Measuring Marketing Success- Valutrics
The marketing comfort zone has gone. Gone are the days when mass products were designed for mass audiences, and manufacturers and producers could combine good old mass-distribution methods, face- to-face selling and mass advertising. Marketing used to be straight- forward. If you were a product marketer and had a decent product, you could promote it heavily and it would sell. You could fine-tune things on the run. It was not hard to succeed. Unfortunately, markets have changed. The trusted marketing management textbooks that formed the cornerstones of marketing of 5, 10 or 15 years ago are gathering dust. The product is now undoubtedly a very small proportion of the profit in a value chain. Product differences are rarely a sustainable competitive advantage: there has to be something more – it’s in the service/solution part of the equation. So everyone is trying to differentiate through services and solution, which is fine, but again this makes it hard for everyone to win.
So what happened? What caused this paradigm shift? Over the last 10 years, the model has changed totally. The IT industry for instance relied from its beginning largely on a face-to-face or direct sales model. When margin permits, this form of one-to-one marketing is the most personalized type of relationship marketing. It is built on knowing the needs of individual customers and building solutions to meet them. The role of marketing in this phase is sales and promotional support rather than mass-awareness advertising and branding. As the market matured, competition increased, product cycles were reduced and costs fell. IT products are becoming commodities in a world of reduced margins. Whilst the face-to-face sales force remains the right solution for complex and/or high-value transactions, commoditized products and services are more suited to lower-cost distribution channels such as the web. The face-to-face sales model is no longer affordable. So marketing needed to take on a new expanded role.
The IT industry, like others such as retail, automotive, insurance or travel, relies on and suffers from the growing role of intermediaries. The supplier may be one or more steps from the end customer. So better customer data and market intelligence is now critical to building and nurturing relationships with end customers. In many markets, the old approach to marketing is not working. There are more things to play with – whether that is more channels, more media or more technology. In many ways that is a switch from the analogue age of marketing to the digital age of marketing.
Markets are more fragmented. The media available to reach consumers have proliferated. The differentiation of roles traditionally attributed to different media has also broken down. For instance, take the mailshots with CDs by internet service providers such as AOL. They are providing product access as well as building the brand in a non-traditional manner. The fragmentation of media and changing of media roles together have an effect which requires even more thought than before about how to integrate communications. As if this were not enough, customers are becoming more discerning, screening media, throwing away or deleting non-relevant mail and zapping adverts. This has made marketing planning more complex.
Even more alarming has been the accelerating rate of change. Activities that once required hours or days, such as inventory assessment, can now be done automatically with the click of a mouse using e-commerce techniques. Marketers need to react faster to the market and are using new technologies to do this. The pressure for speed and efficiency is forcing marketers to consider more innovative and effective means to building relationships. New forms of part- nering are emerging.
Reflecting on the sum of all these changes, one could say that it is a quite challenging environment, one that could genuinely be called revolutionary. Evidence from several sources shows that marketing revolution is high on the chief marketing officer’s agenda. Marketing revolution is critical to coping with change. Marketing revolution involves combining the best in marketing, sales and service from anywhere in the world to change marketing and to meet the challenges described above. At a time when the wingspan of what we call marketing is much greater, so it is all customer-facing activity – not just the marketing department controlled stuff; nothing is ruled out. It includes merging marketing with other functions, outsourcing or even abolishing marketing. Marketing is also taking partial accountability for new areas, making the boundaries between marketing, sales, service, HR, operations, logistics and other func- tions less impervious. Marketers need to answer questions such as: How can my marketing be twice as effective at half the cost? How can I accelerate my marketing activities so I can do everything at four times the speed and half the cost without sacrificing quality? They also need to answer tactical questions relating to the cost-effectiveness of specific marketing activities. All this involves big changes to how information is created, interpreted, shared and used to manage customers and business partners.
Companies are starting to realize that their marketing needs to change radically to succeed. The new emerging and empowered consumer, an increased product choice and global oversupply are creating an ever-growing pressure on the marketing function. The symptoms of a crisis that has slowly been gaining momentum over the last five to ten years are quite apparent now and hurting marketing:
1. Marketing communication is congested. Too many communications that even with strong, analytical targeting fails to achieve, failing to break through and drive the ROI (return on investment) companies are expecting in a fragmented media.
2. Marketing seems to have become a battleground. Marketing has to justify its existence, even its survival, and getting cut in as a ‘non- revenue’ and ‘non-essential’ function.
3. Marketing disciplines are fighting each other. Functions fighting each other for diminishing budgets as the core effectiveness problems fail to be addressed in favour of cost-cutting efficiency. Whilst consumers realize that anything can be a message medium, marketing and services fight for budget.
4. Too many marketers are in love with one instrument. Individuals focus on a tried and tested method at the expense of change.
5. Many internal relationships and client–agency relationships frequently don’t look like partnership. And when functions and agencies work together they do not pull together because no one has aligned strategy, measurement and execution. The comfort zone that marketing was enjoying as little as a decade ago, has gone.
Measuring Marketing
Companies are becoming impatient with marketing. It is often easier to establish measures and returns for their investments in finance, production, information technology, even purchasing, but much harder to understand what their marketing spending is achieving. As a result, there is a feeling that the marketing function is being pushed lower and lower in the corporate hierarchy.
To investigate these issues, the Association of National Advertisers (ANA), a leading US marketing trade organization, undertook a study in cooperation with consulting firm Booz Allen Hamilton to discover whether marketing has become disconnected from companies’ leadership agendas, to determine the causes of any dysfunction and to uncover the best practices of superior marketing organizations. Their research was based on an online survey of 370 marketing and other executives at more than 100 companies in nine industries. The industries represented were automotive, consumer packaged goods, financial services, health, manufacturing, professional services, retail, technology and telecommunications. This was supported by in-depth interviews with marketers across a range of industries. Their conclusion was a surprise. The general belief was that the marketing function is more important now than ever before, but that marketers are having a hard time keeping up. Good marketing is regarded as being key to corporate success by 77 per cent of marketing executives and 78 per cent of non-marketing executives overall, with some variation by industry. In healthcare, for example, 86 per cent of executives regarded marketing as important, whereas in the automotive industry this fell to 59 per cent. The study iden- tified three dichotomies which hinder the effectiveness of marketing organizations:
1. More than 75 per cent of marketers and other managers say that whilst marketing has become more important to their companies during the past five years at more than half of all companies, the agendas of marketing and the CEO agenda are not aligned.
2. Higher expectations for marketing have driven nearly 70 per cent of all companies to reorganize their marketing departments during the same period. Despite such activities, the position of chief marketing officer (CMO) remains ill-defined in relation to other functions within the company.
3. Measurable outcomes are now expected for marketing programmes. Sixty-six per cent of executives in the study noted that a reliable return on investment (ROI) analysis is one of the marketing function’s greatest needs. However, most companies are still using surrogate metrics, such as awareness, instead of ROI measurements.
To investigate further the reasons for the apparent mismatch, Booz Allen Hamilton sought to compare marketers’ own evaluation of their focus and their contributions against those of company leaders. They compared the key priorities of CEOs, as identified in the US Conference Board’s comprehensive annual survey, with the priorities of leading marketers in their study. According to the Conference Board, the top four chief executive priorities are:
• top-line growth (52 per cent);
• speed, flexibility, adaptability to change (42 per cent);
• customer loyalty and retention (41 per cent);
• stimulating innovation (31 per cent).
This is supported by a recent IBM Global CEO survey that pointed to ‘profitable growth’ and ‘customer intimacy’ as very high on the CEO agenda.
In the US study marketers seem to be giving some of these priorities short shrift. The marketing agenda seemed to be quite disconnected from that of the CEOs in some areas. Marketing’s focus is still tactical. However, the pressure to measure marketing effectiveness is plainly on. In a UK IBM chief marketing officer survey, measuring marketing effectiveness came top of the list. The need for accountability and a feedback loop to support continuous improvement is essential, as marketing spend is typically about 6 per cent of company turnover and more than $250 billion is spent to produce and manage marketing output by the top 1,000 companies according to a Gartner study.2UK enterprise spends at least £40 billion per annum on marketing and communications. This expenditure is far from optimized. Our estimate is that the potential for improvement is in the range of £4 billion to £10 billion per annum.
In the IBM survey, senior marketing executives were asked to grade challenges as strong, medium or weak, with strong being a challenge of near-term significance to their organization. Over 70 per cent of respondents saw developing the capability to measure marketing effectiveness as a strong challenge. Only 3 per cent of the senior marketing executives interviewed felt that marketing effectiveness had little relevance to their brief. When asked to give their top three near-term marketing challenges, respondents again viewed meas- uring marketing effectiveness as the most significant challenge. Close to two-thirds of all respondents cited measuring marketing effec- tiveness in their top three, with over half of those respondents rating it as the most important focus area for their marketing department. More evidence of this interest is found in the number of studies and professional workshops on this topic in professional and industry marketing for associations.
Part of the underlying drive towards marketing effectiveness is based on the fact that many companies are realizing that they need to win the battle for high value customers. In other words, you have to focus on those 10–20 per cent of customers that make all the difference. The difference between a market leader, the number two and number three is often down to a company’s share of a very small group of high- value customers. A brand leader always finds better ways to bond more closely with them. Building and managing those relationships is critical to maintaining or acquiring market leadership. This is where marketers need databases, data-mining customer analytics and campaign management. This also means beating the competition. It is not good enough to be effective. Acompany must aspire to excellence and to winning against its competitors throughout the customer management cycle. This requires close alignment of investments to business strategy and growth opportunities.
Measuring marketing effectiveness has not proved easy. The problem is, how can marketing show an ROI, based on some sort of acceptable cost–benefit calculation in the same way as some other corporate functions? The impact of marketing is difficult to track, especially its longer-term effects. The costs are usually clear, but benefits can be more difficult to articulate. To compound the problem, the definitions of measurement and what to measure can make this even more challenging. Does one measure all marketing? Does this include all customer touch points? Measuring effectiveness goes beyond executional efficiency. Limited progress seems to have been made in the last 10 years on revamping marketing metrics. In the finance area both the ‘R’ and the ‘I’ are uniformly measured in monetary terms. In marketing, various quantitative factors – such as cost per incremental volume – have to be balanced against qualitative factors such as product awareness over both the long and the short term. High-touch, relationship-based industries with differentiated products (such as financial services and automotive) tend to use awareness and image-related forms of measurement. Low-touch industries (such as food and most retailing), in which marketing creates differentiation among commodity products, rely more on market share, growth and profit metrics. Although these forms of measurement are valid, they are harder to explain and sell to other senior executives, who typically come from backgrounds with different disciplines.