
Accounting-based metrics
ROI and ROA
NPV
Having €1000 in your hand today is better than having €1000 in five years from now. The rea- son is that over five years that €1000 that you have today would have a chance to grow by invest- ing it.
Outcome metrics
Marketing accountability also means that marketers must more precisely estimate the effects of different marketing investments. Marketing-mix models analyse data from a variety of sources, such as retailer scanner data, company shipment data, pricing, media, and promotion spending data, to understand more precisely the effects of specific marketing activities.

Marketing metrics and shareholder value

1 A shareholder value approach helps marketing properly define its objective
3 A shareholder value approach allows marketing to demonstrate the importance of its assets

Customer lifetime value
Brand equity and financial performance

The balanced scorecard approach
BSC provides a systematic tool that combines financial and non- financial performance metrics in one coherent measurement system

BSC is not only a tool for measurement, but also a tool for strategic management.

• The first process: translating the vision
• The second process: communicating and linking
• The third process: business planning
• The fourth process: feedback and learning

Marketing dashboards
Firms can assemble a summary set of relevant internal and external measures in a marketing dash- board for synthesis and interpretation. Marketing dashboards are like the instrument panel in a car or plane, visually displaying real-time indicators to ensure proper functioning. They are only as good as the information on which they are based, but sophisticated visualisation tools are helping bring data alive to improve understanding and analysis.

1 A customer-performance scorecard
2 A stakeholder-performance scorecard

SUMMARY
1 Marketers must be able to justify marketing expendi- tures to company management. Marketing metrics is the set of measures that helps firms to quantify, compare and interpret their marketing performance.

2 Good marketing metrics are financial, forward-looking and capture both short-term and long-term effects.

3 Marketing performance and productivity is multidimen- sional and therefore different metrics should be seen as complements rather than substitutes. Marketing has the main responsibility for achieving profitable revenue growth and this is done by finding, keeping and growing the value of profitable customers.

4 Marketing metrics are divided into three dimensions: (1) counting-based (or activity) metrics;
(2) accounting-based (or operational) metrics; and (3) outcome metrics. All three dimensions comprise both external and internal metrics.4 Marketing metrics are divided into three dimensions: (1) counting-based (or activity) metrics;

5 While ROI analyses may provide some insight into the financial performance of marketing activities, they may at the same time capture only one-third of the total value creation of the marketing programme. Net present value is a method that explicitly deals with the expected future cash flows as a result of company marketing activity.

6 Marketing should develop and implement customer- led strategies that create shareholder value. Taking a shareholder perspective enhances the opportunity of making marketing recognised as a significant corpo- rate value driver.

7 Customer lifetime value is the net profit or loss to a company from a customer flowing from the lifetime of that customer’s transactions with the company. CLV assumes that customers who stay with a company for a long period of time generate more profits as compared to customers who stay for only a short period of time.

8 There are two primary perspectives related to brand equity, one based on financial outcomes for the company and one based on softer, consumer-based perceptions of company performance. Marketing per- formance during a period will be judged by whether brand equity has risen, is static, or has declined.

9 The balanced scorecard approach provides a system- atic tool that combines financial and non-financial performance metrics in one coherent measurement system. Metrics are constructed according to a predefined strategy, and the company’s processes are aligned towards this strategy. BSC systematically measures the company from four perspectives: the financial perspective, the customer perspective,
the internal business process perspective, and the innovation and learning perspective.

10 A marketing dashboard provides up-to-the-minute information necessary to run the business operations for a company – such as sales versus forecast, distri- bution channel effectiveness, brand equity evolution and human capital development.