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There is No Silver Metric for Marketing Measurement
Tim Ambler Honorary Senior Research Fellow London Business School
There is No Silver Metric for Marketing Measurement Tim Ambler Honorary Senior Research Fellow London Business School
Agenda
How not to measure marketing performance:
Why brand equity is the key
Discounted Cash Flow (DCF) Return On Marketing Investment (ROMI)
Measuring brand equity
Summary & Discussion 7
Top Management Perspective
Marketers are slippery people who move the goalposts Never mind soft numbers like attitudes; let’s see the financial return
i.e. “hard” numbers
Keep it simple: what is the bottom line?
8
The Hard Number Myth
Numbers are hard or soft according to how precise, certain and reliable they are Putting a $ sign in front of a number does not make it any harder or softer Enron published hard numbers?
Why Measure Marketing Performance Anyway?
Most marketers want to be out there making it happen, not just keeping score.
Yet we need to learn from what went right and wrong to improve future performance.
NB Measurement will not improve short term performance.
And planning should involve the comparison of alternative quantified outcomes.
And you need a “dashboard” to monitor progress toward objectives.
What “Marketing” are we Measuring?
Identified marketing expenditure?
What the marketing department does?
That’s only a part, maybe a small part
NB Their responsibilities vary from company to company
The whole company’s satisfaction of consumers and thereby sourcing and harvesting of cash flow?
Financially Driven Marketing “Accenture Marketing Sciences is a world leader in marketing analytics consulting. Using sophisticated analytical techniques and advanced software technology, we help Fortune 500 CMOs optimize marketing investments to improve shareholder value. We measure the impact of marketing variables and improve marketing ROI effectiveness and efficiency through a full range of services and software:
Customer-Centric Analytics Product Portfolio Allocation Market Investment Optimization Marketing Mix Optimization Trade Promotion Management Demand Planning Decision Support Tools”
Accenture Website
The Two Main “Silver Metrics”
A “silver metric” (see silver bullet) is a single number top management can use to track marketing performance Discounted Cash Flow
Customer Lifetime Value
Customer equity
Net present value
Brand valuation
(DCF)
Return on [Marketing] Investment (RO[M]I)
Lesser used silver metrics
Payback
Return on Customer (Peppers & Rogers 2005)
What the Silver Metric Merchants Want to do
Marketing performance = Either Silver Metric for period (ROI) Or Short term financial results plus or minus change in marketing asset expressed financially as a silver metric
A Word on Brand Valuation
It gets top management attention and that’s great.
We are looking at big numbers
(Next slide)
Even if these numbers are internally consistent, The rankings of the main three valuers (Interbrand, Brand Finance & Millward Brown Optimor) are very inconsistent
Millward Brown Optimor – Top 10 Global Brands Rank 2010
+/2009
Brand Value $M
1
2 3
% up 2009
114,260
14
IBM
86,383
30
Apple
83,153
32
4
-2
Microsoft
76,344
0
5
-2
Coca Cola
67,983
1
6
-1
McDonald’s
66,005
-1
7
+3
Marlboro
57,047
15
8
-1
China Mobile
52,616
-14
9
-1
GE
45,054 -25
10
-1
Vodafone
44,404 -17
Problems with DCF as a Performance Metric
Lack of independence of forecasters from those whose performance is being judged.
Subjective bias based on relationships.
Lack of confidence in the accuracy of forecasts.
Confounding forecasting error with performance variance
Which of the multiple forecasts should be used?
Is exceeding forecast a good result or a bad forecast? A large company, Kraft for example, may forecast the same period many times before the results are in.
Taking credit today for future marketing
i.e. marketing by a new team not yet hired 17
Problems with RO[M]I as a Performance Metric Ratio developed for capital projects. Marketing expenditure is an expense, not an investment.
1.
„
It belongs to the P&L, not the balance sheet
Problems with RO[M]I as a Performance Metric All other performance measures, e.g. profits, subtract costs from revenue; ROI divides revenue by costs.
2.
„
„
So the ROI on zero expense is infinite OK if costs are constant but then the metric is pointless
19
Problems with RO[M]I as a Performance Metric Sub-optimal performance
3.
„
Maximizing ROI means lower sales and expenditure than is required for maximizing profitability
Problems with RO[M]I as a Performance Metric To measure the incremental R and I, we need the baseline, i.e. what revenue, costs and profits would have been without this marketing.
4.
“Counterfactuals”, i.e. what would have been are notoriously difficult to establish but without them, ROI makes no sense.
Problems with RO[M]I as a Performance Metric ROI has become a fashionable term for any performance measurement without regard for what it actually means.
5.
E.g. AMA 6 “ROI Measures Currently Used” (2005), none of which are actually ROI. Try asking a marketing practitioner to define it.
Problems with RO[M]I as a Performance Metric Short-term measure which ignores the ongoing marketing asset – brand equity
6.
Brand equity (Aaker 1991) is arguably the most important marketing concept since the 4 Ps. Ignoring brand equity will destroy an industry, e.g. British car manufacturing 1950 – 1970.
What is “Brand Equity”?
It is the asset created by good marketing.
similar to reputation but more than that
It is not a financial valuation, nor “customer equity”
Assets have different values in different contexts
A “brand” is what a company sells: it transfers
“Brand equity” is retained and grows with every sale
“Brand” and “brand equity” include the commodity
how else can quality matter?
How does Marketing Work?
Two stages:
Creating demand, i.e. building brand equity
Converting brand equity to sales
Brand equity more from usage and satisfaction than promotion
Cash is the outcome of marketing, not the driver
It helps but success comes from DMC, & time rather than money
Dynamic Marketing Capabilities:
Empathy with the consumer
Energy in pursuing customer satisfaction
Keller (2010) MOM presentation, Slide 16: Dimensions of Brand Feelings Brand feelings can be divided into two broad categories: Experiential – immediate, short-lived during purchase/consumption Enduring – private, possibly part of day-to-day life Brands should have one, or ideally both, types of feelings
Increasing level of intensity
Experiential Feelings
Enduring Feelings
• Warm
• Sense of Security (Inner-directed)
• Fun
• Social Approval (Outer-directed)
• Exciting
• Self-Respect (Actualization) Self-Respect Sense of Security Social Approval Inner-Directed
Outer-Directed
Higher level of values & needs
Measuring Brand Equity
It is a multidimensional asset
One of them could well be its value
So it needs more than one metric to describe it
If there is a reliable methodology for that
Indicators of future consumer behavior?
E.g. Perceived relative quality, Brand feelings?
27
Measuring Brand Equity 2
Is the metric’s variance steady?
Too volatile and it will mislead
Too stable (e.g. total awareness) and it will not indicate change
Do the top execs all understand the metric the same way? Did past movements predict current performance?
28
What Any Organization Should Do
Marketing performance = NEVER Silver Metric for period (ROI) BUT Short term financial results plus or minus changes in marketing asset expressed financially and non-financially as a dashboard
Agenda
How not to measure marketing performance:
Why brand equity is the key
Discounted Cash Flow (DCF) Return On Marketing Investment (ROMI)
Measuring brand equity
Summary & Discussion 30
Marketing Accountability
Most great businesses got there without formal measurement of marketing performance. They were far more concerned with feelings – the consumers’ and their own.
They were empathetic first, Energetic second, And keeping score was a long way down the list.
No problem with that, but owners do not have to be accountable. 31
Marketing Accountability: The Moral
Do it right or don’t do it at all.
Doing it wrong wastes resources and misleads.
Understanding the measurement model focuses attention on the company’s most valuable asset: brand equity. UK research showed, on average, the top exec groups used 90% of their time spending their company’s money or counting it. And only 10% wondering where it came from or how to grow it.
32
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