Marketing – Why Measure Performance?
Telegraph Business Club 22 Feb 06
Many marketing people say that marketing is more an art than a science, and therefore does not lend itself to meaningful measurement of performance. Yet the increasing use of customer Relationship Management software has shown that marketing people are seeing the need to demonstrate the performance of the marketing function and a quantifiable return on the financial investment.
“If you can’t measure it, you can’t manage it” said Peter Drucker. This is as true for the Marketing function as any other area of a business, yet Marketing is the last corporate function area to develop and adopt processes and standards that can be measured quantitatively.
The first questions asked by marketers are often what should be measured? How can it be measured and what software is available? Yet these questions put the “Cart before the horse” The first questions should always be “What do we need to know?” Who needs to know? Why? These three questions will have different answers at the various management levels of the marketing structure. Different additional questions will be asked according to what information is required by whom, for what purpose and in what form the answers are required.
The questions should start from the top of the organization. What information does the Chief executive need to know about the performance of the Marketing function and what specific management data and metrics are required for analysis and decision making. For the Marketing Director, there will be a different and more extensive range of data as would be required by one directly involved in managing the marketing budget.
Each management decision making level will have a set of reporting data in order to monitor and manage their responsibilities. As each level collects data for its own management control and decision making, as well as for passing to the level above, so it becomes possible to establish an information data chain that extends from the lowest point, e.g. the customer/sales interchange to the chief executive. Through this chain of information data, the Chief Executive should be able to trace the connections from a marketing metric through to the causal area or actions.
In the main, chief and senior executives will be interested in metrics and benchmarks rather than pure measurements. This is because 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 quantification process, such as a company’s numbers, ratios and percentages, Benchmarks on the other hand, are the very best measurements to which to aspire, the standard by which all others are measured. In most cases, Benchmarks are therefore used to establish the value of metrics to be used for measuring satisfactory performance, at any particular time.
All Marketing requires investment, so the effectiveness of marketing management must be clearly demonstrable to senior management, to further the internal understanding of the business’s marketing effort and justify the investment. At Board level, metrics are the most useful form of information to be collected. From a Marketing perspective, metrics of Marketing Contribution, Return on Marketing Investment and the Optimum Marketing Performance, will provide a performance picture of the marketing function which may be compared to the metrics of the other “Business doing,” and Finance areas of the business. The question of “In what form” information is reported, is important to ensure information and data is prepared in a manner intelligible to the demander and comparable with data from other sources.
From the Marketers point of view, measuring marketing performance allows the individual to prove their worth by measured results. Measuring performance should not therefore be a feared system of monitoring but be seen as a tool of management efficiency by which all performance may be judged and rewarded.
Part of the problem with marketing management is that while it has used numerical data, this has often been limited to specific areas such as sales and product management and advertising. The requirement now is for reporting information that provides an integrated, intelligible and complete picture of the management performance of the marketing function as a whole as well as the return on the investment involved.
Having deicide what needs to be know by whom and why, identifying which marketing activities have to be measured is the next problem. Can the subject be measured accurately and how frequently should it be measured? What ever activity is chosen, inputs or outputs are the only useful measures. This is why advertising measurements are problematic. The investment in an advertising campaign is easy to establish. However, establishing the level of resultant sales is imprecise owing to a number of additional factors such as selling activity and the accumulated effects of previous advertising and sales campaigns.
The purpose of marketing measurement is to understand what works and what doesn’t within the organization. Having extracted selected marketing measurements the next questions must be: Is the result useful? What does it tell us? Only information that actually assists in understanding and managing the marketing process should be used.
Ultimately, if you don’t measure marketing performance, there is no way you can demonstrably improve marketing efficiency, effectiveness or return on investment.
© N.C.Watkis 22 Feb 06
Contract Marketing Service, (Specialists in Measuring Marketing Performance and Return on Marketing Investment.)