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The telegraph business club's coverage of Business Performance Maximized

What makes Effective Management of Marketing? DT Business Club 12 Feb 08

What’s the purpose of Marketing? DT Business Club 15 Jan 08

Managing Marketing in Changing Environments DT Business Club 04 Dec 07

How Good Is Your Marketing Organization? DT Business Club 13 Nov 07

What do you get out of Marketing? DT Business Club 02 Oct 07

Do Marketing Measurements Matter? DT Business Club 04 Sep 07

ARTICLES

What makes Effective Management of Marketing?

Telegraph Business Club 12 Feb 08

The marketing press is full of talk about Return On Investment (ROI), but frequently does not define what it means, or describe what is required to actually achieve it. Brands and their importance are another area of major discussion in marketing circles. Yet while brands may be important, little seems to be published about but how the brand consciousness of the consumer is converted to sustainable profitable revenue. Customers may all recognize the brand, know what it is and where it is, but do customers want to have and pay for it? While brands and image may be important in consumer related business, brand and image has far less importance in the business to business sector, where concerns of service, reliability and cost effectiveness tend to predominate over band and image.

Advertising, promotion, customer relationship management (CRM), are all important but what is their contribution to profitable revenue? Selling is the executive arm of marketing and arguably its most important aspect, as it is the main interface with the customer and is directly responsible for generating the revenue on which the business depends. All marketing activities are inter-dependant and collectively contribute to support sales success.

Marketers appear to concentrate on advertising, promotion, market research, and CRM, but tend to ignore selling, despite its importance, perhaps because it is generally considered that few marketers have practical experience in selling. Yet selling is the only marketing process that actually brings in revenue, whether that process is via a sales force, web-site, or direct response advertising. A recent report, “Global Sales Perceptions”, by consultants DDL Business Leadership, rated British sales staff no better than poor or fair. The report of DDL suggests that sales people are generally under valued, and under trained, yet selling is fundamental to success of every business.

In most walks of life, the only way to assess success is to compare objectives with achievements. This is particularly true in business. Business is about making profit. As the late Robert Townsend said, “If you’re not in business for fun or profit, what the hell are you doing here?” Profit is what is left when all the costs and investments involved in running a business have been subtracted from all the revenue generated by the business activity. Profit rewards the investors and provides for reinvestment to develop and sustain the business.

Marketers who are good at their own speciality, advertising, promotion, CRM, or marketing research do not necessarily make good managers of marketing.
In recent years marketers have tended to concentrate on the customer to the exclusion of everything else. Customer satisfaction is vitally important, but sustainable profitable revenue is the prime requirement of every business, and customer satisfaction is merely the means of obtaining it. Generating profitable revenue is the responsibility of the marketing function and the marketing manager. Without sustainable, profitable revenue, there is no profit, and without profit there is no business.

The job of the of the marketing manager is to balance all the marketing activities to support and maximize the generation of sustainable profitable revenue, while at the same time, minimizing the costs incurred and the use of assets involved in its production.
Many factors are required for effective marketing management. The marketer, who aspires to successful marketing management, must be able to inspire specialist marketers to develop innovative and creative ideas that collectively contribute to marketing objectives. In addition, they must be able to identify and understand causes and effects of marketing situations and to question all aspects and assumptions relating to markets and marketing. Effective marketing managers must develop structured plans with quantified objectives, make clear decisions to direct staff and allocate resources and implement effective actions.

For the marketer who aspires to senior management and a board level position, profit must no longer be the unspoken word. The aspirant marketing manager must view all the business getting and retaining activities as contributing to the generation of sustainable profitable revenue. Previous experience and specialization must not be allowed to bias necessary objectivity or decision making.

Business organizations may be considered in two parts; Business Operations and Business Support. The area of Business Operations, consists of the “business doing” functions, (Production or service provision) and the “business development” function, (marketing). The area of Business Support, provides the necessary resources for the Business Operations area, mainly finance and personnel.

Marketers must think beyond the confines of textbook definitions and see marketing as integral to the “Business Operations” that produce sustainable revenue, by satisfying customers. “Business Operations” must therefore include all the traditional marketing activities, but also those of production or service provision, as well as research and development.

When evaluating the contribution of the marketing function, its performance must be measured in terms of output and efficiency. From the business point of view, the main factors will be the amount of sustainable profitable revenue produced together with a measure of its efficiency in converting marketing costs and investment into revenue.

Effective marketing managers must be able to inspire, motivate and manage their marketing staff to achieve the required objectives, as the success or failure of the marketing function is dependent on the ability of its staff. At the same time, they must manage resources to minimize costs and maximize the production of sustainable profitable revenue, measuring performance to justify their actions and demonstrate their contribution to the business.

© N.C.Watkis, Contract Marketing Service 06 Feb 08
Contract Marketing Service, (Specialists in Measuring Marketing Performance and Return on Marketing Investment.)

What’s the purpose of Marketing?

Telegraph Business Club 15 Jan 08

The November edition of the Chartered Institute of Marketing (CIM)’s magazine The Marketer, dedicated five pages to a single article entitled “What’s the role of Marketing? “

The article was extensive, but concentrated on the definitions of marketing ranging from the CIM’s own 1976 definition, to alternatives suggested by academics, consultants and practitioners. Strangely, the article completely ignored and never dealt with the fundamental purpose of marketing.

Philp Kotler defined Marketing as “the social process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others.”

Peter Drucker gave a broader definition, - “Marketing is not only much broader than selling, it is not a specialized activity at all It encompasses the entire business. It is the whole business seen from the point of view of the final result, that is, from the customer's point of view. Concern and responsibility for marketing must therefore permeate all areas of the enterprise. “
In October 2007, the American Marketing Association Board of Directors adopted a new definition of marketing, as “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.”
These three definitions epitomize a lot of current thinking on marketing, concentrating on customers and “added value”. What is meant by “added value” is often never explained, and despite all the customer centric descriptions of marketing, its overlaying purpose seems to be forgotten.

The purpose of marketing in any organization or business is to produce sustainable profitable revenue and nothing else. For many, marketing is still seen as an art not a science where marketing performance cannot be measured in any meaningful way. While this view is demonstrably wrong, the view still persists. Marketing performance is measured by results and those results must include the measurable contribution of the marketing effort to the business objectives and the production of sustainable profitable revenue. The marketing organization generates sustainable revenue by anticipating and satisfying customer demand profitably. This is best summed up in the CIM’s 1976 definition of Marketing as “the management process that identifies, anticipates and satisfies customer requirements profitably”.

The CIM article shows that many marketers are still fixated on trying to define what they do and hopefully, some way of measuring it to justify the business expenditure.

In any business, the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) are primarily interested in only two things, the generation of sustainable profitable revenue and the necessary investment required to obtain it. The CEO’s task is to maximize sustainable profits, while minimizing the use of assets and investment, while the CFO’s task is to manage the financial resources to support the objectives of the corporate business plan.

The prime objective of the Chief Marketing Officer (CMO), is to maximize sustainable profitable revenue, while minimizing the use of marketing costs and investment. The CMO has the responsibility for achieving the corporate marketing objectives within the budget. Provided that the CMO achieves or exceeds the objectives within the budget, the way that the marketing function is conducted need not be questioned. Only if the targets are not reached, or the budget is exceeded, will actions and investment need to be justified with quantified data by the CMO,

The overall responsibility of converting profitable revenue into profit is the responsibility of the CEO and CFO, but not of the CMO. However it is the responsibility of the CMO to ensure that the profitable revenue is sustainable for the continuation of the business, and this can only be done by anticipating and satisfying customer demand.

Any business organization consists of three elements, customers, shareholders and staff. If the business is to be successful, then the satisfaction of all three elements must be kept in balance, so that no element has priority over another. Shareholders want a share of the profit in return for their investment. Staff must be rewarded, for without them no profits can be made. Customers must be satisfied or there will be no revenue for profit. If there is no profit there is no business, which fails the shareholders who lose their investment, fails the staff who lose their jobs and ultimately fails the customer, who loses the source of product or service.

The emphasis of marketing needs to be changed. Customer satisfaction is not the purpose of marketing. The purpose of marketing must be the generation of profitable revenue, by the satisfaction of customers.

“Not for profit” businesses tend to think that the current definitions of marketing do not fit their organizations. However, a “not for profit” business cannot exist without being profitable, if only to allow for the necessary investment and development, without which any business will die. Similarly, the marketing functions in Government departments do not generate their revenue, which is provided by the taxpayer. But the marketing organizations should ensure that the taxpayer gets value for money and it is therefore responsible for ensuring customer satisfaction through effective quality control of the service to demonstrate and justify the return on the taxpayer’s investment.

Marketing actions do not take place in a vacuum. Satisfying customers does not in itself make a profit. Customers can easily be satisfied by providing free goods and services, but without profitable revenue there will soon be no business. The generation of profitable revenue is the purpose of marketing and for that reason any definition of marketing that ignores profit is incomplete, for it ignores the purpose of the action.

Some may regard it as heresy to say it, but Kotler, Drucker and others in their definitions of marketing, got the emphasis wrong. The CIM’s current definition contains all the necessary elements that define the marketing function, but the emphasis should be changed to include the purpose of marketing within the business organization.

“Marketing” encompasses all those activities which generate sustainable profitable revenue by anticipating and satisfying customer demand.

© N.C.Watkis, Contract Marketing Service 02 Jan 08
Contract Marketing Service, (Specialists in Measuring Marketing Performance and Return on Marketing Investment.)

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Managing Marketing in Changing Environments

Telegraph Business Club 04 Dec 07

Marketing is all about change and successful managers of marketing have to be able to adapt to the changing requirements of the market. Markets are by nature dynamic, in that supply and demand are constantly evolving, resulting from the prevalent economic and environmental conditions and the changing requirements of customers. This means that the marketing function of every business must continually adapt, if it is to successfully anticipate and satisfy customer demand profitably.

The prime responsibility of the Chief Marketing Officer, (CMO) is to generate and maximize sustainable profitable revenue for the business. Therefore, CMOs must be aware of the changing needs of customers and adapt their product or service and its delivery to satisfy them. However, despite the number of “business guru” books available that might suggest otherwise, there are no quick answers in business or marketing, and there is no “holy grail” of guaranteed success.

If the CMO is to achieve and maximize sustainable profitable revenue for the business, he must at all times look in two directions, one inward into the company, and the other outward to the market. Internally, the CMO needs to undertake a SWOT (strengths, weaknesses, opportunities and threats) analysis of the business. In addition, there should be a full marketing audit, to establish the level of corporate marketing knowledge, and to identify unsubstantiated assumptions. Externally, the effective CMO will assess the market environment by undertaking analysis of the political, environmental social and technical aspects that affect customer demand.

To meet with the problems of the dynamic and changing market, the successful marketing manager must be clear minded in analysis and ruthless in decision making.
Every marketing action should be examined on its contribution to the overall marketing objective, and every marketing investment of time and money must be evaluated on how it will contribute to the business. As the former Chairman of Singer and Friedlander Merchant Bank used to say when any investment proposal was discussed, “Will it make a shilling?”

Marketing performance must be monitored by marketers, using a measurement system that is based on key performance indicators and their specific revenue drivers, so that marketing actions may be adjusted to meet changing circumstances.

CMOs must be prepared to make changes in order to achieve success. Yesterday’s marketing solution may not fully answer today’s problem and may need adaptation to meet current conditions. The CMO must also be prepared for an uncomfortable ride. Staff may not like their assumptions to be questioned or have established practices to be examined. However, the effective marketer must be prepared to ask the awkward question, challenging the accepted perceptions and assumptions, and must continually question everything about the process of anticipating and satisfying the market profitably. Such questioning is not for the purpose of eliciting change for the sake of it, neither is it to create doubt and uncertainty, but to clarify thinking so that decisions may confidently be based on the best factual information. The only objective is to make and maximize sustainable profitable revenue. Short term profit will not do if it compromises growth and sustainability. Continuous growth is essential for a business to merely stand still against the normal attrition caused by competitor activity and market changes.

Even in small businesses the principles still apply. If the marketing department consists only of one individual they must consider every element of the marketing mix on the basis of its contribution to the generation of profitable revenue. The problem for the small business marketer is that having to undertake all the marketing disciplines themselves, they can often concentrate too much on specific activities, but lose sight of the ultimate need to generate sales and satisfy customers profitably.

Recent reports by the CMO Council in North America suggest that the position of Chief Marketing Officer is becoming a high risk position in business with many CMOs lasting two years or less in the job. This high turnover of senior marketing staff is not only bad for the individuals concerned, but bad for businesses, as it encourages rapid change and short term thinking. When companies seek long term sustainable revenue, frequent changes of CMO do not help.

The CMO cannot be successful in the overall objective of maximizing profitable sustainable revenue, without knowledge of the market, customer demand and competition. However, the CMO must also have the skill to successfully manage and direct the imagination, creativity, action and motivation of the marketing staff to anticipate and satisfy customer demand profitably. Ultimately, the only way to know whether the marketing function is efficient and effective, and whether the CMO has achieved the objectives, is to measure the results.

© N.C.Watkis, Contract Marketing Service 27 Nov 07
Contract Marketing Service, (Specialists in Measuring Marketing Performance and Return on Marketing Investment.)

How Good Is Your Marketing Organization?

Telegraph Business Club 13 Nov 07

How good is your marketing organization? Does it deliver what is expected of it? Is what is expected clearly understood throughout the business?

Marketing is the term that collectively describes all those functions that anticipate and satisfy customer demand profitably. As described, marketing is fundamental to any business as it is responsible for the generation of revenue necessary for a business’s survival and future. Because of its importance in the generation of revenue, marketing needs to be demonstrably efficient and effective. But how does one define what is efficient and effective?

Of all the various business functions,- finance, production, personnel, - that of marketing is often the least clear in terms of its responsibilities. Although marketing departments appear to have distinct specialist areas such as sales, advertising and promotion, research, and customer relationship management, in practice this is often not the case, as job descriptions can be broad and ill defined.
Company departments often have no clear definition of purpose, with uncertain objectives and standards of performance. Marketing departments are no exception. Although ostensibly defined by name, marketing departments rarely have their purpose and objectives clearly stated. Without a clear definition of purpose, seeking relevant measurements of performance is unlikely to be helpful in effective management. Performance can only be judged against defined objectives.

Before seeking to measure anything, it is essential to define the mission and objectives of the marketing department and it separate disciplines. In any business, the main objective of the Chief Marketing Officer (CMO) is the maximization of sustainable profitable revenue, with the minimization of costs and assets used. The overall objectives of the marketing department should be set out in the corporate business plan, principally in the form of the revenue objectives. To achieve the corporate financial objectives, the marketing organization needs to produce a marketing plan that defines the required marketing objectives, and details the strategies, actions and resources, to be used to achieve them.

Because marketing is responsible for generating the sales revenue, it is also responsible for developing and maintaining all the activities which support customers and assist selling. The marketing function therefore undertakes a wide variety of activities not all of which are directly related to customers and sales. Organizing the marketing function is the responsibility of the CMO. When assessing the efficiency and effectiveness of marketing, questions should be asked about the marketing function as a whole. What are its objectives? What are its resources? How well is it managed? How does the marketing organization relate to the strategic business plan?
The efficiency and effectiveness of a marketing organization, depends largely on what that organization is meant to do. Therefore, its purpose needs to be stated in a mission statement that can be clearly understood throughout the business, especially by senior management and the CMO,

Periodically, the CMO needs to review all the various tasks ascribed to marketing and to consider whether they fit the marketing mission, and how they contribute to the business objectives. Tasks can be separated into routine and non-routine groups. Routine tasks are those that are regularly required and directly relate to the business objectives. Non-routine tasks are those other occasional tasks, such as corporate team building events, which may have importance but do not relate directly with the defined marketing objectives.

All tasks should be assessed according to how they assist in either generating revenue, or reducing costs and the use of assets. Tasks can be prioritized in terms of their relevance to the marketing objectives. Activities, which do not directly contribute to the objectives, need to be evaluated on the basis of the opportunity costs incurred of devoting time and resources to them.

When reviewing all the tasks required of the marketing function, consideration needs to be given to the range of resources available, in terms of personnel and skills. Are they sufficient for the tasks or are additional resources required via recruitment, training or out-sourcing? Certain tasks, such as the preparation of the marketing plan, are fundamental to the management of the marketing function. These activities must therefore take a priority of time and resource, so that they can be completed and “signed off” before the start of the business’s financial year. All other tasks can be scheduled to the calendar, with targeted completion dates.

In most businesses, marketing consists of two functional areas; sales and sales support.
The sales function, which is directly responsible for the generation of revenue by sales of product and services, is generally organized by markets and product groups. The sales support function is usually organized into specialist activities such as advertising and promotion, research and customer relationship management. Support to the sales function is initially by the provision of a marketing plan for the use of marketing resources to achieve the sales revenue objectives. Selling activity is directed by marketing research and supported by with advertising promotion and literature to maintain and develop customer relations.

Part of the CMO’s job must be to monitor and analyse market and sales performance, which requires an effective Marketing Performance Measurement system. In addition, the CMO must continually re-appreciate the current marketing situation and revise the marketing plan as necessary to meet changing requirements. The quality of organization and leadership is fundamental to good marketing management. Only by measuring marketing performance can one demonstrate how good the marketing organization is and whether the management delivers that which is expected of it.

© N.C.Watkis, Contract Marketing Service 17 Oct 07
Contract Marketing Service, (Specialists in Measuring Marketing Performance and Return on Marketing Investment.)

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What do you get out of Marketing?

Telegraph Business Club 02 Oct 07

When it comes to measuring marketing performance, most marketers seem to have only a limited perception of what is measurable, relevant and significant. The problem starts with the definitions of measurement, metrics and benchmarks. While no two marketers are likely to agree on definitions, the best are probably those of Laura Paterson of VisionEdge Marketing Inc. She defines “metrics” as the standards for measurement, providing target values that a company must achieve to reach a certain level of success; “measurements” as the raw outcome of a quantification process, such as a company’s numbers, ratios and percentages, and “benchmarks” as the standards against which all others values are judged.

Marketers tend to measure performance according to their specializations rather than of the marketing function as a whole. However, there are about 75 management ratios that apply specifically to marketing management, and in excess of 150 other measurements that relate to specific marketing activities, irrespective of the type of business organization. The problem for those in charge of advertising, promotion, customer relationship management, product and market management, is to decide what is relevant.

Marketing is defined as all those activities that anticipate and satisfy customer demand profitably. Unfortunately many marketers often take a narrow view of marketing, by excluding the sales function. In so doing, they create a problem in that while they measure inputs in terms of cost and investment, without a reference to sales, there are very few outputs in terms of revenue gained.

The purpose of measurements, metrics and ratios, is to establish quantified achievement, and to provoke questions on knowledge, performance and decision making. Therefore, key measurements of inputs and outputs should be in the same measurement units to allow direct comparison with each other. Unfortunately, what many marketers seek to measure often have inputs and outputs with different measurement units, that prevent direct comparison with each other.

For example, when measuring the return on investment in the advertising budget, the input investment is quantifiable in monetary terms, but the output, with the exception of response advertising, is in non-monetary units, being concerned with the number of adverting exposures, the estimated number of viewings and the size of the potential audience. This begs the question; what should be measured, in what units, to what purpose and how will such measurements be used?

During the 1970’s, the then Polish government sought to make its furniture industry more productive in world markets. To achieve this, furniture factories were rewarded by the government for their productivity, which was measured in the tonnage of furniture manufactured. As a result, according to an article in the New York Times, (March 1999) homes in Poland contain the world’s heaviest furniture. Marketing performance measurements cannot produce their intended outcomes if they do not measure those factors that actually affect the business.

The question for marketers, is how to select the right measurements, metrics and benchmarks? The answer stems from the responsibilities of the marketer and the objectives of the business plan.

For the executive in charge of the overall marketing function, the objective is the maximizing of profitable revenue, while minimizing the costs and the use of assets. Assessing achievement will therefore involve measurements of costs and revenue in financial terms. For executives responsible for other marketing disciplines, advertising, research, brand and market management, their measurements will be different, because they are supportive constituents of the marketing function and do not in themselves generate revenue.

The Chief Executive of the company looks to the marketing function to generate the sustainable revenue essential for the business In seeking to select the right measurements metrics and benchmarks, marketers first need to identify the company activities which drive the cash-flow.

These cash flow drivers will originate from the company business plan, and may be based on high profit margins, and the rapid turnover of inventory. Cash flow drivers also result from the sources of cash such as customer acquisition and retention.

Marketers then need to identify those marketing activities that ultimately affect the company cash-flow drivers. Although the marketing function comprises a wide range of disciplines, only some of their activities ultimately affect the company’s cash-flow drivers. These activities may include consumer promotions, trade exhibitions, product web-sites, and advertising programmes.

Each marketing activity identified as affecting a cash-flow driver requires an outcome metric or measurement to enable the evaluation of how well the intended results were achieved. In most cases, these measurements will represent intermediate results of particular activities, such as coupon redemption, or sales leads generated, because they do not necessarily represent cash-flow.
It is important to show how successful performance on each outcome measurement or metric affects one or more of the business cash-flow drivers. For example, the relationship between customer loyalty programs and customer retention, or sales enquires, quotations and conversions.

Marketers have a large number of potential measurements and metrics available to them including brand awareness, customer satisfaction, and web site statistics. However, Chief Executives and Finance Directors are generally more interested in financial data such as revenue and costs, which are comparable with other areas of the business. Marketers must be able to demonstrate to the chief executive and senior management, not only what they contribute to the business in terms of profitable revenue, but justify how they used the assets and investment efficiently to achieve it. Choosing the relevant measurements metrics and benchmarks will enable them to do so.

© N.C.Watkis, Contract Marketing Service 02 Oct 07
Contract Marketing Service, (Specialists in Measuring Marketing Performance and Return on Marketing Investment.)

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Do Marketing Measurements Matter?

Telegraph Business Club 04 Sep 07

Why measure Marketing performance? When considering the efficiency of a marketing organization, many companies invest far more than they realize in getting and maintaining their business with little attention to the return on their investment.

Many will still say that measuring marketing performance is difficult or that it is impossible, because marketing is an art not a science. But marketing is both an art and a science. The art is that of the creative, and the science that of performance and results. While the creative element perhaps may not be measured in any way that has quantitative value, marketing performance should always be defined in quantitative terms that can be measured.

The Chartered Institute of Marketing (CIM) defined marketing as “all those activities which anticipate and satisfy customer demand profitably”. While the CIM’s definition is logical and complete, current marketing articles tend to focus on the specialist disciplines of brand management, customer relationship management (CRM), advertising and research. The term “marketing” is now in danger of becoming debased, so that its meaning is imprecise and just another name for advertising or selling. This tends to perpetuate similar attitudes amongst marketers, limiting objectives and encouraging short term thinking. Taking the CIM’s definition further, marketing includes all those activities involved in getting, maintaining and sustaining profitable revenue. This in turn tends to broaden the scope of marketing into none traditional areas such as production, research and development and distribution.

Businesses are organized in many ways, but frequently they are organized as a collection of functional departments based on what they are, rather than what they do or achieve. Hence organizations have departments of accounts, sales, production, marketing, transport, personnel and many others.

For many companies, British and American, marketing appears to involve CRM, advertising, promotion, research, and product management with sales as separately managed area. This is often the case with business to business and non-consumer based companies. While it is reasonable to consider these various specialist areas of marketing separately, they are all contributing disciplines which collectively work to “satisfy” customer demand.

If “marketing” involves everything that anticipates customer demand profitably, then it must not only include sales, but a number of other areas not normally associated with it. Those areas would include research and development as well as production.
While many marketing managers see their role in a much narrower area of specializations, the overall manager of the marketing function should perhaps be referred to as the manager of business operations. In this manner, the term “Business operations” would be more accurately reflecting the definition of marketing as set out by the CIM. Business organization could then be structured more simply into two main areas, Business Operations and Business Support.

Business Operations would encompass all the separate activities of generating sustainable profitable revenue for the long term future by anticipating and satisfying customer demand. Business Support would encompass all those activities of resource management necessary for operations, such as finance, supply, and personnel.

In business, the only actions that can be measured effectively are those which have quantifiable inputs and outputs. There is nothing else. The sales organization requires investment to cover costs, but is the prime source of business pcosts, but no quantifiable output that is comparable in financial terms with other areas of the business. However, within marketing, successful selling requires the support of product management, advertising, CRM, market research and other marketing specializations. Thus the financial output from these specializations cannot be quantified or attributed to specific specialist areas; they are collectively included in the success of revenue achieved by the sales organization. Thus when seeking to measure marketing performance, all the various aspects of marketing activities must be measured collectively, in order to measure the financial input and output for the whole marketing organization, allowing financial comparison with other areas of the business.

Marketing organizations in companies are often poorly defined in terms of responsibilities and their contribution to the business. Being responsible for generating and sustaining the necessary revenue of the company, the importance of marketing cannot be underestimated. Because satisfying customer demand profitably is so important, managing the resources invested in getting and retaining business should be regarded as crucial. In reality, the evidence shows that companies do not regard marketing with the importance it deserves. The CIM report of 2006 showed that only 7 of the top 100 FTSE companies in Britain had a representative for marketing on the management board.

Senior management want to know what sort of return they are getting from all the money that is invested in marketing. Marketers need to provide answers that clearly show in financial terms the contribution they make to the business. The evidence of the CIM’s survey suggests that they fail to do so. Marketers can demonstrate their return on investment by measuring marketing performance as a whole, in terms of financial inputs and outputs comparable with other business areas. By measuring marketing performance, strengths and weaknesses can be exposed, necessary questions asked, and assumptions questioned. Only then can clear strategies and actions be put into place to ensure the long term continuity of profitable revenue, which is the prime objective of the marketing organization and the manager of marketing in particular.

© N.C.Watkis, Contract Marketing Service 04 Sep 07
Contract Marketing Service, (Specialists in Measuring Marketing Performance and Return on Marketing Investment.)

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What does Marketing contribute to the “Bottom Line”?

Telegraph Business Club 07 Aug 07

What is marketing’s contribution to the “Bottom Line”? As with many terms used in business, which have become fashionable jargon, the term “Bottom Line” has lost its meaning and become a business cliché. The generally accepted definition of “Bottom Line” is gross sales minus taxes, interest, depreciation, and other expenses. But, the term is also use to describe net earnings, net income or net profit, so that with more than one definition, defining the contribution of marketing to the “Bottom Line” is potentially more difficult. For this reason it is arguably better to look at the contribution of marketing to the generation of net earnings, income and profit, as these are the factors on which the success of the business is measured.

To demonstrate marketing’s contribution to the business as a whole requires a detailed marketing plan, that outlines and quantifies the objectives of the business and the marketing function. Such a plan should also include the detailed actions that are required to achieve the marketing objectives, and the measurements of performance to compare against the planned expectation.

Formal, quantified marketing plans are essential, if resources are to be allocated and managed effectively. However, marketing plans in themselves are no guarantee of the required results necessary to meet the company’s business objectives. Targets will only be achieved by the successful management of the whole of the business getting activities. Effective marketing managers need to have good leadership skills to inspire, motivate, direct and encourage the staff, who are responsible for delivering the results.

“Marketing”, is not another word for advertising or selling, but comprises all those activities which anticipate and satisfy customer demand profitably. In many businesses, marketing and selling are still seen as entirely separate functions. Yet if marketing “anticipates and satisfies customer demand profitably”, it must include selling as an integral part of satisfying the customer.

A recent book, “Marketing Due Diligence,” seeks to link marketing activity with the creation of shareholder value, as the “bottom line”. Although shareholder value is important and is considered by some to be the prime objective of any business, it is only part of the business equation. Every business comprises three elements, shareholders who supply finance, employees who do the work, and customers who supply the revenue. All three elements must be satisfied if the business is to remain in being.

The purpose of all marketing activities is to generate a continuous stream of profitable revenue without which there can be no sustainable business. While brand awareness, market penetration, customer retention and many other aspects of marketing are important, their contribution is collectively to assist in making the successful sales from which the revenue is derived. Thus marketing performance must ultimately be measured by the amount of profitable revenue generated, together with the efficient use of assets and investment.

If all the business getting activities are to be managed efficiently and effectively, then measuring marketing performance is essential. While efficiency may be considered to be about the capable use of resources, effectiveness is about decision making and getting things done. Unfortunately, while performance measurement gives an indication of efficiency, it is limited in assessing management effectiveness.

Performance data provides evidence of the effectiveness of the strategy and actions, in achieving the objectives of the business and marketing plan, by indicating which were successful and which were not. If the marketing function operated in a controlled environment, it would be relatively easy to identify successful marketing activities and to repeat them effectively. However, all business getting activities operate in a dynamic environment, where markets, attitudes, technology and the economic conditions are continually changing. Thus the strategies and marketing activities which were successful yesterday will not remain so indefinitely.

For the manager of marketing, satisfactory results shown in performance measurements will include the risk that comes with success, namely an over-reliance on the ideas and methods that achieved them. In order to ensure a continuity of success, the marketing manager must always question the ideas and methods that achieved the results, regardless of whether they were good or bad, in order to ensure that the assumptions and methods are still valid in changing circumstances. This means that marketers must be forward looking, requiring the imagination to interpret conditions and how they might develop, so new strategies and actions can be developed, or existing ones adapted to meet new conditions.

Whether it is described as the “Bottom Line,” “net earnings”, “income” or “profit”, the professional marketer must always be able to quantify the contribution made by the marketing function in the realization of the company’s business objectives, in order to justify the need for the continuity of investment.

© N.C.Watkis, Contract Marketing Service 24 Jul 07
Contract Marketing Service, (Specialists in Measuring Marketing Performance and Return on Marketing Investment.)

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If “marketing” is the generator of business revenue, why do Financial Offiers generally regard “marketing” as only a cost?

Telegraph Business Club 24 Jul 07

If “marketing” is the generator of business revenue, why do Chief Executives, Finance Officers and senior management frequently regard “marketing” as only a cost?

It is a common complaint amongst marketers that they are not understood by the finance department, and are always trying to justify their expenditure and their existence. Why is this?

The problem stems initially from the understanding of what the “marketing” function is and does. When asked which part of the business generates the revenue, most Chief Executive Officers (CEO) and Chief Finance Officers (CFO) will give the answer as being the sales department. When asked about what the “marketing” department contributes to the business, the answers tend to involve advertising, customer relations and market research and how much they cost.

The objective of the CEO is to develop sustainable profits for the long term benefit of shareholders, staff and customers. For the CFO, the objective is to maintain the cash flow in order to sustain the business, by maximizing the use of assets and minimizing the costs and investments. From this perspective, when trying to understand the contribution of “marketing” to the business, the sales organization tends to have the advantage, in that its investment in terms of costs can be measured, as can be its output in terms of revenue generated. In contrast, the activities of what is often perceived as “marketing”, that is advertising, customer relations product management and “marketing” research, can easily be measured in terms of the investment involved, but much harder to quantify in terms of financial contribution to the business.

Clearly, it would seem that most CEOs and CFOs do not fully understand what “marketing” actually is. However, judging by much of what is currently written, many marketers are so involved with CRM, brand position, advertising and research that they have forgotten the purpose of “marketing” in its original sense, and have concentrated on the narrow perspective of their own specialist discipline.

In 1976 the Chartered Institute of Marketing (CIM) defined “marketing” as being “all those activities which anticipate and satisfy customer demand profitably.” Thus what is termed “marketing”, should encompass and integrate all those activities which not only collectively produce revenue, but above all, profitable revenue.

Some may regard this definition as out of date, but all the activities involved in getting and retaining customers by satisfying their needs profitably, are interdependent and need to be considered together and not separately. Whatever these activities are collectively called, be it “marketing” or something else, they are collectively fundamental to the business as they generate the profitable revenue on which the business depends and their contribution must therefore be considered as a whole and not separately. These functions should be managed collectively under single structure, encompassing all those activities involved in getting and maintaining business, and not considered as separate business areas.

Marketers need to be able to communicate about their contribution to the business objectives within their own organizations, and in a language that is understood by their principal audience namely the CEO. CFO and senior management. Defining performance in finance and the “business doing” or “production” areas of a business is done in terms of management and financial ratios e.g. Net Profit/Equity Capital; Current Assets/ Current Liabilities; Production Contribution/Production assets. However, it has frequently been held by Marketers, that because “marketing” is more an art than a science, it could not be measured in any meaningful way, but this assertion is patently wrong. Marketing performance can and must be measured in such a way that not only can its contribution and costs can be clearly seen, but they are in a form which is also understood by both the CEO and CFO. This is best done in the form of business ratios, benchmarks and metrics, which are comparable with performance measurements from other areas of the business.

For too long, many ineffective marketers appear to be fixated by branding initiatives, image and other aesthetics. However this sort of information does not translate into financial and numerical data for the (CEO) and CFO in a manner that relates to the performance information from other areas of the business. The challenge for marketers is to present marketing performance measurements to the CEO and the management team in financial terms that they understand, like contribution and Return on Investment (ROI).

Marketers need to explain to CEOs and CFOs exactly what the marketing function does and what it produces. To do that, marketers have to provide measurements of marketing performance in terms of the financial contribution that all the business getting activities that comprise “marketing”, make to the business, as well as the investment and costs involved. These are numbers which will relate to other costs and investments in the business and so helps the CFO and the CEO to have a full and accurate picture of the overall business performance.

By defining marketing performance in a manner that relates to the generation of profitable revenue, “marketing” will be seen and valued by the CEO, CFO and senior management, as the generator of profitable revenue on which the company depends, and not as purely as a number of costly individual activities of indeterminate worth.

© N.C.Watkis, Contract Marketing Service 12 Jun 07
Contract Marketing Service, (Specialists in Measuring Marketing Performance and Return on Marketing Investment.)

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Are Marketers Suitable Managers of Marketing?

Telegraph Business Club 15 May 07

The question “Are Marketers suitable managers of marketing?”, is an interesting one. On the face of it, the answer must be “yes”. But on examination the answer is more equivocal.

In theory marketers should be responsible for all those activities that “anticipate and satisfy customer demand profitably.” In practice, this is often not the case. While the other main elements of business, such as finance and production are managed by senior managers with overall responsibility for their respective areas, that of marketing, which is the driving force in producing the business revenue, is frequently not managed in that way at all.

Examination of the marketing press would suggest that many marketers have a different perspective of marketing and their responsibilities. One has only to see that the predominance of articles in the marketing press that revolve around customer relationship management (CRM), brand, advertising, product perception and public relations. There are also occasional articles on selling, but rarely on sales management. Very little is published about the management of marketing. Many marketers seem to have lost the understanding of marketing from the Chartered Institute of Marketing’s definition of “anticipating and satisfying customer demand profitably”, and view marketing on a narrower description, mainly denoting customer relations and different forms of communication and promotion. It would seem that for many, the role of senior marketing manager as being responsible for the generation of sustainable profitable revenue is not something that they would recognize.

When it comes to measuring marketing performance especially the return on investment (ROI), many marketers often confine their interest to measurements involved with CRM, advertising, promotion and brands. While measurement of performance in these areas is important for those executives who are the managers in charge of them, they are not indicative of the overall marketing performance. Individually these separate areas of marketing activity are not responsible for generating revenue. Even the sales organization is not solely responsible for bringing in the revenue, for while sales may be said to be the executive arm of “marketing”, its performance is supported by all the other disciplines of marketing, which collectively assist in making successful sales results

Several studies published earlier this year present different perspectives on marketing accountability, measurement and Return on Investment. They showed that many large marketing organizations have made significant progress in the development of sophisticated methods to improve marketing measurements. But for many organizations the plethora of measurements available tends to suggest that they are largely approached in isolation, such that it is difficult to assess overall marketing efficiency and effectiveness of the collective marketing effort.

With few exceptions, marketing department appear to measure marketing performance and “payback” in a disjointed series of technically sound but “Ad Hoc” methods. In many companies, information collected on customers, often looks at how prospects become customers, including tracking the progression, from awareness to preference, to trial and repeat purchase. Satisfaction with the customer experience is measured by surveys and reported. With some companies, the customer measurements includes attitude data on customer segments, - why they want what they want, - which is often correlated with actual customer transaction data to create a segmentation model. The segments are then monitored for mobility from one market segment to another.

Other data is used to show what was sold, where and at what price, the detail of the information tending to be governed by the underlying IT systems employed. Information on cash flow generation tends to be concentrated on the efficiency of marketing expenditures in achieving short term returns. Programme and campaign Return on Marketing Investment (ROMI) models are used to measure the immediate profit impact expected to be derived from a given investment initiative.

Survey based tracking systems are used to gauge customer and prospective customer perspectives on the brand, regarding its functionality, personality accessibility and value propositions. Brand scorecards monitor the evolution of these perspectives over time within market segment. Some companies have developed successful financial models for estimating the financial value of the brand as a means of determining its balance sheet value as an outcome of marketing investment.

All these measurements provide essentially short term information. It is generally understood that the majority of marketers only stay in post for 18 months to 2 years, thus their outlook is essentially limited.
Business and marketing plans are normally prepared as a five year rolling plan with annual reviews. To be effective, such plans need long term management. Frequent changes of management are not compatible with the effective execution of such plans

The objective of the chief executive officer (CEO), is to deliver continuity of sustainable profits for the long term, thus the CEO requires the chief marketing officer to deliver a continuity of sustainable profitable revenue. However, if marketing is the main revenue driver of a business, it requires planning and management for the long term, to provide the necessary continuity of sustainable revenue. It may be considered thought provoking, but there is a case for the effective overall management of the marketing function to be carried by a non marketing executive who knows and understands the concept of marketing contribution and optimum performance, and is able to knowledgably question and manage his specialist marketers.

If marketers want to have overall charge of all the business getting and retaining functions, they must learn to measure, manage and report on the performance of marketing as a whole, and in a way that is compatible with other areas of the business. In short, marketers must learn to be effective managers of the whole of the marketing function for the longer term, not just specialist areas for the short term, if they want to be regarded as professional managers deserving of a place in the boardroom.

© N.C.Watkis, Contract Marketing Service 25 Apr. 07
Contract Marketing Service, (Specialists in Measuring Marketing Performance and Return on Marketing Investment.)

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How do you know if your marketing effort is really cost effective?

Telegraph Business Club 17 April 07

Is your marketing effort really cost effective? If your answer is yes, then how do you know? Does your organization actually measure the return it gets for all the money it invests in getting and retaining business? These are questions that everyone in business should ask, yet it would appear that few do so. Of those that do ask the question, it is probable that few would have a useful answer.

Of all the various integrated disciplines in business, marketing performance has historically been the least quantifiable. There are probably many marketers who would prefer marketing to remain more of an art than a science. Yet marketing is both an art and a science. The science is reflected in the analytical, cognitive and behavioural tools employed to identify opportunities, and to measure the success in exploiting them. The art of marketing is the ability to apply creative imagination to engage customers together with leadership and management skills to achieve marketing objectives.
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Marketing is not an activity in isolation. As the business getting and maintaining function of any business, marketing must be fully integrated with all the other operational activities of the business involved in satisfying customer demand profitably. Marketing also may not be wholly divorced from other supporting activities such as finance, personnel and supply, as they all provide the necessary resources for the marketing function’s activities.

If marketing is truly about satisfying customer demand profitably, then it is arguable that everyone in the business to a greater or lesser extent is in someway involved in it. Thus while the chief marketing officer (CMO) may not have responsibility for other management functions, he should have an interest in the performance of the other business areas, as their activities will directly or indirectly effect marketing’s performance in providing the profitable satisfaction of customers.

Many companies are starting to measure marketing performance, but there is little consistency in what they measure. Put marketing measurement into a search engine, and a lot of results will come up. But on examination, most of the results will be for Customer Relation Management (CRM), and Return on Marketing Investment (ROMI) related to advertising and sales. While these measurements of performance have their importance, they are only some of the elements of marketing. If marketing includes all those activities which anticipate and satisfy customer demand profitably, then the measurement of marketing performance must include a lot more that just CRM and Advertising ROMI. Part of the problem lies in the definition of Marketing. In many businesses marketing is still seen as a separate discipline to sales. But if marketing “includes all those activities which anticipate and satisfy customer demand profitably,” then it must include selling as the executive function of “marketing”. One can take the argument further, in that the product or service itself is part of the provision of customer satisfaction, and therefore the marketing function and the chief marketing officer (CMO) should be interested in the performance of “production” as being the provider of the product or service, it effects “marketing’s” performance, just as “marketing’s” performance effects that of production. In 2005 Microsoft’s marketing performance could be regarded as exceptional, in that as a result of all the pre-launch advertising and publicity for its Xbox 369 games consul, all 330,000 units available were sold within hours of the launch. Whatever actual problems resulted for Microsoft, it is reasonable to suppose that such an immediate success was not planned and that it created problems and additional costs for production. For most companies without the enormous resources of Microsoft, such an unplanned “marketing” success could potentially be disastrous in terms of production capacity, costs and cash flow, to say nothing of potentially unfulfilled demand being exploited by competitors and the subsequent damage to the company image. Marketers must be aware of the effect that their activities have on other parts of the business, principally production and finance. Exceeding the objectives of the marketing plan can be just as bad as failing to meet them. In failing to meet the sales objectives, the reduced revenue may directly reduce profits, but if the sales objectives are exceeded, additional production costs can be incurred as well as additional requirements for finance, which could reduce profit or even incur a trading loss.

The purpose of marketing is to generate and sustain a continuous stream of profitable revenue for the business. Establishing the cost effectiveness of the marketing activities that generate the revenue may only be done, by measuring in detail the overall performance of the marketing function, and comparing the results with the rest of the business. In future, CMOs are likely to be judged not only on the profitable revenue generated, but also on the cost effectiveness of the marketing activities which they manage.

© N.C.Watkis, Contract Marketing Service 22 Mar. 07
Contract Marketing Service, (Specialists in Measuring Marketing Performance and Return on Marketing Investment.)

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Board Representation for Marketing requires evidence of performance

Telegraph Business Club 19 February 07

A survey in late 2005 by the Chartered Institute of Marketing revealed that just 11 of the UK’s FTSE 100 companies have a marketer on the main board. If marketing encompasses all the “business getting” activities of a company, it seems strange that as the main revenue getting activity it has no Board representation alongside that of finance and operations in the majority of companies. Perhaps the problem lies with marketers themselves. Many still see marketing as more of an art than a science, and are more interested in the creative side, such as advertising and promotion, and to a lesser extent customer relationship.

In fast moving consumer goods businesses, the marketing function (including sales organizations) tend to be large. However, in industrial and business to business organizations, while the sales organization may be large, that of marketing is often small by comparison and frequently a separate department. However, the division of sales and marketing, tends to fragment what should be collective endeavour, into competitive animosity. Marketing is frequently perceived too narrowly, in terms of advertising and sales, and lacking the quantifiable accountability of Finance and Production, fails to prove and justify its contribution.

The question that arises is, “Do marketers only understand the individual elements of marketing activity, rather than understanding the management of all the “business getting” activities of marketing as a whole? If marketers are not able to quantify the contribution of marketing to a business, then their credibility as managers will be insufficient to merit membership of a Board of Directors.

In many companies, the sales function is treated separately from marketing or may be at best combined into a sales and marketing department. But if marketing encompasses all those activities which anticipate and satisfy customer demand profitably, then the scattering of those various activities around the company organization makes no sense, and prevents good management.

“Sales” is the executive arm of marketing. We do not “Market” products and services. We advertise, promote, and sell products. To be effective, sales requires the direction provided by marketing research and planning, together with the support of advertising. If all the separate Business Getting activities which anticipate and satisfy customer demand profitably are to be effectively managed then they must be managed as a “whole” and that “whole” is “Marketing.”

As the business getting function of an organization, marketing is of major importance, but its ability to satisfy customer demand is not entirely in its own control, as Production or service provision have a major contribution. For this reason, marketers must not only be able to measure marketing performance, to ensure that resources are being used effectively, but also be aware of the performance of production and service provision in the generation of overall profit.

In most businesses, the various departments generally see their own performances in isolation. The challenge for the Chief Executive Officer is to encourage separate departments to become more integrated to the common goal of making long term profits. To that end all business departments have a responsibility to provide measurements of their own performance, but should also have an interest in the performance other departments which have effect or are effected by their own activities. This is particularly important with marketing, whose success or otherwise will have effect on such areas as finance, production, and personnel. To be more effectively managed, marketing may need to be organized differently.

Generally, businesses are organized around the main constituent parts, namely: finance, production and sales (marketing), with other areas tacked on such as personnel, buying, transport etc. An alternative model for business organization is to divide it simply into two parts, Operations and Support.

The “Operations” side would be concerned with all those activities which are collectively and directly engaged in generating revenue. This would include marketing and production or service provision. The “Support” side would encompass all those functions which provide the resources for operations, including finance, personnel, supply (purchasing) etc. Every company department or function would therefore be ascribed to operations or support.

Under the “umbrella” of Operations, both the Marketing and the Production functions would remain as separate management activities, but would become more integrated. Marketers would therefore, have to take more account of the performance of the Support side which provides marketing’s resources. Regardless of how a business is organized, marketers must understand that they do not work in isolation. While their objective is to develop and maintain a continuous revenue stream, they require the resources of other business functions. Marketers need not only to monitor the performance of their own responsibilities, but to take an interest in the performance of those other business activities which support their own.

Implementing marketing plans and achieving their objectives cannot be done effectively without a full understanding of the measurements of marketing performance. But neither can implementation be achieved without awareness of marketing’s effect on those other business activities which support it. Performance measurement is the key to understanding the effectiveness of any business organization. Marketing performance measurement should not therefore be considered in isolation from the performance of other business functions or the business as a whole. If marketers want to qualify successfully for Board of Director status, they must prove that not only can they manage their budget and resources effectively, providing quantitative evidence of their profit contribution, but can also fully appreciate the performance of all the other supporting functions that are integral with the business.

© N.C.Watkis, Contract Marketing Service 19 Feb 07
Contract Marketing Service, (Specialists in Measuring Marketing Performance and Return on Marketing Investment.)

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Do Marketing Measurements Indicate Management Performance?

Telegraph Business Club 10 January 07

“If you can’t measure it, you can’t manage it” said Peter Drucker. This statement applies as much to the Marketing function as it does to every other part of business. However, the statement does not say that “If you can measure it, you can manage it”, and that is certainly true of marketing. Measuring marketing performance does not guarantee good management, but is an indicator of management performance.

Marketing, which generates profit by anticipating and satisfying customer demand, requires considerable investment in money and resources, and is at the heart of every business. It is much more than just the advertising budget, and to measure the return on marketing investment requires a deeper understanding of all the activities which go to satisfying customer demand profitably. If all marketing is investment, why would companies not want to assess the returns on their money? Increasingly Chief Executives and Financial Officers are looking to ensure that measurements of the return on investment are used across the whole business area, including marketing. Marketing managers must now not only deliver a return on the investment but also be seen to do so and be able to prove it.

Marketing is a broad subject, covering every aspect of a business that anticipates and satisfies customer demand profitably. If follows that Marketing encompasses a wide variety of subjects from market research, product planning, selling, advertising and promotion, distribution, business planning and a host of other aspects that are not purely finance or production centred. For the executive charged with managing the marketing function of a business, the diversity of marketing activities, means that the job is a complex one. In many companies, the chief marketing executive may not be a professional marketer, but is a manager responsible for a staff of professional marketers and employees. For the executive responsible for managing the whole of the marketing function, it is often difficult to know where to start.

Marketing, like most business activities, has changed a lot over the past twenty years. Up until the early 1980s, most marketing activities were manual processes. Data bases were based on card indexes, spread sheets were manually created, with calculating machines only becoming available from the mid 1970s. This meant that all marketing activities took a long time in preparation and delivery. Analysis of marketing activities was limited, and the convenient view that marketing was an art not a science, allowed the misconception that market performance could not be measured, to be the generally accepted view. Computerization has now swept most of those preconceptions away. The revolution in the marketing function means that manual activities, which in the past took days or weeks to complete, can often now be done automatically. A sales and profit projection which may have taken hours to produce in the past, may now be repeated, with varying inputs, to produce a variety of scenarios in a matter of minutes. Businesses are now able to measure performance across all marketing activities and to quickly identify business opportunities, threats and trends. As the amount of this information has grown, so has the complexity of managing the many aspects of the marketing function.

The purpose of any commercial business is to make profits for the benefit of its shareholders and employees by satisfying customers. The objective of the chief marketing executive (CME) is to maximize profitable revenue while minimizing costs and the use of assets. Maintaining the relationship of profit, costs and assets used is the marketing management problem.

To achieve this objective, the CME must often manage a team of marketing specialists, and ultimately be responsible for a variety of delegated tasks, including planning, market research, selling, advertising, distribution, and many other customer related activities. However, the most important asset at his or her disposal will be the delegated experienced staff, who carry out the specific activities. To be successful, the CME will require good leadership skills to inspire, motivate, direct and encourage the staff, to whom he must delegate responsibility to deliver results. At the same time, the CME must institute the continuous management process of the Marketing Cycle for managing marketing and business information and for the development and execution of necessary actions, including the continual assessment and reassessment of performance.

In Dr James Rieley’s book “Leadership” ( Daily Telegraph/ Hodder and Arnold), he points out that a pre-occupation with numbers can blind the manager. After all, it is people who get results. Metrics and measurements provide an excellent guide to the immediate past performance of all the marketing activities, but their future performance is dependent on the staff involved who have to deliver them.

The CME will rightly be judged on the measurements of marketing performance he delivers, but that performance will be dependent on his or her ability to motivate, organize and lead the marketing team to achieve their objectives. Measuring marketing performance is an essential indication of recent past and current performance to identify where resources and assets are used to best effect. Only effective leadership and management can direct and motivate the staff, to maximize marketing performance to achieve the marketing objectives.

© N.C.Watkis, Contract Marketing Service 10 Jan 07
Contract Marketing Service, (Specialists in Measuring Marketing Performance and Return on Marketing Investment.)

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Today’s Marketing Metrics Don’t Guarentee Tomorrow’s Performance

Telegraph Business Club 14 December 06

The danger with marketing performance measurements, metrics, score cards and the like, is that they tend to be prescriptive, and can stifle innovative and creative thinking. Concentrating on numerical outcomes and standard processes while important, tends to encourage the idea that so long as certain actions are carried out, success is assured; - it isn’t. In any business, the only thing that is assured is that unless the level of profitable revenue exceeds the level of investment and costs, profit cannot be achieved. If profit is not achieved, the business becomes insolvent. The only thing that counts in a business is its ability to make profits, which is the sole reason for its existence. The importance of customer relations, product satisfaction, and employee relations are that collectively they are mutually supporting and contributory to the development of sustainable long term profit.

All those business getting activities collectively known as “Marketing” have to be measured as a whole. While some marketing activities are easier to measure than others, the fact is that they are all interrelated to support the gaining of sales revenue.

In many businesses, sales and marketing are regarded as two separate functions, and in some cases are known for their rivalry and distrust. But in any organization, every element is actually interdependent. In the marketing function, the sales organization is the executive arm. Market research, advertising, and product development, are all there to direct and support the sales function. Only the sales function produces revenue, but its ability to produce profitable revenue is largely governed by the effectiveness of other marketing functions, research, product development, and advertising support. Selling is easier and more productive if supported by effective advertising, as a successful advertising campaign can increase product awareness which may contribute to increased sales. However, with the exception of response advertising, advertising is rarely instrumental in directly contributing to the sales revenue target.

For the marketer, statistics, metrics and measurements provide information on the business situation as it was up to the time of the collection of the data. It details the performance of the marketing organization up to that time, but it is not a statement of future performance. The Marketing organization may have the proof of the success of its activities, but that does not mean that it will have the same future success. Circumstances may have changed so that the successful activities of yesterday will be less productive in tomorrow’s changed environment. For this reason, Marketing must always be looking forward to try to anticipate the future changes in the business environment.

The larger the organization the more that individuals seek to justify their contribution by showing compliance with various check-lists of activity, regardless of their contribution to the business. For the marketing organisation, the most important measure of its contribution is the amount of profitable revenue generated, the second measure is that of the efficiency with which resources are used to generate that revenue. However, these measurements when taken over a period are only a guide to the possible future performance, but they are not a guarantee.

Forecasting and planning are essential for any business which seeks sustainable long term revenue and profits to secure its future. The success of forecasting is dependent on market knowledge and experience, and to some extent luck. Setting targets of necessary performance is based on knowledge of the market, and experience of the past performance in the use of resources.

Frequently, marketing metrics and measurements are taken in isolation and their individual importance exaggerated, e.g. data on customer’s product awareness is interesting, but it is only a contributory factor in revenue generation.

The prime purpose of measurements is not to prove that performance is on target as predicted, but to prompt questions about the ability to maintain and improve future performance in the achievement of profits. It will be the ability to define the questions that will direct future performance, and to the gaining of accurate answers that will contribute to future sustained performance. The current indicators of present and past performance may not be relevant in the future, when measuring performance in a changed business environment, may require different performance criteria for the sustained production of profits.

The importance of marketing performance indicators is not in their individual values, but in understanding their meaning, how they inter-relate, and what questions should result. The ability to interpret those answers so that the significance of performance indicators may be understood and result in positive action, is fundamental to good management. Without resulting positive action, performance measurements are meaningless. But performance indicators can gain a false importance, if altered circumstances have reduced or changed their significance. When reviewing performance indicators, the first question should always be “So what?”

The marketer’s job is to interpret results and to institute positive action that will assist generating sustainable sales revenue. If the data collected does not contribute to positive management action, then either the indicators or the management must be changed.

© N.C.Watkis, Contract Marketing Service 13 Dec 06
Contract Marketing Service, (Specialists in Measuring Marketing Performance and Return on Marketing Investment.)

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Score cards and metrics – are they an unnecessary distraction?

Telegraph Business Club 02 November 06

For some time, business has been the subject of Best Practice, Dashboards, Balanced Scored Cards and other initiatives, all designed to improve business efficiency. In the business getting activities known as marketing, similar ideas have taken hold in the form of Total Quality Management (TQM), Return on Investment (ROI) and Marketing Metrics. All these processes are potentially important to business. However, the question is do any of these initiatives actually work? If so to what extent and do they ultimately improve the business.

The popularity of marketing and management books such as “In search of Excellence”, and the writings of Tom Peters and others suggest a desire to find a winning formula that will make for a successful business. However the large sales of successive books with differing answers might suggest that readers are hoping to find the “holy grail” of the instant magic solution to success..

Marketing also has a large number of academic books on the subject with complex and sometimes conflicting views on what makes success. Most books would agree that measuring marketing performance is essential if marketing management is to be efficient and effective, but few seem to agree on how and what should be measured, and to what purpose.

The marketing manager’s job is to maximize profitable sales revenue while minimizing costs and investment. Measuring performance by quantified results allows performance to be judged against a target or score card, enabling management performance to be assessed.

Marketing performance indicators, balanced scorecards and dash-boards should be useful indicators of performance that prompt awkward questions to elicit necessary facts for informed decisions and actions. Measurement for the sake of it, can hide problems rather than highlight them. Balanced score cards may be useful one day, but give false impressions when times and conditions change, while the Return on Investment (ROI) may look satisfactory, but its true significance may only be judged in relation to the market conditions at the time.

Businesses may have established their own internal standards for measuring marketing performance such as sales per employee, return on assets, and operating profits, but they must be checked regularly to ensure their continued relevance in changing markets and conditions.

Many Government and private organizations, use checklists and scorecards as a way to prove efficiency and effective management. Check lists enable processes requiring repetitive and complex actions not have to be committed to memory, reducing the danger that some elements might be missed. For the marketer the danger is that checklists can produce an over concentration on processes rather than outcomes. Going through due process may be important, but ultimately it is results that count, which means maximizing profitable revenue and continually reaching the financial targets of the marketing plan.

In many businesses, exceeding the revenue target results in bonus payments. However, exceeding the revenue target can seriously damage the balance of the overall marketing budget and plan, by incurring variable production and other costs, and reducing profitability. If the marketing plan is adhered to, then the revenue, profits, and costs should all be in balance as planned, but veering from the objectives set especially in sales and revenue, can seriously damages success.

Measuring marketing performance is vital for effective management. Most numbers and measurements are relatively meaningless except when shown in relation to other factors and marketing management metrics and ratios are no exception. Achieving targets is important but are the targets, objectives and processes relevant? Marketing and business principles remain the same, but the application of those principles may need to change as circumstances develop in order to sustain continued success. If a company exceeds its sales target and achieves a sales growth of 8%, but the market has grown by say 15% over the same time, then market share will have been lost, because market growth was not taken fully into account during marketing planning.

While ensuring the continuity of profit it the key to business success, continuous past success is no guarantee of the future. Metrics and score cards show what performance has been achieved, but cannot predict the future results. Recently, those companies involved in online betting had seen considerable and continuous growth in their businesses, with their major market in the USA. However, they seemed to be caught totally unawares by new legislation that not only outlawed their previously legitimate business, but caused the arrest of their senior executives when visiting American soil. The result has been a considerable drop in their revenues and profits, and a serious drop in their share prices. That result could not have been predicted by score cards and metrics, but marketers should have been aware of the threat to their business.

When the Chief Executive Officer asks,- How well are we doing? Are we doing well enough? How do we know? the marketer must provide the answers. Check lists for procedures and performance measurements are aids to successful management, but slavish adherence to them without thought to the relevance of the outcome can also be a serious distraction from the ultimate objective of generating sustainable profitable sales revenue.

Marketing measurements are a necessary management tool to assist effective decision making. Like all business statistics, they should therefore be used selectively according to their relevance to effective management at any time. Whatever, scorecard, process or measurement is used, always the marketer must ask, “Is this relevant to effective management of the marketing function, or is it an unnecessary distraction?” Results must be sustainable. Too close adherence to checklists and score cards can lead to short term thinking and a failure to sustain long term results.

© N.C.Watkis, Contract Marketing Service 30 Oct 06
Contract Marketing Service, (Specialists in Measuring Marketing Performance and Return on Marketing Investment.)

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Marketing Measurements, how many Metrics?

Telegraph Business Club 3 Oct 06

The recent book, “Marketing Metrics” by Farns, Bendle, Pfiefer and Anderson, claims that there are over 50 metrics every executive should master. However, faced with such a number, most marketers are likely to want to know whether all those metrics are equally important or whether some are more important than others.

Before trying to identify the more important “metrics,” it is necessary to clearly define the term. “Metrics,” are usually defined as a measuring system that quantifies a trend, dynamic or characteristic. However, this definition is not universal. Laura Paterson of VisionEdge Inc. defines “metrics” as the standards for measurement, providing target values that a company must achieve to reach a certain level of success. “Measurements” she defines as the raw outcome of a quantification process, such as a company’s numbers, ratios and percentages, and “Benchmarks” as the standards against which all others values are judged.

Much of what is written about metrics and marketing performance measurements relate to large companies involved in fast moving consumer goods (FMCGs). For many marketers it is difficult to relate these kinds of metrics and their relevance to small and medium sized businesses, especially if they are involved in services, partnerships or consultancies. Similarly, relating such metrics to businesses involved in industrial markets or in long term contracts is even more difficult, but it is not impossible. In fact, measuring marketing performance in both significant and useful ways is both essential and possible for every type of business.

Marketers will be interested in measuring performance in their own areas of responsibility, product management, advertising, or sales. However, measuring performance of the whole marketing function requires the Chief Marketing Officer (CMO) to identify those metrics which are fundamental to the business.

The first questions that the CMO should ask are; are we making revenue? Are we making profits and how much? From where do the profits and the costs arise? Is the marketing growing or shrinking and at what rate? Are sales and profits growing in line with or different from the market? Answers to these questions provide the initial framework on which more detailed analysis of marketing performance may be made.

The most effective way of measuring performance is by measuring output. In many businesses, the first measures of marketing are involved with sales, usually in terms of volume, value and customers. These areas are easy to measure, and having a true and tangible output that is quantifiable, are of fundamental importance. By contrast, measurements of customer perceptions may only be done by subjective surveys which have limited importance.

Measuring marketing performance should be done on a regular and continuous basis. Ideally, business data should be collected automatically and processed into usable metrics so that comparisons and trends may be easily made and identified. Marketing metrics are only indicators of performance, so comparison with other measurements and previous metrics are essential if the data is to have any value. Metrics in isolation are of little or no value.

The prime objective of the marketing function is to generate profitable revenue Metrics should therefore identify those areas of the market, that generate profitable revenue, as well as areas and activities, that incur costs rather than profits.

Two significant measures of performance are ROI and ROMI. “Return on Investment” (ROI), is often confused with that of “Return on Marketing Investment” (ROMI), but these terms should not be interchangeable. Return on Investment (ROI), refers to the net income divided by the capital employed. But in 2005, the American Marketing Association identified six other interpretations of ROI that are currently in use.

However, the “Return on Marketing Investment,” (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.

Measuring market share for a large company may be important, but for many businesses, it is probably more important to ascertain whether or not they are gaining market share in a growing or shrinking market. This may be done by comparing the business’s rate of sales growth in a specific market, with the growth trend for that specific market. It would also reflect on the relative effectiveness of marketing activity.

If for example, the rate of product growth exceeded that of market growth, then marketing activity would be judged effective. Whereas, if the product growth was less than that of the market, it would be judged ineffective.

Marketing measurements and metrics are there to answer the questions: How much business has been gained and at what cost? Is the cost too high or would more business be gained by more investment? Is the balance of cost and investment about right in relation to the return of profitable revenue?

The most important measurements for any business will be those where there is a quantifiable output rather than a subjective analysis. Before collecting any marketing performance data, the marketer must be sure that they understand the true significance of any metric, what it actually means, and how useful the information will be in forming informed decision making.