2005 ANA Marketing Accountability Task Force Findings
Purpose and Background
Summary and Conclusions
Approach and Methodology
Accountable For What
The Culture of Accountability
Definition and Types of Metrics
Metrics Maturity Model
Emerging Characteristics of Current Best Practice
Metrics Are Not Enough
About EMM Group, Inc
Contact Information
Bibliography: Marketing Metrics Resources and References
AppendixÂ
Background
In a January 2005 ANA survey of senior marketers, accountability was listed as their number one issue. Work in this area has been and is a key initiative of the ANA and to respond to the concerns of its members, the ANA convened a marketing accountability task force. The purpose of the task force was twofold: (1) to review current best practices used by ANA member companies to improve their marketing accountability; and (2) to provide a practical catalog of accountability metrics used by industry practitioners from which marketers may choose those appropriate to their unique situation.
Twenty ANA member companies participated in this task force and we are indebted to them and their representatives for sharing their accountability experiences, their organizational issues, successes and challenges. The fact that companies of this caliber and people suffering from permanent calendar-overload took the time to participate is testimony to the urgency and timeliness of the subject. We thank the ANA Board of Directors, currently chaired by Jim Stengel, Global Marketing Officer, Procter & Gamble, for their invaluable input into this project.
Lastly, the ANA thanks Gordon Wade, Founding Partner of the EMM Group, for his tenacity, enthusiasm and skillful leadership of this task force.
We hope this report contributes to making marketing more accountable so that consumers and customers have an enhanced sense of value, profitable brands may flourish, shareholders may be enriched and marketing professionals may see their chosen profession recognized for its irreplaceable contribution to our economy and culture.
Study participants reveal several trends that have coalesced to create intense interest in marketing accountability
- Every other function is held accountable for its return on investment. No longer can marketing expect a free pass from management and shareholders. Marketing is competing with every other function in the company for a limited pool of shareholder dollars. If this function alone cannot or will not prove its relative efficiency, management will not keep feeding the beast.
- Management has no other place to turn for additional savings. Every other function has been six sigma'ed and TQM'ed into fighting trim. Management believes the supply chain has no more slack. Management believes operations are wound tight. The view from the corner office sees the marketing function as the last grape with any juice left unsqueezed.
- Marketing can be measured more precisely today than in the recent past. The confluence of a torrent of data, powerful hardware and agile software has totally changed the measurement environment. Marketing can no longer claim with any credibility that its effectiveness can't be measured. Relatively precise results from new marketing alternatives such as the Internet, have fed management's desires to understand the relative efficiency of all marketing expenditures. Ignorance of the law of ROI is no longer an effective defense.
- Marketers know they cannot fulfill their role as drivers of growth and as satisfiers of consumer needs unless, and until, they prove the worth of their function.
- Marketers are beginning to understand embracing accountability has its rewards as well as challenges. With the appropriate metrics from a robust accountability initiative, marketers can now optimize expenditure choices across the entire spectrum. Instead of wondering which half of last year's expenditures were âwasted', marketers can determine how to make virtually all of next year's dollars count.
- The focus on accountability has an ethical aspect. Many marketers understand that marketing funds aren't âtheirs'. They understand these funds belong to shareholders who have a right to expect more professional stewardship of their funds.
- Lastly, some marketers are beginning to abandon the historic defense that marketing is an art which cannot be measured, only âappreciated', like a fine wine or an evocative perfume. The modern marketer is beginning to see marketing as a âprocess' with measurable inputs and outputs producing reliable, repeatable results. The process approach which revolutionized the supply side has finally come to the demand side.
Summary and Conclusions
- Accountability is more dependent upon corporate conviction than upon algebra on steroids. Create a culture of accountability.
- Marketing should aggressively embrace the responsibility for the short-term ROI of its expenditures and go beyond to demand accountability for nurturing brand equity, the single most valuable asset of any company.
- Measuring marketing ROI can be done with significant accuracy but it takes process, determination, and money. No magic bullet exists but the capability to measure upwards of 90% of what most companies spend on marketing is available today.
- Superior metrics will not in-and-of-themselves deliver superior marketing results defined as robust brand equity leading to volume and profit growth. Metrics are a thermometer, a simple but powerful diagnostic tool. No one was ever cured by a thermometer and marketing will not be cured by metrics. The cure demands a rigorous end-to-end marketing process within which metrics play the same critical role they played in Dr. Deming's total quality reformation of the supply side.
- Every business vertical, indeed every company, will have unique metrics dependent upon what management expects marketing to deliver. Start by understanding management's strategic expectations of marketing, and then measure that.
- A best practice metrics profile has emerged along with a metrics maturity model. Each company should measure itself against this profile and maturity model.
- Although a precise map remains to be delineated, the view from different peaks on the analytical landscape clearly shows the way to the land of superior financial outcomes goes through brand equity and leads to brand loyalty. Once bound to a brand by a combination of brand experience and emotional benefits, consumers are willing to reward brand owners with higher margins for each individual purchase occasion, often for a lifetime.
Approach and Methodology
This project began with a sharing meeting of a group of companies held at Procter & Gamble in September, 2004. The meeting revealed the diversity of practical challenges faced by different verticals. An especially obvious difference was that between business to business (B2B) and business to consumer (B2C) companies. The key driver of difference among the verticals is the availability of reliable, granular, malleable and relevant data. Some verticals, such as consumer packaged goods and consumer financial services, are awash in a tsunami of data. For them, the challenge is merely organizing the data upon powerful software platforms permitting sophisticated analytics limited only by the analyst's imagination. Other verticals had unique sources of data and unique expenditure options enabling and requiring unique metrics.
For that reason, beginning in May, 2005, we invited a diverse group of companies representing numerous verticals in both B2C and B2B, to join the ANA marketing accountability task force. The companies who chose to participate, were a diverse group which, taken together, offered a 360 degree view of the opportunities, challenges and alternatives to enhancing marketing accountability.
We asked the companies to fill out a short survey primarily to orient the study organizers towards areas of specific interest. Then we had conversations with representatives of the participating companies to clarify our understanding of the state of accountability. After these conversations, we collected internal scorecards as well as other internal documents relevant to the subject.
Then we searched the Internet to identify white papers, monographs and journal articles dealing with the broad subject of accountability. Suffice it to say that this subject has generated lots of interest from a broad variety of industry participants ranging from various marketing trade organizations, academics, consulting firms and more than a few practitioners. We have included some of the more helpful articles in the bibliography of this report. Where we can identify a specific original source for a concept or idea (like ânet promoter score') we have provided specific attribution. We readily acknowledge that the overwhelming percentage of the concepts have emerged over the years from the work of countless pioneers and practitioners too numerous to identify and in most cases anonymous.
One thing is certain, the work in this study draws from many sources, most importantly the contributions of the participating companies. We wish to acknowledge them all even if it must be done as a group rather than individually.
One group who deserves special mention is the third-party marketing services providers such as research houses, advertising agencies and the like. These professionals often lead the way in developing new techniques to measure accountability and ROI. Two firms specifically were quite helpful, Marketing Management Analytics (MMA) and the Advanced Technology Group (ATG) of the media buying giant, Mindshare. Each group was careful to sift through their vast experience, remove any client specific detail and then summarize their findings for our study team. We deeply appreciate their help.
It should go without saying that the authors of this summary report accept âaccountability' for any errors in fact or conclusion.
Accountable For What
Much of the discussion around âmarketing accountability' is focused intently around ROI or ROMI, the return on marketing investment. This focus, some would say obsession, reflects an understandable desire for a âone-number' metric that puts marketing on the same evaluative standard as all other business expenditures. The reasoning goes that if marketing can provide reliable standard ROI figures for each of its expenditures, top management will then be enabled to deploy capital efficiently among the various competing demands for corporate resources such as buildings and grounds, capital equipment, research, operations, and marketing.
The problem with the ROI focus on specific marketing line items is that these expenditures affect a very small percentage of the company's volume even in the short-term. For most companies in almost every vertical, marketers could spend zero dollars over the next twelve months and the company would still generate sales from what the analysts call âcarry over' or âbase line'. The table below shows that for most companies the expenditures being measured effect about 20 to 25% of next year's sales and the carryover is 75 to 80% or more. What's this so called carry over? Who's accountable for that? (Refer to pdf version: ROI Driving Incremental Revenues?).
During our discussions with the participating companies, one of the representatives put the question quite artfully: "I know that this year's expenditures affect only a small portion of next year's sales. I know that we have âcarryover.' What I want to know is how much each short term marketing expenditure contributes to long-term carryover."
The technical answer to her question is contained in the box below:
(Refer to pdf venison:Contribution to Baseline)
But she is actually asking a more profound question:
For what should marketing be accountable? For the short-term response to this year's expenditures? Or for something qualitatively different and more fundamentally important? Is there something of permanent value for which marketing is responsible beyond the short-term return on a few line items in the budget?
The table below attempts to provide an answer by looking beyond the annual income statement to shareholder value as measured by Wall Street. For most companies, total shareholder value could be deconstructed into three components:
(1) the âbook value' of the corporation, the hard assets such as buildings, capital equipment and cash; (2) the adjusted net present value of this year's profits and then (3) the âdifference' between those two amounts and the total value of the company represented by share price multiplied by the number of shares outstanding. That âdifference' for most companies turns out to be a fairly large number, something in the range of 35 to 50% of total shareholder value.
(Refer to pdf venison: Brand Equity Driving Shareholder Value?)
Economists call that large somewhat mysterious value by several names: things such as âintangible value, market effects or good will.' Some call it âbrand equity' because it represents the belief that investors have in the long-term profit-generating value of the brand behind the stock ticker symbol. Whatever one calls that difference number; everyone agrees that it is tied to an expectation driven by a series of rational and emotional beliefs about the future performance of the company. One might even suggest that it is related to the âcarryover' a company will get in the absence of any short-term marketing expenditure. It's the loyalty the company has earned with a core group of customers who prefer the brand because of the value stored in their minds from positive brand experiences, impressions and promises.
The question remains, who owns this enormous component of shareholder value, or equity? Certainly the CEO is ultimately responsible for overall shareholder value but marketing can and should accept a major responsibility for that intangible because it is marketing which is responsible (or should be responsible) for understanding consumer needs, facilitating development of critical functional and emotional attributes and positioning the brand with consumers.
So when critics and colleagues demand that marketing be accountable: a fair retort is âaccountable for what?' The answer should be that marketing is accountable for efficiently building long-term brand equity.
Therefore, any âmarketing accountability' project has to respond to the returns on short-term expenditures but even more importantly for the effect that any marketing expenditure has upon those perceptions of the brand that drive the rational and emotional loyalty to a brand that we often perceive as âbrand equity''
As marketers we should accept the responsibility for prudent investment of this year's budget while reminding management of our responsibility for building long-term brand equity, a responsibility of far greater value to the shareholder.
The Culture of Accountability
Metrics, and the accountability they imply, create problems in all functions within all company cultures. Metrics and marketing is an especially volatile mixture because the marketing function has had few metrics in the past and other metrically dense functions within the company are deeply suspicious about marketing's sudden âfoxhole' conversion to the discipline of metrics. Add in the assumption within marketing itself that metrics are directly connected to personal compensation and career advancement then one has the recipe for major cultural push back.
Nothing emerged quite so clearly from our discussions with study participants as the cultural impedimenta associated with metrics and accountability. Indeed, several participants voiced the opinion that unless a company created a âculture of accountability', no amount of analytical artifice would succeed. Marketers must WANT to be measured, must embrace accountability or even the most artfully designed metrics program will ultimately fail.
According to study participants, three conditions seem essential to creating this culture of accountability:
Leadership from the top. Unless top management demands accountability and helps resolve disagreements among competing approaches to accountability, the culture will reject metrics or simply freeze in place. If management is unhappy with the pace of cultural accountability, the first place to look is the mirror;
Inclusivity. Metrics can not be successfully deployed by or within one functional silo. By their very nature, metrics have a transfunctional intercompany significance. Unless various functions within the corporation such as finance, operations, business information and HR are aligned, the entire edifice of metrics will collapse; and
Process. The key to creating cultural buy-in is an inclusive process that creates confidence in the numerical accuracy and relevance of the metrics as well as their perceived fairness and comparability. Please see the brief discussion in the inset box regarding a metrics process on the next page.
The chart below outlines a metrics development and embedment process. Following a process such as this accomplishes several critical objectives:
(1) it aligns the marketing metrics with other corporate stakeholders in the larger accountability culture thereby enhancing marketing's credibility within the company; (2) it focuses the company on management's expectations for the marketing function; (3) it ties marketing's metrics into the larger business planning process so that the company provides the resources which are required to meet the expectations embodied in the metrics; and (4) it mandates sharing of marketing's progress with the larger internal corporate stakeholder group thereby providing visibility to marketing's contributions.
(Refer to pdf venison: Metrics Development Process (1 of 2))
Using metrics developed from a sub-process such as this to knit together a larger end to end marketing process is one of the principal hallmarks of a best practice marketing function.
(Refer to pdf venison: Metrics Development Process (2 of 2))
Definition and Types of Metrics
In any discussion of a complex subject, some confusion is introduced by the use of words which understandably have different meanings to different people. This requires that we occasionally stop to define terms which are regularly used in any accountability discussion. Words such as âmeasure' and âmetrics' have two have importantly different meanings.
A measure is a one-number fact such as 100 miles or 5 gallons. A metric is almost always some combination of measures that permit an analysis or a conclusion. For example, I drove 100 miles and used 5 gallons of gas therefore I got 20 miles per gallon. 20 miles per gallon is a metric. If I paid $3 per gallon for that gas, my cost per mile (another metric) was 15 cents. With this data I can benchmark the efficiency of other cars, of types of gas and perhaps even of personal driving styles.
Many different kinds of metrics exist. One type is an âinput' metric. In marketing, a well known, frequently quoted metric is the cost per thousand viewers of a specific media buy. e.g. âwe spent $20 per M target viewers'. This is a classic âinput' metric.
A second type of metric is an âintermediate' metric, a calculation along a stream of inputs and outputs which measures some sort of result but not an ultimate result. Awareness metrics are classic âintermediate' metrics. We know that investment âA' generated more awareness than investment âB' and that has some value. What we don't know is the effect or outcome of that awareness on behavior. That takes us to the third type of metric, an âoutput' metric. A classic âoutput' metric produced by âmarket mix modeling' is that for every one dollar invested in night network TV, a brand generated $2.50 in incremental profit for an ROI of $2.50.
Another caveat relates to the time period represented by the metric. Most are remarkably short-term in nature, even though everyone recognizes that many marketing expenditures, especially advertising, may attract a new loyal customer who creates a stream of profit for decades. To counterbalance the frenzied focus on the immediate, an understandable response to Wall Street's incessant demands for quarterly earnings, some marketers are beginning to develop metrics around the âlifetime value of consumers and customers'. This is a useful and revealing concept except in a few industries where purchase cycles and decision processes negate its value (e.g. power generation dynamos).
Another definitional distinction involves attitudes versus behaviors. The purpose of marketing is changing attitudes. The purpose of changing attitudes is changing behaviors. Not surprisingly, metrics come in two flavors, those that measure attitudes and those that measure behaviors. Most non-marketers (such as CFO's) prefer behavioral metrics, an understandable bias. Most marketers spend lots of time looking at various kinds of attitudinal metrics because they believe that attitudes drive behaviors, another understandable bias.
Much of the exciting, breakthrough work in marketing metrics today is being done at the frontier where attitudes transform into behaviors. Sophisticated analyses measure which attitudinal drivers change brand preference and link to a purchase change. From there, it is a few short steps back up the marketing value stream to identify which investments change which attitudes the most efficaciously.
Some of our study participants are enabled to do this today primarily because of the felicitous convergences of attitudinal and behavioral data from identical sources.
Just as some metrics address attitudes and other behavior, metrics also occur at different points on the marketing value chain. One of the objectives towards which marketers are gradually advancing is identifying key metrics for virtually every marketing decision from customer insights, where all successful marketing begins, to some of the more ephemeral areas of endeavor such as public relations and product placement in a TV show.
One intriguing variant of this longitudinal search for metrics that interconnect across a demand creation chain is the identification of purchase decision âfunnels' in industries such as pharmaceuticals, insurance and autos. In these industries, marketers are looking at each level in the purchase decision funnel to tease out the ROI of marketing effort to see which alternative works more efficiently at each level in the purchase decision process.
(Refer to PDF venison: Purchase Funnel/ Transaction Model)
Metrics Maturity Model
We speak of âaccountability' as if it were a state of being much like hypnosis. Accountability is actually a journey which has many stations along the way. When evaluating your company's unique location on the journey, marketers may find it useful to review the emerging metrics maturity model show below.
That model has four major axes:
Data;
Analytics;
Culture, and
Process embedment. Each deserves a brief discussion.
(Refer to PDF venison: What We Know Today)
- Data - Accountability implies quantification and quantification implies data, most desirably time series data, permitting sophisticated analytics. Data is so basic that it becomes a critical factor in determining how âaccountable' any marketer can be. One of the major problems for many marketers, especially B2B marketers is the paucity of data directly connecting marketing expenditure to a shift in attitudes or behavior. This inhibits the development of accountability. But there is light at the end of the tunnel. The Internet is now enabling the capture of survey data at levels of granularity previously not affordable. This offers marketers, especially B2B marketers a new way to capture the data needed to create metrics and establish their accountability.At the other end of the data spectrum are companies with astounding levels of transaction data captured at the level of the individual customer. In these fortunate verticals, this data becomes of enormous value when it is mounted upon a software platform permitting manipulation through one of the online analytical processing tools (OLAP). These tools enable a level of analysis only dreamed about as recently as a decade ago.
- Metrics and Analytics - The confluence of masses of time series data, powerful computer hardware and agile software has enabled a revolution in analytical sophistication. Unfortunately many marketers have not advanced past the use of virtually useless marketing input data (e.g., âcost per 1000 impressions down 10% versus last year!'). At the opposite end of the spectrum are companies with market mix analytics embedded in real-time marketing spending models permitting rapid changes in marketing spending by target consumer and marketing element. Some are experimenting with advanced analytical techniques such as âagent based modeling' that permits the use of non-time series data and often uncovers âemergent behaviors' not revealed by conventional multi-variant, market mix modeling.Still further out are marketers trying to measure the value of new permission based media, the relative âengagement' value of one medium versus another and the âROI' of âemotion' versus rationally-based ad copy appeals. Some of these issues are in their early stages of understanding but creative marketers are making progress in all these areas. (Please see below for a brief discussion of engagement.)
Engagement Metrics Marketers are attempting to develop metrics around âengagement', the capability of a marketing investment, most typically an advertisement of some type, to capture and retain the attention of a consumer in a favorable manner. Many academic and commercial third parties are addressing this subject primarily because of the concern over wasted ad investment against today's harried, multi-tasking consumer. Work in this area, some of it by an ANA committee, is on going and will unquestionably evolve over time.
At present, the most mature approach to engagement seems to be one developed by a third party commercial firm located in Nicosia, Cyprus, Integration-imc. Their model develops engagement metrics around âbrand experience points' and âbrand experience shares' which appear to have some predictive value. We have not included their metrics in this paper because they are proprietary to Integration-imc. - Culture - We spoke above about the âculture of accountability' in which marketers not only expect to be measured but demand it. In these cultures, accountability is so deeply ingrained that an attempt is made to measure virtually all expenditures with metrics recognized company-wide. At the other end of the spectrum are companies where metrics are owned by Finance or created intermittently according to standards separate for each SBU or operating location. In these immature organizations, metrics becomes part of a game aimed at avoiding serious accountability. Between these extremes are organizations who struggle to establish fair and sustainable metrics understood as such by all the key departments across all SBU's.
- Process Embedment - A key to creating a culture of accountability is a process that enrolls key members of the organization to develop fair measures which can be sustained over time. In the immature organization, no metrics process exists. Individual departments or even managers create measures without attaining the organizational input from experts in finance, IT, operations and market research who are often critical to the development of a serious metrics effort. By contrast, mature organizations have a robust metrics process which involves key stakeholders and takes pains to integrate marketing metrics into an overall balanced corporate scorecard approach which gets wide visibility across all SBU's and functions. A critical objective of the process is to provide marketing metrics with the same credibility that is accorded metrics in operations, finance and manufacturing.
Emerging Characteristics of Current Best Practice
Shown below are the emerging characteristics of current best practice.
A culture of accountability - We have discussed this above but it is so basic it needs to be re-iterated here. Best practice companies embed accountability into their culture. Leadership must demand it and marketers should welcome it.
An inclusive process - Another basic and complementary characteristic of accountability. A top-down endorsed, inclusive process insures metrics that are more credible across the all functions within the company.
Metrics tied to strategic expectations - Metrics must be tied to management's expectations about marketing and to company strategy. If management expects marketing to build brand equity then measures that. If delivering sales prospects is important, measure that. If increasing the lifetime value of customers is important, measure that. Do not try to build a dashboard with fifty dials and dropdowns. Focus on what management expects from marketing. Please see the Appendix to this report for a catalog of metrics by strategic intent.
Measures of marginal productivity - Optimizing marketing ROI requires marketers to measure not only the average ROI of an expenditure but also the ROI of the last dollar invested behind marketing vehicle A. Unless marketers understand the âslope of the yield curve' by expenditure type, one cannot know the point at which expenditure must be shifted from vehicle A (e.g., TV) to vehicle B (e.g., magazines). Third-party providers understand this issue well and are prepared to address it.
Optimization modeling - The calculations on marginal ROI developed by what is commonly referred to as âmarket mix modeling' is necessary to drive mathematical models that optimize marketing spending. These sophisticated software enabled models are offered by third-party providers but many companies create their own using off-the-shelf software or licensed proprietary software. These models represent a quantum leap in marketing efficiency and are correctly viewed as one of the two or three major developments in the history of marketing.
Experimental design - This relatively new testing design protocol enables marketers to optimize an individual marketing program (such as a direct mail campaign) which may have dozens of independent variables producing thousands of potential combinations. Using proven mathematical techniques, experimental design enables marketers to winnow down a field of dozens of variables to the small combination of alternatives that produce the optimal result.
Lifetime value of a customer - Many measures of marketing efficacy tend to be short-term in nature i.e., the revenue generated over the next 12 months by a specific expenditure. Given the unfortunate focus on short-term results from Wall Street, such myopia is to be expected if not desired. But, consumers have needs which sometimes last for decades and therefore some brand owners find it desirable even necessary to compute the lifetime value of a customer. This measure helps companies calculate how much to invest to convert a customer to a brand. A longer-term focus casts a more favorable light on conventional advertising which often shows a negative ROI in the short-term but a positive ROI when that advertising is given credit for the long-term revenues generated by a loyal customer attracted by the advertising. Lifetime value measures are particularly valuable in many business verticals such as finance, insurance and CPG. By contrast, this calculation probably has little value in some long purchase cycle categories (e.g., power generators). In most instances, however, the LCV calculation is worth the time it will take practitioners to develop a set of assumptions and accounting conventions necessary to produce the measure.
ROI down a transaction funnel - Many practitioners, especially those in âconsidered purchase' categories such as automotive, insurance and pharmaceuticals, have identified a purchase-decision pathway or decision funnel, through which the consumer traverses on the way to a final decision. These leading edge practitioners find different âROI's' of effort at different stages in the decision cycle and different response to different marketing interventions at the same stage in the cycle. This discovery raises a larger related question regarding the ROI of expenditures in the overall marketing process prior to these relatively transparent expenditures on specific media. For example, everyone recognizes the value of a consumer insight that provides a profound competitive advantage. How do we determine the ROI of our market research expenditures? Packaging expenditures? Promotional signage at retail? Sales collateral?
Factors contributing to brand equity enhancement and market share growth. - Many marketers use brand tracking studies to ascertain perceptions of the brand across a battery of emotional and functional benefit characteristics. Leading-edge marketers have gone beyond to understand what factors are driving brand equity, brand preference and market share. They then design their marketing plan to change the attitudes and behaviors around the factors driving overall brand equity and brand share.
The chart below shows how one marketer can prove that increases in brand equity are directly associated with increases in brand share. This marketer is able to deconstruct equity into various âcontribution to preference' drivers and focus effort on the functional and attitudinal elements which are associated with increasing equity and share.
(refer to PDF version: Brand Equity Drives Market Share)
Brand equity and brand loyalty links to brand profitability and shareholder value - Marketing's most important long-term responsibility is building brand equity. Therefore the discussion of accountability often leads to a discussion of the relationship between the ROI of building brand equity, its effect on profitability and ultimately on shareholder value. This subject has generated numerous academic studies over the past decade. A particularly interesting study was conducted by Stern Stewart, the developers of the âEconomic Value Added' metric for financial analysis. In this study, Stern Stewart linked economic value added to aspects of brand equity using the Brand Asset Valuator model of Y&R.
No one study answers these questions definitively but our review has identified pieces of a mosaic such as the Stern Stewart study which clearly suggests higher brand equity drives brand loyalty which in turn produces higher margins and greater shareholder value. Some leading edge marketers are focusing on developing loyalty metrics to help them understand the ROI implications of moving customers up from one lower level cohort on a loyalty ladder to a higher level cohort or the relative effect of one marketing investment against cohort A at point B etc.
Major areas of challenge - As a part of our study, we asked participants what issues were particularly vexing to them. Some have been mentioned elsewhere in this document, others are new. Here's a quick enumeration and response based on data collected from participants and third-parties such as research providers.
The link between long-term brand equity and the ROI of specific expenditures - We have discussed this above but two other data points need to be added. Several third-parties provided evidence that it is possible to âdeconstruct' the short- and long-term effects of various marketing expenditures, i.e., which expenditure seem to build longer-term equity and which seem to degrade it. Without endorsing a method or a supplier, suffice it to say that this can be done. To no one's surprise, these studies indicate that advertising expenditures are more associated with building long-term strength while various price expenditures may be more efficient in the short-term but tend to degrade equity longer-term.
Data Availability - This is by far the most universal and frustrating problem inhibiting accountability especially in many B2B verticals. In these verticals, companies often lose track of their product in a complex supply chain replete with third-party distributors. In these situations, marketers have one basic alternative... get clean data from a new source outside the value chain and build metrics around the new data. This means collecting customized data either from direct interviews or from one of the relatively new Internet-based panels. This costs money but the alternative is to keep spending money year-on-year with no idea of the relative worth of expenditure A vs. B. Any management team that is demanding marketing proves its worth should have some logical difficulty in denying a request for research funds to measure that worth. Many companies are understandably enamored with the simplicity and apparent power of the ânet promoter score' metric. We would simply point out that one must expend some research funds to develop this metric if it isn't being provided within some existing brand tracker.
Integrated Marketing Campaigns (data clarity) - Many marketers report problems in deconstructing the effect of individual components of an integrated campaign involving the use of multiple simultaneous marketing channels or investments. From a technical analytical perspective, this is a common challenge to third-party analysts and one which they can effectively address.
The most difficult challenge is when these components of an integrated campaign: (a) Occur perfectly co-terminously so that analysts cannot use variations in timing as an analytical lever; or (b) When one of the elements of a campaign is so small that the natural variations in the data simply overwhelm the reading of a component comprising, for example, â3%' of an overall campaign. Under these circumstances, analysts can apply certain advanced techniques to provide perspective but by far the most desirable path is to prepare for analysis by creating test and control groups. The willingness to create test and control panels is a leading edge indicator of a 'culture of accountability'.
The chart below demonstrates an analysis of an integrated campaign by MMA. The chart shows the relative contribution of each element of the campaign and goes beyond to estimate the âsynergy' traceable to the combination of elements, i.e. the incremental effect of the combination above that generated by the individual elements. In MMA's experience; âsynergy' is relatively small in most integrated campaigns.
(refer to PDF version: Trade accounted for a greater...)Innovation et al - Some participants mentioned difficulties in developing measures for specific strategic responsibilities of marketing. For example, one participant mentioned that management wanted marketing to lead âinnovation' so her department needs to advance a metric that would provide insight into their performance in this regard. Still others cited âcompetitiveness' as a marketing responsibility for which metrics were being sought, âcustomer centricity' was still another responsibility for which some marketers were looking for metrics.
This need relates directly to one of our principles of best practice, identifying management's strategic expectations of marketing and developing metrics to express progress or lack thereof in the targeted responsibility. In the appendix to this report we have started the compilation of metrics by strategic intent so that marketers may begin the process of choosing a metric or set of metrics to meet their management's expectations.
The chart below shows the standard format used to present metrics by âstrategic intent.' For example, if management determines that marketing's strategic intent is to increase the overall lifetime value of the customer base at the lowest cost in marketing $'s, this metric offers a way to measure marketing's success. This approach rewards marketing, especially the advertising component for attracting customers who contribute profits for years. It also rewards selling more product to current customers or trading current customers up to higher value products.
Â
|
Metrics Definition Template |
|
Marketing Efficiency |
LCV/ annual marketing cost |
Definition/Calculation |
LCV Current yr -LCV yr last yr / marÂketing $'s current year |
Source of data |
Syndicated panel data, company sales records and marketing budget data |
Calculation or technique |
Compute the aggregate lifetime value of customers in franchise, subtract last year's value. Divide the differÂence by annual marketing costs |
Verticals where appropriate |
Valuable across many verticals, B2B and B2C |
Problems or concerns |
Requires sophisticated calculation regarding customer loyalty decay curve. LCV not universally appropriÂate |
Linking metrics to planning - A persistent challenge for all marketers is linking metrics to the broader process of marketing planning. Too many marketers see the development of metrics as an end unto itself and have not realized that metrics are a component of an overall more advanced marketing process. This, in turn, presents virtually all marketers with a major challenge because they have no well-defined marketing process. Therefore even if they have the metrics, they are thoroughly bamboozled by where and how to use them other than to mount them on a dash board and duck.
Several marketing service companies are providing a partial answer via very sophisticated computer models that incorporate market mix modeling ROI's into real-time budgeting models. These software-enabled models represent a major breakthrough but they deal more with the tactical aspects of marketing and do not address the more strategic end-to-end marketing process beginning with consumer and customer insights.
Metrics Are Not Enough
Metrics are not an end unto themselves. Metrics play the same role in marketing that a thermometer plays in medicine. Although it is a powerful diagnostic tool, a thermometer alone has never healed anyone. Metrics alone won't save marketing. But metrics can be a powerful ingredient in an integrated regimen that can build brands, drive customer loyalty, and grow volume and profits. That overall regimen is a holistic marketing process that starts by gaining insights into the customer's deepest needs and moves down an orderly path to which each preceding step serves as input to the next and all are driven by insights, metrics and best practice marketing content.
The process approach described above is standard, even required, in virtually every other business function except marketing. The extraordinary improvements in supply side productivity are directly traceable to the broad scale embedment of process advocated by Drs. Deming and Juran. Despite the proven value of process, marketing remains strangely, some would say shamefully. averse to process. One thing is certain, the same management that today is demanding metrics will start demanding a serious marketing process tomorrow.
Get ready.
In the meantime, use the catalog of metrics in the appendix to identify or suggest an appropriate approach for your situation. Start by asking your management to identify their strategic expectations of marketing. If it's trial, choose some trial generating metrics, etc. At most companies, management has several expectations of marketing ranging from building brand equity to generating trial, spending dollars efficiently and building a stronger more capable marketing resource. That's why most practitioners will want to build a balanced scorecard of complementary metrics.
To facilitate the building of a balanced scorecard, we have labeled the examples by strategic intent. The appendix contains more than 50 different metrics that address different strategic intents. We hope these samples provide useful input as you assemble you scorecard.
About EMM Group, Inc.
EMM Group is the creator of and world leader in enterprise marketing management, the marketing transformation that combines process, best practice marketing content, metrics and technology to build strong brands that drive growth.
Our mission is to embed the discipline of enterprise marketing management at thought leading companies in every business sector around the world.
Our approach is detailed in our book, The New Marketing Mission, How Process, Metrics and Technology Can Unleash Growth.
Contact Information
Gordon Wade, Founding Partner
Ph: 513.608.9461
E Mail: gordonwade@emmgroup.net
Chris Charyk, Metrics Practice Partner Leader
Ph: 781.929.3418
E Mail: chrischaryk@emmgroup.net
Bibliography: Marketing Metrics Resources and References
Here are articles, Web sites, and Blogs we found helpful when preparing this report.
Articles:
Coming Up Short On Nonfinancial Performance Measurement, Ittner & Larcker, Harvard Business Review, 2003
This article makes a compelling case for the power and importance of "causal modeling" in the creation of non-financially oriented marketing metrics, such as consumer attitudinal states.
Brand Portfolio Economics, 2002 Mercer Management Consulting white paper
This article describes a framework for brand portfolio management, and outlines an analytical approach for assessing brand equity and its impact on consumer buying behavior
The Power of Brand Delivery, McKinsey Consulting position paper, 2001
This paper provides a helpful overview into the use of choice-based analytical approaches to understanding the drivers of brand equity, as an important initial step in the design of brand equity metrics.
Customer Satisfaction, Cash Flow & Shareholder Value, Gruca & Rego, 2003 MSI Working Paper Series
This article summarizes a study examining the impact of customer satisfaction on operational cash flows. The report attempts to quantify the impact of customer satisfaction on the magnitude and variability of future cash flow.
What Value Marketing? - A Position Paper on Marketing Metrics in Australia
2004 paper documenting findings from the Australian Marketing Institute's Marketing Metrics project. The paper outlines a framework for marketing metrics, and documents the most commonly used marketing metrics in various areas. Much of the framework material is derived from Tim Ambler's 2003 edition of "Marketing and the Bottom Line."
The One Number You Need to Grow, Frederick Reichheld, Harvard Business Review, 2003
Reichheld's classic article outlines the justification, calculation, and appropriate interpretation of the elegantly simple and powerful Net Promoter metric.
The Value of Strategy Decisions, 2005 Advanced Competitive Strategies article
This article provides a simple yet powerful approach to quantifying the impact of alternative strategic initiatives, an approach that is worth consideration in the evaluation of assessing the potential impact of marketing initiatives.
Measuring Marketing Effectiveness and Value: The Unisys Marketing Dashboard, Miller & Cioffi, 2004 Journal of Advertising Research article
A comprehensive description of the design and implementation of a marketing metrics dashboard at Unisys Corporation, with particular emphasis on the critical corporate cultural change management issues that need to be addressed.
Metrics for Linking Marketing to Financial Performance, Srivastava & Reibstein, 2004 Marketing Science Institute working paper
A detailed overview about the current state of academic attempts to link marketing activities and financial outcomes
Exploring the Brand Value-Shareholder Value Nexus for Consumer Goods Companies, Kerin & Sethuraman, 1998 Journal of the Academy of Marketing Science article
An important academic study exploring the link between brand value and shareholder value.
Getting Real About Customer Lifetime Value, Werner, 2003 Marakon Associates paper
A detailed exploration of the Customer Lifetime Value (LCV) concept and its importance in understanding marketing importance
The Customer Lifetime Value Concept & Its Contribution to Corporate Valuation, Bauer, Hammerschmidt & Braehler, 2003 Yearbook of Marketing and Consumer Research
A detailed exploration of the use of CLV and its linkage to company shareholder value.
Economics' Gift to Marketing, 2003 Mercer Consulting Journal article
This article provides a useful introduction to the use of the analytical technique of choice modeling to the assessment of brand equity.
Predicting the Unpredictable, Bonabeau, 2002 Harvard Business Review article
An introduction to the marketing modeling technique known as agent-based modeling (ABM), which offers the potential for delivering unique insights into the financial and brand equity implications of marketing investments.
How the Pursuit of ROMI Is Changing Marketing Management, September 2004 Journal of Advertising Research article
This article describes a framework and set of criteria for successful implementation of marketing ROI (ROMI) programs
Promotion Effectiveness: More Important Than Ever for Consumer Products Companies, 2005 AMR Research article
This article proposes a new set of metrics to understand promotions effectiveness, focusing on key supply chain dynamics.
Processes and methodologies for creating a global business-to-business brand, 2002 paper by Randall Rozin
The author of this paper is the Global Manager of Branding and Marketing Communications with Dow Corning Corporation. He provides a comprehensive framework for brand building in the B2B arena, complete with thoughts on appropriate metrics.
Online Panels: The New Frontier of B2B Research, Richard Thornton, UK Director, Market Research, Ciao GmbHBIG Annual Conference, May 2005
This paper summarizes recent European research into the benefits and potential limitations of using online customer panels for B2B customer attitude assessment. Good summary of the issues and considerations involved.
Web sites:
www.marketingnpv.com
Magazine/website covering topics in the overall area of marketing ROI
marketingtoday.com
Good source of current news articles pertaining to marketing accountability and ROI.
www.themeasurementstandard.com
A magazine/site (free content with registration) offering surprisingly actionable and specific articles devoted to media metrics.
www.msi.org/msi/publications.cfm
Publications site for the Marketing Science Institute (MSI) - many metrics-related white papers available here
www.cmomagazine.com
Magazine/website with intriguing and unique content, and a reasonably active blog. Good editorial integrity, as evidenced by their distinguishing "vendor whitepapers" from other content.
www.marketingprofs.com
Lots of academic-oriented marketing metrics content, some pearls among the more theoretical pieces.
www.brandfinance.com
Some unique brand valuation and brand scorecard white papers on this brand consultancy's site
www.bettermanagement.com
This site contains several articles on the subject of corporate performance management with specific applications in marketing and marketing strategy
www.brandchannel.com
Interbrand's site offering unique white papers on the assessment of brand equity
www.btobonline.com
Site/magazine devoted to the broad area of B2B marketing, including some pragmatic and helpful B2B metrics articles.
www.marketingadvocate.com
Site devoted to B2B marketing techniques, technologies and processes. Good collection of relevant white papers on a wide variety of B2B marketing and technology topics.
www.marketingsherpa.com
Content and paid download site devoted to marketing ROI and related topics - good unique content
Blogs:
blog.startwithalead.com/weblog/public_relations_pr/
One of the better blogs devoted to B2B marketing topics, with a particular emphasis on public relations metrics
decker.typepad.com/
General marketing blog with some unique perspectives and entries on creating a "culture of marketing ROI"
www.buzzmetrics.com/blog/
The official blog of BuzzMetrics, a word-of-mouth research and planning firm, and co-founder of the Word of Mouth Marketing Association (WOMMA). Unique reflections on the "discipline" of word-of-mouth marketing and the societal and business impact of consumer-created content.
www.morningstarmultimedia.com
"Professional services marketing blog" which many entries devoted to the discussion of marketing ROI
Introduction to the Appendix
(Appendix to ANA Marketing Accountability Task Force Findings)
The work of the ANA Marketing Accountability task force was twofold: (1) to review current best practices used by ANA member companies to improve their marketing accountability; and (2) to provide a practical catalog of accountability metrics used by industry practitioners from which marketers may choose those appropriate to their unique situation. This need relates directly to one of the task force's principles of best practice - identifying management's strategic expectations of marketing and developing metrics to express progress or lack thereof in the targeted responsibility.
Current best practice suggests that metrics reflect the strategic intent which a company's management has for its marketing function. If management expects marketing to build brand equity then measure that. If delivering sales prospects is important, measure that. If increasing the lifetime value of customers is important, measure that. With this principle in mind, the appendix that follows groups metrics by strategic intent.
Every company and every vertical is different. That's why the appendix includes several metrics under each strategic intent. These unique metrics represent different ways which study participants responded to their management's request for accountability about a specific strategic intent they attribute to the marketing function.
The appendix provides a method of calculation, likely data sources and the types of verticals for which this metric may be appropriate. We do not claim this list is exhaustive. We expect, indeed we hope that this âstarter' list will inspire users to develop different but more appropriate metrics for their company.
This appendix represents but a beginning. We welcome comments, questions and additions from every marketer.
Innovation
In many companies, marketing has at least a partial responsibility for innovation. Some study participants reported difficulty in developing appropriate metrics for innovation. When we queried others about how they were measuring âinnovation', they reported the metrics listed below. Two of these metrics seemed particularly creative. One compared the projected sales value of their innovation pipeline to the gap in their sales forecast between the total sales gain needed to meet Wall Street's expectations and the projected value of current products. Another participant claimed to measure âspeed to market' with innovation as a critical metric in a category where product news is of paramount importance.
Innovation |
Definition/Calculation |
Source of data |
Calculation or technique |
Verticals where appropriate |
Problems or concerns |
$ sales |
Sum of sales of products/services/retail locations < 3 yrs old |
Internal Company sales |
Simple addition. Results compared to previous year |
Virtually universal |
Simple, broadly applicable, practical measure |
% of $ sales from innovation |
Sum of sales of products/services/retail locations < 3 yrs old divided by total sales compared to previous year |
Internal Company sales |
Simple addition and division |
Virtually universal |
Simple, broadly applicable, practical measure |
Innovation competitiveness |
Sum of sales of products/services/retail locations < 3 yrs old divided similar sales of leading competitor |
Internal Company sales, estimate of competitive sales from third party syndicated data or competitive public data |
Simple addition and division |
Virtually universal |
Competitive data sometimes hard to calculate. Requires agreed internal data collection protocol |
Profitability of New product/service |
Ratio of margin of new products /services versus existing product/services |
Internal Company cost and profit data |
Divide profit margin of new products /services by that of existing products /services |
Virtually universal |
Accounting conventions required to determine overhead attribution among new/current products |
New product/service pipeline sufficiency |
Ratio of estimated sales of new product portfolio vs. stated sales goals |
New product estimates from 3rd party or internal source and stated company sales goals. |
Addition of new product estimates divided by stated sales goals |
Virtually universal |
Determination of time periods for comparison. Source of new product sales estimates (e.g. external third party new product estimation service or internal source) |
Innovation |
Definition/Calculation |
Source of data |
Calculation or technique |
Verticals where appropriate |
Problems or concerns |
Customer growth from new products/services |
% of new product/service/location customers new to brand/company customer base |
Household panel data, customer survey, CRM sales records |
Divide new customers/consumers of product/ service by known customer /consumer set before new product |
Virtually universal |
Determining number of new customers. Some verticals may require customer survey to ID new customers |
Research productivity |
Number of patents received versus previous year |
Patent filings |
Compare current years patents to previous years |
Most product oriented marketers |
Many valuable innovations are not subject to patent filings. Patents per se do not guarantee commercial or competitive value |
Organizational innovation |
Number of suggestions annually or number of suggestions /employee |
Internal company âsuggestion boxâ |
Collect suggestions and total or divide total by number of employees |
Virtually universal |
Quality of suggestions. Executive response to employee input. Recognition of quality. An input measure. No guarantee of commercial value |
Innovation implementation |
# of cost reduction suggestions from employees implemented |
Internal suggestion and cost reduction data |
Capture of cost reduction ideas implemented within past 12 months |
Virtually universal |
Capture of source of cost reduction suggestion and implementation. Determination of cost reduction realization |
Cost reduction innovation |
$ value of cost reduction suggestions from employees implemented |
Internal suggestion and cost reduction data |
Capture of cost reduction ideas implemented within past 12 months |
Virtually universal |
Capture of source of cost reduction suggestion and implementation. Determination of cost reduction realization |
Quality of innovation |
# of new product/service ideas given âtop 2 boxâ rating |
Consumer response to idea in survey or after trial |
Standard âdefinitely would buy/probably would buyâ survey response among target audience |
Most goods and services categories |
Use of standard research protocol providing benchmarks. Probably requires external third party research intervention. Not a basic responsibility of marketing |
Extension of consumer /customer franchise |
# of customers/consumers purchasing new product /service within year one after introduction |
Household panel data, customer survey, CRM sales records |
Collection of purchases dependant upon data collection method used |
Most goods/ services/retail categories |
Those purchasing may not be new to franchise merely transferred from other product/service or retail location |
Speed to market |
Average time period from receipt of patent approval or âtop two boxâ score |
Internal marketing records |
Difference between date of receipt of positive legal or marketing notice and introduction of idea into sales with customer |
Many product /services/retail categories |
Isolating start date. Additionally, marketing not in control of many development issues |
Differentiation
Many brand equity models put a premium on the brand's being seen as different by consumers. It's no surprise that many participants reported metrics aimed at measuring marketing's success at positioning the brand as âdifferent' from competitors. Difference comes in many âflavors'. Some measure âbetter value', others more emotional attributes such as âmakes me feel better about myself' or âmakes life more enjoyable'. The precise collection of words depended upon the product category but the intent was to measure âdifference'.
Differentiation |
Definition/Calculation |
Source of data |
Calculation ortechnique |
Verticals where appropriate |
Problems or concerns |
Special product/service/ store |
Average rating on 5 point scale in answer to description âThis is a special store, product or serviceâ |
Customer survey comparing service or product to benchmark products and services |
Ranking on 5 point scale compared to benchmark products, stores or services |
Virtually universal |
Care required in framing question, selecting respondents and benchmarks |
Unique product/service/ store |
Average rating on 5 point scale in answer to description âThis is a unique store, product or serviceâ |
Customer survey comparing service or product to benchmark products and services |
Ranking on 5 point scale compared to benchmark products, stores or services |
Virtually universal |
Care required in framing question, selecting respondents and benchmarks |
Product/service/ store ranking on âvalueâ |
Average rating on 5 point scale in answer to description âThis store, product or service is a good valueâ |
Customer survey comparing service or product to benchmark products and services |
Ranking on 5 point scale compared to benchmark products, stores or services |
Virtually universal |
Care required in framing question, selecting respondents and benchmarks |
Product/service/ store ranking on âmakes life more enjoyableâ |
Average rating on 5 point scale in answer to description âThis is store, product or service that makes life more enjoyableâ |
Customer survey comparing service or product to benchmark products and services |
Ranking on 5 point scale compared to benchmark products, stores or services |
Many retail, service and product categories |
Care required in framing question, selecting respondents and benchmarks |
Product/service/ store ranking on âmakes me feel good about myselfâ |
Average rating on 5 point scale in answer to description âThis is store, product or service that makes me feel good about myselfâ |
Customer survey comparing service or product to benchmark products and services |
Ranking on 5 point scale compared to benchmark products, stores or services |
Virtually universal |
Care required in framing question, selecting respondents and benchmarks |
Customer Centricity
At many study participants, marketing owns the customer and is responsible for keeping the company âcustomer centric'. Not surprisingly, the metrics for this important strategic intent of marketing are many and varied across B2C and B2B. They range from familiar concepts such as âcustomer loyalty' to less familiar ones such as Frederich Reichheld's ânet promoter score' and the number of training hours that a B2B company invests in its customers.
CustomerCentricity |
Definition/Calculation |
Source of data |
Calculation ortechnique |
Verticals where appropriate |
Problems or concerns |
Customer or consumer loyalty |
% of customer/consumer needs in category being satisfied by product, service or retail outlet |
Household panel data, customer survey, CRM sales records |
Value of company product/ services divided by total customer purchases from all competitors offering similar products and services |
Most goods/ services/retail categories |
Difficult calculation in many verticals because of data voids |
# of products purchased |
# of companies multi-product line purchased by average customer/consumer |
Company sales records or survey of end users of third party distributors |
Capture the number of company products purchased by each customer. Compute the average |
Many B2B verticals |
Distribution through third parties may complicate data capture |
Rating as vendor by customers |
Customer ranking of company as vendor or supplier |
Customer survey permitting comparison to many customer suppliers |
Ranking on 5 point scale in response to question: How do you rank company X as supplier?â |
Many B2B companies |
Often more influenced by product or service level than by marketing per se |
Training of customer personnel |
Average hours of training provided to customerâs employees |
Internal training records |
Capture number of hours from company and customer records. Convert to Hrs/customer employee |
Those where company and customer success depends upon knowledgeable customer employees |
Training sometimes self administered by employee, difficult to capture |
Customer ranking of products and services |
Customer ranking of companyâs products or services |
Survey of customer personnel familiar with products |
Ranking of company products /services on 5 point scale permitting comparison to competitorâs productâs/services |
Many B2B verticals |
Often more influenced by product or service level than by marketing per se |
Net Promoter score ( Riechheld concept) |
Difference between strong âpromotersâ of company and detractors |
Customer survey |
Calculation developed by Riechheld. See article in bibliography |
Most goods/ services/retail categories |
Requires adherence to disciplined survey methodology developed by Riechheld |
CustomerCentricity |
Definition/Calculation |
Source of data |
Calculation or technique |
Verticals where appropriate |
Problems or concerns |
Key Characteristics ranking |
Customer ranking of company on key performance attributes of product or service |
Customer survey |
Ranking on five point scale of selected attributes important to customers |
Most goods/ services/retail categories |
Requires knowledge of important attributes, careful choice of respondents, framing of questionnaire |
Customer profit on company products |
The $ profit realized by client on companyâs products |
Customer records or customized study |
Can be simple capture of customer resale data or sophisticated activity based costing study in complex supply chain industries |
Companyâs products are resold to third party or consumers |
Requires collaboration of customer. May require sophisticated data collection and cost accounting approach (ABC). May not be marketing influenced |
Marketing Efficiency
If marketing accountability means anything, it means spending the marketing budget efficiently. Therefore it's no surprise that participants reported a broad range of marketing efficiency metrics. Many of these metrics were generated by sophisticated market mix modeling but some were simpler such as the focus on controlling ânonworking' $'s as a percent of the total advertising budget. Special mention should go to the sophisticated attempt to capture the change in lifetime value of the company's customer franchise divided by the total marketing expenditure for the year. This is a particularly artful attempt to reward advertising for attracting a customer that generates revenue for a lifetime.
Marketing Efficiency |
Definition/Calculation |
Source of data |
Calculation or technique |
Verticals where appropriate |
Problems or concerns |
Ă LCV/ annual marketing cost |
LCV Current yr âLCV yr last yr / marketing $âs current year |
Syndicated panel data, company sales records and marketing budget data |
Compute the aggregate lifetime value of customers in franchise, subtract last yearâs value. Divide the difference by annual marketing costs |
Valuable across many verticals, B2B and B2C |
Requires sophisticated calculation regarding customer loyalty decay curve. LCV not universally appropriate |
Non working $âs control |
Non-working $âs as % of total marketing or ad $âs |
Internal budget records |
Capture all ad expenses not directly touching consumers (department overhead, commercial production costs, research, website development, etc) divide by total marketing or ad costs |
All categories |
Requires accounting convention identifying ânon-workingâ dollars |
Recall or persuasion per $ of ad production |
Respondent recall (or persuasion) divided by the total cast of production |
Syndicated research provider and internal cost records |
Divide recall by cost of producing campaign, index versus past campaigns e.g. recall of 15/$300k = 5 recall points per $100K |
All categories |
Short term measure. Higher production values may âwear wellâ |
Return on advertising investment |
Return per dollar invested in specific period by specific media investment |
Time series data analytics |
Isolation of incremental revenue and associated costs using market mix or multi variate analysis |
Any vertical or expenditure meeting specific conditions primarily availability of time series data |
Requires time series input data, usually requires experienced third party analysis, specific conditions. Not applicable to many B2B expenditures |
Marketing Efficiency |
Definition/Calculation |
Source of data |
Calculation or technique |
Verticals where appropriate |
Problems or concerns |
Return on promotional investment |
Return per dollar invested on promotional option (e.g. price reduction, couponing, etc) |
Time series data analytics |
Isolation of incremental revenue and associated costs using market mix or multi variate analysis |
Any vertical or expenditure meeting specific conditions primarily availability of time series data |
Short term focus. Requires specific conditions, usually requires experienced third party analysis. Not applicable to many B2B expenditures |
Customer value versus acquisition cost |
Calculate lifetime value of customer. Divide by acquisition cost |
Internal marketing and customer data |
Identify direct costs associated with customer enrollment. Calculate lifetime value of customers similarly acquired. Divide value by acquisition cost |
Many verticals where direct to consumer marketing makes calculation both important and relevant |
Requires rigorous accounting controls and sophisticated calculation of customer worth. Decay curve or loyalty level is key |
Reduce sales cycle time |
Identify historic time required to close sale on new account or new product/service. Measure change over time |
Internal sales records |
Review sales records from CRM files to identify sales cycle for new client or new product /service |
Any vertical where marketing closely supports sales with prospect focused efforts |
Marketing does not control all elements of sales cycle. Metric requires accounting conventions and policy agreement |
Trial Generation
In many companies, trial generation is perceived as one of marketing's most important strategic responsibilities. Therefore, metrics about trial generation appeared on many of the dashboards which study participants forwarded for our perusal. These trial metrics came in many forms but the three shown below capture the common ways of measuring trial generation. These metrics were often complemented by those calculating the cost per new trier, the cost of a new customer, etc. These metrics were especially important in verticals such as consumer financial services and Telco where gaining new customers absorbs virtually all marketing funds not focused on equity building.
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Trial Generation |
Definition/Calculation |
Source of data |
Calculation ortechnique |
Verticals whereappropriate |
Problems or concerns |
Extension of consumer /customer franchise |
# of customers/consumers purchasing new product /service within year one after introduction |
Household panel data, customer survey, CRM sales records |
Collection of purchases dependant upon data collection method used |
Most goods/ services/retail categories |
Those purchasing may not be new to franchise merely transferred from other product/service or retail location |
New accounts |
# of new accounts added in past period |
CRM sales records or distributor records |
Capture of new accounts from sales or distributor records |
Most B2b verticals |
New account activity rarely the sole responsibility of marketing |
Trial of new location/branch |
# or % of targets visiting or purchasing from new retail outlet or service branch |
Internal sales records from location |
Capture of customer data from new location |
Many retail and B2b verticals |
May require adjustment for cannibalization of existing location. May require identification of target consumers to compute % penetration |
Lead Generation
In many B2B companies, lead generation for the company's sales force is the primary responsibility of the marketing function. This seemingly simple concept presented study participants with many problems ranging from separating leads among overlapping marketing efforts to associating a lead with efforts which occurred well before it actually showed up in the hopper. Companies who are serious about isolating the effectiveness and efficiency of lead generation often must create rigorous test and control areas or panels. Even this innocent approach often created problems when a specific sales region realized it was functioning as a âcontrol' market and thereby being deprived of effort directed into the test area.
Lead Generation |
Definition/Calculation |
Source of data |
Calculation or technique |
Verticals where appropriate |
Problems or concerns |
Number of sales leads generated |
# of sales leads generated by campaign in period |
Company contact center |
Capture of leads in response to outbound or inbound inquiry |
Most goods/ services/retail categories |
Requires means of identifying campaign generating lead |
Cost / sales lead |
Cost of campaign divided by # of sales leads generated by campaign in period |
Marketing cost records. Company contact center |
Determine incremental cost of campaign. Divide by # of leads in response to outbound or inbound inquiry |
Most goods/ services/retail categories |
Requires internal accounting conventions regarding cost definitions. Requires identification of campaign generating lead |
Lead conversion ratio |
Percentage of leads converted into a sale |
Company contact center. Company sales records |
Determine # of leads in response to outbound or inbound inquiry. Divide into number of leads converted to sale |
Many B2B categories |
Requires internal accounting conventions regarding what constitutes a sale. Requires identification of campaign generating lead |
Awareness
In most companies B2C or B2B, creating awareness is one of the primary responsibilities of the marketing function. As we pointed out in the body of the report, âawareness' is an 'intermediate' metric which is qualitatively better than an input metric but much less valuable than an output metric such as one that measures a behavior induced by marketing e.g. sales. None the less, many marketing departments are held responsible for âawareness', a metric that turns out to be almost more trouble than it is worth. In B2B companies, a related metric, âinclusion in a purchase consideration set', has more to recommend it but also presents problems in isolating the activity causing a prospective buyer to include a specific company in its group of prospective suppliers.
Awareness |
Definition/Calculation |
Source of data |
Calculation ortechnique |
Verticals where appropriate |
Problems or concerns |
Top of mind awareness |
Unaided and aided awareness of company among selected respondent base |
Survey |
Response by selected respondents to survey question regarding awareness of company |
All verticals |
Awareness does not imply preference. Survey can be structured to provide data beyond awareness. Choosing respondents and developing research protocol are critical |
Consideration Set Inclusion |
% mentioning company as within consideration set for goods or service purchase |
Survey |
Response by selected respondents to question: âWhat brands/companies would you consider for this product or serviceâ |
All verticals |
Survey can be structured to provide valuable data beyond âconsiderationâ. Choosing respondents and developing research |
Advertising Copy
Developing effective advertising copy is one of the few responsibilities for which the marketing function can rightfully claim almost sole ownership internally. As you might expect, metrics for this responsibility appear on lots of dashboards. These metrics range from a focus on âpersuasion' and recall to various measures of characteristics such as ânews value', âdifference', etc. One interesting metric emerging in service and retail verticals measures the balance between equity focused and price /promotion advertising in the companies media mix. Although technically more of a media metric, we included it here under ad copy.
Advertising Copy |
Definition/Calculation |
Source of data |
Calculation or technique |
Verticals where appropriate |
Problems or concerns |
Absolute Recall and index of recall |
% of respondent audience recalling key message elements/ index versus comparable categories |
Syndicated research provider |
Specific technique varies by third party research provider. All involve exposure of commercial to targeted respondent audience and query of points recalled |
All categories |
Research service should provide norms to permit indexing versus commercials from comparable categories |
Absolute persuasion and index of persuasion |
% of respondent audience adjudged to be positively persuaded by credibility and appeal of copy benefit promise |
Syndicated research provider |
Specific technique and response metric evaluation varies by third party research provider. |
All categories |
Research service should provide norms to permit indexing versus commercials from comparable categories. A âgold standardâ issue for third party providers |
Absolute âDifferentâ and index of difference |
% of respondent audience judging product /service or company to be positively âdifferentâ from competition |
Syndicated research provider |
Specific technique and response metric evaluation varies by third party research provider. |
All categories |
Research service should provide norms to permit indexing versus commercials from comparable categories |
Absolute âLikeabilityâ and index of âlikeabilityâ |
% of respondent audience judging commercial, product /service or company to be âlikableâ or âenjoyableâ |
Syndicated research provider |
Specific technique and response metric evaluation varies by third party research provider |
All categories |
Research service should provide norms to permit indexing versus commercials from comparable categories. Likeability does not necessarily imply preference |
Absolute âNew informationâ and index of ânewsâ |
% of respondent audience judging commercial provides ânews or new informationâ |
Syndicated research provider |
Specific technique and response metric evaluation varies by third party research provider |
All categories |
Research service should provide norms to permit indexing versus commercials from comparable categories. News itself not necessarily persuasive |
Advertising Copy |
Definition/Calculation |
Source of data |
Calculation or technique |
Verticals where appropriate |
Problems or concerns |
Engagement |
Absolute and trended measure of extent to which specific media alternatives are engaging and influencing consumers |
Various syndicated and proprietary services |
Varies by external provider. Usually requires customized survey |
Most verticals, B2C and B2B |
Emerging discipline. Suppliers should provide norms and validation techniques |
Equity advertising as % of total advertising |
The percent of total advertising dollars devoted solely to equity building with no short term demand enhancement elements |
Internal advertising expenditure records |
Capture total advertising expenditures for all channels. Identify those expenditures solely focused on equity building. Divide them by the total |
Most verticals, B2C and B2B |
Requires internal policy agreement or accounting conventions to isolate equity |
Margin Enhancement
This âstrategic intent' underscores the complexity of the metrics issue because in most companies, the marketing function has little or no direct responsibility for âmargin'. In some verticals, however, the marketing function does play a roll in managing margin as part of the overall demand creation value stream. In other verticals, management views âmargin enhancement' as a critical indicator of marketing's ability to position the product as a superior value in the minds of consumers.
MarginEnhancement |
Definition/Calculation |
Source of data |
Calculation ortechnique |
Verticals where appropriate |
Problems or concerns |
Average margin and trended index |
Net margin on targeted goods and services |
Internal records |
Identify margin before corporate overhead |
All categories |
Marketing only one factor influencing margins |
Discount avoidance |
% of sales, units or orders sold at full margin without discount. |
Internal records and third party syndicated reports |
From third party reports or company records identify $ sales of products / services sold at full margin. Divide by total sales. (or units or orders) |
All categories |
Marketing only one factor influencing margins and competitive conditions |
Willingness to pay a premium |
% of target willing to pay a premium price for product or service |
Survey |
Response to survey question or series of questions aimed at eliciting value judgment from consumers /customers |
Many verticals and product categories |
Marketing only one factor influencing margins and attitudes towards value |
$âs per unit sold |
The revenue realized per unit of product or service sold |
Internal company records |
Capture total units sold (hotel rooms rented/ air line miles sold.) Calculate total revenue for period. Divide revenue by units |
Verticals where marketing is responsible for revenue management |
Marketing only one factor influencing margins and overall demand |
Brand Equity
Brand equity metrics in one form or another appear on a high percentage of participant dashboards and rightfully so. This metric captures the most important long term responsibility of marketing, the one âstrategic intent' for which marketing ought to demand ownership and accountability. Metrics in this group come in a variety of types. Some utilize external third party brand equity measures from numerous reputable suppliers with a panoply of interrelated measures and lots of benchmarks across categories. Other companies focus monomaniacally on âowning' one benefit which they measure in the absolute and relative to competition. Still others develop sophisticated total equity or preference scores by rolling up a battery of measures from a âbrand tracker'. Marketers should definitely capture brand equity using the methodology which balances unique category characteristics, cost and competitive issues.
Brand Equity |
Definition/Calculation |
Source of data |
Calculation or technique |
Verticals where appropriate |
Problems or concerns |
Price premium value |
The price premium consumers are willing to pay for a brand or service delivered by a specific brand |
Proprietary survey methodologies |
Response to a set of specific queries that isolate the premium associated with the brand often using proprietary third party techniques augmented by conjoint analytical approach |
Many verticals and product categories |
Marketing only one factor influencing margins and attitudes towards value |
Attribute/benefit Ownership |
Significant difference vs. competition in brandâs identification with attribute deemed important to the brand |
Brand tracker type survey |
Research which provides quantified delta of brand versus competitive set on specific emotional or functional benefit |
Many verticals and product categories |
Marketing only one factor influencing margins and attitudes |
Willingness to pay a premium |
% of target willing to pay a premium price for product or service |
Survey |
Response to survey question or series of questions aimed at eliciting value judgment from consumers /customers |
Many verticals and product categories |
Marketing only one factor influencing margins and attitudes |
Brand Equity |
Definition/Calculation |
Source of data |
Calculation or technique |
Verticals where appropriate |
Problems or concerns |
Bonding/emotional attachment |
A measure of the emotional bond between brand/company and the customer |
Brand equity survey |
A computed figure based on a battery of responses in several proprietary third party brand equity models |
Many verticals and categories |
Consumer/customer attitudes towards brand/company influenced by non marketing factors (e.g. usage experience, innovation, importance of functionality |
Category driver ownership |
Significant difference in brandâs identification with attribute proven to drive category preference |
Brand tracker type survey |
Research which provides quantified delta for brand on attribute/ benefit computed to be primary contributor to preference in category |
Many verticals and product categories |
Marketing only one factor influencing margins and attitudes towards preference |
Purchase Behavior
These metrics and others involving campaign response appear on a high percentage of dashboards especially in verticals where the marketing function spends large amounts of money to generate an immediate consumer response. In these verticals and others, the marketing function spends lots of energy and money on the more promotional side of the ledger as opposed to equity building. It should be no surprise that management wants to know how consumers responded to these shorter term more tactical efforts. One metric, however, stands out for having a longer term more strategic value and that is the annual value of a consumer or customer. This is a fundamental metric that all marketers should understand and utilize in marketing planning. In a few verticals, this metric is of no value (e.g. power generation turbines bought every 20 years) but in most categories this is one metric everyone should capture.
Purchase Behavior |
Definition/Calculation |
Source of data |
Calculation or technique |
Verticals where appropriate |
Problems or concerns |
Frequency of purchase |
The number of times a consumer /customer purchases during a specific time period |
Household panel, loyalty card, company sales records, survey |
Capturing of purchase behavior from various sources |
Many b2C and B2b verticals and product categories |
Marketing function may not control levers most valuable in driving frequency of visit |
Annual purchase value of consumer/customer |
Sum of all purchases in the past year |
Household panel, loyalty card, company sales records |
Capturing of purchase behavior from various sources |
Many b2C and B2b verticals and product categories |
Marketing function may not control levers most valuable in annual purchase |
Transaction value |
The average value of an individual consumer /customer purchase transaction |
Household panel, loyalty card, company sales records |
Capturing of purchase behavior from various sources |
Many b2C and B2b verticals and product categories |
Marketing function may not control levers most valuable in transaction value |
Marketing Human Resources
This metrics group's strategic intent is to provide management with an insight on the marketing department's capability building. It is meant to answer the question: âAre we building an effective, competitive marketing capability internally'? The subject of capability building is growing in importance across all functions and verticals. Marketing is receiving its fair share of scrutiny in this regard. Measuring the capability of the marketing human resource is difficult because the ultimate metric is the competitive impact of the department's output. Nonetheless, some companies are beginning to capture various âsoft' and âhard' measures to understand the broad subject of marketing human resource âcapability'.
Marketing Human Resources |
Definition/Calculation |
Source of data |
Calculation ortechnique |
Verticals where appropriate |
Problems orconcerns |
Learning organization |
Ranking of marketing department as learning organization by marketing employees |
Brand tracker type survey |
Internal survey with rank on scale by marketing employees |
All verticals and product categories |
Should be compared to other functions and trend |
Department Training |
Amount and quality of training for marketing personnel |
Brand tracker type survey |
Internal survey of training quality with rank on scale by marketing employees plus capture of completed training hours |
All verticals and product categories |
Should be compared to other functions and trend |
Attitude toward department |
Ranking of marketing department for âinvesting in meâ |
Brand tracker type survey |
Internal survey with rank on scale by marketing employees on question concerning perception of commitment to employees |
All verticals and product categories |
Should be compared to other functions and trend |
Relative respect |
Ranking of marketing department on relative respect within company by marketing employees |
Brand tracker type survey |
Internal survey with rank on scale by marketing employees versus other functions. |
All verticals and product categories |
Should be compared to other functions and trend |
Turnover barometer |
Ranking of recent voluntarily departed employees |
Company personnel records |
Capture personnel ranking of recent voluntary departures. Average and trend |
All verticals and product categories |
Should be compared to other functions and trend |
Training hours |
Average training hours /training courses taken by Marketing staff |
Internal company records |
Capture # of hours in training classes or number of training courses passed. |
Broadly appropriate for virtually all verticals |
Does not speak to quality of training or its effect on business |
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 Marketing Human Resources |
Definition/Calculation |
Source of data |
Calculation ortechnique |
Verticals where appropriate |
Problems orconcerns |
% of marketing employees advancing in grade |
The percentage of employees employed > 2 years who were advanced in grade |
Internal company records |
Identify employees employed > 2 years. Identify # advanced in grade. Calculate % advancement |
Broadly appropriate for virtually all verticals |
Must be used as part of battery of balanced scorecard metrics. Compared to industry norms etc |
Turnover |
A balanced scorecard including turnover among employees< 2 years, among employees ranked superior, among middle management tier |
Internal company records |
Identify separated employees place within measured group, derive %. Compare over time |
Broadly appropriate for virtually all verticals |
Needs to be placed in perspective of vertical and tracked over time. Rationale behind turnover needed |
Public Relations
The somewhat ephemeral nature of the public relations function has led to a frenzy of metrics development. Several highly competent industry groups have developed approaches worthy of study. As one of our study participants pointed out, the irony of all these efforts to âjustify' public relations is that everyone intuitively agrees about the power and credibility of an artful PR campaign. Nonetheless, it remains challenging to disaggregate the effects of PR from many other company activities. This is especially true because many companies lean hardest upon PR to mitigate the negatives of some external untoward event. The felonious attempt to point the âfinger' at Wendy's is a classic example of the challenges of creating PR metrics. The chart below offers some creative metrics shared with us.
Public Relations |
Definition/Calculation |
Source of data |
Calculation or technique |
Verticals where appropriate |
Problems or concerns |
AVEâs (advertising value equivalent) |
The conversion of non paid media mentions into the equivalent of advertising gross rating points |
Third party data providers |
Capture of impressions by media type and then their conversion into the equivalent of paid gross rating points |
Many verticals and product categories |
Difficult to ascertain quality of mention, context, message delivered or affect on message recipient. A classic âinputâ measure |
Target Stakeholder Response |
Attribute ranking among selected stakeholders (Industry thought leaders, media, shareholders, etc) |
Brand tracker type survey |
Survey research of targeted stakeholders on key industry and company attributes |
Many verticals and product categories |
Requires proper selection of respondents and survey technique |
Critical article response |
The percentage of major industry articles especially those with a critical viewpoint which contain the companyâs detailed response |
Internal tracking |
Identify all major articles in key publications. Compute percent containing a specific response from the company |
Many verticals and product categories |
Requires definitions regarding major article and company response. Does not measure credibility or impact of response only ability to respond |
Response to specific effort |
# or % of visits on website to specific communication to targeted constituency |
Web tracking software |
ID respondents to E-mail campaign to specific constituents with targeted message. Calculate # targets or % responding in suggested manner (e.g. visits to website) |
Many verticals and product categories |
Does not measure effect of message in changing attitudes only effectiveness in driving target to web page |
Public Relations |
Definition/Calculation |
Source of data |
Calculation or technique |
Verticals where appropriate |
Problems orconcerns |
Attitude change among target |
Ă in attitudes among test and control target audience |
Web tracking software |
ID respondents to E-mail campaign to specific constituents with targeted message. Measure attitudes pre and post among test and control |
Many verticals and product categories |
Requires careful selection of test and control groups |
Media impact indices |
Index of impact including # of stories, quality, tonality etc |
Proprietary measures from third parties |
Third party syndicated sources apply proprietary selection and evaluation metrics |
Broadly available for virtually all verticals |
Generally do not measure effect or âoutputâ of PR effort only âinputsâ or âintermediateâ metrics or qualitative measures |
Attribute ownership among target audience |
Ranking on monadic 5 point scale of key strategic attribute among selected target audience |
Survey research |
Select target audience. Identify attribute to measure. Use simple metric like 5-point monadic |
Broadly available for virtually all verticals |
PR effort not only influence on respondent rankings. Research must focus on attitudes tied more closely to PR activities |
Awareness of âgood worksâ |
Awareness among selected respondents of companyâs âgood worksâ |
Survey research |
Select target audience. Establish unaided and aided awareness of companyâs involvement in specific cause or response |
Broadly available for virtually all verticals |
Awareness does not necessarily translate into improved attitudes |
Attitudes among those aware of âgood worksâ |
Ranking on brand tracker among those aware/unaware of company âgood worksâ |
Brand Tracker or survey |
Identify activity to measure. Use simple metric like 5-point monadic. Compare aware versus unaware respondents to isolate value of âgood worksâ |
Broadly appropriate for virtually all verticals |
PR effort not only influence on respondent rankings. Research must focus on attitudes tied more closely |
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Source
"2005 ANA Marketing Accountability Task Force Findings." ANA; Gordon Wade, Founding Partner, EMM Group. July 2005.