Glen Darroch | Student ID 900067683
Difficulty evaluating marketing performance is hardly a new phenomena, in fact executives and board members have been struggling with it for decades. While the bean counters in the room push for traditional financial metrics based on return on investment (ROI) or discounted cashflow (DCF), marketers have long argued that single financial metrics are inadequate when measuring marketing performance.
The stark cultural differences exacerbate the problem, with marketers and their financial colleagues likely speaking different languages, and senior executives often sceptical of the value added by marketing activities.
Despite the scepticism, and the need to ensure accountability, it is hard to argue with the fact that single financial metrics are inadequate for measuring marketing activities. Deciding which metrics will support an effective evaluation is a much harder question to answer. Mintz and Currim (Journal of Marketing, March 2013) list over 40 potential marketing metrics, in addition to the 50+ financial metrics they suggest could be used to measure marketing performance or the impact of the marketing mix.
The introduction of social media and digital marketing appears to have further clouded the picture, attracting huge chunks of advertising spend but proving difficult to tie down when it comes to measuring impact. While data analytics firms and ad tracking startups such as Knotch sprout up and claim they can track the impact of digital ad campaigns, the effectiveness of online campaigns remains difficult to assess.
The dominance of the big dogs of the online space hasn’t helped. Facebook and Google have developed a powerful duopoly in the advertising market accounting for 75 percent of all new online ad spend in 2015. Facebook now has 4 million advertisers, generating annualised revenue of approximately US$25 billion, with almost 70% of that coming from outside the US. Both companies are renowned for the tight controls they maintain on data, frustrating marketing firms and raising concerns about the validity or objectivity of the marketing activity metrics that they produce themselves. These doubts were highlighted by Facebook’s recent confession that metrics for average time spent watching videos had been “artificially inflated” by between 60 and 80%.
This introduces a whole new level to the issue of marketing metrics and evaluation of marketing performance. Previously the debate centred around the application of traditional financial metrics to marketing performance and the mix of marketing spend. Now the debate is further complicated by the introduction of new medium, offering a broader range of marketing options which are proving just as, if not more, difficult to measure than the traditional avenues.
And as if the bean counters weren’t sceptical enough! While they used to look down their nose at the late-lunching, whiskey sipping ad men from Madison Avenue, now they are faced with the digital behemoths who are dominating the landscapes and being accused of manipulating data to exaggerate the impact of their advertising platforms. If CMO’s and their teams are concerned at the lack of third-party verification of data from Facebook and Google, how can they possibly convince their CFO’s and CEO’s of the value of investing in marketing via these platforms. As Martin Sorrell, CEO of WPP put it, Facebook and Google can’t continue to be allowed to “mark their own homework”.
So where does this leave us when it comes to evaluating marketing? Well in a truly ironic twist, Facebook got on the front foot following it’s recent issues with inflated stats and suggested that the marketing industry needed better metrics! Facebook COO Sheryl Sandberg said that “there is very universal agreement that the industry needs to evolve to metrics that matter”and called for firms to focus less on likes and clicks and more on metrics that were tied to business outcomes.
This suggests that despite the rapid and significant changes we have seen in marketing through the use of digital media and social networks, the core problem remains the same. How do we evaluate the effectiveness of marketing and the impact of marketing mix? Which metrics are most appropriate and provide management teams and boards with a tool to effectively measure the performance of their marketing teams and the selected marketing platforms?
As Ambler and Roberts (Journal of Marketing Management, 2008) point out, you need a combination of financial and marketing metrics. But it appears that the introduction of digital and social media marketing has simply increased the number of potential metrics and put the power of the data in the hands of a couple of very powerful players.
Ambler, T. and Roberts, J.H. (2008) Assessing marketing performance: don’t settle for a silver metric. Journal of Marketing Management, 24 (7-8), 733-750.
Mintz, O. and Currim, I. (2013) What Drives Managerial Use of Marketing and Financial Metrics and Dos Metric Use Affect Performance of Marketing-Mix Activities? Journal Of Marketing, 77 (March 2013), 17-40.
Swant, M. ‘8 Takeaways from Facebook’s Advertising Week Panel of Execs’. Adweek. September 28, 2016. http://www.adweek.com/news/technology/8-takeaways-facebooks-panel-execs-during-advertising-week-173758
Davidson, D. ‘Facebook admits it ‘artificially inflated’ viewing figures’ The Australian, September 25, 2016.
Shields, M. ‘Facebook pushes advertisers to look beyond views and likes.’ WSJ.com, September 27, 2016. http://www.wsj.com/articles/facebook-pushes-advertisers-to-look-beyond-views-and-likes-1475016012
Vranica, S. and Marshall, J. ‘ Facebook Overestimated Key Video Metric for Two Years’. WSJ.com, September 22, 2016. http://www.wsj.com/articles/facebook-overestimated-key-video-metric-for-two-years-1474586951