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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