Performance Marketing – does it provide the answer for management?

Performance Marketing is a method of interactive advertising which pays on a “performance” basis, but only on a completed action. That completed action can be a sale (Cost Per Sale) or a lead (Cost Per Lead), but can also be other revenue models including Cost Per Download. While Performance Marketing is similar to Affiliate Marketing, the latter is generally a cost-per-sale, revenue sharing model where affiliates receive a portion of the sale of any product.
The meanings of words develop and change over time, especially in business and commerce and it is obvious from these two definitions that the word “marketing” has supplanted the word “advertising” in general use.

In 1976, the Chartered Institute of Marketing (CIM) defined the term “Marketing” as being “the management process that identifies anticipates and satisfies customer requirements profitably”. However, for most people, marketing does not refer to a management process, as in the CIM’s definition, but has various meanings, none of which are clearly defined, such as social marketing, e-marketing, and digital marketing. While in America, marketing usually refers to activities involved in “lead generation” for the separate activity of selling.

Measuring performance in marketing is a subject that has returned periodically over the past 20 years or so. But as over time, the meaning of “marketing” has apparently changed, so terms like Performance Marketing, Marketing performance and other similar ones have become more difficult to differentiate.

Measuring performance in marketing depends on how marketing is defined. If Marketing now is just another word for advertising and promotion, then all performance measurements will relate to the effectiveness of advertising and promotion. However, measurements of advertising and promotions are of limited use to the Commercial manager with the wider responsibility for maximising and producing profitable income through the efficient use of investment and resources.

The level of profitable income produced is dependent on the customer’s existing and potential requirements, and the ability of an organisation to service those requirements in an efficient and profitable manner. The customer’s existing and potential requirements are affected by the external factors of the economic and technical environment, over which the commercial manager has no control. However, it is essential that the commercial manager should be continually aware of economic trends and technical developments, especially in volatile markets, and to use suitable measurements to monitor them.

Most performance measures are about internal factors over which a commercial manager does have a measure of direct and indirect control. Such measures relate to the use of assets and resources, from which trends may be extrapolated. Even when such detail can be produced in near “real time”, the results relate largely to what has happened already, and can only act as indicators as to where judgement and decisions may need to be applied.
In the general confusion of “marketing definitions”, commercial managers need to be clear on the specific definitions they use and not make assumptions that others have a similar understanding. Terms that have specific definitions are not interchangeable without causing confusion, especially when measuring performance. “Metrics” are the standards for measurement, providing target values that a company must achieve to reach a certain level of success. While “measurements” are the raw outcome of a qualification process, such as a company’s numbers, ratios and percentages, benchmarks are the very best measurement to which to aspire and the standard by which all others are compared. Thus benchmarks are used to establish the value of metrics for measuring satisfactory performance. The “Return on marketing investment” (ROMI), and the “return on investment” (ROI) are examples of important terms for performance measurement which, if used indiscriminately without clear definition, can be a cause of confusion. Frequently these terms, ROMI and ROI are used in relation to communications programs, seeking to relate the results of advertising and promotion to the investment involved. However, for the commercial manager, ROMI and ROI relate to the profitable income produced by the total investment in all the activities involved in identifying, anticipating and satisfying customer requirements.
Most commercially available “performance marketing” or “marketing performance” programs appear to be designed specifically to measure the effectiveness of web-site related business. The increase in the numbers of these programs indicates the growing importance of web-based communications in producing and maintaining customer business. These programs may have many different elements of measurement, but generally include net sales billed, the number of product or design registrations, and brand surveys to measure brand awareness. By monitoring and analyzing marketing performance data, managers can increase their competitive intelligence, assessing their market strengths and weaknesses, and make calculated budgetary decisions across their resources. But while specialist computer programs may provide performance measurements in detail, they cannot make the necessary management judgements and decisions that produce profitable income. As such these programs are an aid to management, but not in themselves the secret to business success.

As Peter Drucker observed, “If you can’t measure it you can’t manage it”. Performance measurements are an essential tool for the effective management of resources and investment, but they only relate to past and current performance. Only informed management decisions can influence future performance. The successful commercial manager needs to understand performance measurements, but then crucially, be able to apply judgement and take decisions to maximize profitable income for the future.

© N.C.Watkis, Contract Marketing Service 30 Jul. 14

August 4, 2014   Posted in: business development, business efficiency, Business Marketing, business performance improvement, business performance management, marketing management