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Chapter 18
Measuring and
Delivering
Marketing
Performance
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Designing Marketing Metrics
Step By Step
• Performance measurement processes
differ at each organizational level.
• It consists of five steps:
– Setting performance standards
– Specifying feedback
– Obtaining data
– Evaluating it
– Taking corrective action
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Designing Marketing Metrics
Step By Step
• Setting standards of performance
– Performance standards derive largely from
the objectives and strategies set forth at the
SBU and individual product-market entry
level.
– Performance-based measures are often tied
to the compensation of those individuals
responsible for attaining the specified goals.
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Designing Marketing Metrics
Step By Step
• Setting standards of performance (cont.)
– The shift from primarily using financially
based performance measures to treating
them as part of a broader array of marketing
metrics.
– Balanced scorecard.
– Using the SMART acronym (specific,
measurable, attainable, relevant, and
timebound).
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Designing Marketing Metrics
Step By Step
• Profitability analysis
– Determine the costs associated with specific
marketing activities to find out the profitability
of such units as different market segments,
products, customer accounts, and distribution
channels.
– Limitations:
• Many objectives can best be measured in
nonfinancial terms.
• Profit is a short-term measure and can be
manipulated.
• Profits can be affected by factors beyond control.
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Designing Marketing Metrics
Step By Step
• Full costing: Analysts assign both direct, or
variable, and indirect costs to the unit of
analysis.
– Indirect costs involve certain fixed joint costs
that cannot be linked directly to a single unit
of analysis.
– Direct costing involves the use of contribution
accounting.
• The shift to activity-based costing (ABC).
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Designing Marketing Metrics
Step By Step
• Measures of customer satisfaction
– Understanding and measuring the criteria
used by customers to evaluate the quality of
the firm’s relationship with them.
– Some companies ask customers one simple
question: How likely is it that you would
recommend us to a friend or a colleague?
– Face-to-face approaches
– Using CRM data to measure the lifetime value
of customers.
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Designing Marketing Metrics
Step By Step
• Specifying and obtaining feedback data
– The sales invoice or other transaction
records.
– Marketing research projects.
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Designing Marketing Metrics
Step By Step
• Evaluating feedback gata
– To identify any deviation from the plan, and if
so why.
– At the line-item level, whether for revenue or
expenses, results are compared with the
standards set in step one of the control
process.
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Designing Marketing Metrics
Step By Step
• Taking corrective action
– Prescribing the needed action to correct the
situation.
– In most cases it is difficult to identify the cause
of the problem.
– Delayed responses and carry-over effects.
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Design Decisions For Strategic
Monitoring Systems
• Identifying key variables
• The key variables to monitor are:
– Those concerned with external forces.
– Those concerned with the effects of certain
actions taken by the firm to implement the
strategy.
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Design Decisions For Strategic
Monitoring Systems
• Tracking and monitoring
– Specify measures needed on each of the variables to
determine whether the implementation of the strategic
plan is on schedule—and if not, why not.
– Real-time monitoring of critical strategic information.
• Strategy reassessment
– Can occur when the firm evaluates its performance to
date along with changes in the external environment.
– A strategic monitoring system can also alert
management of a significant environmental change.
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Design Decisions For Marketing
Metrics
• Who needs what information?
• Sales information is needed by:
– Top management.
– Functional managers.
– Marketing managers.
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Design Decisions For Marketing
Metrics
• Sales analysis
– Involves breaking down aggregate sales data
into various categories.
– The objective is to find areas of strength and
weakness.
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Design Decisions For Marketing
Metrics
• Sales data is grouped under:
– Geographical areas.
– Product, package size, and grade.
– Customer.
– Channel intermediary.
– Method of sale.
– Size of order.
• These breakdowns are not mutually
exclusive.
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Design Decisions For Marketing
Metrics
• Sales analysis by territory
– The first step is to decide which geographical
control unit to use.
– Next, compare actual sales against a
standard to single out territories that fall below
standard for special attention.
– Category and brand development indices are
often used.
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Design Decisions For Marketing
Metrics
• Sales analysis by product
– Before deciding which products to abandon,
management must study such variables as:
•
•
•
•
Market-share trends.
Contribution margins.
Scale effects.
The extent to which a product is complementary
with other items.
– Particularly helpful when combined with
account size and sales territory data.
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Design Decisions For Marketing
Metrics
• Sales analysis by order size
– May identify which orders, in monetary size,
are not profitable.
– This may lead to:
•
•
•
•
Setting a minimum order size.
Charging extra for small orders.
Training sales reps to develop larger orders.
Dropping some accounts.
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Design Decisions For Marketing
Metrics
• Sales analysis by customer
– Typically show that a relatively small
percentage of customers account for a large
percentage of sales.
– The key is to find useful decompositions of
the sales data that are meaningful in a
behavioral way.
– Three useful variables in doing so are:
recency, frequency, and monetary value.
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Design Decisions For Marketing
Metrics
• Line-item margin and expense analysis
– Gross and net margins must be tracked, and
the effectiveness and efficiency of all line-item
marketing expenses must be measured.
– Budget analysis requires that managers
continuously monitor marketing–expense
ratios to make certain the company does not
overspend in its effort to reach its objectives.
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Design Decisions For Marketing
Metrics
• When and how often is the information
needed?
– Buyers and merchandise managers in
retailing firms typically assess item and
category sales performance on a weekly
basis.
– Performance of industrial salespeople is
typically done on a monthly basis.
– Strategic control indicators are likely to be
measured and reported less frequently.
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Design Decisions For Marketing
Metrics
• Media and Format(s) or Levels of
Aggregation
– Having good and timely information and
reporting it in such a manner that it is easy
and quick to use are different things.
– Thoughtful attention to the format in which
marketing performance information is
reported can be a significant competitive
advantage.
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Design Decisions For Marketing
Metrics
• Getting the metrics aligned with the
strategy.
• A good first step is to identify the elements
in an informational “dashboard” that the
top management team can use to track
marketing performance from period to
period.
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Design Decisions For Marketing
Metrics
• What contingencies should be planned
for?
– Because all strategies and the action plans
designed to implement them are based on
assumptions about the future, they are
subject to considerable risk.
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The Contingency Planning Process
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Design Decisions For Marketing
Metrics
• Global marketing control
– Measuring the performance is more difficult
than with domestic marketing.
– Global companies typically use essentially the
same format for both their domestic and
foreign operations.
– Report frequency and extent of detail can
vary.
– A single system facilitates comparisons
between operating units and communications
between home office and local managers.
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The Marketing Audit
• Audits are broader in scope and cover
longer time horizons than sales and
profitability analyses.
• An SBU-level audit covers both the SBU’s
objectives and strategy and its plan of
action for each product-market entry.
• It must consider environmental changes
that can affect the SBU’s strategy and
product-market action programs.
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The Marketing Audit
• Types of Audits
– The marketing environment audit
– The objectives and strategy audit
– The unit’s planning and control system audit
– The organization audit
– The marketing productivity audit
– The marketing functions audit
– The company’s ethical audit
– The product manager audit
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Measuring And Delivering Marketing
Performance
• Measure well—and in a timely and easyto-use fashion—and performance is likely
to follow.
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Take-Aways
• Most managers and entrepreneurs are
evaluated primarily on the results they
deliver.
• Effective design of control systems,
whether for strategic control or for
marketing performance measurement,
helps ensure the delivery of planned
results.
• A step-by-step process for doing so is
provided in this chapter.
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Take-Aways
• Control systems that deliver the right
information—in a timely manner and in
media, formats, and levels of aggregation
that users need and can easily use—can
be important elements for establishing
competitive advantage.
– Four key questions that designers of such
systems should address are discussed in this
chapter.
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Take-Aways
• From time to time, it is useful to step back
from day-to-day results and take a longer
view of marketing performance for a
company or an SBU. A marketing audit, as
outlined in this chapter, is a useful tool for
conducting such an assessment.
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