Marketing performance– how much information do we need?
CMC- InsightExec 21June 2006
Does Marketing suffer from “information overload”? There is a growing demand amongst marketing people and amongst those who fund marketing activities for the measurement of marketing performance. But marketing is a broad subject, involving all activities engaged in anticipating and satisfying customer demand profitably. As such, marketing activities encompass virtually everything in a business which is not purely to do with operations or finance, so the opportunity for performance measurement information can be vast.
A lot of marketing measurement routinely covers particular aspects or activities such as Customer Relationship Management, (CRM), advertising, brand awareness etc. Each area is covered in a plethora of data and statistics. However, collecting information for the sake of it is time consuming and wasteful. Without verifiable information, marketing is based on assumption and guesswork. Too much information can lead to confusion and bad decision making.
The question is, does all this information help the Chief Executive Officer (CEO) or any other level of devolved management, make decisions? Is there too much information and is it the right sort? What information does the CEO or other decision makers need, and in what form should it be, in order to make valid informed decisions? The CEO needs indicators of business performance which show the level of financial return yielded from the investment in marketing, as well as prompting questions on the marketing strategy and the efficiency of the marketing organization. At the same time, professional marketers need evidence to demonstrate their performance as responsible executives.
Senior management should specify the information that they require from their subordinates, in order to gage that the organization is performing as required. Subordinate managers must be allowed to manage the operations and resources for which they are responsible themselves, without being subject to micro management by senior management.
In marketing, this means that the CEO should want to know how the overall marketing investment is performing, together with information on future trends that will affect revenue, competition and profits, rather than the performance details of each marketing activity.
In any business, the marketing director’s job may be summed up as managing resources in such a way as to maximize profitable revenue, while minimizing costs and the use of assets. Thus the key measurements of marketing performance will demonstrate the amount of financial contribution made by the marketing function to the business, and the efficiency with which it is generated.
From the CEO’s point of view, provided that the main performance measurements from marketing are satisfactory, the provision of more detailed marketing information is probably superfluous, and indeed may act as a distraction to effective decision making. For the Marketing Director, his obvious interest will be the measures of performance which he must pass to the CEO, but also the indicators of performance generated by subordinate managers responsible for product or service ranges, specific markets, sales organization, distribution, marketing support etc.
Measurements of marketing performance on their own are rather meaningless unless what is measured is defined and understood. The term Return on investment (ROI) is often confused with the term Return on Marketing Investment (ROMI). These terms should not be interchangeable, as the former, (ROI), refers to the net income divided by the capital employed, while the latter (ROMI) is generally used to measure the financial performance of specific marketing activities such as an exhibition or advertisement.
Because it is difficult to identify which sales are attributable to which activity, ROMI is generally limited to measuring specific marketing investments, and is not readily applied to the marketing function as a whole. However, to add to confusion, the American Marketing Association and Aprimo Inc., identified six other interpretations of ROI currently in use in 2005.
Marketing performance measurement should be judged in comparison with a business and marketing plan, as well as to the external marketing environment. Using measurements of marketing performance without reference to the external factors of the market and economic conditions can give a misleading impression of efficient and effective performance.
To be used as an effective management tool, marketing performance measurement should be done on a continuous basis. All too frequently, if marketing performance is measured, it is measured as almost a “one off” activity done as and when thought necessary. Measurements from CRM are usually seen as a continuous activity, producing indicators of customer trends from which marketing strategies may be devised and informed decisions taken.
However, the measurement of each area of marketing activity when taken separately, does not in itself indicate the overall level of marketing performance. CRM information may help guide the sales strategy, which may also be supported by the success of the advertising plan.
But while each area may succeed in relation to its own plans and objectives, the only real measure of its success as far as the marketing function is concerned is the amount of profitable revenue that it generates. If the advertising and promotion produces a direct revenue response, then it could be viewed as a profit centre within the marketing function and its performance judged separately.
Similarly, if a website is a direct revenue generator then it also should be considered as a marketing profit centre and managed accordingly. However, in most cases, the marketing function cannot be broken down into separate self supporting profit centres, but is interrelated so that the output of the marketing function must be measured as a whole, to give an accurate picture of marketing performance.
Marketers must be able to select and report on those marketing indicators that monitor the overall performance of their area of responsibility. While effective marketing management requires the detailed analysis of all marketing processes, limiting reported data to essential performance indicators clarifies each situation, and prevents “information overload” at every management level.
© 2006 N.C.Watkis, Contract Marketing Service
Specialists in Measuring Marketing Performance and Return on Marketing Investment.