People Innovation Excellence

Marketing Metrics

By Dr. Asnan Furinto

 

 AsnanF(1)

 I know that half of my money spent for advertising was wasted. But I do not know which half. 

– John Wannamaker, 1838-1922

(Prominent U.S. merchant, Father of Modern Advertising)

 

 

BACKGROUND

Historically, marketing is one of the least measurable functions in many firms. Despite its important role, many corporations lack the knowledge and understanding to evaluate marketing activities and their expenditures. Marketing professionals partly contribute to this mishap situation. They often fail to develop quantitative, analytical, and strategic skills needed to perform and measure marketing functions effectively through the use of marketing metrics. In many situations, due to lack of-not to say unavailable, proper metrics, marketing decisions are made without sufficient and reliable information. Once, a Chief Marketing Officer of Proctor and Gamble said “Marketing is a $450 billion industry, and yet we are making decisions with less data and discipline than we apply to $ 100,000 decisions in other aspects of our business” (Farris, Bendle, Preifer, Reibstein 2006).

This paper proposes a broad framework for appreciating the roles of marketing metrics. The framework serves as trigger for further contemplation by all stakeholders of marketing discipline to work on concerted effort to revitalize the discipline and make it relevant to today’s business coopetition. The concomitant pressures of increasing challenge to and decreasing influence of marketing discipline would have to be mitigated by series of measurement effort and empowerment process respectively.

Increasing Challenge

The pressure is mounting for marketing practitioners and scholars to be held accountable for and to show how marketing expenditures adds to long term value of firm’s shareholders. According to Rust et al (2004), there are three challenges marketing discipline faces with regard to call for marketing productivity enhancement. The first challenge is how marketing could relate its activities to the long term results or effects. The second challenge is how marketing could separate the impact of its individual activity from impacts caused by other activities. Third challenge deals with how marketing could justify its investments by developing non financial metrics.

Today’s marketers are required to be able to measure new opportunities and the investment needed to realize them. Marketers must quantify the value of products, customers, distribution channels, under various pricing and promotional scenarios. “Number crunchers” shall no longer be solely associated to accounting or financial executives, but is also to today’s strategic marketers. The numeric imperative represents a challenge as many metrics are complex and difficult to master. Many of these metrics require data that are approximate, incomplete, or unavailable. A further challenge in developing marketing metrics stem from wide variations in the availability of data across industries. Despite reports that performance metrics have become a common language among marketers and differences of metrics across industries are shrinking rapidly, developing metrics which are able to accommodate the uniqueness and specificity of an industry would still be of relevant challenge to marketing scholars and professionals.

Decreasing Influence

Marketing’s influence within firms has been the focus of discussion in many academic papers as well as major professional articles. In general, those papers conclude that marketing function in many corporations is in steep decline. The decreasing influence has eventually resulted in the lack of respect marketing receives in organizations. McGovern et al (2004) assert that “misguided marketing strategies have destroyed more shareholder value, and probably more careers, than shoddy accounting have”. Many believe that marketing has lost its strategic role and only few marketers remain involved in corporate strategy formulation. In contrary, majority of marketers are engaged in day to day, short term, tactical decisions, such as advertising, customer service and public relations.

Against this backdrop, it is deemed very important and urgent that strategic marketers should take some key steps to revitalize the role of marketing within organization. Marketing needs to be empowered to be able to re-gain a seat at the board table. Everybody in the organization shall be made aware that marketing is not just a support function nor a tactical complement in their organization. Marketing leaders shall take more active parts in a concerted effort called “internal marketing” (Wieseke, Ahearne, Lam, and van Dick 2009) and adopt an “effectual approach” (Rhead, Dew, Sarasvathy, Song and Wiltbank 2009) to empower marketing.

The aim of internal marketing is to perform interrelated buy-in processes within the organization to get a consensus and sense of oneness among employees toward the strategic role of marketing in their organization. Internal marketing could be further enhanced by a breakthrough known as an effectual approach. Effectual approach is the opposite of predictive approach. Effectuation inverts the fundamental principles and overall logic of predictive rationality. Effectual approach takes the environment as endogeneous to the actions of effectuator, who therefore attempt to cocreate it with a network of partners, investors, and customers. By adopting an effectual approach, marketing leaders are expected to be able to make calculated, well thought decisions despite uncertain, ambigious situations frequently faced by firms. The combination of internal marketing and effectual approach is the key to empowering marketing.

THE CONCEPTUAL MODEL

MEASUREMENT

With increasing challenge for marketers to show their accountability for marketing actions, metrics development are inevitable. Metric is defined as a measuring system that quantifies a trend, dynamic, or characteristic (Word Reference 2010). In almost all disciplines, metrics are employed to explain observation or phenomena, diagnose causes of imminent problems, share research findings, and to certain extent predict the result of future events. It is posited that in order to address the increasing challenge for marketing to be effective and held accountable, systematic and interrelated metrics would have to be built, disseminated, and consistenly used in practice. Marketing scholars are encouraged to continuously develop various methods and models in constructing the metrics, while at the same time they are aware on the existing differences in the business models of firms across industries. Having metrics which are robust but yet relevant are prerequisites for metrics incorporation in firms from many industries.

EMPOWERMENT

With decreasing influence that marketing discipline is facing, especially in the context of involvement and contribution in strategic issues being discussed and decided at the top management level, it is imperative that marketing departments, divisions, or units enhance their capabilities. Recently, Verhoef and Leeflang (2003) provide empirical evidence on the antecedents of marketing’s influence within the firm. There are five factors of marketing capabilities which have positive impact on the influence of marketing, which are accountability, innovativeness, customer connection, creativity, and cross functional integration with other units. Out of these five factors, there are only two factors which provide significant impact on the marketing’s influence, i.e. accountability and innovativeness.

As accountability turns out to be critical in enhancing marketing effectiveness, marketing leaders in organizations would have to play more roles in getting a buy in from their colleagues. Many CEOs and other chiefs can not get clear, convincing answers from the CMOs on the marketing’s impact. Marketers need to show their accountability (in addition to innovativeness capability) by building and using appropiate metrics to show the effects of marketing activities on the value of the firm.

 


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