Do you measure up?

Marketing Magazine, July 2004, pages 16 - 19

As CEOs place pressure on marketing managers to demonstrate the bottom line worth of their activities, marketers need to become well-versed not just in the art of marketing, but also the science of marketing measurement. Joanne Donelly reports.

The mystery is going out of marketing, or at least it needs to if the discipline is to survive according to the experts in marketing measurement. The financial community is demanding transparency from marketers and boards want quantified results that measure more than awareness and simple cost of sales-and they want them presented in the language of CFOs and CEOs. It's no wonder then that marketing measurement is the hot issue on everyone's agenda.

Don Schultz professor of integrated marketing communications, Northwestern University, US, president Agora Inc, US, and director Simon Richards Group, Melbourne, says, "It's not just Australia- it's all over the world that [marketing measurement] is a hot topic."

Shultz believes the issue is heating up due to an increased requirement for quantitative data with many companies, particularly the multinationals, having bought into or developed some sort of quantitative measurement tool. Many, he says, have started to use the balance scorecard, and there is also a lot of focus on the economic value added concept.

"All of this requires some kind of quantitative detail. And the problem is that marketing organisations just don't have that and they haven't had it, and they're having a desperate struggle trying to get it right now."

Dr Jody Evans, senior lecturer, Melbourne Business School says, "The increase in focus on marketing measurement has been driven in part by shrinking budgets and a cultural shift in organisations toward greater accountability.

"Marketers are no longer just concerned about measuring the effects of one ad campaign. The issue now is to measure the overall effectiveness of marketing strategy and prove its usefulness in terms of business effectiveness and profitability.

"Return on investment (ROI) is certainly the buzz word for marketers today. This does not just refer to financial outcomes, but also includes areas such as customer satisfaction and brand awareness. It is the marriage of both hard numbers and less quantifiable factors.

"Because of the advances in CRM and business technology marketing managers have higher expectations regarding the quantity, reliability and speed of measured results.

"CEOs are definitely placing increasing pressure on marketing managers to demonstrate the effectiveness of marketing programs. Marketing is just like any other financial investment and, as such, marketers are expected to show a return on these investments, 'says Evans.

According to Tony Davis, director of The Quantium Croup, a customer analytics agency that uses actuarial techniques in managing and measuring marketing strategy and performance, a lot of marketers are feeling as though they're losing traction and being marginalised within their organisation. Yet Davis doesn't see this as a problem.

"If marketers arc really serious about maintaining any say in determining corporate direction, they must demonstrate a commercial appreciation in the language of the CFO and CEO. Most marketing metrics stop at looking at traditional measures of awareness, consideration and simple cost of sales. Perhaps the measurement (indeed the management) of marketing is becoming a more business-wide activity. It's long been said that marketing is too important to be left only to the marketing department."

"I'm not into protecting the marketing director or protecting the marketing function. I think marketing is a philosophy that needs to be at the heart of any sensible enterprise. And therefore marketing needs to be broader than advertising and communications. It needs to be into product and margin management, service cost, the ROI of expenditure, whether it be marketing or anything else."

"Marketers, however, do tend to be more creative than analytical," says Davis. "The ones who are now feeling marginalised are the ones who are less comfortable dealing with the financial dimensions of marketing. But I don't think that's necessarily true of all marketers."

"Certainly the ones who are progressing up the ladder are the ones who speak equally well creatively as they do financially. After all, marketing is about dreaming up new ideas and taking measured risks in order to maintain a competitive edge and a competitive advantages... So marketers need to be taking measured risks otherwise they're not creating competitive advantage for their clients. And typically that's the creative mind of a marketer. Whereas most finance people at the extreme are risk averse and will only do things if they can see evidence of how someone else has done it before."

"The day of a marketer going to a board meeting and explaining the fact that awareness points have jumped by however many and consideration has gone up by half that and it cost you 10 million bucks, are gone. Boards want to know 'So what? What does that mean in terms of revenue generation and profit generation?' But there are very few marketers who are able to translate the impact on the bottom line and shareholder value of their marvellous improvements in brand awareness and consideration rating."

"And that's why metrics are so important. What metrics is promising is a structured ability to move from the qualitative measures of marketing to the quantitative measures of finance.Schultz, however, is concerned about marketers not being on boards and marketing being pushed further and further down in the organisation and being considered as the people who do the ads and run the promotions."

"That's not a management activity, that's a tactical activity. And marketers have got themselves into it by focusing almost entirely on advertising and promotion and some PR. So it's difficult for them to get out. And because they don't have the financial skills and the management training when they come into a meeting marketing and management just don't talk the same language."

"Creative stuff is the fun stuff. And because marketing traditionally been considered art I think you have to look at it and say it's also a science - how do you put the two of them together?"

Grant Halloran, CEO of Marketing software (MRM) company Orbis, says, "I personally don't see what all the fuss is about to be honest. Accountants do understand that not all 'marketing-related' expenditure will result in a sales up-tick this quarter. Any brand-oriented marketing program is designed to support objectives like an ability to charge more, increase customer numbers, improve retention etc. Lots of measures that relate in some way to dollars in the end, but can't necessarily be quantified right now. I think if boards can't understand the value of seeing these types of measures going up, then the issue is not with marketers, the issue is with the intellectual comprehension of boards."

"What has been missing has been the actual rigour of doing the measurement. If one asks a marketer `What are you trying to achieve from that campaign?' and they say, `Retention of clients' but can't answer 'How many?' then that's where we have a problem. Marketers must be capable of examining historical data and current market data and come up with some target benchmarks for how campaigns- will perform. If a campaign then doesn't achieve the result then the worst thing that can happen is a blame game begins. What should happen is the marketer uses that data to start asking the appropriate `why' questions of their team."

A COLLABORATIVE APPROACH

In Australia a marketing coalition has been set up in as a forum for industry organisations to provide a coordinated approach for the development and implementation of marketing metrics across the country (members include the Advertising Federation of Australia, Australian Association of National Advertisers, Australian Marketing Institute, Australian Direct Marketing Association and the Media Federation of Australia).

Tony Davis is ADMA's representative in the coalition and says, "The idea is that all the major industry associations are trying to get a common view of what methods seem to be sensible... in the measurement of marketing effectiveness. And a key part of that is trying to find some links of commonality across industries, across media and across the different dimensions of traditional marketing metrics, campaign effectiveness, brand value and shareholder value."

This, he readily admits, is quite a big ambition.

"I think this group is going to discover whether it is do-able or not. It's something that certainly hasn't been fully cracked in the UK although I'm sure their thinking is more advanced than ours."

Halloran is all for it. "Let's give the industry a book that says here are all the ways you can measure marketing performance. The more granular the better. Rehashing the old accounting formulae won't help anyone-that just makes marketers appear naive, like they've never heard of the concept of ROI before! But what's important is that marketers then practically choose the marketing metrics relevant to them, and start tracking them on every investment they make."

Additionally, the Australian Marketing Institute (AMI) has set up the Australian Marketing Metrics project to produce a set of guidelines to demonstrate the value created by marketing, and to communicate this to senior management, board level and shareholders and stake-holders. An AMI Marketing Advisory Board was formed last year to oversee the project.

AMI chief executive officer Mark Crowe says, "While many companies to varying degrees have measures to evaluate the effectiveness of marketing, there is a need to develop a common framework for marketing metrics that can be adopted and recognised across all industries and sectors. These measurements will not be prescriptive, but rather a basis and guide for lifting the awareness and profile of marketing performance."

The AMI's Australian Marketing Metrics builds on the AMI's Certified Practising Marketer program, in that marketing will have complementary measurements for both individual and organisational marketing performance. This integrated approach will provide a key platform for promoting the role and value of marketing in business.

The AMI Marketing Metrics project is to release the final draft of its position paper, which covered research on the current practices within the memberships of the AMI and AANA in early July, after which summaries and schematic graphs are to be produced. One will be tailored for use by boards and senior management, a second for use by marketing professionals.

Crowe says one of the key challenges for the project will be to ensure the paper and associated documents are expressed in a way that can be readily understood by non-marketers.

The next stage of the project will be a Marketing Metrics Tool Kit to assist managers to develop and adopt marketing measures that will suit their business needs. The AMI will also provide training to marketers to ensure they are equipped to apply the Australian Marketing Metrics and provide an analysis of the results.

NO SINGLE SOLUTION

According to Schultz there are three dimensions of marketing measurement. But putting them together, while necessary, is extremely difficult.

"The problem we keep running into is that there's an attitudinal path, there's the short-term incremental path and then there's the path about brand. The problem is the organisation picks one of them, starts down that track and then can't switch. Because if you go down the attitudinal path you can't get any financial information. If you go down the short-term path you can't do anything about the long-term value etc. And what happens in many cases is they get stuck in one of these tracks and it doesn't give them the answers. And then they say 'we've invested a huge amount of money in a brand tracking study following tracking attitude data over the last three or four years and now we can't make any financial value out of that and so we're stuck. But it doesn't give us what we need."

One of the key challenges is putting the three tracks together says Schultz. "We have found a couple of ways to do it [see illustrations] but they're not terribly satisfactory. The real problem is the work that's been done is trying to improve one of the three pathways, but no one is trying to tie the three of them together."



According to Davis, some businesses are becoming more sophisticated in linking the traditional, largely qualitative marketing measures with the levers that influence brand and shareholder value. "Lifetime value measures are becoming better understood, but in many cases the calculations are based on assumed lifetimes and margins rather than more scientific and accurate predictions."

Davis also says that until recently Australia has been more content with the traditional measures, but now needs to catch up.

"Some of the learning has been done abroad, but there is no reason to be too far behind in adopting methods which are already proving themselves to have the ear of the board and, perhaps more importantly, the understanding of the analysts."

In defining which metrics are critical in adding to the bottom line - short and long-term, Davis says this varies by category and business, but drivers of P&L and balance sheet value are both key. "If the marketer can relate their activity (and investment) back to positive profit and shareholder value metrics they must be on a winner."

Davis also cautions that, "True performance metrics must be beyond response rates, beyond cost of leads/sales etc. There has to be an appreciation of margins, servicing costs and even overheads, perhaps over the life of the customer in order to really define goals for acquisition 'allowables'. The likelihood will otherwise be that a customer's acquisition cost may well exceed his or her lifetime value."

IT'S YOUR DATA - USE IT

Davis also says that while companies almost never use the data captured as efficiently as they could for their next campaign, the amount of data available in organisations is always better than imagined.

"While data may not be neatly warehoused, it always reveals a huge range of insights into the drivers of behaviour and value. Rarely are all the insights from past campaigns fully used to create improvements in future performance."

According to Evans, many marketers argue there is a lack of necessary data to give them a true indication of ROI.

"However, it may be more accurate to say that they are buried in data, but have limited information. With advances in CRM and business technology, marketers are able to collect a wealth of customer data. The challenge is finding someone skilled enough to turn that data into meaningful information."

"Another issue relates more to personal agendas -sometimes 'ignorance is bliss'. Some marketing managers don't necessarily want to know how effective their campaigns have been; after all no one wants to be told that they have failed," says Evans.

Halloran advises that marketing departments can use their campaign evaluation data more effectively by comparing it to other relevant activities, within their own company in the past, and what other companies have done. "Industry benchmarks are critical. Five percent response might be great against your own historical benchmark of four percent, but if your key competition is achieving seven percent then investigations need to be made."

"A number of Orbis clients are very serious about measuring results from campaign activity. This was a big driver for them implementing our solutions."

Halloran lists St George, Sony and the Insurance Australia Group as clients who have invested a great deal in getting rigour and discipline into their marketing, including systemisation of their measurement and subsequent analysis. "`These companies have recognised that one of the great challenges in marketing is actually dealing with the plethora of information they generate. It's one thing to say 'we have campaign performance'. It's another to be able to do that without adding extra burden to marketers who have little spare time as it is."

Halloran readily acknowledges, however, that while their software offers easy visibility of activity - where the investment is going and where the returns are coming from- what it doesn't do is tell the marketer how to interpret the data and what decisions to make.

"That's why professional marketers will always exist, and why accountants don't make marketing decisions."



Back to Articles