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This chapter is from the book

This chapter is from the book

1.10 New Developments in the World of Marketing Metrics

Since the first edition of this book was published in 2006, there has been considerable progress in the world of marketing metrics. This section of the book outlines some of these developments and mentions some bigger issues related to the topic.

MASB

The Marketing Accountability Standards Board (MASB) is an independent body that aims to set standards for marketing accountability (see themasb.org). MASB was launched in 2007 from “The Boardroom Project,” with the involvement of a number of major figures in the world of marketing accountability, including Meg Blair (founding President of The ARS Group) and Dave Stewart (President’s Chair in Marketing and Law at Loyola Marymount University and former editor of the Journal of Marketing and the Journal of the Academy of Marketing Science).

Three of your authors (Paul, Dave, and Neil) have been heavily involved in MASB. Indeed, earlier editions of this book have had an influence on the Common Language Marketing Dictionary, a project of MASB that seeks to standardize marketing language (see marketing-dictionary.org). We see this as a major contribution to standardizing marketing. We hope managers and educators will encourage those they deal with to use terms that are widely recognized. The Common Language Marketing Dictionary is an evolving repository of marketing terms. Please share ideas for terms and edits of dictionary items with MASB or one of us.

MASB has a YouTube channel (www.youtube.com/c/masbmarketingaccountabilitystandardsboard) that houses videos explaining key marketing accountability-related topics. Please view these videos if you are interested in more information about topics related to marketing accounting.

MASB is also involved in discussing the way marketing is presented in financial accounting, with the ultimate aim of improving the reporting of marketing’s contribution to firm performance and generating greater accountability for marketing.

ISO 20671: Brand Evaluation—Principles and Fundamentals

One of MASB’s key roles has been to represent the United States (under the delegated authority of the American National Standards Institute [ANSI]) at the ISO with respect to brand measurement. In 2019, the group launched ISO 20671: Brand Evaluation—Principles and Fundamentals. Anyone who works with brands should read this standard, which contains best practice advice on brand evaluation and management. (For more details, see www.iso.org/standard/68786.html). This standard includes the key advice that firms should hold regular brand audits.

SASB

The Sustainability Accounting Standards Board (SASB) has had considerable success in developing company reporting—specifically with respect to sustainability. SASB’s concentration on sustainability issues means the organization experiences many similar issues to those faced by accountable marketers. One area of overlap is that measures adopted in financial accounting tend to avoid harder-to-assess values or values involving long time frames. This means financial accounting leaves a more limited picture of the firm and its sustainability both in the sense of the firm “being green” and the firm being run with a long-term mindset (such as investing in the brand). For more information on SASB, see www.sasb.org.

Organization of the Text

This book is organized into chapters that correspond to the various roles played by marketing metrics in enterprise management. Individual chapters are dedicated to metrics used in promotional strategy, advertising and sponsorship, and distribution, for example. Each chapter is composed of sections devoted to specific concepts and calculations.

We present these metrics in a sequence that may appear somewhat arbitrary, but there is a rationale behind it. In organizing this text, we have sought to strike a balance between two goals: (1) to establish core concepts first and build gradually toward increasing sophistication and (2) to group related metrics in clusters, helping our readers recognize patterns of mutual reinforcement and interdependence. In Figure 1.1, we offer a graphical presentation of this structure, demonstrating the interlocking nature of all marketing metrics—indeed of all marketing programs—as well as the central role of the customer.

The central issues addressed by the metrics in this book are as follows:

  • Chapter 2, “Share of Hearts, Minds, and Markets”: Customer perceptions, market share, and competitive analysis

  • Chapter 3, “Margins and Profits”: Revenues, cost structures, and profitability

  • Chapter 4, “Product and Portfolio Management”: Metrics behind product strategy, including measures of trial, growth, cannibalization, and brand equity

  • Chapter 5, “Customer Profitability”: The value of individual customers and relationships

  • Chapter 6, “Sales Force Management”: Sales force organization, performance, and compensation

  • Chapter 7, “Channel Management”: Distribution coverage and logistics

  • Chapter 8, “Pricing Strategy”: Price sensitivity and optimization, with an eye toward setting prices to maximize profits

  • Chapter 9, “Promotion”: Temporary price promotions, coupons, rebates, and trade allowances

  • Chapter 10, “Advertising and Sponsorship Metrics”: The central measures of advertising coverage and effectiveness, including reach, frequency, rating points, and impressions; models for consumer response to advertising; and sponsorship-relevant metrics

  • Chapter 11, “Online, Email, and Mobile Metrics”: Specialized metrics for web-based, mobile, and email campaigns

  • Chapter 12, “Marketing and Finance”: Financial evaluation of marketing programs

  • Chapter 13, “The Marketing Metrics X-Ray and Testing”: The use of metrics as leading indicators of opportunities, challenges, and financial performance

  • Chapter 14, “System of Metrics”: Decomposing marketing metrics into component parts to improve measurement accuracy, add managerial insight into problems, and assist marketing model building

FIGURE 1.1

FIGURE 1.1 Marketing Metrics: Marketing at the Core of the Organization

Components of Each Chapter

As shown in Table 1.2, the chapters are composed of multiple sections, each dedicated to specific marketing concepts or metrics. Within each section, we open with definitions, formulas, and a brief description of the metrics covered. Next, in a passage titled “Construction,” we explore the issues surrounding these metrics, including their formulation, application, interpretation, and strategic ramifications. We provide examples to illustrate calculations, reinforce concepts, and help readers verify their understanding of key formulas. That done, in a section titled “Data Sources, Complications, and Cautions,” we probe the limitations of the metrics under consideration and potential pitfalls in their use. Toward that end, we also examine the assumptions underlying these metrics. Finally, we close many sections with a brief survey section titled “Related Metrics and Concepts.”

Table 1.2 Major Metrics List

Section

Metric

Share of Hearts, Minds, and Markets

2.1

Revenue Market Share

2.1

Unit Market Share

2.2

Relative Market Share

2.3

Brand Development Index

2.3

Category Development Index

2.4–2.6

Decomposition of Market Share

2.4

Market Penetration

2.4

Brand Penetration

2.4

Penetration Share

2.5

Share of Requirements

2.6

Usage Index

2.7

Hierarchy of Effects

2.7

Awareness

2.7

Top of Mind

2.7

Ad Awareness

2.7

Knowledge

2.7

Consumer Beliefs

2.7

Purchase Intentions

2.7

Purchase Habits

2.7

Loyalty

2.7

Likeability

2.8

Willingness to Recommend

2.8

Customer Satisfaction

2.9

Net Promoter

2.10

Willingness to Search

2.11

Neuro-Marketing

Margins and Profits

3.1

Unit Margin

3.1

Margin (%)

3.2

Channel Margins

3.3

Average Price per Unit

3.3

Price per Statistical Unit

3.4

Variable and Fixed Costs

3.5

Marketing Spending

3.6

Contribution per Unit

3.6

Contribution Margin (%)

3.6

Break-Even Sales

3.7

Target Volume

3.7

Target Revenues

Product and Portfolio Management

4.1

Trial

4.1

Repeat Volume

4.1

Penetration

4.1

Volume Projections

4.2

Year-on-Year Growth

4.2

Compound Annual Growth Rate (CAGR)

4.3

Cannibalization Rate

4.3

Fair Share Draw Rate

4.4

Brand Equity Metrics

4.5

Conjoint Utilities

4.6

Segment Utilities

4.7

Conjoint Utilities and Volume Projections

Customer Profitability

5.1

Customers

5.1

Recency

5.1

Retention Rate

5.2

Customer Profit

5.3

Customer Lifetime Value

5.4

Prospect Lifetime Value

5.5

Average Acquisition Cost

5.5

Average Retention Cost

Sales Force Management

6.1

Workload

6.1

Sales Potential Forecast

6.2

Sales Goal

6.3

Sales Force Effectiveness

6.4

Compensation

6.4

Break-Even Number of Employees

6.5

Sales Funnel, Sales Pipeline

Channel Management

7.1

Numeric Distribution

7.1

All Commodity Volume (ACV)

7.1

Product Category Volume (PCV)

7.1

Total Distribution

7.1

Category Performance Ratio

7.2

Out of Stock

7.2

Inventories

7.3

Markdowns

7.3

Direct Product Profitability (DPP)

7.3

Gross Margin Return on Inventory Investment (GMROII)

7.4

Online Distribution Metrics

7.5

Combining Search and Distribution

7.6

Understanding Channel Dependencies

Pricing Strategy

8.1

Price Premium

8.2

Reservation Price

8.2

Percent Good Value

8.3

Price Elasticity of Demand

8.4

Optimal Price

8.5

Residual Elasticity

Promotion

9.1

Baseline Sales

9.1

Incremental Sales/Promotion Lift

9.2

Redemption Rates

9.2

Costs for Coupons and Rebates

9.2

Percentage Sales with Coupon

9.3

Percent Sales on Deal

9.3

Pass-Through

9.4

Price Waterfall

Advertising and Sponsorship Metrics

10.1

Impressions

10.1

Gross Rating Points (GRPs)

10.2

Cost per Thousand Impressions (CPM)

10.3

Net Reach

10.3

Average Frequency

10.4

Frequency Response Functions

10.5

Effective Reach

10.5

Effective Frequency

10.6

Share of Voice

10.7

Advertising Elasticity of Demand

10.8

Return on Advertising Spend (ROAS)

10.9

Media Impressions from Sponsorship

10.10

Return on Objective (ROO)

10.11

Sponsorship Return on Investment (ROI)

Online, Email, and Mobile Metrics

11.1

Pageviews

11.2

Rich Media Display Time

11.2

Rich Media Interaction Rate

11.3

Clickthrough Rate

11.4

Cost per Click

11.4

Cost per Order

11.4

Cost per Customer Acquired

11.5

Visits

11.5

Visitors

11.5

Abandonment Rate

11.6

Bounce Rate (websites)

11.7

Friends/Followers/Supporters

11.7

Likes

11.7

Value of a Like

11.8

Downloads

11.9

Average Revenue per User

11.10

Email Metrics

Marketing and Finance

12.1

Net Profit

12.1

Return on Sales (ROS)

12.1

Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

12.2

Return on Investment (ROI)

12.3

Economic Profit (aka EVA®)

12.4

Payback

12.4

Net Present Value (NPV)

12.4

Internal Rate of Return (IRR)

12.5

Marketing Return on Investment (MROI)

12.6

Financial Market Measures

12.7

Combined Market and Accounting Measures

In organizing the text in this way, our goal is straightforward: Most of the metrics in this book have broad implications and multiple layers of interpretation. Doctoral theses could be devoted to many of them—and have been written about some. In this book, however, we want to offer an accessible, practical reference. If the devil is in the details, we want to identify, locate, and warn readers against him but not to elaborate his entire demonology. Consequently, we discuss each metric in stages, working progressively toward increasing levels of sophistication. We invite our readers to sample this information as they see fit, exploring each metric to the depth that they find most useful and rewarding.

With an eye toward accessibility, we have also avoided advanced mathematical notation. Most of the calculations in this book can be performed by hand, on the back of the proverbial envelope. More complex or intensive computations may require a spreadsheet. Nothing further should be needed.

Reference Materials

Throughout this text, we have highlighted formulas and definitions for easy reference. We have also included outlines of key terms at the beginning of each chapter and section. Within each formula, we have used the following notation to define all inputs and outputs:

$—(Dollar Terms): A monetary value. We have used the dollar sign and “dollar terms” for brevity, but any other currency, including the euro, yen, dinar, or yuan, would be equally appropriate.

%—(Percentage): Used as the equivalent of fractions or decimals. For readability, we have intentionally omitted the step of multiplying decimals by 100 to obtain percentages.

#—(Count): Used for such measures as unit sales or number of competitors.

R—(Rating): Expressed on a scale that translates qualitative judgments or preferences into numeric ratings. Example: A survey in which customers are asked to assign a rating of “1” to items that they find least satisfactory and “5” to those that are most satisfactory. Ratings have no intrinsic meaning without reference to their scale and context.

I—(Index): A comparative figure, often linked to or expressive of a market average (for example, the consumer price index). Indices are often interpreted as percentages.

Further Reading

Abela, Andrew, Bruce H. Clark, and Tim Ambler. (2004). “Marketing Performance Measurement, Performance, and Learning,” working paper.

Ambler, Tim, and Chris Styles. (1995). “Brand Equity: Toward Measures That Matter,” working paper No. 95-902, London Business School, Centre for Marketing.

Armstrong, J. Scott. (1974). “Eclectic Research and Construct Validation,” in Jagdish N. Sheth (Ed.), Models of Buyer Behavior: Conceptual, Quantitative, and Empirical (pp. 3–14), Harper & Row.

Barwise, Patrick, and John U. Farley. (2003). “Which Marketing Metrics Are Used and Where?” Marketing Science Institute working paper.

Clark, Bruce H., Andrew V. Abela, and Tim Ambler. (2004). “Return on Measurement: Relating Marketing Metrics Practices to Strategic Performance,” working paper.

Hauser, John, and Gerald Katz. (1998). “Metrics: You Are What You Measure,” European Management Journal, 16(5), 517–528.

Kaplan, R. S., and D. P. Norton. (1996). The Balanced Scorecard: Translating Strategy into Action, Harvard Business School Press.

Watt, James H., and Sjef van den Berg. (1995). Research Methods for Communication Science, Allyn & Bacon.

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