Saturday, 21 July 2007

Marketing Metrics 2 of 3

Being clear about the ‘benefit’ of a particular measure for the business relies on ‘outcome based thinking’, in other words what exactly do you want the measure to do for your business? For example, do you want to measure the return on investment (ROI) of a particular advertising campaign? perhaps you want to determine the return on the whole of the organisation’s investment in ‘marketing’ however that is defined, do you want to benchmark your sales or profits against your direct competitors or perhaps a basket of companies across different industries, do you want to measure brand awareness and personality? do you want to measure brand equity? do you want to measure customer loyalty? and so on. Norton and Kaplan’s (1992) statement “what you measure is what you get” implies that the measures management select become the focus of organisational attention and will therefore get acted upon.

It will be obvious therefore that the opposite is also true; choosing an inappropriate measure will drive inappropriate behaviour. As Donald Lehmann (2004) explains “[If] a focus on sales or share and growth per se rather than on profits becomes the center of attention. An obsession about customer image can obscure profit relevance”. This is underscored by Doyle (2000) who comments “Some marketing professionals [suggest] the firm should maximise customer satisfaction. But such a view is absurd. Lowering prices and increasing service levels can always increase customer satisfaction further, but such a policy would be a quick route to bankruptcy”.

The range of things that can potentially be measured is obviously diverse. This diversity refers to both the type of items measured (sales, costs, profitability, customer attitudes, frequencies etc) and the sphere of management interest, (shareholder value, strategic marketing or long term-effects, tactical marketing or short term effects, market area, product line, communications effectiveness, the tangible and intangible elements of products and services etc). It seems sensible therefore to build an holistic view of the wealth and health of the organisation based on a blend of measures that helps monitor the short and long term view through qualitative and quantitative dimensions.

A further implication for management is that even when an appreciation of generic measures has been achieved, a significant investment in effortful thinking still needs to be given by the incumbent management team to the process of determining what the most helpful metrics for the business are. This might be especially challenging if, (following critical review) it is deemed necessary to break away from long held, cherished and sometimes ‘taken for granted’ measures.

Marketing’s ‘Payback Myopia’
Much of the contemporary discussion regarding marketing metrics involves the recognition that marketers have developed a reputation at board level and amongst colleagues for being “unaccountable, expensive, untouchable, and slippery” (McDonald, Smith, Ward 2006) and Shaw and Merrick (2005) note that marketing types are “portrayed as false, immoral scoundrels” Chief Marketing Officers often lack numeric capability or interest in the financial realities of the business preferring to concentrate on what Shaw and Merrick (ibid) call Marketing’s Magic numbers or measures of brand awareness and attitudes rather than commercial information about income streams and profits. They go on to say “their disinterest in money often leads them to be distrusted with the stuff”. A regular objective and critical assessment of the value and relevance of both metrics and sources of data is recommended, perhaps tied to annual planning reviews.

Of particular concern nonetheless is the impact that the ‘wrong decision’ on marketing expenditure might have on long term shareholder value. Marketing departments can find themselves in a vicious circle as a result of their inability to articulate the financial and commercial implications of their activities; with the consequent result that spending on marketing can be easily cut to boost short-term profits. Because marketing activities are future orientated “many factors intervene between expenditure and reward” (Woodburn 2006) consequently future shareholder value might be put at risk through a short term approach that accounts for marketing investment/ cost in the monthly or annual accounting ‘period’. Making use of some measure of ‘conditional probability’ or ‘win-chance’ for any given marketing investment is a way of protecting shareholder value against that other commercial concern otherwise known as financial myopia.

Metrics for Coaching Improvement rather than Punishing non conformance
Commentators in the literature recommend using measures in the same way that Sports coaches do for improving the performance of athletes (Shaw 2001) where it is noted that marketers have little or no formal training in how to use figures to help their decision making. In particular a closer working relationship is encouraged between financial and marketing officers where the alternative perspectives from each can side carry benefits for both parties. (Marketers becoming more commercially aware, accountants understanding more about the complexities of anticipating and supplying customers needs). In this way the two dimensions of measuring a) what has happened and b) forecasting what is likely to happen, by anticipating ‘risk’ rather than expectation is achievable. The use of metrics is thus set in a organisational learning context rather than a controlling and fearful environment.

The Marketing Metrics Landscape
A considerable number of authors have studied marketing metrics over a period of some 50 years, each of them having slightly different ways of classifying the types of measures that are in use by organisations. (Clark 1999, Ambler 2000, Rust, Ambler, Carpenter, Kumar, & Srivastava 2004, Shaw and Merrick 2005, Uncles 2005, Greenyer 2006, McDonald, Smith, Ward, 2006, Ambler and Riley 2006) As mentioned previously measures can be broadly classified as simply:
•strategic, long term corporate view or tactical short term functional view
•qualitative, behavioural (soft) or quantitative, volumes, ratios & financial (hard)

All measures can be placed on this model, and most contemporary coverage concerns how a blend of measures across all the dimensions can be help managers take an holistic view of their performance. (Srivastava, Shervani, Fahey 1998, McDonald Smith, Ward 2006). Uncles (ibid) consider the strategic / tactical continuum, and devises three broad categories to characterise different types of measure.

1. TACTICAL: Specific Programme / Activity metrics – measuring the ROI effectiveness of an online advertising campaign, loyalty scheme, or direct mail promotion.
2. INTERMEDIATE: Product Service Level Metrics – measuring brand health and customer satisfaction, using consumer panel data, focus groups and depth interviews
3. STRATEGIC: The Marketing link to Corporate Performance Metrics – measuring competitively benchmarked sales, margins, profits, market shares, percentage sales from new products and shareholder value.

He subsumes into the final category recent interest in the measurement of marketing inputs such as degree of market orientation, the extent of entrepreneurship, the level of innovation, level or organisational learning & employee turnover however he points out that this is at the ‘measurement frontier’ and no clear measures are being utilised yet.

So when you read material banging on about what the right measures are, predicting which measures are now passe, and which one's are the hot new source of insight. Have a care. Start by asking the guru just what assumptions they are basing their recommendations on. Not only that, why should you ditch metrics that were once hailed as useful?? and now suddenly at 4.27 on the 22nd July 2007 they are not ??!!. Get yellow+ folks and transcend and include. Otherwise marketing (whatever that means) will always be prone to faddism dressed up as an objective scientific analytical search 'for the measure that reveals the truth'

Metrics 1
Metrics 3

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