Download Marketing investments often bear no relation to results.

Marketing investments
often bear no relation
to results.
The most urgent problem facing the newly independent United States
was how to pay for the war that won the country its freedom;
America’s debt was enormous. Its greatest asset was the land west of
the Ohio River, but for this huge territory to be sold, it had first to be
surveyed—that is, measured out and mapped. And, before that could
be done, a uniform set of measurements had to be chosen for the new
republic out of the morass of roughly 100,000 different units that
were in use in daily life.
Andro Linklater, Measuring America (Walker & Co., 2002)
W
e have been here before. We stared out into the dark
wilderness of unmapped and unmeasured territory. In
the early years of America’s independence, land itself
was an intangible that defied clear measurement. It wasn’t until the
new frontier was accurately surveyed and measured that the country’s
promise of dynamic prosperity could at last be fulfilled. We now face
a similar challenge as we struggle to map out the intangible realm of
customer value and measure marketing’s impact on revenues and
profits. Companies are spending nearly $1 trillion on marketing each
Warren Gebert/Laughing Stock
Determining D
28
❘
MM September/October 2004
imensions
BY KEN DEMMA
MM September/October 2004
❘
29
EXECUTIVE
In the coming years, marketing will be forced to rigorously defend and validate its actions.
briefing
Like other operational activities within the enterprise, the measures of marketing performance
must become clear and definable. These measures, indicators, and performance results will
guide the investment of corporate resources in marketing, not the allocation-based budgeting practices of the past. The
marketing performance framework discussed here provides a foundation for companies to pursue and refine.
year in the United States. Marketers themselves, however,
acknowledge that at least one-fifth of their spending is wasted, according to a recent survey by the Market Leadership
Council. While significant growth opportunities may be
associated with new approaches to marketing measurement
and investment, it’s clear that marketers must seize them
now to address mounting demands and challenges. Among
the challenges:
Higher financial objectives. Corporate financial objectives
are becoming increasingly ambitious, and the expectations for
marketing—in terms of impact on revenue, profit, and market
value—are on the rise. As the economy rebounds and regains momentum, marketing organizations are
expected to generate increasingly
impressive outcomes.
Greater accountability. In the
post-Enron, post-WorldCom, postTyco era, the demand for accountability has reached an all-time high.
From the highest levels of corporations, demand is growing for
greater visibility and insight into
the various operations of the organization. Ultimately, the marketing
organization will be expected to
provide new levels of transparency
based on active performance analysis and reporting. CEOs and CFOs
will hold CMOs accountable for
their actions, just as Wall Street is
expecting accountability from them.
Expanding options. Marketing executives now must consider an extraordinary number of potential marketing “levers”
or investment options when deciding how to maximize
resources. They must assess an array of channels, media, technologies, segments, and program options and determine
which products to support and which potential partners
deserve our attention. Indeed, the number of potential choices
has exploded, creating a great deal of confusion and anxiety.
Marketers increasingly are expected to make better decisions
and deliver higher growth with fewer re s o u rces in a more challenging environment. At this transitional moment, marketing
leaders have much to gain. If we are willing to rethink the way
we measure and invest in marketing, we can diff e rentiate our
companies, generate new levels of profitability, and establish
enduring relationships with our most valued customers.
Decisions and Transitions
Senior marketing executives ask a series of questions in
hopes of gaining the insight needed to improve the return on
their activities: What is working and what is not? Which marketing actions and activities are promising and which are not?
Who are our most profitable customers and who are our least
profitable? What is the profitability breakdown of our various
channels? How are we aligning our limited resources
with our greatest opportunities? Where should I invest?
What marketing executives most need is a comprehensive decision framework
to help assess various
options and answer their
questions in a diligent and
rigorous way. A decision
framework can help guide
judicious investments,
enabling marketers to compare and assess outcomes
and then reinvest for maximum returns in a portfolio
manner. Such visibility will
enable marketers to defend
marketing budgets and build
corporate confidence. If marketing returns are clear and impressive, they will even invite
greater levels of investment.
Marketers increasingly
are expected to make
better decisions and
deliver higher growth
with fewer resources
in a more challenging
environment.
30
❘
MM September/October 2004
Marketing Decisions in Context
As we explore the actual measures that inform and drive
marketing, we realize context is critical. In this case, context
applies to our ability to map our marketing activities—such as
advertising, direct marketing, face-to-face selling, or service—
in a manner that’s consistent with how we move customers
through a development cycle.
More specifically, we must rigorously categorize our marketing investments if they are to be assessed with clarity.
Marketing investments often bear no
■ Exhibit 1
measurable relation to customer
Customer engagement cycle
value or potential. Today’s budgeting,
analysis, and decision-making instruments are blunt and unrefined.
Awareness
Consideration
Inquiry
Purchase
Expansion
To gain a better understanding
of where marketing re s o u rces are
Breakthrough
Relevance and Differentiate and Move to desired
Ongoing
and
inclusion in
inform through
action; shared engagement and
invested and what they are generatBusiness
recognition
decision set
two-way sharing
commitment
development
objective
ing, we must carefully delineate and
d i s a g g regate our investments. We
can then begin to make more sophisPresentation
Presentation
Exchange of
Actions
Actions
of messages
of messages
information in
designed to
designed to
ticated, causal linkages between
and/or an
and/or an
a two-way
encourage
encourage
actions and outcomes.
initiation of
initiation of
dialogue or
commitment–
additional
contact
contact
targeted
leading to an
exchange of
Marketing performance measureEvent
designed to
designed to
information
exchange of
value and
description
ment, however, begins with a focus
generate
encourage
request
value
deepening
on customer segmentation.
customer
prospective
commitment
awareness
buyer to
Segmentation provides a way of difof product,
demonstrate
ferentiating the various groups of
brand, or
interest in
customers we are trying to engage.
service
brand, product,
or service
It enables us to invest resources and
measure results in relation to the
importance we assign these groups. Whether the segmentaThe customer engagement cycle recognizes the develoption scheme is based on behavioral factors (new car buyer,
ment of customers within a segment (including prospective
luxury car owner), perceived value (gold, silver, lead), life
customers) along five stages of engagement: awareness, constage (new families, empty nesters), or some other variable, a
sideration, inquiry, purchase, and expansion. These are the
solid customer segmentation model (or models) is a critical
broad stages through which a typical customer passes as a
first step in terms of marketing measurement.
relationship is cultivated. (See descriptions in Exhibit 1.)
Once customers have been segmented, we can define,
By recognizing these stages, we make it clear that marketdelineate, and measure marketing performance more clearly.
ing actions or investments influence customers in different
In fact, the various segments represent “lenses” through
ways at different points of relationship development. Mass
which performance can be viewed and investments attributed
media advertising, for instance, might be more successful for
to actions and outcomes. By breaking all customers and
reaching out to customers in the awareness stage, while
prospects down into exclusive and exhaustive segments, we
investments in direct selling might be more appropriate as
can begin the process of linking marketing investments to
customers enter the purchase or expansion stages. The key is
market impact.
to ensure that the right actions are taken at the right stages—
Critical to our analysis will be the ability to visualize how
and that limited resources are smartly deployed.
we invest marketing resources relative to these different segWhile the customer engagement cycle enables us to see the
ments. Through this process of segment-based disaggregation,
different stages of customer development, marketing measurewe gain deeper insight into what level of resources is being
ment dimensions actually track the actions, outcomes, and
directed to each customer segment. We also can begin assessimplications of our investments relative to the stages of the
ing how resources might be invested to achieve better results
cycle. (See Exhibit 2 on page 32.)
going forward.
Among the key marketing measurement dimensions our
clients are tracking:
Marketing Perf o rmance Framework
Actions and activity. This set of metrics is designed to idenAt Quaero, we have collaborated with our clients to develop
tify and quantify the particular actions and activities that have
an integrated measurement framework that allows for re t robeen taken to generate marketing results at a given stage of the
spective analysis of past efforts and results and lets prospective
customer engagement cycle. As such, it is a gauge of inputs
analysis identify opportunities for future refinements and
and investments. Key indicators, for instance, may include an
investments. The framework is the tool we employ to map out
inventory of campaigns, media buys, or sales initiatives. The
marketing investments and returns—plotting them onto a
objective is to recognize the marketing resources that have
matrix to visualize various causal linkages and relationships.
been devoted to driving outcomes. This step can be very illuThe framework maps a set of “marketing measurement dimenminating because it demonstrates whether resource allocation
sions” to a multi-stage process we call the “customer engageis aligned with stated objectives. Through the exercise of merement cycle.”
ly mapping out marketing activities, one of our financial servMM September/October 2004
❘
31
ices clients quickly realized that its
■ Exhibit 2
strategy of cross-selling and upMeasurement dimensions
selling existing customers was re l atively unsupported. It discovered
that the vast majority of its actions
Measurement
Awareness
Consideration
Inquiry
Purchase
Expansion
and activities were occurring durdimensions
ing the awareness stage of the
engagement cycle as opposed to
the expansion stage. Conversely,
Actions and
Measures the resources, programs, and activities devoted to achieving marketing
we have seen clients realize that
objectives. These indicators look primarily at programs, inputs, and investments.
activities
they have under-funded customer
acquisition initiatives by investing
Measures the results of marketing activities within each stage of the customer
Marketing
most of their resources in the later
engagement cycle (response rates/conversion rates, closed sales, click-throughs,
impact
stages of the cycle.
impressions, customer saves).
Marketing impact. This set of
Measures the financial aspects of the marketing programs, including cost and return
metrics looks at outcomes or effecFinancial
on investment at each stage of the customer engagement cycle. These measures
tiveness from a marketing perspecimpact
link the results of marketing activities to financial outcomes.
tive. It measures operational
results such as response rates, conCustomer
Measures the impact of marketing activities on customer segments (loyalty,
version rates, closed sales, and
satisfaction, profitability) at each stage of the engagement cycle.
impact
even click-throughs and Web site
impressions. It is in this area that
consistent comparisons can be perTime and
Measures the time required to move customers through the engagement cycle
and provides indicators of migration difficulty.
migration
formed, based on which vehicles
or programs are effective within a
stage of the cycle in moving customers to the next stage. The inclusion of market research metrics (e.g., awareness, share of marCEOs and CFOs will expect to receive in future reports on
ket, and satisfaction) can provide an insightful backdrop when
marketing performance.
viewing program or campaign-based metrics. Looking at
Customer impact. This set of measures examines the implithese indicators across stages of the engagement cycle can also
cations of our actions in terms of the customer relationship.
highlight areas for reallocation of marketing investment.
We might look at specific metrics such as share of wallet, cusMarketing impact metrics enable us to isolate specific opportomer satisfaction, customer loyalty, or customer profitability.
tunities for improvement and begin determining what actions
The key is to gain a greater understanding of the impact our
might be taken to realize our goal.
activities are having on customer value development. For
Financial impact. This set of metrics is designed to transexample, a senior marketing executive might consider how
late operational marketing metrics into financial outcomes. It
certain marketing programs affected share-of-wallet metrics
enables us to assess the financial efficiency of each activity
over the time the programs were being implemented.
and allows for cost/benefit investment decision making. Costs
Marketing investments in customer service, while intended
per activity—such as cost per impression, cost per call, and
for increased cross-sell, may have an impact on customer satcost per customer—are building blocks for generating return
isfaction. It is the goal of the framework to provide these meton investment (ROI) calculations at each stage of the cycle.
rics so that causal links to marketing performance may be
Sales attributions also are viewed through this metric.
hypothesized and subsequently investigated. Based on our
Marketers can then map out the impact of their activities on
findings, we can make appropriate investments, adjustments,
actual profit by customer segment. We can assess past results
and reallocations. Many firms have had success using cusand make future forecasts. In this manner, we are able to treat
tomer value measures to prioritize investments directly to cusmarketing decisions as investments and use the engagement
tomer portfolios, investing heavily in more attractive segcycle as a means of pinpointing where and how we will manments and limiting investments in less promising ones.
age our marketing activity portfolio. It is with such measures
Time and migration. This set of metrics tracks the amount
that senior marketing executives can gauge past performance
of time required to move from one stage of the engagement
and make incremental investments with confidence. Of
cycle to the next. Moreover, it assesses the degree of difficulty
course, financial performance metrics also provide a point of
associated with enabling that transition. Finally, it measures
convergence with the CFO. This is the language that is recogthe cumulative costs of actions, activities, and programs in
nized in the executive suite and the types of measures that
order to evaluate programs and investments. While there may
32
❘
MM September/October 2004
be programs that have good individual ROI or performance
results, the cumulative cost of these activities in moving a customer to a new stage in the engagement cycle may be higher
than other programs. The cost of migration is an issue, but so
is the time necessary to accomplish it. Opportunities often
must be quickly seized or they will be lost. Considering the
rapid rate of change in today’s hyper-competitive markets, it
is critical to recognize time as a component in the overall
assessment of marketing performance.
The framework itself provides context for assessing different decisions, but the actual plotting of marketing activities on
the map, the measurement of results, and the recognition of
timing in the engagement cycle add texture to our understanding of marketing investment returns.
By disaggregating our actions and outcomes in this way,
we gain a comprehensive picture of marketing performance.
Customer segment managers can see marketing results portrayed segment by segment and stage by stage. Similarly, program managers can see campaign and program results lined
up in relation to segments and customer engagement stages.
Such insights can help them refine and improve their spheres
of activity.
CMOs, by contrast, gain the integrated view they need to
drive strategy. Not only are they able to disaggregate perspectives by segment and stage, they can roll the results up and
see them in aggregated form. They also can assess changes in
broad measures, such as awareness, customer satisfaction,
share of customer, and others that are not comparable within a
single period, but can be understood as trends over time.
One of our clients recently transformed its marketing org a nization through the development and application of this framework. Indeed, this Fortune 500 financial services firm has passionately embraced the opportunity to improve marketing
measurement and effectiveness. The marketing organization
currently is developing a host of new measures, actively integrating previously unused sources of data (such as market
research data) and implementing new processes for information capture and data sharing. At the same time, the company
is addressing the organizational and cultural challenges associated with marketing measurement.
Under the leadership of the chief marketing executive, the
marketing organization has turned measurement into a critical
priority and driving force. The marketing organization recognizes that the implementation of the framework is a continuing journey that will change the way it makes decisions and
analyzes investments and outcomes. However, the measurement initiative already is having a dramatic effect with regard
to how the marketing group thinks, operates, and improves.
“Marketing is becoming a measurement-driven culture,” said
the executive leading the charge. “And we are tying that into
an overall learning agenda for the business.”
In the past, the marketing organization would have been a
customary beneficiary of the corporate budgeting and allocation process. Now marketing is becoming a key driver of
strategic decisions. Through its focus on measurement and
accountability, the organization is earning credibility at the
most senior levels of the organization. The framework enables
the CMO to demonstrate to other corporate decision makers
how marketing investments are supporting key business initiatives, which translates to sales, profits, and cash-flow indicators. It allows marketing to make the business case for
required resources on a clear and stable foundation, but it also
enables the organization to measure and validate the impact
of previous investments.
Some of the benefits being generated through the adoption
of a new measurement-focused, marketing performance
framework include the following:
Strategic insight. It provides a comprehensive view of
marketing actions and outcomes—across-and-within segments, channels, programs, campaigns, and stages of the
engagement cycle—to ensure the generation of maximum
returns.
Actionability. It enables executives to pinpoint the actions
that must be taken and levers that must be pulled to drive
continuous gains in marketing performance.
Comprehensive measurement and reporting. It presents
metrics in a consistent and comparable fashion, enabling executives to more clearly assess options and trade-offs, opportunities, and risks. Whether we assess the results of marketing
investments retrospectively or project them into the future on
a prospective basis, the framework provides a means of
understanding actions and outcomes in perspective.
While the marketing performance framework discussed
here merely provides a foundation for companies to pursue
and refine, it breaks from current thinking and action in many
important respects. It focuses on investment returns, as
opposed to merely budgeted activity. It defines and delineates
marketing investments in entirely new ways and demonstrates how marketing leaders might assess results in a comparative and integrated fashion. These are the challenges that
lie ahead as demand rises for stronger financial results, greater
accountability, and a means of assessing our dizzying array of
marketing investment options. Smart marketers are addressing these challenges now.
Marketing, however, cannot wait for corporate-wide stand a rds of performance management and measurement.
Marketing executives must step into the current vacuum and
establish order. We must embrace rigorous and resolute
methods of measurement and maximize the returns on our
marketing investments. If we intend to assume our rightful
role as world-class business leaders, then we must begin surveying and mapping the extraordinary continent that lies
before us. ■
About the Author
Ken Demma is senior vice president and managing director,
marketing effectiveness practice, at Quaero Corp. in Charlotte,
N.C. He may be reached at [email protected].
MM September/October 2004
❘
33