Marketing principles and practices help businesses make more profit by getting more customers and nurturing a relationship with them. In the case of a public company, marketing affects its share price as well. So, the business can grow further by improving how its marketing department works. As Improvement comes through measurement, appropriate metrics need to be put in use. It has been recently shown in research that measuring marketing performance has a positive impact on the firm’s performance.
How does one measure performance then?
At a broader level, marketing performance is measured based on financial results. For instance, profits attributed to marketing budget is one way to look at marketing performance. The Return on (Marketing) Investment is also a popular metric from the financial world although it might not be as useful in measuring marketing performance.
Going into more detail, a variety of metrics has been developed for specific marketing tasks, like conversion rates for online campaigns (adwords or content). These measures are very useful when the marketing department rolls-out the same campaigns and tracks progress over time. This type of benchmarking identifies the best practices based on results. These metrics then notify marketers of good or bad performing activities through the now popular digital dashboards.
So, how does that help to improve further?
A dashboard with metrics surely lets its user know when operation is doing fine or needs attention. Agreeing on “bigger profits”, “better conversion rates”, “higher CLV” is not enough to increase performance, even when that improvement is precisely set.
How can management know how to proceed to improve its marketing practice and what to expect in terms of improvement?
Looking at marketing from the business’ side, there is money spent on campaigns, marketers who spend work-hours on designing and executing marketing activities, partners like agencies or joint ventures who spend their time and money on helping the business get the sales either through acquisition or retention programs.
In larger organizations, there are also scientists in R&D programs investing time and money in improving quality features like for example battery health for consumer electronics or healthier materials for medical products.
How can a performance measurement system capture the effect of all these types of resources? What happens when the end goal is not just profit but also the share price or social impact?
The concept of Productivity can provide answers. Its use aims at describing how the process of producing inputs into outputs performs. Originally developed for manufacturing, the term has been researched in the marketing field. Productivity was used conceptually to capture the effective use of marketing resources (doing the right things) and efficiency (doing things right).
Productivity allows to not only measure performance, but also manage performance and hence improve it.
Then, the question that investors and management can ask becomes :
How productively the resources are turned into outcomes?
The goal is to define the output to input ratio, that can include multiple outputs and multiple inputs of different type. A theoretical Marketing Productivity Ratio at a wider perspective could look like this:
Think of it as ROI but with the Return part being a weighted sum of profit, share price and social impact and the Investment part being the weighted sum of time and/or money as well as quality measures.
The more productive the marketing function is, the better the performance. Comparing productivity to profit one can identify potential for improvement, by either investment or divestment.
Everyone would like to invest on a productive asset, right?
Let’s say a marketing team of one brand or category when compared to the others of the same group of companies for example is found to be producing the most using the least. The team’s practices are at least worthy of further investigation from management to share the knowledge.
What if profit couldn’t capture this performance, because the team was operating at a small market for example? What if the team was already profitable, but the other teams were found unable to compete, because they are operating at smaller markets?
Measuring, managing and improving your marketing department’s or teams’ productivity will help deliver the best they can regardless of the market situation. The recent CMO Survey among Fortune 1000 companies’ chief marketers shows that there is a trending optimistic outlook on the market. Marketing activities will increase and with that resources will be mobilized again. High marketing productivity will make sure the company benefits the most at this time.
Shall we look at productivity then?
Morgan, N. A., Clark, B. H., & Gooner, R. (2002). Marketing productivity, marketing audits, and systems for marketing performance assessment: Integrating multiple perspectives. Journal of Business Research, 55(5), 363-375.
Don O’Sullivan, Andrew V. Abela, Mark Hutchinson, (2009) “Marketing performance measurement and firm performance: Evidence from the European high‐technology sector”, European Journal of Marketing, Vol. 43 Iss: 5/6, pp.843 – 862