Measuring Marketing Productivity —Using the Right Metrics

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Every year, BusinessWeek and Interbrand publish their annual list of the world’s top 100 brands. This list has become so important that many companies refer to their ranking on this list on their corporate website as an achievement. This list surveys the financial value of the many brands in the world and then ranks these brands in terms of their financial value. Even though this list creates much controversy and debate about the way the brands are ranked, it has made a huge contribution to the way marketing in general and brands in particular are viewed.

Probably the biggest problem that marketers face is their inability to quantify the marketing outcomes. Measuring marketing productivity is indeed a tough task. But before diving into the intricacies of marketing productivity and its measurement, it is important to define what is meant by marketing productivity. To measure productivity, one has to look at the various marketing investments made by the company. In this context marketing investments refer to money spent on marketing communications, promotions, brand building activities such as sponsorships and other activities aimed at creating long-term customer-company relationships. When companies invest money in these activities, they also expect to see some sort of return on the investment. Thus marketing productivity refers to the ability of these marketing investments to yield results.

Measuring the productivity of these marketing investments is highly challenging for companies because of the nature of marketing activities. This article examines the many challenges of measuring marketing productivity.

WHAT TO MEASURE

Standard Chartered Bank sponsors the annual marathon in Singapore. Standard Chartered Bank is a global financial institution headquartered out of London. As can be gathered, banking is not directly or indirectly related to a running event such as a marathon. But still, the bank spends money on organizing the event, publicizing the event, recruiting participant for the event, and even recognizing and rewarding the winners of the event. How should the bank measure the return on money invested in the sponsorship? Will it be wise to assume that the participants would (due to the event) take a strong liking towards the bank and become eventual customers? Can the return on the sponsorship measured in terms of increased sales, increased retail traffic, or some other financial measure?

Questions such as these constantly challenge marketing managers in companies across the world. To answer some of these very common questions, it is essential to understand the self-imposed constraints with which marketers have been working. Challenges to measuring marketing productivity can be clustered into three main topics.

RELATING MARkETING ACTIVITIES TO LONG TERM EFFECTS

Marketing has long been confined within the boundaries of the tactical 4P framework. As specialization of functions became prevalent within organizations, much of what was originally handled by marketers such as pricing, product development, and distribution was taken over by finance, engineering/design, and operations departments respectively. As such, marketing was more and more relegated to selling the products manufactured by the company. Fallout of this was that marketing was not represented at the boardroom. Even though the much “tangible” functions like finance, operations, and technology had board representations, the “intangible” marketing function got left out. Marketing was equated with advertising.

Marketing managers who made decisions on the allocation of the marketing budget were not exposed to the holistic corporate vision and their role in the bigger picture. As such, marketing activities tended to focus on short-term sales and profitability instead of long-term corporate health. Such dominant has been this practice that companies have not developed skill sets and personnel who can think of long-term effects of marketing activities. This is the fundamental challenge in measuring marketing productivity. The ability to relate marketing activities to long-term effects is paramount in measuring marketing productivity given the nature of the function. Most the activities in marketing have long gestation periods before yielding any measurable results. As such, it becomes important that those operating marketing budgets have an excellent command over the overall strategy of the company and a holistic view of marketing’s role in the big picture.

SEPARATION OF INDIVIDUAL MARkETING ACTIVITIES FROM OTHER ACTIONS

Marketing activities in the context of marketing investments refer to marketing communications, brand identity creation, and other promotional activities. Each of these activities is carried out with a sole purpose of making the company and its products favorable to the customers. When marketing managers sponsor an event, such as the Standard Chartered-sponsored marathon, an underlying purpose of such an activity will be to sell the company to potential customers. As such, even though the company includes a number of other functions and activities, selling the company comes under purview of marketing. In such a scenario then, marketing activities must be viewed in the broader context of selling a company or company’s image to potential customers. When marketing investments are utilized to achieve much broader objectives that expand beyond the narrow confines of the marketing department, measuring the outcomes of these investments should also be in line with such broader objectives.

For example, in the Standard Chartered marathon sponsorship, in measuring the returns of the marketing investments, metrics should not be limited to just financial metrics such as sales, increased retail traffic, or increase market share. Even though these are important, these do not measure the overall benefits that a company could possibly reap from such activities. The second challenge in measuring marketing productivity is the separation of marketing activities from other actions of a company.

Even though many marketing investments are made for the company as a whole, only marketing productivity is measured and not the returns on the company as a whole. As such, it does not project the actual complete picture. Isolating marketing activities form other company activities only compounds this problem.

USE OF PURELY FINANCIAL METRICS FOR JUSTIFYING MARkETING INVESTMENTS

Probably the biggest challenge in measuring marketing productivity is the use of purely financial metrics encompassing the traditional measures of sales, profitability, and market share among others. If companies want to gain an accurate insight into how marketing investments bring in results, then marketing managers will have to use both financial and non-financial metrics to measure the productivity of these investments. Unlike many other functions such as production or finance where results are more tangible and can be easily quantified, marketing is a function that studies people’s behaviors, attitudes, intentions, satisfaction, and loyalty. These variables cannot be quantified very easily.

As such, to gain a complete understanding, non-financial metrics should be used simultaneously. Specifically, three types of non-financial impact should be monitored.

1) Customer Impact – This refers to the extent to which any marketing investment (such as advertisements, sponsorships, etc) has made a positive impact on consumers’ perceptions, attitudes, and experience. Such an impact may not result in immediate sales or increased market share, but they would certainly enhance the company’s image in the eyes of consumers. In the case of Standard Chartered marathon sponsorship, the sponsorship may be classified as a failure if its productivity is measured in terms of the traditional financial metrics, but the same can be a successful marketing investment if measured in terms of its potential to create a long term positive customer impact.

2) Market Impact – The power of marketing communications is such that it not only impacts the customers at whom it is targeted but also helps the company in sending out strong signals to the market and the competitors. When recently Nike decided to have Asian celebrities to endorse the brand in Asia, it not only helped Nike to create strong associations for Asian consumers but also helped Nike to signal its seriousness in the Asian market to other local competitors. Therefore the return on such investments cannot be measured solely by using metrics such as sales or market share but also in terms of the effect it has had in the market and thereby helping the company in the long run.

3) Brand Impact – Companies across the world are slowly realizing that the most important corporate asset is the brand. A strong brand has the power of attracting more customers, warding off competitors, gaining favorable treatment from distribution channels, and commanding a higher price. As such, companies should ideally invest in those activities that would enhance the equity of the brand. In order to assess the return on marketing investments, marketing managers should also measure the impact of marketing investments on brand equity and customer-brand relationships (such as brand awareness, brand switching, brand loyalty, and eventual brand purchase). In the above example of marathon sponsorship, the bank may not gain immediate sales, but such community events would positively impact consumers’ perception toward the bank, it may increase brand awareness, and ultimately enhance the bank’s brand equity. But these advantages would not be assessed if companies restrict the measurement just to financial metrics.

CONCLUSION

Measuring the return on marketing investments is gaining importance within companies as time passes. As discussed in this article, the problem is not so much the inability of marketing managers to measure the returns but restricting the measurement only to financial metrics that fail to capture many important outcomes of marketing activities. By including non-financial outcomes in measuring the return on marketing investments, companies would have taken the first step towards solving the marketing productivity measurement problem.

print ed: 05/08

 

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