High Performance Marketing: Bringing Method to the Madness of Marketing
Chapter 4: The Measure of Marketing
The principles of a measurement-driven performance culture
In order to establish a comprehensive and integrated marketing perspective, marketing organizations must have the discipline to measure in a rigorous fashion with metrics. These measurements lay the foundations for performance improvement.
The leading marketers recognize that there are a few essential objectives they must set and meet if they are to produce valid measures on an ongoing basis and successfully rely on them to drive action. These three principles must guide a measurement-driven performance culture:
- Measurement must be relevant
- Measurement must be visible
- Measurement must drive improvement
Let's look at each of these principles in more detail.
Measurement Must Be Relevant
The most highly sought-after financial outcomes may include increased shareholder value, revenue, or profit growth. Marketing must target more immediate performance objectives, however, in order to deliver on such financial targets. Therefore, it must make causal linkages between key measures such as customer satisfaction, cross-selling, or campaign response rates and the financial results it seeks to produce.
These links are not as obvious as one might think. In recent years, critics have raised questions about the implications of customer satisfaction, for instance, on overall corporate success. Even marketing campaigns that are apparently successful may not be truly successful if outcomes are misaligned with objectives. (Consider a no-interest financing campaign for a new car that generates tremendous response, but merely eliminates all margin on the purchase. U.S. carmakers are very familiar with that particular impact of their marketing.)
Let us take for example another previous client, a banking institution. This bank had a major deposit generation campaign in which it paid above-market rates for CDs. The bank raised deposits, but ended up cannibalizing money from many of its existing accounts at a much higher cost. As a result, the campaign cost the bank more than $15 million in net income. The bank's increased deposits were directly linked to a decrease in its income. This outcome was not apparent, however, until we were able to analyze the entire customer portfolio of deposits and were able to see the flows from mutual funds and checking accounts to these hot CDs. Prior to this analysis, the executive who was leading the deposit generation campaign looked like a hero for having grown deposits in his geographic region much faster than his counterparts elsewhere. After the analysis, he disclaimed all responsibility for the decision to offer above-market interest rates. To be successful in terms of measurement, marketers must rigorously and diligently test their assumptions. Until a clear linkage between actions and outcomes is established, the relevance of favored performance metrics is merely a hypothesis. Sometimes, marketers merely need to dive deeper to determine the true implications of an action. During the refinance boom of the past few years we have often seen instances of financial institutions advertising mortgage rates and soliciting business aggressively. We found that the ability of their back offices to actually fulfill and close on those loans could not match the demand that was generated, leaving them with irate prospects who failed to become customers.
Measurement Must Be Visible
Essential to the continuing success of today's marketing organization is its ability to determine and clearly communicate the impact of its actions. While it is clear that most companies have important benefits to gain from smart marketing measurement, it is hardly certain what the most relevant metrics of marketing performance might be from one company to another.
The level of resources that must be devoted to the measurement task will, of course, vary too. It will depend on industry dynamics, the size of marketing budgets overall, and each organization's existing proficiency in measurement. Marketers must put their best effort into measuring the outcomes of their current activities and investments. This is the critical foundation on which marketing improvement, and, perhaps innovation will emerge. Marketers must measure to determine where they should invest, and where performance improvements are necessary.
Furthermore, marketers must measure and report outcomes to meet the executive suite's growing demands for accountability. Indeed, they must communicate performance outcomes to reestablish credibility with corporate decision makers. Deeper credibility lays the foundation for larger and certainly more effective marketing investments. Performance-driven marketers have nothing to fear from new measurement reporting processes. We have found that these more relevant and effective measures often already exist within marketing organizations, but are not widely shared inside and outside marketing. It is a problem that must be addressed to achieve a successful outcome.
Read the third
point "Measurement must drive improvement" on page 16 of this sample chapter
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This was first published in October 2005