Marketing efficiency versus marketing effectiveness
How do you measure marketing?
I think that marketing should be measured by sales. Whether you use incremental sales, or total sales, or marketing-budget-to-sales ratio, or sales velocity, or some other metric, it all comes down to sales. Market awareness or “propensity to purchase” and other such things are pointless if they don’t ultimately lead to sales.
The difficulty comes in tying specific campaigns to sales. How do you know if the event you ran caused someone to buy when they wouldn’t have otherwise? So most marketing organisations track overall operational effectiveness and/or efficiency.
Fair enough. But I was shown the following chart by a client. It plots IDC's assessment of 99 firms on two scales: how efficient marketing is (vertical scale), and how effective it is (horizontal).
I think that marketing should be measured by sales. Whether you use incremental sales, or total sales, or marketing-budget-to-sales ratio, or sales velocity, or some other metric, it all comes down to sales. Market awareness or “propensity to purchase” and other such things are pointless if they don’t ultimately lead to sales.
The difficulty comes in tying specific campaigns to sales. How do you know if the event you ran caused someone to buy when they wouldn’t have otherwise? So most marketing organisations track overall operational effectiveness and/or efficiency.
Fair enough. But I was shown the following chart by a client. It plots IDC's assessment of 99 firms on two scales: how efficient marketing is (vertical scale), and how effective it is (horizontal).
The chart comes from IDC’s CMO programme, Marketing Investment Planner 2008: Benchmarks and Key Performance Indicators, published in September 2007. (You have to subscribe to this service, which I recommend if you want to benchmark your marketing against peers, or purchase the report to see the whole document,).
What does this chart show us? The startling thing about this scatter diagram is the degree of scatter. It looks pretty much random. I’m guessing that if there is any correlation between effectiveness (how useful marketing is) and efficiency (how well marketing is performed) it’s tiny.
For example, the most efficient marketing operation faired no better in its effectiveness than many less efficient operations.
Put simply, how well you do marketing has little effect on how useful marketing is.
Ouch! What we have here is a case of measuring for measure’s sake. It’s a problem I’ve detected with the whole Marketing Performance Measurement (MPM) movement. It’s all very well measuring marketing, but does it actually help?
Focus on marketing effectiveness, measured in sales, and you won’t go far wrong. Efficiency can come later.
Labels: marketing, marketing measurement
posted by Duncan Brown at 9:42 am
2 Comments:
Dear Duncan - I found your blog through BlogRush - I should follow those links more often. I'm a sucker for any kind of marketing program measurement. I also am a big lover of the grid you showed. I use a similar one to chart out WHERE to put our marketing resources. I use the inmportance/Performance grid. I love that because it gets us to focus on what's important to our customers, how well we give them what we want and also benchmarks us against how well other customer alternatives are fairing.
Now, I don't know if it's just semantics here, but I tend to measure how profitable our marketing efforts are, rather than how much top-line sales we get. Because I find that our "ideal" customers are the ones that are most profitable, see the most value and bitch the least about price - so our marketing efforts with them tend to be stellar and more fun, frankly.
Awesome post, I'll be back!
Welcome Ivana, and thanks for your comments. Re sales v profit, I guess my point is that a financial measurement of marketing is essential, yet it's what many (most?) marketers avoid.
I think it also depends on which industry you're in. If marketing can reduce the cost of sale, then profitability is a great measure. However, if fulfilment is dependent on long service contracts (for example) then it's difficult to relate marketing's impact on profit.
But I think we agree on the basics!
D.
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