Software review: Measuring the overall effectiveness of marketing (Part 2)

Abstract This is the second part of a paper that explores how the uses of measurement systems have been evolving in marketing.

The first part looked at the impact of implementing corporate strategies on marketing and the development of marketing customer communication   strategies.

The second part explores the types of metrics that are being used to monitor the effectiveness of these customer communication strategies. It also briefly looks at the issues associated with implementing these measurement systems and types of technology that are being used to surface the   measures.

INTRODUCTION

The author has spent the last two years travelling around the world, working in the USA, Europe and Asia Pacific on analytical customer relationship management (CRM) projects. One of the things that has struck him the most   is the general lack of a coherent approach to the integration of marketing strategy with corporate goals and the measurement of marketing communication performance.

This paper attempts to illustrate an approach that represents a combination of ‘best practices’ that he has seen in companies around the world.

The paper covers the following areas:

  • corporate strategy
  • marketing customer communications strategy
  • measuring marketing communication performance
  • metrics used to monitor performance
  • key performance indicators
  • customer balance scorecard

The second part of the paper looks at the:

  • types of metrics that are being used to monitor the impact of marketing customer communication strategies
  • issues associated with implementing these measurement systems and types of technology that are being used to underpin the surfacing of these measures.

MEASURING MARKETING COMMUNICATION PERFORMANCE

The following section of the paper illustrates the types of metrics that could be used to measure the various aspects of marketing customer communication performance. It is not meant to provide   a definitive list, but to point the reader towards the key dimensions to measure.

The metrics are broken down into the following sections:

  • overall performance
  • customer performance
  • product performance
  • channel performance
  • communications performance
  • marketing team

Note: The measures are described by:

Objective function (What the organisation is trying to achieve) 

Metric (How performance is measured)

Overall performance

In most marketing organisations the primary measure of overall marketing customer communication effectiveness is return on marketing investment. The following types of metrics are typically used:

Increase return on marketing spend

Rate of return on marketing spend in period (%)

Total return on marketing spend in period (£)

The periods measured are typically month, year to date and, occasionally, rolling year.

In this case the metric only looks at marketing spend on the assumption that marketing is unable to influence spend in other areas of the business. In the past many organisations only measured the outward costs of the communication, but it is more common to see both the outward bound and response management cost being taken into account.

Where a multichannel strategy has been adopted there has been a move to take into account the indirect costs of marketing. That is, those costs that are not directly controlled by marketing but are influenced by marketing activity, eg response management through different channels.

The resulting metrics have led some organisations to steer customers to respond down preferred channels and/or refine the response management process, eg reducing hand offs through a sale cycle in a retail branch network.

The following types of metrics are becoming more common:

Increase return on corporate spend

Rate of return on corporate spend in period (%)

Total return on corporate spend in period (£)

The periods measured are typically month, year to date and, occasionally, rolling year.

Budgets have been common in most marketing departments for a long time, but they have not been tightly controlled in many cases. This is changing as   finance starts to tighten its grip on this area of spend.

The following types of metrics are common:

Improve budget process performance

Total marketing spend in period (£) Total spend by communication channel in period (£)

Total spend by business initiative in period (£)

Total spend by business unit/product area in period (£)

Total spend by segment in period (£) Total spend per customer in period (£) (average, max, min, mean)

The periods measured are typically week, month and year to date. Budgets are normally set and monitored for spend. In some cases a bid process drives allocation of budget on a campaign-by-campaign basis.

CUSTOMER PERFORMANCE

Understanding the dynamic nature of the customer base is essential in any organisation. The following metrics are used:

Increase number of customers

Total number of customers in base at start of period

Total number of customers in base at the end of the period

Net change in customer numbers in period

Rate of net change in customer number in period (%)

Number of new customers gained in period

Number of customers retained in period

Number of customers recovered in period

Number of customers lost in period Number of customers at risk during period

The periods measured are typically week, month and year to date. These numbers would also be expressed as a percentage of the base at the start of the   period.

Where customers are managed by business   units,   the   customer metrics above would be available by business unit. It is still surprising how many organisations are still unable to provide the metrics described above. Where a strategic   segmentation   system  is   in place   the   customer   metrics   above would be required by segment. Targets are sometimes set for acquisition, migration   and   retention   of   customers for segment managers. If this is the   case then there   would   be   measures against   these targets.

Migrate customer to optimal segment

Number of net new customers in segment in period

Number of customer acquisitions to segment in period

Number of net lost customers from segment in period

Number of lost customers in period from segment

Number of lost customers in period to other segments

Number of customers migrating between segments

The periods measured are typically month and year to date.

A key measure for most organisations is the value of the customer; a wide range of methods are used to determine value. These include:

  • total sales
  • total gross profit (contribution)
  • total net profit
  • net present value.

The choice of method would depend on the business.

In addition organisations may want to measure:

  • historical value
  • planned value (if customer keeps current product)
  • potential value (if customer grows product/service portfolio).

The following types of metrics are typically used:

Maximise value of customers 

Total value customers in period (£) Value of customer in period (£)

The periods measured are typically month and annual. These customer data may be aggregated by a number of dimensions including:

  • segment
  • business unit
  • source channel

A key driver of customer value is the number and value of product relationships. This leads to a set of metrics around this subject matter. The following types of metrics are used:

Increase value customer product holdings

Number of product involvements Number of products sold to existing customers

Value of products sold to existing customers (£)

Number of products sold to new customers

Value of products sold to new customers (£)

Number of products sold to recovered customers

Value of products sold to recovered customers (£)

Number of products at risk Value of products at risk (£) Period product held (max, min, average and mean)

The periods measured are typically week, month and year to date.

These metrics are normally available for the customer base, segments, customers and households if appropriate.

The issue with product holding is   often the definition of product, but this   is a business issue that has to be resolved if an effective measurement system can be put in place.

The value of a customer in many cases is driven by the period the product is held, so most organisations have some measure of product and customer tenure.

The following types of metrics are used:

Maximise length of customer relationship

Period as customer (max, min, average and mean)

The periods measured are typically week, month and year to date. These tenure data may be aggregated by a number of dimensions including:

  • segment
  • business unit
  • source channel.

In many organisations the cost of customer acquisition is a major driver of customer value so a variety of metrics is used to monitor these costs.

Reduce cost of acquisition

Number of customers by acquisition channel in period

Total cost of acquisition through channel in period (£)

Cost of customer acquisition in period (ave, max, min, mean)

Cost of sale by stage in sale cycle (£): enquiry; quotation; application; sale

The periods measured are typically week, month and year to date. These data may be aggregated by a number of dimensions including:

  • business initiative
  • segment
  • business unit
  • source channel.

Monitoring the effectiveness of the sales channel in converting an enquiry into a sale is usually measured, as part of the sales process but these data are often valuable if the marketing department is to understand how to optimise the use of a channel.

Improve conversion rates

Conversion rates for stages in the sale cycle: enquiry; quotation; application; sale

The periods measured are typically week, month and year to date. These data may be aggregated by a number of dimensions including:

  • product
  • business initiative
  • segment
  • business unit
  • source channel.

Product performance

In most organisations the metrics for measuring product performance are well catered for. It is the customer metrics, which are often difficult to get and integrate.

Increase value of product holdings

Total number of product involvements in base at start of period

Value of products in base at start of period (£)

Number of product involvements in base at end of period

Value of products in base at end of period (£)

Net number of products gained in period

Net number of losses in period Number of new product involvements in period

Value of new product involvements in period (£)

Number of lost product involvements in period

Value of lost products in period Number of products retained in period Value of products retained in period (£) Number of products recovered in period

Value of products recovered in period (£)

Number of products at risk at start and end of period

Value of products at risk at start and end of period (£)

The periods measured are typically week, month and year to date. These data may be aggregated by a number of dimensions including:

  • product group
  • business unit.

Improve product acquisition by channel 

Number of products sold by channel Value of products sold by channel (£)

The periods measured are typically week, month and year to date.

In many cases it is difficult to measure product upgrades but it is important that measurement systems are put in place as they can increase the value of a relationship and reduce customer churn. The metrics are similar to those of product.

Increase product upgrades

Number of upgrades sales by product combination

Value of upgrades sales by product combination

The periods measured are typically week, month and year to date. These data may be aggregated by a number of dimensions including:

 

  • product group
  • business unit.

CHANNEL PERFORMANCE

The whole issue of channel management is becoming more important as organisations try to manage the complex mix of communication channels available today.

Ensuring optimal resource allocation and utilisation is becoming essential if business and CRM objectives are to be met. The following metrics are typically used:

Reduce cost per communication in channel

Total number of communications by channel

Total cost of channel (£)

Cost of communications by channel (ave, max, min, mean)

Number of marketing communications by channel

Total cost of marketing communications through channel (£) Costs of marketing communications by channel (ave, max, min, mean) Marketing communication contact rate (success rate) (%)

Conversion rates by channel for stages in sale cycle (%)

The periods measured are typically week, month and year to date. These data may be aggregated by a number of dimensions including:

  • channel
  • business unit
  • product.

Other metrics typically used include:

Maximise sales per channel

Number of sales by channel in period Value of sale by channel in period (£) Cost of sale by channel in period (£) Number of new customers by channel in period

Value of new customers by channel in period (£)

The periods measured are typically week, month and year to date.

Reduce cost per sale

Cost per sale by channel in period

The periods measured are typically week, month and year to date.

Improve channel ROI 

Rate of return on channel spend in period

Total return on channel spend in period

The periods measured are typically month and year to date.

In addition to standard metrics that allow cross-channel performance comparison, a number of metrics may need to be developed for specific channels, eg

  • telephone: length of call, missed call rate
  • e-mail: number of hard and soft bounce backs
  • web: period on web page.

Communications performance

At a more operational level, organisations will have to put in a series of metrics to measure the performance of marketing communications. The following metrics are typical:

Reduce cost per communication

Number of marketing communications in period

Cost per communication in period   (£)

The periods measured are typically day, week, month and year to date. These data may be aggregated by a number of dimensions including:

  • business unit
  • campaign manager
  • campaign
  • channel
  • product.

Perhaps the most commonly used measure for marketing performance response rates needs to be seen within the context of a range of metrics to improve effectiveness.

Increase response rates

Number of responses to communication by campaign in period Total value of responses to communication by campaign in period Response value by campaign in period (ave, max, min, mean)

Reduce cost per sale

Cost per response to communication by campaign in period (£) Conversion costs per stage in the sale cycle for campaign (£)

Improve conversion ratios

Conversion rate per stage in the sale cycle for campaign (%)

The periods measured above are typically day, week, month and year to date. These data may be aggregated by a number of dimensions including:

  • channel
  • business unit
  • product
  • business initiative
  • campaign
  • communication.

In some markets campaigns are planned, partially executed then cancelled. This often results in wastage, which needs to be measured.

Reduce cost of wastage in communications

Cost of campaigns aborted in the period

The periods measured are typically week, month and year to date.

Improve campaign ROI

Rate of return on campaign spend in period at campaign and communication levels

Total return on campaign spend in period at campaign and communication levels

The periods measured are typically week, month and year to date.

In this example a campaign may consist of one or more communications. The rate of return may be aggregated in a number of dimensions. These could include:

  • business initiative
  • product category
  • segment
  • business unit
  • campaign manager.

The important thing about this approach is that common sets of metrics are used     to monitor campaign performance. This allows cross-campaign performance and therefore resource allocation to be more effectively managed.

Other metrics may be used to measure the impact of direct communications on brand and customer perceptions. These include:

Improve brand awareness and consideration

Brand awareness levels in period Brand consideration index in period

Improve customer perception of marketing communications

Marketing communication satisfaction index

MARKETING TEAM PRODUCTIVITY

Organisations have started to monitor the effective utilisation of staff resource in marketing. This has not been popular, as it requires the keeping of time sheets and the allocation of time against specific campaigns. But those companies that have introduced these types of measure have found them very valuable, in many cases justifying an increase in staff resource. The following metrics are typical:

Reduce time to market

Period between key milestones in a campaign life cycle (days) (ave, max, min and mean)

These data may be aggregated by a number of dimensions including:

  • business initiative
  • type of campaign
  • campaign manager.

These type of data have helped in refining the campaign management and associated processes.

Reduce staff resource required to execute a campaign

Man days of resource required to execute campaign, broken down by campaign stage

These data may be aggregated by a number of dimensions including:

  • business initiative
  • type of campaign
  • business unit.

The main driver for improvement in this area has been improvement in marketing processes and the introduction of campaign management technologies which have allowed more of the process to be automated.

Increase the number of campaigns per full time equivalent (FTE)

Number of communications per campaign (ave, max, min, mean) Number of campaigns per marketing FTE

Number of communications per FTE Marketing spend per FTE (£)

The introduction of workflow and other planning technologies in marketing is facilitating these types of measurement.

There is a pool of evidence that shows that satisfied employees are more productive. The costs of losing skilled marketing staff have pushed some organisations into establishing more effective metrics for monitoring staff satisfaction. These include:

Improve marketing staff satisfaction

Staff satisfaction index

Number of days lost due to sickness Number of employees in department at start and end of period

Number of FTEs in department at start and end of period

Number of employees resigned during period by reason type

Number of employees recruited during period

Cost of recruiting new employees (£) Value of investment in employees

The periods measured above are typically month and year to date.

KEY PERFORMANCE INDICATORS

The previous section provides a list of the type of metrics that are being used   to manage a marketing operation. There are too many for a marketing manager to use effectively. There will be a small number (five to ten) that will provide key indicators of the team’s performance (KPIs). These should be surfaced to management on a regular basis in the form of a flight deck, with exceptions visually highlighted. It should then be possible for management to drill down into the supporting metrics when appropriate to investigate underperformance. This approach avoids data overload of management team.

TECHNOLOGY PLAYERS

There are a number of vendors that supply reporting or business intelligence technologies. The following are just a few:

  • Business Objects
  • Cognos
  • Hyperion
  • SAS.

The key issue for marketing is to understand what is being measured and how this integrates with the marketing strategy, before going out and buying a stack of reporting tools. It is important to look for both business and technical support from a supplier; many have developed industry-specific templates which will fast track the delivery process. When buying technology it is not only looks that count. It is substance. Things   to look for are:

  • financial viability
  • future vision
  • industry domain knowledge
  • richness of functionality
  • data integration capability
  • forecasting and predictive capability
  • delivery capability
  • references.

CONCLUSIONS

There is need for marketing organisations to align what they are doing with corporate strategy. Ensuring that there is a documented marketing strategy and marketing plan is just the first   step.

Putting in place the necessary measurement systems is the next. Few organisations that the author has worked in would claim to have a comprehensive set of metrics to monitor the performance of marketing. Even fewer have formulated these as a simple set of key performance indicators that can be used to manage the business on a day-to-day basis. If the right measures are not in place the business cannot be managed effectively. What cannot be measured, cannot be managed.

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