Question posted on May 12, 2014: “I am a corporate head for a local skin care brand. I want to know how successful our marketing activities are. Where and how do I start?”
Answer from BusinessMango, May 19, 2014: Thanks for posting a question on our site. Here are some thoughts on marketing metrics:
An increasing number of companies have actually started using marketing metrics as a result of pressure from top management to justify spending on marketing. These firms may either have their own team dedicated to marketing metrics or they may engage consulting firms to build their marketing measurement capabilities.
Marketing metrics aims to encourage discipline in managing profitability and to inform business judgment by employing a set of measurement tools that facilitate understanding of customers, markets and products. Marketing metrics helps legitimize marketing spend in today?s environment where top management requires every business function to be accountable to the value it brings to the organization.
Marketing metrics, such as return on marketing investment, customer lifetime value and brand equity, aids the marketing function by aligning its activities with the overall corporate strategy of the company. In addition to helping enhance the role of marketing, marketing metrics helps identify growth opportunities, allocate resources, keep tabs on the competition, and provide a clearer direction on marketing strategy. Lastly, marketing metrics provides CEOs and finance executives a strong case for pursuing a marketing strategy.
A study by the Chief Marketing Officer Council reveals that companies with formal marketing performance systems achieve 29 percent higher sales growth, 32 percent higher market shares, and 37 percent higher profitability than those without formal marketing metrics capabilities.
John Wanamaker, considered the father of advertising and a pioneer in retail marketing, once remarked: “Half of my advertising budget is wasted. Trouble is, I don?t know which half?” Had John known about the marketing metric called Return on Marketing Investment, he could have measured the profits generated from advertising spend on television, print, radio, or on below the line ads such as billboards and sponsorships.
By combining market research techniques with business judgment, one can determine how much sales and profits will be generated for various advertising spend.
Return on Marketing Investment
Return on marketing investment also gives information on which advertising spend was worth undertaking, to begin with. Through this metric, the marketer will obtain an insight on which creative types, mediums or time slots work best for his or her products, thereby enhancing marketing efforts.
Customer lifetime value
Another meaningful marketing metric is the Customer Lifetime Value (CLV). Imagine yourself promoting the products of Smart or Globe: How much should you spend on promotions to acquire a new customer for broadband subscription? You will find this decision complicated because there are several issues to consider.
First, there is the traditional profit margin per subscription payment. Second, you are aware that a customer uses your service for extended periods such that income from that customer is a regular stream rather than a one-time payment. Third, there is the question of loyalty?how long will your customer stay with your products? Lastly, you need to consider the cost of money involved in your promotions.
Customer Lifetime Value takes all these factors into account and gives a peso value for each type of customer. For a lifetime broadband subscription costing P999 per month, the lifetime value of a customer is about P55,000. Given this CLV, a telecom provider should be willing to spend a maximum of P55,000 to acquire or retain a customer in the form of free Internet tablets or other technology gadgets. In addition, the CLV can help a marketer determine which market segments to target. Choosing customer segments with high CLV will make marketing efforts pay more for a given effort.
Brand equity is one of the most exciting marketing metrics thanks to the annual rankings prepared by Interbrand and Millward Brown of WPP on the top 100 global brands. Brand equity generates the following: higher demand for a company?s products and services, a price premium, customer loyalty, and ultimately sustainable financial value for the company. Good marketing practices necessitate the periodic valuation of the brand equity of the products of the company and its competitors, in order to assess the success of marketing efforts.