If You Don't Measure It, You Can't Manage It: the Best Metrics for Managing Marketing Performance

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Metrics are part of our everyday lives -- from our heart rate to our bank balances, from our weight to the gas mileage on our cars. If we don't pay attention to these numbers, we create the risk for a heart attack, being overdrawn or running out of gas. The same is true in the business environment. If a company doesn't identify and track important performance measures, its risk is increased.


Metrics provide a means to assess progress; they provide valuable data points against which the marketing organization can track its progress. Metrics demonstrate accountability and allow marketers to better know, act upon, align their efforts and reduce their market exposure. Metrics enable the marketing organization to truly serve as the "eyes and ears" of the company.


More importantly, establishing and tracking metrics will positively affect the leadership's satisfaction with marketing as well as your ability, as the marketer, to secure funds. According to a Blackfriar study of U.S. senior business executives last year, only 38 percent said their companies are now measuring the results of their marketing efforts. Will measurements actually change marketing investments?


Blackfriar compared the planned marketing spending for companies that measure marketing against those companies that don't. The result? Firms that measure marketing planned to spend an average of 41 percent of their annual marketing budgets during Q2 while those that don't measure marketing planned to spend only 33 percent. So we can assume companies that measure felt more comfortable planning to spend their marketing dollars than those that don't measure.


Measuring marketing also affects the satisfaction of senior executives toward marketing investments. When asked how satisfied companies were with their marketing, 16 percent of executives at companies that measure marketing were dissatisfied with their marketing efforts. But at firms that don't measure marketing, 28 percent were dissatisfied. The simple act of measuring marketing results reduced the dissatisfaction of senior executives significantly. In other words, measurement allowed marketing to prove its worth.


Defining metrics. The world of metrics can be confusing for people new to these concepts. To better understand metrics and how they work, several terms must be defined: measurements, metrics and benchmarks.


· Measurements are the raw outcome of a quantification process, such as a company's numbers, ratios and percentages.


· Metrics are the standards for measurement, providing target values that a company must achieve to reach a certain level of success.


· Benchmarks are the very best measurements to aspire to, the standard by which all others are measured. Companies that set benchmarks in their industries are the ones often lauded in "Top 10" and "Most Admired" lists and articles.


A good example of a marketing benchmark can be traced to the early 1990s. Over a decade ago, IntelliQuest (now Millward Brown IntelliQuest) conducted a customer satisfaction research study for the personal computing industry. They spoke to customers who rated the companies in the industry, which resulted in a measurement ranging on a scale from 1 to 9. They learned that 84 percent of users who rated their satisfaction as a 7, 8 or 9 would consider the same brand for their next purchase. Achieving a 7, 8 or 9 became the metric that companies wanted to aim for. The benchmark was to attain a 9.


Three metrics gauges. In order to determine which success factors to measure and the appropriate metrics for each, marketers must have a clear understanding of the company's goals. A young company looking to gain traction in the market is focused on different factors than a more established company wanting to improve its customer relationships. For those beginning to use metrics, four key performance indicators support three metrics gauges: market share, lifetime value and brand equity. These gauges are directly linked to the three specific performance areas that marketing can affect -- acquisition, penetration and monetization.


The first responsibility of marketing is to identify and enable the organization to acquire customers -- for without customers, there is no revenue, and without revenue, there is no business. Acquisition enables the company to increase its market share. While marketing may not close the deal, marketing strategies move the customer through the buying process, from awareness to consideration. There are four key performance indicators that enable you to address market share: customer growth rate, share of preference, share of voice and share of distribution.


The second responsibility of marketing is to keep the customers the company acquires and grow the value of these customers. It is expensive and ultimately disastrous to have customers coming in one door, only to go out another. High customer churn signals a variety of problems and hinders your ability to create leverage. Four performance indicators that will help you drive these penetration-related metrics include: frequency and recency of purchase; share of wallet: purchase value growth rate; customer tenure; and customer loyalty and advocacy.


Until the 1970s, a company's value was determined by its book value. Over time, intangible assets, such as a company's intellectual property, customer value, franchises, goodwill, etc., have had an increasing effect on a company's market value. Marketing professionals can improve the market value of their company by improving their performance in four key areas: price premium, customer franchise value, rate of new product acceptance and net-advocate score.


A recent report, "Measures + Metrics: Assessing Marketing Value + Impact," by Glazier, Nelson, and O'Sullivan, corroborates these gauges and performance metrics. In the report for the CMO Council, they specified four performance metrics:


· Business acquisition/demand generation, which can include metrics such as market share gains, lead acquisition and deal flow.


· Product innovation/acceptance, which can include market adoption rates, user attachment and affinity, loyalty and word of mouth.


· Corporate image and brand identity, which can include growth in brand value and financial equity, awareness and retention of employees.


· Corporate vision and leadership, which can include share of voice and discussion, retention and relevance of messaging, and tonality of coverage.


Regardless of which model you choose to deploy, to fully capitalize on the benefits of metrics, companies should consider establishing a continuous process where metrics are collected, analyzed and reported on a regular basis. Over time, metrics can reveal valuable information about which marketing tactics are most effective, what types of prospects are most likely to buy, which customers are most profitable and how the market in general develops over time.


It also is important to remember that metrics themselves can change over time. As the market and the company evolve, marketers must diligently review and adjust their metrics. Innovative competitors will continue to set higher benchmarks, ratcheting the acceptable range of metrics upward. The airline industry's 45-minute airplane turnaround time was considered standard until Southwest Airlines decided to do it in 15 minutes. Some metrics may become outdated, and newer metrics and methods of measurement will require attention.


Working without metrics is working blind. The lack of metrics makes it extremely difficult to assess whether a course of action is working or needs adjustment. The proper use of metrics can provide guidance to help a company expand market position, lower costs and retain the best customers so the company can ultimately set the benchmarks in its industry.


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