Marketing Metrics: Note for Marketing Managers
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Written by Michael A. Stanko and Matthew Fleming
Intended solely for class discussion; not for legal, tax, accounting, or other professional advice
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Contact Ivey Publishing, Ivey Business School, Western University for permissions
INTRODUCTION
Marketer Criticism: Marketers criticized for spending budget without effectively measuring marketing spending effectiveness.
Improvement in the use of marketing metrics has been a priority for the Marketing Science Institute for over a decade.
Trends Contributing to Change:
E-commerce growth
Increased emphasis on business analytics
Closer partnership between marketing and finance disciplines
Focus of the Reading:
Importance of goal setting and practical metrics for evaluating marketing effectiveness
Discussion of metrics supporting the evaluation of the marketing mix
Acknowledgment that the metrics provided are not exhaustive but serve as a starting point for measuring marketing productivity.
Industry Examples: Metrics highlighted through practical examples from various sectors.
Exhibits:
Exhibit 1 introduces setting goals using Objectives and Key Results (OKRs);
Exhibit 2 with relevant formulas.
GOAL SETTING
Importance of Goal Setting: Essential for linking marketing tactics to overarching strategy.
Individual Tactics: Should have relevant goals to measure performance and correlate with strategic objectives.
Example:
Housewares manufacturer aims to increase revenue by 25% in 5 years through channel promotion to attract new retailers.
Metrics: Track new retailers carrying products to measure success against overarching goal.
Cascading Goals: Enhances understanding within the organization regarding tactics’ alignment with strategic objectives.
Challenges in Target Setting:
First use of specific metrics may complicate target setting.
Importance of examining past results for benchmarking.
Guidelines for managers setting new metric targets:
Assess results of similar methods before new metrics are employed.
Set achievable yet challenging targets when historical data is lacking.
Best Practices in Goal Setting:
Adopt multiple levels of targets, e.g., TD Ameritrade's model featuring external, internal, and stretch targets.
External target for analysts; internal for decision-making; stretch for employee motivation.
Impact of Goal Setting on Employee Performance:
Research shows specific and challenging goals improve performance versus ambiguous or no goals.
Driver of employee focus and persistence in target areas.
Side Effects of Overly Aggressive Goals:
Potential for narrowing focus and neglect of other important areas due to excessive emphasis on specific metrics.
True Organizational Desires: Importance of aligning metrics chosen for goals with real organizational objectives.
DEVELOPING THE SET OF METRICS
Criteria for Metrics Development: Consider both perspective and focus.
Types of Metrics:
End-Result Metrics: Metrics available post-transaction (e.g., sales, profit).
Intermediate Metrics: Metrics assessing performance before transaction (e.g., awareness).
Internal vs External Metrics:
Internal Metrics: Based on firm's data (e.g., ROI).
External Metrics: Based on market data (e.g., brand awareness).
Suggested Metrics by Category:
Intermediate / End-Result Metrics:
Internal: Items carried, cost per click, payback period.
External: Brand awareness, market share.
OVERALL METRICS
Profit as a Primary Objective: Often serves as a baseline for marketing goals.
Return on Marketing Investment (ROMI): Focuses on incremental profit from specific marketing campaigns.
Key Metrics Discussed:
ROI:
Defined as the incremental project profit relative to expenditure.
Subject to biases and often not predictive early in campaigns.
Payback Period:
Length of time until marketing initiative pays for itself.
Market Share:
Company’s sales as a percentage of total market sales (dollar or unit share).
Caution against using solely for goal setting as it prioritizes sales over profitability.
Customer Lifetime Value (CLV):
Predicts future profits generated per customer over retention period.
Focus on both customer retention and margin per customer.
Net Promoter Score (NPS):
Measures customer loyalty by asking for likelihood to recommend.
Categories: promoters (9-10), passively satisfied (7-8), detractors (0-6).
Customer Satisfaction (CUSAT):
Often weakly correlated with profitability despite positive associations with retention.
PROMOTIONAL METRICS
Purpose of Promotional Tactics: Increase brand awareness and drive sales.
Key Promotional Metrics:
Brand Awareness:
Measured through recall and recognition; necessary foundation for consumer decision-making.
Brand Preference:
Assess likelihood of choosing product over competitors.
Purchase Intentions:
Measure how likely consumers are to purchase within a given timeframe.
Importance of Measuring Within Target Groups: Ensure relevance and applicability of data.
BRAND METRICS
Brand Equity:
Set of assets/liabilities that add or subtract from product value to customers.
Calculated using factors of differentiation, awareness, and preference.
Share of Voice:
Portion of total promotional activity in a category attributed to a specific brand.
ONLINE METRICS
Cost per Click (CPC): Shift from impressions to clicks emphasizing results.
Customer Acquisition Cost (CAC): Measures cost of acquiring a customer through specific promotional tactics.
The importance of a holistic view on online marketing performance is emphasized, including efforts that assist in purchase decisions.
PRICING METRICS
Manufactured Suggested Retail Price (MSRP): Manufacturer's recommended price; important for maintaining product value.
Minimum Advertised Price (MAP): Lowest price allowed for promotional advertising; addresses online price comparisons.
Average Unit Retail (AUR): Indicates health of promotional and channel tactics relative to the MSRP.
CHANNEL METRICS
Metrics to Evaluate Performance of Marketing Channels:
All Commodity Volume (ACV): Shows distribution breadth of products.
Inventory Turns: Measures frequency of inventory sold; indicates profitability and liquidity impact.
PRODUCT METRICS
Metrics assessing current and planned product performance:
Product Superiority: Evaluates if consumers perceive a product as unique and high quality.
Cannibalization: Extent new products reduce sales of existing products. | Evaluate the trade-off for innovation.
SUSTAINABILITY METRICS
Growing interest among consumers and investors in sustainability metrics:
Triple Bottom Line: Considers social, environmental, and economic performance.
Key environmental metrics include percentage of recycled content and energy use; social focus is on diversity and community engagement.
CONCLUSIONS
Clear importance of goal setting in marketing.
Use of strategic goals supported by metrics connects marketing efforts to overall business strategy.
Emphasis on measuring effectiveness (whether online or offline) for refinement and success.
EXHIBIT 1: A BRIEF INTRODUCTION TO GOAL SETTING WITH OKRs
Definitions:
Objectives: Define desired outcomes; not quantifiable.
Key Results: Measurable metrics to judge achievement of objectives.
Encouraged cooperative goal setting to enhance effectiveness and alignment.
EXHIBIT 2: METRIC CALCULATIONS
Abandonment Rate = Individuals dropping out of purchase process / Individuals entering that stage of the process.
All Commodity Volume = Sales of retail outlets carrying a brand / Sales of all relevant retail outlets.
Average Basket Size = Dollar sales / Number of sales transactions.
ENDNOTES
References cited throughout the material for supporting claims and definitions.