Organisational spend associated with marketing is often questioned. Marketing is not always perceived as a valuable part of an organisation and marketing departments are under increasing pressure to justify their value and demonstrate a return on investment. It is also important for marketers to know which areas are generating the greatest return. But marketing activities are not always easy to measure and evaluate. Marketing metrics provide tools that can be used to measure marketing performance and demonstrate the investment return.
There are a number of metrics that can be used by marketers to measure marketing performance and the effect of marketing. They come in the form of financial metrics, behavioural metrics, memory metrics, marketing activity metrics, customer profile metrics and physical availability metrics (Sharp, 2003). Behavioural metrics, as the name suggests, include customer behaviours. Memory metrics describe the thoughts and feelings a customer has about a brand or product (Sharp, 2003). Customer profile metrics describe the customer in much the same way market segmentation does. Financial metrics include revenue from sales, profit, Return on Investment (ROI) and Customer Lifetime Value (CLV or CLTV) (Sharp, 2003).
Customer Lifetime Value (CLV or CLTV) is a financial metric which measures the value of a customer to an organisation over the entire lifetime of that customer’s relationship with the organisation. It is a projection which estimates a customer’s total monetary worth. While some may argue that CLV is difficult to calculate and often inaccurate (Donkers, Verhoef & De Jong, 2007), some businesses appear to value it as a marketing measure and have attempted to increase it. CLV typically uses customer behaviour data to predict future behaviour and profitability (Donkers, Verhoef & De Jong). At a simple level, the calculation of CLV generally involves three components – money (acquisition and retention costs, and customer contributions), time (retention rates and lifespan) and discount rate (Iacobucci, 2014).
There are many ways to increase CLV. One method is to extend the customer life. Some organisations have recognised that their customers have a limited ‘lifetime’. Baby food companies Huggies and Heinz are good examples. Huggies used to offer a range of nappies for different ages of babies. Recognising that they were losing customers once their children reached a certain age, Huggies began offering Nappy Pants and Toilet Training Pants (Huggies). The new product was designed to take babies into the next age bracket and into the toilet training years, thereby extending the lifetime of their customers. Similarly, Heinz, once synonymous with baby food products now offers a range of toddler snacks, as well as plates, bowls, eating utensils, sippy cups and drink bottles. All of these additional products are designed to keep Heinz customers for longer. Interestingly both companies begin targeting parents-to-be at pregnancy and each has websites full of advice – a resource they no doubt parents will continue to access, reminding them of the brand.
It should be noted that CLV is not the be-all and end-all of marketing metrics – it is only one measure in a suite of measurements available to marketers. Organisations require a manageable set of indicators that effectively measure its activities and outcomes (Clark & Ambler, 2011). And different measurements will suit different organisations. In determining the most appropriate set of indicators, an organisation must understand its customers, its business model and strategy, and its competitors (Clark & Ambler, 2011). It is also important to ensure that a strong relationship is established and maintained with the right customers – that is, the ones that are likely to spend money with the business. An organisation needs to make sure their customers keep coming back and spending money with them.
Post by D.Bonham (danbon377)
Clark, B and Ambler, T (2011) Managing the marketing metrics portfolio Marketing Management, 20 (3), 16-21.
Donkers, Verhoef & De Jong, 2007, Modeling CLV: a test of competing models in the insurance industry, Quantitative Marketing & Economics, June 2007, vol. 5, iss. 2, DOI:10.1007/s11129-006-9016-y.
Heinz, Our Product, http://www.heinzforbaby.com.au/Our-Product/.
Huggies, Products, https://www.huggies.com.au/nappies.
Iacobucci, D, 2014, Marketing Management (MM4), South-Western, Cengage Learning, Mason.
Sharp, B. (2013) Marketing Metrics Marketing: Theory, Evidence, Practice. Oxford University Press, Melbourne, Australia.