Chapter 13
Measuring and Delivering Marketing
Performance
I. “Metrics Pay for Walmart” discusses Walmart’s successful use of sophisticated low cost,
techniques for the management of information and the implications of their marketing and
competitive strategies.
II. Strategic Challenges Addressed in Chapter 13
This chapter addresses several critical questions that provide the link between a company’s
efforts to plan and implement marketing strategies and the actual results those strategies
produce:
oHow can we design strategic monitoring systems to make sure our strategies
remain in sync with the changing market and competitive environment in which we
operate?
oHow can we design systems of marketing metrics to ensure that the marketing
results we plan for are the results we deliver?
The chapter develops a five–step process for monitoring and evaluating performance on a
continuous basis.
oIt then applies the process to the issue of strategic control: how can we monitor and
evaluate our overall marketing strategy to ensure that it remains viable in the face of
changing market and competitive realities?
oNext, it applies the process to tracking the performance of a particular
product-market entry and to the marketing actions taken to implement its marketing
plan, or marketing performance measurement.
oFinally, it shows how marketing audits can be used periodically to link the overall
performance measurement process—that for both strategic control and for measuring
current marketing performance—with marketing planning.
III. Designing Marketing Metrics Step By Step
The performance measurement system monitors the extent to which a firm is achieving its
objectives.
The performance measurement process has five steps:
oSetting performance standards
oSpecifying feedback
oObtaining data
oEvaluating data
oTaking corrective action
A. Setting Performance Standards
Performance standards derive largely from the objectives and strategies set forth at
the SBU and individual product-market entry level.
They generate a series of performance expectations for profitability (return on
equity, return on assets managed, gross margins, or operating margins), market
share, and sales.
Recent years have witnessed a shift from primarily using financially based
performance measures to treating them as simply part of a broader array of
marketing metrics.
To be of any value, performance standards must be measurable; they must be tied to
specific time periods, particularly when they concern a management compensation
system.
oThe SMART acronym (specific, measurable, attainable, relevant, and
timebound) is a useful framework for setting performance standards.
Of particular importance is whether a business or business unit as a whole and its
individual product-market entries have set forth milestone achievement measures
based on the strategies that were originally developed.
oFor example, in a venture capital backed start-up, a short-term dashboard
will be set up to track such metrics as the cost of acquiring a customer, sales
and gross margin by product or product line, and repeat purchase rates.
Return on Marketing Investment
oIncreasingly these days, investors, boards, CFOs, and others are insisting that
marketing managers do a better job of measuring the returns their marketing
programs deliver on the investment therein.
Doing so is important for a variety of reasons, including demonstrating
the overall and program-by-program effectiveness of marketing
expenditures, choosing among various marketing tactics or media, and
obtaining the financial resources necessary to support top-line sales
growth.
oThe growing use of online promotional strategies, most of which are
eminently measurable, is making this task more doable than it used to be.
Profitability Analysis
oIn brief, profitability analysis requires that analysts determine the costs
associated with specific marketing activities to find out the profitability of
different market segments, products, customer accounts, and distribution
channels.
oProfitability (or cash flow) is probably the single most important measure of
performance, but it has the following limitations:
Many objectives can best be measured in non-financial terms
Profit is a short-term measure and can be manipulated by taking actions
that may prove dysfunctional in the longer term
Profits can be affected by factors over which management has no
control
oAnalysts can use direct or full costing in determining the profitability of a
product or market segment.
In full costing, analysts assign both direct, or variable, and indirect costs
to the unit of analysis.
Indirect costs involve certain fixed joint costs that cannot be
linked directly to a single unit of analysis.
Direct costing involves the use of contribution accounting.
oCompanies are increasingly turning from traditional accounting methods,
which identify costs according to various expense categories, to
activity-based costing (ABC), which bases costs on the different tasks
involved in performing a given activity.
Customer Satisfaction:
oMeasures relating to customer preferences and satisfaction are essential as an
early warning of impending problems and opportunities.
oDeveloping meaningful measures of customer satisfaction can be done in
various ways:
One way involves understanding and measuring the criteria used by
customers to evaluate the quality of the firm’s relationship with them.
Another approach favored by some companies is asking customers one
simple question: How likely is it that you would recommend us to a
friend or colleague?
B. Specifying and Obtaining Feedback Data
Someone must gather and process considerable data to obtain the performance
measure, especially at the product-market level.
The sales invoice or other transaction records are the basic internal source of data
because they provide a detailed record of each transaction.
oAnother source, and typically the most expensive and time-consuming,
involves undertaking one or more marketing research projects to obtain
needed information.
C. Evaluating Feedback Data
Management evaluates feedback data to find out whether there is any deviation
from the plan and, if so, why.
Typically, managers use a variety of information to determine what the company’s
performance should have been under the actual market conditions that existed when
the plan was executed.
At the line-item level, whether for revenue or expenses, results are compared with
standards set in step one of the control process.
D. Taking Corrective Action
The last step in the control process concerns prescribing the needed action to
correct the situation.
In many cases, it is difficult to identify the cause of the problem:
oAlmost always, an interactive effect exists among the input variables as well
as the environment.
oThere is also the problem of delayed responses and carryover effects.
IV. Design Decisions for Strategic Monitoring Systems
A. Identifying Key Variables
To implement strategic monitoring, a company must identify the key variables to
monitor, which are usually the major assumptions made in formulating the strategy.
The key variables to monitor are of two types:
oThose concerned with external forces
oThose concerned with the effects of certain actions taken by the firm to
implement the strategy
B. Tracking and Monitoring
The next step is to specify what information or measures are needed on each of the
key variables to determine whether the implementation of the strategic plan is on
schedules—and if not, why not.
The firm can use the plan as an early-warning system as well as a diagnostic tool.
The advent of the Internet, social networks, graphical information systems, and
other digital tools for gathering and dissemination has made it easier for sometimes
far-flung managers to monitor strategic developments.
C. Strategy Reassessment
Strategy reassessment can take place at periodic intervals—for example, quarterly
or annually, when the firm evaluates its performance to date along with major
changes in the external environment.
A strategic monitoring system can also alert management of a significant change in
its external or internal environment.