26804i

Includes Downloadable ROI Spreadsheets

Data-Driven Marketing The 15 Metrics Everyone in Marketing Should Know Mark Jeffery

Kellogg School of Management

CONTENTS

DOWNLOADABLE ROMI RESOURCES

XIII

ACKNOWLEDGMENTS

XVII

INTRODUCTION

XIX

PART I

Essentials

1

CHAPTER 1

The Marketing Divide: Why 80 Percent of Companies Don’t Make Data-Driven Marketing Decisions—And Those Who Do Are the Leaders

3

The 15 Essential Marketing Metrics Case Examples

7

9

Marketing Budgets: Key Differences between the Leaders and the Laggards 17 Using Marketing Metrics to Weather Difficult Economic Times 20 The First Step: Defining the Data-Driven Marketing Strategy 22 Chapter Insights

25

Case Examples: Best Buy, Porsche Turbo Cabriolet Launch, DuPont Tyvek NASCAR

vii

viii Contents CHAPTER 2

Where Do You Start? Overcoming the Five Obstacles to Data-Driven Marketing

26

Overcome Obstacle 1: Getting Started—Focus on Collecting the Right Data and Create Momentum

by Scoring an Easy Win 28 Overcome Obstacle 2: Causality—Conduct Small Experiments 33 Overcome Obstacle 3: Lack of Data—Strategies for Obtaining Customer Data 35 Overcome Obstacle 4: Resources and Tools—Build the Infrastructure for Data-Driven Marketing 39 Overcome Obstacle 5: People and Change—Create a Data-Driven Marketing Culture 44 A Road Map for Implementing Data-Driven Marketing 49 Chapter Insights

51

Case Examples: Royal Bank of Canada, Walgreens, Continental Airlines, Harrah’s Entertainment CHAPTER 3

The 10 Classical Marketing Metrics Linking Marketing Activities to Metrics A Balanced Scorecard for Marketing Facing the B2B Measurement Challenge Chapter Insights

52 53

62 67

71

Case Examples: MasterCard FIFA Sponsorship, Microsoft OEM Comarketing

PART II

CHAPTER 4

15 METRICS TO RADICALLY IMPROVE MARKETING PERFORMANCE

73

The Five Essential Nonfinancial Metrics: #1—Brand Awareness, #2—Test-Drive, #3—Churn, #4—Customer Satisfaction (CSAT), and #5—Take Rate

75

Shaping Perception: Metric #1—Brand Awareness Comparative Marketing: Metric #2—Test-Drive

75 87

ix

Contents Loyalty Marketing: Metric #3—Churn

91

Customer Satisfaction: Metric #4—CSAT

96

Campaign Effectiveness: Metric #5—Take Rate Chapter Insights

99

103

Case Examples: Philips Consumer Lifestyles, Navistar America’s Greenest School, Porsche First Mile, Intel, Ray-Ban, Lexus, Dental Care Partners, DSW Shoe Warehouse Downloadable Excel Templates: Churn, Take Rate CHAPTER 5

Show Me the ROI! The Four Essential Financial Metrics: #6—Profit, #7—Net Present Value (NPV), #8—Internal Rate of Return (IRR), and #9—Payback Metric #6: Profit

104

105

Finance for Marketing Managers: Metrics #7—NPV, #8—IRR, and #9—Payback Defined 106 Return on Marketing Investment (ROMI) Framework for Management Decisions 115 ROMI for Sports Sponsorship

119

ROMI for a New Product Launch

122

Stress-Test the Numbers: Sensitivity Analysis Chapter Insights

129

133

Case Examples: Sports Sponsorship and Web New Product Launch ROMI (Disguised) Downloadable Excel Templates: NPV, IRR, Payback, Campaign ROI, Sports Sponsorship ROI, New Product Launch ROI, Table Function Sensitivity Analysis, Monte Carlo Analysis CHAPTER 6

All Customers Are Not Equal: Metric #10—Customer Lifetime Value (CLTV) Metric #10—Customer Value Defined

135

The New Marketing Strategy: Value-Based Marketing Balancing Short- and Long-Term Customer Profitability Customer Life Cycle Management Chapter Insights

134

151

154

Case Examples: Sainsbury’s, 3M, Continental Airlines, Royal Bank of Canada, Carnival Cruise Lines

138 146

x Contents Downloadable Excel Template: Customer Lifetime Value CHAPTER 7

From Clicks to Value with Internet Marketing Metrics: #11—Cost per Click (CPC), #12—Transaction Conversion Rate (TCR), #13—Return on Ad Dollars Spent (ROA), #14—Bounce Rate, and #15—Word of Mouth (WOM)

156

CPC versus CPM: Optimizing Metric #11—CPC Is the Google Innovation 157 Optimizing Sponsored Search: Metrics #12—TCR and #13—ROA 159 How Good Is Your Web Site? Metric #14—Bounce Rate

168

Changing the Internet Search Marketing Game with Attribution Modeling 172 Beyond SEM: Internet Display Advertising Impact

176

Hypertargeting Display Advertising in Social Media

178

Metric #15—Word of Mouth (WOM) Social Media Marketing Engagement 181 Chapter Insights

186

Case Examples: Google, Air France, Opinmind, Meteor Solutions, Palm Centro, Capcom Resident Evil 5 Downloadable Excel Templates: Search Engine Marketing Metrics (CPC, CTR, TCR, Take Rate, ROA), Air France Click Data, Google ROA Impact, Bounce Rate, Word of Mouth (WOM)

PART III

THE NEXT LEVEL

187

CHAPTER 8

Agile Marketing: Using Near-Time Data to Improve Performance by a Factor of Five or More

189

If You Are Going to Fail, Fail Fast Design for Measurement Chapter Insights

190

196

200

Case Examples: Microsoft Security Guidance, DuPont Performance Alliance

Contents CHAPTER 9

Wow, That Product Is Exactly What I Need!

The Three Essential Approaches to Analytic Marketing

xi

201

The First Essential Approach to Analytic Marketing: Propensity Modeling 202 The Second Essential Approach to Analytic Marketing: Market Basket Analysis

206

The Third Essential Approach to Analytic Marketing: Decision Trees 207 Timing Is Everything: Event-Driven Marketing Case Examples 214 The Business Case for Analytic Marketing Chapter Insights

218

220

Case Examples: Meredith, EarthLink, DIRECTV, National Australia Bank, Ping Golf Downloadable Excel Template: Analytic Marketing ROI Downloadable SAS File: EarthLink Retention Marketing CHAPTER 10

What’s It Going to Take? Infrastructure for Data-Driven Marketing Which Data Do You Really Need?

222

223

Do You Need to Build a Ranch House or Empire State Building Infrastructure?

225 Requirement Complexity

229

Should You Forklift or Rearchitect Data in the Enterprise Data Warehouse?

233 What We Know Can and Will Go Wrong (If You Don’t Watch Out!) 234 Harrah’s Entertainment: Creating the Data-Driven Marketing Infrastructure Portfolio Chapter Insights

237

246

Case Example: Harrah’s Entertainment CHAPTER 11

Marketing Budgets, Technology, and Core Processes: Key Differences between the Leaders and the Laggards Marketing Campaign Management: The State of the Industry 249

247

xii Contents Research: Marketing Processes, Technology, and the Link to Firm Performance 252 B2B versus B2C Investment Portfolio Mixes: Leaders versus Laggards 256 Overcoming the Four Barriers to Professionalizing Marketing Processes 260 Upgrading Marketing Campaign Management Processes: A Three-Phased Approach 262 Lessons Learned from the Research: Complexity Requires Governance The Creative X-Factor

268

Tying It All Together

271

Chapter Insights

266

272

Case Examples: Blendtec Viral Marketing, Nissan Qashqai New Product Launch APPENDIX FOR INSTRUCTORS

How to Use This Book to Teach Data-Driven Marketing

275

NOTES

279

INDEX

285

DOWNLOADABLE ROMI RESOURCES

Figure 4.9

Churn reduction impact template: Downloadable at www.agileinsights.com/ROMI

Figure 4.11 Take-rate analysis template: (a) for a fixed number of contacts and variable acquired customers and (b) for a fixed number of acquired customers. Downloadable at www.agileinsights.com/ROMI. Figure 5.2

Figure 5.3

Figure 5.5

Figure 5.6

94

101

Template for present value calculation using the Excel NPV function. Downloadable at: www.agileinsights.com/ROMI.

109

Templates calculating the four essential financial metrics: (a) for a three-year marketing program and (b) for a nine-month campaign. All dollars are in units of thousands.

Downloadable at www.agileinsights.com/ROMI.

114

Campaign ROMI template: In this example, there are n campaigns in the base case and m new campaigns in the upside. The analysis is for N time periods—in this case, years—but it can be for months also. Downloadable at www.agileinsights.com/ROMI.

117

New product launch ROMI template: Rather than campaigns, as in Figure 3.3, the xiii

xiv Downloadable ROMI Resources

Figure 5.7

impacts are for n segments over a time period of N years. You can substitute campaigns for segments and months for years, although a new product will usually have a useful life of a few years. Downloadable at www.agileinsights.com/ROMI.

118

Example sports sponsorship ROMI analyses.

The numbers are disguised for confidentiality.

Downloadable at: www.agileinsights.com/ROMI.

121

Figure 5.10 ROMI analysis for a web portal new product launch. Downloadable at: www.agileinsights.com/ROMI.

126

Figure 5.11 Table function sensitivity analysis. The ranges of market share and order size (0 to 100 percent) are scaling the assumptions in Figures 5.8 and 5.9 from the worst to best case. Downloadable at: www.agileinsights.com/ROMI.

130

Figure 5.12 Monte Carlo simulation for the new product launch ROMI example. Downloadable template at: www.agileinsights.com/ROMI and a 10-day free trial of the @RISK Monte Carlo software is available at www.palisade.com.

132

Figure 6.1

Figure 7.2

Figure 7.5

Customer lifetime value (CLTV) Excel template for a single customer. The numbers can be changed for your customers.

Downloadable at: www.agileinsights.com/ROMI.

137

Template for SEM metric calculation: (a) five example keywords with bid and CPC data and (b) related metrics. The CPC data have been disguised but are representative.

The template and complete Excel data file of 7,000 records is downloadable at: www.agileinsights.com/ROMI.

164

Template for the (ROA) impact of reducing CPC and increasing take rate for a representative

Downloadable ROMI Resources

xv

Google campaign. Downloadable at: www.agileinsights.com/ROMI.

168

Figure 7.14 RE5 click data ranked by direct clicks and with WOM impact. These data have been disguised for confidentiality but are directionally correct. Source: Ben Straley, Meteor Solutions, and Mark Jeffery, Agile Insights LLC. Downloadable at: www.agileinsights.com/ROMI.

185

Figure 9.5

ROMI template for analytic marketing: (a) assumptions in the model and (b) ROMI analysis. Downloadable at: www.agileinsights.com/ROMI.

218