Measuring Integrated Marketing: Beware the Short-Term Bias
May 9, 2008
Marketing measurement, at best, tends to slant toward short-term payback at the expense of longer-term brand and customer development. But when you add heavy doses of highly measurable online tactics to more quantitatively elusive offline approaches, the slant can become an outright bias. Unchecked, this can seriously impair the marketer's ability to make smart decisions beyond the next quarter or two - particularly with fully integrated programs designed for lead generation and brand and customer development.
The pressure for short-term payback exists for two reasons: finance cannot afford to "trust" the marketer for more than one or two periods into the future; and the marketer cannot "prove" that the immediate impact of an integrated program understates the true value derived. Rising above the stalemate requires new thinking in how marketers plan, execute, and measure their programs, not to mention the way they communicate their expectations and findings to finance.
Here are two approaches to stimulating new thinking:
1 Building the Value Chain
The brand value chain (adapted from the Brand Value Chain of Kevin Keller of Dartmouth and Don Lehmann of Columbia) helps clarify and document, for all to see, the anticipated relationship between the elements of an integrated marketing program and the financial value created through stronger brand equity. In the simplest version of the value chain, an integrated campaign leads to some evolution in brand image, which leads to some change in "equity" that translates into financial value.
The best way to understand the brand value chain is to begin with the end in mind. Specifically, what sort of financial value is the integrated campaign supposed to lead to? Is it intended to increase the incidence of purchase? To decrease price sensitivity? To open new distribution channels through superior category leverage? To project a more powerful negotiating position to vendors and suppliers? Or some combination of the above?
Next, the value chain tests your ability to clarify your expectations logically and define the specific dimensions upon which brand equity must evolve to achieve success. How do you expect the thoughts, beliefs, attitudes, associations, and permissions people ascribe to the brand to change or grow? What do you believe precedes seeing the desired economic behavior?
Finally, the "image" results are the early indicators of progress (e.g., salient awareness, attribute- or characteristic-specific awareness, or more accurate awareness of the brand's points of parity and/or points of difference). They are a necessary but insufficient condition for a profitable outcome. Acknowledging this works to establish the necessity of time to translate imagery into equity into financial gain.
Once you have the value chain constructed in a way that reflects your hypotheses about the way things work, you can identify which links in the chain you are able to test/read/ validate and which you cannot. This brings focus to the information gaps and raises the question of tradeoffs between the cost and value of further insight for all to assess. If finance is so keen to have precise insight into the financial outcomes of brand advertising, they should be willing to invest in the research, testing, and experiments that would have to go into properly tracking the flow of results through the value chain. Otherwise, they will have to accept informed assumptions and estimating processes, which find the balance between cost and benefit.
The brand value chain has one significant flaw: it follows the now widely discredited "hierarchy of effects" theory. The theory prescribes that awareness leads to conscious consideration, which in turn precedes behavior. Although the model has been found to have only limited validity in the real world, the value chain does provide a starting point for you to map out how you think your category dynamics operate so you can construct one in a format that is the most relevant to your business.
2 Calculating Customer Franchise Value
If you're still struggling to find the business case for long-term payback, consider customer franchise value (CFV), the net present value of the customer base. CFV looks at the number of customers today and their current buying behavior and compares that to how things will be different during and after the marketing programs run their course. The difference between the two - accounting for interaction effects between program elements, competitive activity, or other marketplace noise - is the incremental value created by the integrated plan over time, expressed as an asset.
Calculating CFV need not bog down in endless debates about the perfect lifetime value assumptions (e.g., how much customers might spend on new products yet to be offered, or how many referrals they may bring). Just look at what they buy today and how long they can reasonably expect to continue that behavior based upon historical precedent.
In fact, let finance come up with the conservative formula they're happy with. Then develop your assumptions about how much you will change the key input variables of acquisition, retention, spend, and referral with the proposed program compared with your assumptions without it. The difference, which can be separated into forecast periods to show the expected flow rate, is the incremental customer asset value being created in relationship to the advertising expenditure by month or by quarter.
CFV is another way to help clarify, in financial terms, the expected payback over time and the stages of evolution you envision progressing through, which allows all to see how the early warning indicators can be defined. The transparency helps align the key stakeholders on the assumptions going into the program and the criteria for extending or terminating the program midstream. It takes the mystery out of the process and creates a shared sense of control that in turn builds credibility.
The Art of the Possible
Measuring the impact of integrated marketing over the long run is quite possible with the application of the right tools and processes. Research, experimental design, factor analysis, and continuous feedback mechanisms all play a role in reducing the unknowns down to comfortable risk levels. It just takes some clarity and precision in defining expectations for marketing's payback by building financial bridges from short- to long-term value creation.
Patrick LaPointe is managing partner at MarketingNPV, a specialized advisory firm that finds the right metrics and analytics to measure the financial payback from marketing investments. He is also publisher of MarketingNPV Journal (www.marketingnpv.com).
"Measuring Integrated Marketing: Beware the Short-Term Bias." Patrick LaPointe, Managing Partner, MarketingNPV.