In various studies over the course of the past year, accountability has surfaced as one of the top issues on marketer's minds today.
From the Association of National Advertisers, to Frost & Sullivan, to IDC, to the CMO Council, marketing accountability has been front and center at conferences and in articles. The reason is that CEOs are demanding more accountability from marketing. While most marketers are measuring something, survey results indicate there is room for improvement regarding metrics and the quality of these metrics.
Many companies are investing more resources-both people and money-into marketing performance measurement. IDC's study, "Planning Your 2006 Marketing Budget" indicated that 38% of the 95 companies participating in the study plan to deploy measurement processes.
This undertaking will require new skills and capabilities which explains why 12% of these companies plan to launch new marketing operations teams or roles to address marketing performance management. Elana Anderson, a principal analyst at Forrester Research said, "Marketing must improve its value to justify its existence as a centralized function." If we don't make our case and develop and communicate quality metrics, we may find the days of marketing as a stand alone department numbered and instead find ourselves absorbed into sales, finance or some other function.
It's not like this is a new phenomenon. The concept of measuring marketing has been around for a long time. The question is what metrics are and how to measure them.
In 2001, James Gregory's article in the Journal of Brand Management shared a proprietary model that linked various financial factors and corporate images to stock prices, sales and market share. Our own research at VisionEdge Marketing has found that most companies fail to measure such things as cost to acquire, order value, share of wallet, churn rate or brand equity, and key business variables marketing impacts.
Rather, they measure such things as response rate, demo participation, event traffic, number of new contacts or leads, number of press hits, cost per lead, and lead aging. While these metrics offer some insight into the results of specific programs, they do not link marketing to the business objectives. In fact, our studies indicate that only about one in four marketers measure marketing's impact on the business and nearly two thirds of marketing plans do not even include metrics. A Five Point Continuum
Forrester Research, Marketing Management Analytics and the Association of National Advertisers conducted an online survey to find out how marketing professionals leverage marketing analytics. 50% of the respondents indicated that measurement remains the hardest part of marketing and 51% are dissatisfied with how they measure marketing ROI. Yet nearly all of the respondents realize measuring marketing is important and impacts senior management's confidence in the marketing personnel and programs.
To make progress on the marketing measurement front, marketing professionals must shift from tactically based metrics to metrics that are more linked to business outcomes. The measures must include both financial and non-financial goals. The figure below illustrates the continuum of marketing metrics and how marketing metrics are evolving. Figure 1: The Metrics Continuum: From Tactical to Strategic
Starting at the bottom left and working up and to the right, we can use this illustration as a framework to explore how marketing metrics are evolving from tactical to strategic.
Activity-based metrics refer to those things we can count. This was marketing's first foray into the world of measuring - looking for things we could count, such as press hits, click through rates, CPMs (cost per thousand) and so-on.
Most marketing plans today consist of activity lists, such as the number of ads to run, the number of tradeshows to attend, the number of new product brochures to produce, the number of research studies to conduct and so on.
Marketing then reports on the status of these activities--ads ran and responses per ad, website visits and downloads, contacts per tradeshow, etc. These are then turned into charts in an attempt to present the marketing dashboard. Yet with activity-based metrics all we have is a colorful status report and no information on the impact of these activities on the business. The company cannot make any key business decisions or determine whether strategies are working.
Operational metrics, the next level, is a step forward. These metrics focus on improving the efficiency of the organization. Typical metrics in this stage include cost-per-lead, lead aging, leads-per-sales rep and campaign payback. The goal is to squeeze out any inefficiency. While this is a noble pursuit and an important one, marketing efficiency alone will not make a company successful. What really "moves the needle" in terms of business performance is how well its marketing identifies product opportunities, positions these products, builds market traction against the competition, and fosters customer loyalty. Performance outweighs efficiency.
Both activity-based and operational metrics are a good place to start, but neither serves as an accurate indicator of strategic effectiveness. Neither enable the organization to determine which efforts are having the greatest impact, provide a quality control process, focus on marketing's contribution to the company's overall valuation, or serve as a good way to demonstrate marketing's accountability. To address these, marketing executives and professionals need to evolve to outcome-based metrics to develop quality measures. Outcome-based metrics focus on three specific and common business outcomes: market share, customer lifetime value and brand equity.
Once we accomplish a systematic approach to Outcome-based Metrics we will have the basis for advancing to Leading Indicator Metrics--those metrics that help us determine the likelihood of a particular outcome and eventually creative models to use metrics to predict outcomes. And once we've mastered Leading Indicator Metrics, we're only a few financial models away from Predictive Models--those that allow us to predict a business outcome. Creating Your Marketing Executive Dashboard
Marketing performance management and metrics tracking would be incomplete without a way to capture and report the metrics, that is, a dashboard. Ideally, metrics indicate the business health of your organization. A dashboard is the visual representation of a firm's health and provides a snapshot between actual performance and the goals. A good dashboard facilitates action. It not only reports on the metrics being monitored but also serves as a vehicle to help decide on what actions are required and their priorities. Yet, according to a 2005 study conducted by CMO Magazine, three-fourths of marketers have no formal scorecard.
Creating a dashboard is more than just producing a few charts and graphs. A good marketing dashboard serves as a visual and diagnostic vehicle that communicates marketing's effectiveness and impact on business goals. Every metric provides a specific perspective on the firm's business. Some metrics indicate whether there is a problem today, and others help alert marketing to a potential problem down the road. The status of the marketing organization on the metrics continuum will impact what kind of dashboard it can create.
As the business goals change it will be important to revisit the dashboard to make sure the dashboard metrics are still in alignment with the business needs and goals.
As companies progress along the metrics continuum from Activity-Based to Outcome-Based, the dashboard will also evolve. Outcome-based Metrics involve a dashboard that hones in on the primary business outcomes we've discussed: market share, customer value and shareholder value. Because these metrics tend to be more market centric, the dashboard begins to provide more strategic insight and direction.
The greatest challenge for the marketing organization is how to capture the metrics. Manual aggregation of data across multiple spreadsheets comes with potential issues ranging from error-prone reporting and poor utilization of internal resources. Moving from a spreadsheet-based system to an automated system provides greater benefits to the organization as a whole.
We have found that a mapping process helps with defining the metrics and ultimately the dashboard. As a result, most companies select metrics and a dashboard that reflects the following six categories:
1. Market Growth
2. Customer Value and Net Advocacy
3. Profitable Deal Flow
4. Opportunity Pipeline
5. Competitive Health and Market Value Index
6. Product Innovation Pipeline
Regardless of the metrics you ultimately choose or the categories represented on your dashboard, a good dashboard is one that provides insight into performance, fosters decision-making and aligns strategy with implementation. Measure What Matters
We began this discussion about the need for marketing to be more accountable and to develop quality metrics. Hopefully, you have some new ideas on how to focus marketing metrics around business outcomes and how to develop quality metrics that will help you provide insight into how marketing is making a contribution to the company and how to demonstrate that contribution to senior management. So in closing, we leave you with these three final thoughts:
- focus marketing metrics around business outcomes;
- develop quality metrics that will help you provide insight into how marketing is making a contribution to the company;
- demonstrate that contribution to senior management.
And take immediate action:
1. It is time to start making active progress on improving marketing performance and accountability.
2. Even if you don't have all the data, start with what you have, define your data gaps and develop a plan to close these gaps.
3. Stop reporting on activities and tactical data around campaigns and web traffic, and focus on climbing up the metrics continuum. It may still be important to track campaign results for an internal functional dashboard. The more you can link marketing to business outcomes the more you can influence your company's strategic direction.
Use the measures we've posited to develop your dashboard. Measures that matter are those that help your company make decisions and take action. When used this way, marketing metrics enable a firm to seize a competitive advantage.References
Laura Patterson is president and founder of VisionEdge Marketing, Inc, a leading consulting group for metrics-based strategic marketing in Austin, Texas. Prior to that, she spent more than twenty years in business-to-business marketing, focusing on branding, customer loyalty, and product rollouts for Motorola, Evolutionary Technologies International, and State Farm Insurance. For more information, go to www.visionedgemarketing.com
- CMO Reality Check, June 2005, CMO Magazine, www.cmomagazine.com
- Kotler, Phil. Kotler on Marketing: How to Create, Win, and Dominate Markets. The Free Press, 1999.
- Moving Along the Marketing Accountability Curve, Forrester Research, Marketing Management Analytics, and the ANA, July 2005.
- Patterson, Laura. Measure What Matters: Reconnecting Marketing to Business Goals. VisionEdge Marketing, 2004.