Measuring Marketing Performance – What are we talking about?

Talking about 'measuring performance,' is the current topic discussed in marketing. But what does 'measuring marketing performance' mean? As with most current writing on marketing, the assumption seems to be that everyone knows and understands the term, but when asked to explain marketing performance measurement, the majority of marketers will give a variety of answers, some of which will be quite different.

The more that is spoken and written in Marketing and business circles about making marketing accountable, the only thing that becomes clear is that marketing and business people rarely speak to same language. Why is this? Perhaps emanating from, or seeking to emulate the voice of academia, business and marketing have a habit of developing business and marketing terms often shortened to acronyms e.g., TQM, CRM, ROMI. However, if asked to define and explain these terms, there seems to be no standard answers. The problem is not just limited to measuring marketing performance, but seems to pervade almost every aspect of marketing. Even the term 'Marketing', is now imprecise. The Chartered Institute of Marketing (CIM) produced the official definition of marketing as being "All those management functions which anticipate and satisfy customer demand profitably." Yet even the CIM confuses the subject by referring to 'marketing products', when what is clearly meant is the promotion, advertising and selling of a product. From a business point of view, Marketing would perhaps be better defined as "the function for getting and retaining profitable business."

When measuring marketing performance, the clear definition of the terms and measurements used is fundamental to the intelligent understanding of the marketing processes and actions. Without agreement on basic definitions, the interpretation of marketing information leads to misunderstanding and confusion. Furthermore, because Marketing is only one function in a business, it is important that the terms used in its analysis and measurement, are also understood by the other business functions, such as in Operations and Finance. As all the functions in a business are interdependent, it is essential that the marketing and business terms used are consistent throughout the organization.

Peter Drucker said "If you can’t measure it, you can’t manage it." This is as true for the Marketing function as any other area of a business, yet Marketing is the last corporate function to develop and adopt processes and standards that can be measured quantitatively. Measuring marketing performance assists in the efficient managing of the marketing assets, by providing quantitative evidence for decision making. Thus whatever metrics, information or measurements are collected, the first consideration should be how such data will clarify understanding of the current marketing situation, and facilitate decision making? Different levels of management will require different information so it is important to decide what data is to be collected, how it is to be presented and what purpose it is to be used.

Even the terms used in measuring marketing performance tend to cause confusion. While the word “Metrics” often appears as a generic term when speaking of measurement, 'Metrics' refers to the standards for measurement, providing target values that a company must achieve to reach a certain level of success. By contrast, 'Measurements' refers to the raw outcome of a quantification process, such as a company’s numbers, ratios and percentages. 'Benchmarks' on the other hand, are the standards against which all others values are judged. Therefore, in most cases, 'Benchmarks' are used to establish the value of the metrics to be used for measuring satisfactory performance at any particular time.

To add to misunderstanding, the term 'Return on Investment' (ROI), is often confused with the term '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 and Aprimo Inc., identified six other interpretations of ROI currently in use : Incremental sales revenue, the Ratio of cost to revenue, the cost per sale generated, changes of financial value of sales generated, cost of new customer, and cost of old customer retention. 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.

Before measuring the marketing performance of any business, all the marketing terms, measurements and acronyms that are used should be clearly defined and understood. Clear definitions focus the mind on what is to be measured as well as the value and purpose to which such measurements may be put. If measurements and their meaning are not clearly understood, the resulting management decisions will be questionable.

By Nicholas C. Watkis AE DipM CMC MCIM MIMC

© N.C.Watkis, Contract Marketing Service 14 Mar. 06
Contract Marketing Service, Established 1981, Management Consultants specializing in measuring Marketing Performance.

www.contractmarketingservice.com
www.businessperformancemaximized.com

Further Reading

• How to show the value of marketing

• Marketing: Why measure performance?

• Better marketing requires better measurement