Today's marketing metrics don't guarantee tomorrow's performance

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 organisation, every element is actually interdependent. In the marketing function, the sales organisation 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 organisation up to that time, but it is not a statement of future performance. The Marketing organisation 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 organisation 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.

By Nicholas C. Watkis AE DipM CMC MCIM MIMC

© N.C.Watkis, Contract Marketing Service 13 Dec 06
Contract Marketing Service, Established 1981, Management Consultants specialising in measuring Marketing Performance.

www.contractmarketingservice.com
www.businessperformancemaximized.com

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