Metrics that matter - a progress report

Measurement and metrics have always been a focus for organisations. Now more than ever, all of us need to justify expenses and in many cases the very functions with which we are tasked. The rising importance of this focus has been creeping up on marketers for several years; a trend which has accelerated disproportionately with the current financial crisis.

Historically, marketing has been known to work in silos due to the extreme difficulty in quantifiably articulating the value of initiatives while still laying claim to large operational budgets. CFOs often do not understand the tangible benefits gained from marketing spend, while many CEOs find that marketers are less adept at providing a solid financial rationale and benefits to support their initiatives. In a difficult financial climate, marketing budgets are the first to go. Most marketers have been affected to varying degrees, some with budget cuts as high as 40 per cent. With no immediate levers to show the cause and effect and timing of the impact of such cuts, budgets are seen as expendable.

While there is an increased awareness and acknowledgement of the importance of marketing metrics, their effective adoption has been less than optimal. The culture and practice has not been taken up as quickly as expected. In the Marketing Directions 2009 Survey (May, AFR Boss)¹; fewer than 25.6% of the Australian marketers surveyed tracked the ROI of all marketing campaigns. This percentage is surprising, particularly in the current climate. However, we don’t stand alone - these trends can also be seen globally.

A global survey conducted by McKinsey Quarterly² of 587 C- level CMO’s and executives in January 2009 shows that many companies don’t use best practices such as clearly allocating – or even defining – marketing spending across the whole company or regularly reviewing the results. Furthermore, companies allocate their marketing budgets based on historical allocation levels and product-level priorities rather than campaign effectiveness or the goals of the company as a whole.. The McKinsey survey also found that only 34% of Business to Consumer respondents had all components of marketing spending clearly allocated and understood across the organisation.  Thirty two percent of all respondents say that their companies do not compare their marketing spending with any benchmarks and only 18 percent use any detailed benchmarks beyond marketing spending as a percent of revenue.

Both surveys point to the fact that globally, marketers face considerable challenges in adopting adequate measurement practices. There are a number of factors that cause this. While perspectives differ between organisations, it is evident some common themes remain:

Reduced focus on learning.
More often than not, marketers move from campaign to campaign without taking pause and examining the outcomes. There is always the next initiative that has to be executed as soon as possible. It is also fair to say that external factors, such as market and competitor movements, staff turnover and continuity of management also play a part in marketers not taking key learnings from campaign outcomes.

Lack of accountability and a supportive culture of measurement.
Embedding a culture of measurement requires the right skills, mostly financial. Furthermore, discipline is needed to carry the right level of importance from a structural perspective – this works well when the measurement function has the right level of empowerment and reports directly to the chief marketing officer.

Measurement is difficult.
Without question, marketing activities – which tend to be multi-faceted – can be challenging to measure. An increase in sales could be triggered by multiple channels and messages. New customers often find it hard to articulate the specific reason for the purchase decision and some of the positive impacts of initiatives that affect brand could be longer term and therefore hard to measure quickly, if at all.

An organisation-wide perspective to alignment.
To be truly effective, metrics need to be aligned to organisational objectives and key performance indicators. For example, an increase in the numbers of customers is not truly a complete metric unless it also has additional information such as channel of acquisition, cost of acquisition and potential life cycle value. To attain this, marketers need to work collaboratively with other areas such as finance and IT and obtain their buy in.

Challenges in getting insights into drivers of profitability.
Many C-level executives admit they have trouble understanding the true value of their customers. Too few companies have a firm understanding of what drives customer, channel, and product and service profitability. Chief marketing officers are struggling the most with this and are not getting the information they need to measure the success of marketing programs.

Focusing on too many metrics.
Proliferation of KPIs can be a real problem – particularly if they are measuring various aspects that are not aligned. This usually happens when there is not one coordinated function accountable for the overall metrics. The relevance of chosen metrics is important – for instance a measure on customer loyalty by itself may not tell the full story unless it articulates its impact on the financial performance of the organisation.

Access to the right information.
Many marketing departments face significant challenges in accessing the right level of information for meaningful analysis and reporting. As an example, many large organisations use market research to extrapololate customer level information, due to the lack of single view of the customer. There could be several such factors such as multiple information systems with inconsistent information or definitions that could either inhibit or skew the metrics.

What are some winning strategies?

At this point it is also important to talk where application of metrics has been successful.

Start with the low-hanging fruit.
Many marketers don’t measure the results of direct mail efforts, so they don’t get feedback that could improve it. This is a good example of a metric that is relatively quick to put into practice - it is also one of the channels that could bring about a high ROI. Similarly, there could be other easy-to-measure metrics and high value areas where metrics can be put into place quickly. Successful CMOs start off with an early set of measures to ensure their consistency and relevance to the broader corporate objectives. This ensures credibility with the other key stakeholders and is the first building block.

Strike a balance between creativity, innovation and measurement.
Successful organisations strike the right balance between creativity and the need to measure and articulate success. They also ensure that the culture of measurement does not stifle innovative thinking. The broader marketing team needs to understand the benefits of measurement and not see it as merely a hindrance or a chore. Metric driven recognition and rewards within marketing teams is a strategy that works in ensuring commitment and buy-in.

CMOs at organisations that have effectively embraced measurement and metrics have a clear-cut competitive advantage. In today’s fast changing world, what sets effective marketers above and apart is an ability to effectively articulate the quantified benefits of their strategies and initiatives, ensuring a secure stream of financial resources, and ultimately their success.
 

Prakash Kuttikatt is the general manager, customer intelligence and retail, at SAS Australia. www.sas.com/australia

This article appeared in Professional Marketing Magazine, October/December 2009 edition.