Without metrics to track performance, marketing and business plans are ineffective.
Businesses need to know which success factors require measuring, and they must understand the differences between measurements (the raw outcomes of quantification), metrics (ideal standards for measurement), and benchmarks (the standards by which all others are measured).
For marketers, three primary metrics constitute a starting point for tracking their performance. Once companies are aware of their competitive position, their desired outcomes, and what it will take to achieve those outcomes, companies will be better able to identify the success factors, benchmarks, and appropriate metrics to meet their target.
Metrics are a 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 a risk for getting 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, it increases its risks.
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 efforts, and reduce market exposure. Metrics enable the marketing organization to truly serve as the eyes and ears of the company.
And, more importantly, establishing and tracking metrics will have a positive influence on the leadership's satisfaction with Marketing and the marketer's ability to secure funds. Only 38% of US executives say their companies are now measuring the results of their marketing efforts, according to a study of senior business executives conducted in the second quarter of 2004 by Blackfriar.
Will measurement actually change investment in Marketing? Blackfriar compared planned marketing spending for companies that measure marketing with those that don't. The result? Firms that measure marketing planned to spend an average of 41% of their annual marketing budgets during the second quarter. Those that don't measure planned to spend only 33%; apparently, they felt more comfortable planning to spend their marketing dollars than those that don't measure.
Measuring marketing also has an impact on the satisfaction of senior executives regarding their investment in Marketing. Some 16% of executives at companies that measure marketing said they were dissatisfied with their marketing efforts. But at firms that don't measure marketing, 28% said they 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.
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 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 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 Ten" and "Most Admired" lists and articles.
A good example of a marketing benchmark can be traced back to the early 1990s. Over a decade ago, market research firm IntelliQuest (now Millward Brown IntelliQuest) conducted a customer satisfaction research study for the personal computing industry.
The firm spoke to customers who rated the companies in the industry, which resulted in a measurement on a one-to-nine scale. It then learned that 84% of users who rated their satisfaction as a seven, an eight, or a nine would consider the same brand for their next purchase. Seven, eight, or nine became the metrics that companies aspired to attain. The benchmark was nine.
Three Metrics Gauges
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 factors different from those of a more established company wanting to improve its customer relationships.
For those beginning to use metrics, listed below are four key performance indicators that 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 impact: acquisition, penetration, and monetization.
The first responsibility of Marketing is to identify and enable the organization to acquire customers, without whom there is no revenue, without which there is no business. Acquisition enables the company to increase its market share.
Although Marketing may not close the deal, marketing strategies move the customer through the buying process, from awareness to consideration. Four key performance indicators enable you to address market share:
- Customer growth rate
- Share of preference
- Share of voice
- Share of distribution
The second responsibility of Marketing is to keep the customers that the company acquires and increase the value of those 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.
The following performance indicators will help your drive these penetration-related metrics:
- Frequency and recency of purchase
- Share of wallet
- Purchase value growth rate
- Customer tenure
- Customer loyalty and advocacy
The third responsibility of Marketing is monetization. Up 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, and so on 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
- Net advocate score
A recently published report, "Measures + Metrics: Assessing Marketing Value + Impact," by Glazier, Nelson and O'Sullivan, corroborates these gauges and performance metrics. In their report for the CMO Council, the authors specified four performance metrics:
- Business acquisition/demand generation, which can include such metrics 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 companies choose to deploy, to fully capitalize on the benefits of metrics they should consider establishing a continuous process in which 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.
Also important to remember is 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 up the acceptable range of metrics. 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.
To work without metrics is to work blindly. A 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 that the company can ultimately set the benchmarks in its industry.
Note: This MarketingProfs "Classic Truths" article was first published on November 23, 2004.
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