A CONTINUING CONVERSATION

Whether it's coming from the C-suite of senior executives or the marketing organisation, the drive for measuring marketing performance remains an utmost priority even though the issue is not a new one. Seven years ago, a study by the Advertising Research Foundation1 revealed that ‘enhanced return on marketing investment’ was one of the top priorities CEOs set for their marketing and research functions. The more recent VisionEdge Marketing (VEM) ‘Marketing Performance Management’2 2007 study surveyed 136 business executives and marketing professionals through an online study. It was a purposive sample; therefore, all participants surveyed were either members from the C-Suite or those individuals with marketing and sales titles. The survey asked respondents to indicate the grade their CEO would give marketing based on the following criteria: A or better (marketing not only implemented programmes but was able to document their contribution); B+ to B− (the CEO believes the marketing programmes made a difference but the contribution wasn't measured); C+ to C− (the CEO isn't sure the marketing programmes made a difference, but believes they had some impact even though the contribution wasn't measured); and D or less(the CEO doesn't believe the marketing programmes made a difference). Out of all the respondents, only 17 per cent indicated that their CEOs would give marketing the grade of A and 48 per cent of the respondents felt that their organisation's ability to measure marketing performance was only marginally effective (9 per cent indicated that it was completely effective, 30 per cent indicated it was somewhat effective and 13 per cent felt it was completely ineffective).

According to the CMO Council's ‘The Marketing Outlook’ 2007 study,3 ‘chief marketers face intense pressure from bottom-line focused CEOs and demanding corporate boards to improve the relevance, accountability and performance of their organisations’. Measuring marketing performance, quantifying and measuring marketing's worth, and improving marketing's efficiency and effectiveness continue to rank among the top challenges faced by marketers. The CMO Council study found that for today's marketers, proving marketing's value is the number one challenge above other challenges such as growing customer knowledge and extracting greater value and profitability from customers.

Fifty-eight per cent of the respondents in the VEM study indicated that measuring marketing performance was a top priority at their company, yet more than 80 per cent of respondents gave a six or less (on a 10-point scale) in terms of their level of satisfaction with their ability to track marketing performance. Sixty-four per cent of all participants revealed they had no marketing performance training or budget. The lack of training is often mentioned as one of the critical obstacles in addressing marketing accountability. An AMA study4 indicated that in addition to time constraints and lack of resources, insufficient training and lack of technology or tools pose the biggest obstacles for marketing professionals wanting to embark on the marketing accountability journey. A 2006 Deloitte study5 of over 460 executives found that lack of well-defined performance measurement capabilities, internal coordination and clearly defined accountabilities are the biggest challenges to improving measuring marketing effectiveness.

If you do make the investment in marketing accountability, will it make a difference? A CMO Council study6 found that companies with formal marketing performance systems do outperform companies who lack such a system. In fact, in this study companies with marketing performance systems achieve 29, 32 and 37 per cent better sales growth, market share and profitability, respectively.

This article attempts to provide marketing professionals with an approach to measuring marketing accountability7 by providing a framework that will help them quickly establish appropriate metrics and provide some insight into how to capture these metrics and report them without breaking the bank. Before we launch into a discussion about the framework, let's first establish a definition for marketing accountability. In 2005, the American Marketing Association (AMA) established a definition for marketing accountability that serves us well, ‘The responsibility for the systematic management of marketing resources and processes to achieve measurable gains in return on marketing investment and increased marketing efficiency, while maintaining quality and increasing the value of the corporation.’8 The definition will help us in understanding the framework we need to adopt to successfully measure and prove marketing's value.

A FRAMEWORK FOR MARKETING PERFORMANCE MANAGEMENT

Marketing Performance Management9 is the practice of managing marketing effectiveness and value by aligning people, processes and systems to a common set of goals and objectives. Therefore, any framework we use needs to align marketing with the business and transform marketing into a performance-driven, outcome-based, customer-centric organisation. Such a framework provides the foundation that enables marketing to demonstrate value and broaden our focus beyond sales support by linking marketing to critical business outcomes.

We might usefully remind ourselves of the purpose of marketing. Philip Kotler, S. C. Johnson & Son Distinguished Professor of International Marketing at the Kellogg Graduate School of Management, Northwestern University, says that ‘Marketing has the main responsibility for achieving profitable revenue growth’ and that we do this by finding, keeping and growing the value of profitable customers.10 These business outcomes serve as the basis for both marketing strategy and metrics. Yet surprisingly enough, marketing metrics at most companies do not have a high correlation between marketing activities and business outcomes. Although many companies do have measurement frameworks in place, they are just not always set up in a manner that provides a company with the most accurate assessment of their marketing initiatives.

By using this commonly agreed definition of marketing's role, we can develop a marketing accountability framework. All our metrics must in some way relate to finding customers (customer acquisition), keeping customers (customer penetration) and growing customer value (monetisation). By taking this approach we can connect marketing's role to essential business outcomes,11 customer acquisition to market share, customer penetration to lifetime value and monetisation to customer/brand equity, and as a result establish three metrics categories. It now becomes a question of which metrics to select from each category that are relevant to your business.

METRICS FOR EACH CATEGORY

Within each category there are numerous metrics a company can select. The trick is to choose the select few that will allow the business to confidently make fact-based strategic decisions to best align decisions with resources in order to have the greatest impact on revenue and financial performance. The only way to make the right choice is to select those metrics that most closely indicate how well and by how much marketing is ‘moving the needle’. Therefore the metrics must be created with the business outcome in mind. We can, however, make a few educated assumptions.

Companies want to increase their market share and increase the value of their customers. As a result, we can focus on a few metrics that are related to each of these. For example, we know that share of preference, share of voice, share of distribution, rate and cost of customer acquisition, and rate of growth compared with the industry's growth rate are good indicators of how well marketing is moving the market share needle. Likewise, purchase frequency, share of wallet, advocacy/loyalty and tenure are key indicators of customer value. And metrics such as price premium, customer franchise value, rate of new product adoption and product margins all reflect a company's customer and brand equity. These types of metrics may seem a far cry from the metrics typically captured by marketing such as response rates, document downloads, website traffic, etc. Tracking these types of activities is still important and actually may be necessary to see the whole picture. Therefore, we have found a metrics continuum12 to be an extremely helpful way organising different types of measurement.

THE METRICS CONTINUUM

Marketing can measure a never-ending menu of items that consume a tremendous amount of energy, time and resources. I recall a Vice President of Marketing that served on a panel with me who proudly mentioned that he tracked 200 unique items and had a full time person dedicated to the task. The Vice President is no longer at that firm. Marketing must focus on the most relevant, essential and valuable actions and use these as the basis of our metrics and performance reporting.

The VisionEdge Marketing Metrics Continuum (Figure 1) suggests that metrics fall along five points on the continuum. It may be necessary to create and report on metrics from each point. In fact, it is possible that activity-based metrics will be needed by members of the functional team to manage their programmes and metrics higher up on the continuum and will be needed by the executive team to evaluate overall impact.

Figure 1
figure 1

VisionEdge marketing's metrics continuum

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By using the continuum we can see that metrics range from simply measuring activities, all the way up to predictive metrics based on analytics and models. Here is a quick review of each point on the continuum. Activity-based metrics essentially involve nothing more or less than counting things. As the creative side of marketing gave way to the analytical data-driven side, counting took centre stage. Marketers looked for various things to count and various numbers to report. Tracking website visits, demo downloads, event attendees, numbers of leads, numbers of press hits or analyst report coverage are examples of an activity-based metrics framework. While this is a good forward step toward measuring, it won't link marketing to business outcomes, nor satisfy C-suite's need to understand the value marketing brings to the company.

Operational-based metrics are designed to help manage the marketing function as a business. These metrics are designed to improve organisational efficiencies and ROI. Programme-to-people ratios, awareness-to-demand ratios, cost/lead, cost/sale and conversation rates illustrate operationally based marketing metrics. The connection between the marketing ‘programme’ and business outputs become clearer at this point on the continuum and take marketing one more step forward in the right direction. There is just one small hiccup if you stop here on the continuum. Operational metrics primarily provide the organisation with a way to rationalise marketing investments but not necessarily with a way to relate marketing back to strategy and business performance.

As we suggested previously, the focus of any business is on the customers: securing revenue-producing customers, keeping these customers, and increasing the amount of profitable revenue derived from the customer franchise. Most operational metrics do not account for these outcomes. A marketing metrics framework must demonstrate how marketing enables the organisation to realise these outcomes. Therefore, a company must at least make the transition to outcome-based metrics.13 Outcome-based metrics enable marketers to measure strategic effectiveness, focus on efforts with greatest impact and contribution to the company's valuation, demonstrate accountability beyond sales support and provide a quality control process.

WHERE YOU ARE ON THE CONTINUUM

In order for any company to achieve its fullest potential, you need to begin the movement along the continuum. It all begins with an examination of your company's present situation. Audits provide a means to assess your company's current metrics and measurement capabilities, and identify the changes, if any are required. While a self-assessment is certainly a good starting point, using a third party will provide an objective perspective. Audits are not new to marketing. In fact, marketing and communication audits are commonly if not routinely performed. These audits typically examine the organisation's capabilities related to strategy and brand. A metrics audit examines the metrics, systems, tools, processes and people in terms of being able to measure marketing performance. Through an audit you will be able to assess the areas where marketing's direction is and is not linked to the company's strategic objectives, where the company is and is not aligned with other organisations, which metrics the company is using, the degree of competency within the organisation around metrics and where gaps exist.

THE ROLE OF A DASHBOARD

Regardless of which metrics stage you're in, it is important to have a process for succinctly reporting your progress and your metrics. Once a company defines the metrics and creates the model, it can develop a dashboard. In fact, the CMO Council's Marketing Outlook 200714 study indicated that marketing performance measurement dashboards are at the top of the list in terms of initiatives for 2007. VisionEdge Marketing believes a good dashboard accomplishes seven things:

  1. 1

    Shows how marketing is ‘moving the needle’

  2. 2

    Helps assess what is and isn't working

  3. 3

    Fosters decision making — is actionable

  4. 4

    Provides a unified view into marketing's value

  5. 5

    Enables better alignment between marketing and the business

  6. 6

    Translates complex measures into a meaningful and coherent set of information

Dashboards can provide a way to visually monitor your metrics and provide you with a feedback system to track progress and connect marketing to business outcomes. In order to create a dashboard for your company, you must identify the most important measures that will indicate success. Once the variables are clarified you can define the performance indicators most linked to each measure and the data needed. Dashboards provide insight into performance, foster decision making and align strategy with implementation. A good dashboard maps out the relationships between business outcomes and marketing performance.

FROM THEORY TO REALITY

Companies are tackling the marketing accountability challenge head on. The following two case studies illustrate how two companies approached creating and using outcome-based metrics to demonstrate marketing's value and to make marketing a more strategic member of the team.

The first example involves the world's largest producer of air-cooled gasoline engines for outdoor power equipment and the largest producer of generators and pressure washers in the United States. The situation at hand involved management relying on a number of marketing efforts to execute a push/pull strategy to market and sell the products. Public relations (PR) were an integral component of this effort, and the division had two main PR initiatives. One key programme, a 5-year-old educational programme designed to assist homeowners with yard and lawn care, relied solely on PR. The programme utilised many of the same PR elements each year, such as press releases, media tours, e-newsletters, promotions and contests — all designed to reach the target demographic market — markets with lots of grass.

The company was using media impressions as the primary measurement to evaluate this educational initiative. Executives recognised that this wasn't an adequate metric because it didn't demonstrate how the programme was affecting the brand and sales. Company leaders decided they needed a better set of metrics to assess the programme's effectiveness, a more useful measurement framework that could be used to demonstrate the programme's value. Company leaders wanted a new set of metrics, a process and a model from which to build a metrics framework that would work across PR efforts in just 45 days. A set of metrics was created based on outputs, outcomes and business results. Outputs-related metrics measured the effectiveness of the PR campaign; outcome-related metrics measured changes resulting from the PR campaign; and business-results metrics measured how the PR campaign helped the organisation achieve a specific business objective. A set of metrics was defined for each category in the framework.

Using this type of framework, companies can focus on measures other than impressions so that they can more effectively measure their PR efforts. In this instance, a variety of measures served as the foundation for the model. For example, metrics were selected that supported the programme's purpose: to establish thought-leadership, affinity and preference. As a result, some of the metrics selected included a message delivery score, share of voice, a geographic metric around markets, a prominence metric and a metric associated with topic, media and cost. Once the metrics were established, they were validated and used to create a model. This involved reviewing all the clips and data from the previous years' results. From the historical data a pro forma was created to determine whether the metrics were viable and what changes might be needed. The pro forma also provided insight into how the initiative performed against the new metrics. After some modifications, the model was solidified and a set of performance targets was established. As a result of this process, the company had a set of metrics that went beyond using impressions or comparing print lines to advertising space as a way of measuring the impact of PR and the value of the programme. How did the new metrics and model impact decisions? First, after completing this initial phase the company could see that, while overall clips were going up, the average message delivery score was not. As a result, the company established a minimum average message delivery score. Executives also revised the messaging and the approach they were using for presenting content and stories to the media.

The second example illustrates how a company in the rugged and reliable specialty printing industry moved from relying on activity-based metrics to developing a set of outcome-based metrics and related dashboard. At this company, the marketing team was being asked by the management team to focus its resources on high-value and high-ROI strategies. While senior management had allocated what they felt was a considerable budget for marketing, the marketing team struggled to satisfy all the requirements within the budget parameters. The myriad and frequent tactical requests regularly stretched the limit of their internal resources. In addition, the marketing organisation was being asked to quantify how they were supporting key business objectives, particularly in terms of revenue generation and channel support.

As with many organisations, it wasn't that the company wasn't measuring anything; the problem was with what they were measuring. A review of their metrics found that this organisation was primarily measuring marketing activities such as response rates to campaigns, website traffic, numbers of new suspects, etc. Almost without exception, the vast majority of their metrics fell along the activity-based point on the continuum. While these measurements are useful, they were not providing the team with the ability to truly determine the return for the investments they were making nor the impact that marketing was having on the business. In addition, many of the metrics were too internally focused.

In order for the company to begin their movement along the continuum, a marketing metrics audit was conducted. The audit included analysing the current marketing plan, collecting marketing metrics and internal marketing processes. The assessment revealed that the organisation did not have any metrics related to market or customer indicators or that made a direct link between the marketing efforts to specific business outcomes. As a result, the marketing leadership had no way of measuring and communicating their value within, across and up. In other words, they did not have a set of relevant metrics that would enable them to sift through and prioritise the many requests for marketing assistance. In addition, they also lacked a process to help them identify activities that had the most positive impact upon sales and business goals. After this initial assessment, key members of the leadership team were asked to identify those business outcomes critical for the company and which of those they expected marketing to support — and how. In these interviews executives were asked questions that would help determine how this company wanted to measure marketing's success and contribution.

This information was then used to work directly with a cross-functional team comprised of market-and-customer facing personnel such as marketing, sales, channel managers, customer service, as well as business analysts and product managers. This became the core team that worked collaboratively together to create a marketing metrics framework and dashboard blueprint. In a working session, the team mapped and aligned marketing initiatives around the business outcomes and created an initial set of metrics. Once these phases were completed, just as in the first example, a pro forma was developed using historical data to validate the framework.

The next few steps entailed finalising the metrics and creating the dashboard. During these phases the focus was on establishing targets and calculations for metrics, defining and evaluating data sources, and creating the visual representation of the dashboard. In this phase the dialogue between marketing and sales and marketing and finance began to change from primarily conversations related to tactics to more business outcome-oriented discussions. Once the model was completed, current data were captured and integrated into the process with iterative steps ultimately bringing the dashboard and metrics into a pilot stage. Prior to the pilot stage, the dashboard and metrics were shared on a limited basis. Once the dashboard and metrics were in pilot stage they were shared across and throughout the company. During this phase and following phases, the work focused on socialising the process and metrics themselves across the organisation and moving the dashboard into production. In just four and a half months, the company went from no dashboard to a working model.

The transformation was remarkable. By its own judgment, the marketing organisation changed from being activity and operationally based to being more market, customer and outcome based. Traditional metrics related to near-term demand generation remained a part of the mix, but the new metrics enabled the marketing organisation to refocus resources and efforts on key strategic business outcomes related to new markets and customers, channel and segment partners, pricing and new products. The project created more than a dashboard and a way for the marketing organisation to measure its value, it served as a way for the organisation to better allocate its resources and play a more strategic role.

THE FUTURE OF METRICS

By aligning measurement and metrics with business outcomes, tracking and reporting progress, and ensuring the organisation is both competent and proficient in the use of different measurement techniques, marketing can better defend its rightful place at the executive table and its ability to influence the organisation's strategic direction. For many companies, improving marketing measurement will require more than just the numbers. Companies will need to invest in ensuring their people are proficient in the use of measurement techniques.

In order to create the kind of metrics proficiency required, a commitment is needed from both ends of the organisational chart: from front-line to the C-suite of senior executives. Every member of an organisation needs to understand the value that metrics provide and be committed to a culture of accountability. This article provides a metrics framework and continuum that can be used to support your marketing accountability initiative and case studies that illustrate how two prominent companies used metrics to better assess the value of their marketing initiatives.