Marketing is a relatively new discipline and science, and with any new science comes opportunities for development. What makes something a science, is an ability to measure, to evaluate truths through observation and experimentation. Marketers have for many years believed that their efforts to portray and sell the value of their brands and products to consumers added value to a company’s bottom line.
For many years this was taken as a given, with little evidence to support or disprove the theory. Take for example the Cola wars throughout the late 1900’s, with both companies spending significant money on campaigns to differentiate their brands with little positive impact on market shares or profitability. In fact, a key learning according to (Koschmann & Sheth) is that mature brands like Coca-Cola and Pepsi are better off trying to find new segments and new consumer groups through product innovation rather than trying to poach loyal customers from other mature brands.
The use of marketing metrics has actually began quite recently. Initially, as demonstrated in the Cola Wars example, companies believed innately that marketing was beneficial regardless of the type of marketing being used, the products being sold or what competitors were doing.
The push to use metrics for measuring the effectiveness of marketing activities, and for contributing to marketing mix decisions began with a push for marketers to demonstrate accountability for their decisions (Mintz & Currim, 2013). More recently with the rise of the internet and big data, the focus on demonstrating Return On Marketing Investment (ROI) has become stronger and easier to do – but are companies measuring the right metrics?
What are the Metrics?
Financial Analysis has a number of clear cut ratios and metrics which when analysed portray a clear picture of where a company is heading – Return on Equity, Earnings Per Share, Price to Earnings Ratio, balance sheet figures, Cash Flow etc. A company can use these metrics to analyse the performance of different departments and the profitability or return on various assets.
So, if a company’s expenditure on supplies and raw materials can be linked back to the impact on profits through the P&L statement – can’t its advertising expenditure?
According to Mintz & Currim, a broad range of Financial Metrics and Marketing Metrics are used by companies to assess the performance of a marketing-mix decision. Typical Financial Metrics include: Sales, Profitability and ROI (return on marketing investment). Whilst typical Marketing Metrics include: customer satisfaction, loyalty and market share.
Dashboards are also becoming a popular way for CMOs to present and track the performance of key metrics that a company has prioritised (Iacobucci, 2014 , pp. 218-219). The use and popularity of dashboards has grown enormously now that companies can track website visits, leads, conversions and more through on-line traffic.
Do the Metrics work?
Ambler & Roberts (2008, p. 734) state that marketers have adopted the use of metrics with the premise that marketing should be accountable, both in terms of Financial Metrics such as share of net profit attributable to marketing, but also in the harder to define metric – improvement in Brand Equity. Their paper, and many other academic works highlight that unfortunately for marketers, there is no one clear metric for companies to use that clearly demonstrates the performance of their marketing-mix.
Logically thinking about these challenges, how would you measure the effectiveness for example, of an advertising campaign aimed at repositioning an existing product? Take the ad campaign used by Mother Energy Drink (a Coca-Cola brand):
Repositioning campaigns like above are often a long term proposition > 1 year, and this doesn’t align with the accounting practise of attributing advertising expenses to the current year’s P&L where the returns expected on this ‘investment’ may take years to recoup.
Another challenge is that despite the marketing activities that a company is undertaking, there are many other external and internal factors influencing a companies performance: competitor behaviour, economic conditions, demographic and socio-graphic changes, enhanced or reduced quality control within the company itself (the list goes on) – all these factors can cloud drawing a direct correlation between a company’s marketing activities and their performance.
However this is not to say that Marketing Metrics don’t work to deliver insight into the effectiveness of marketing activities, simply that there isn’t one obvious metric to be used for all company types and marketing strategies.
Student ID: 212406532
Iacobucci, D., 2014 . Marketing Management (MM4). Mason: South-Western, Cengage Learning.
Koschmann, A. & Sheth, J. N., n.d. Do Brands Compete or Coexist? Evidence from the Cola Wars. Kilts Booth Marketing series, 2(051), p. 22.
strategy+business: Corporate Strategies and News Articles on Global Business, M. C. a. M., 2016. What Can the Cola Wars Teach Us about Brand Loyalty?. [Online] Available at: http://www.strategy-business.com/blog/What-Can-the-Cola-Wars-Teach-Us-about-Brand-Loyalty?gko=e8aae [Accessed 29 September 2016].
Mintz, O. & Currim, I. S., 2013. What Drives Managerial Use of Marketing and Financial Metrics and Does Metric Use Affect Performance of Marketing-Mix Activities?. Journal of Marketing, 77(March), pp. 17-40.
Ambler, T. & Roberts, J. H., 2008. Assessing Marketing Performance: don’t settle for a silver metric. Journal of Marketing Management, 24(7-8), pp. 733-750.