Title: Key Marketing Performance Measures
Authors: Gr?nholdt, Lars (firstname.lastname@example.org), Martensen, Anne
Subject: Marketing & CRM
Status: full text
Source: Marketing Review; Fall2006, Vol. 6 Issue 3, p243-252
Preparation: Scientific Database Management Journal Articles www.SYSTEM.parsiblog.com
Abstract: Marketers are understandably preoccupied with measuring marketing performance. However, among the many possible marketing performance measures available, which few should be chosen? On the one hand, the key measures must be simple enough to be usable and on the other hand they must be comprehensive enough to assess the marketing performance. This paper presents an annotated literature review that provides the foundation for the development of a list of the most valuable marketing performance measures. These performance measures are selected on the basis of a number of criteria, for instance the measures need to occur frequently in literature, they must be valuable to most companies as well as they must have predictive power. The performance measures are systematised on the basis of the Marketing Value Chain, which is a conceptual framework linking marketing actions to financial results. Finally, the implications for marketing practice and future research are discussed.
Keywords: Marketing performance, performance measures, marketing value chain. --Download Article
The Marketing Function under Change
In recent years the marketing function has been under increased pressure for financial accountability (Ambler 2003; CMO Council 2004; Rust et al. 2004a, 2004b; Seth and Sisodia 2001; Woodburn 2004). Top management has in general looked upon marketing expenditures as short-term costs with no documentable financial effect rather than long-term investments with a financial return (Schultz and Gronstedt 1997; Rust et al. 2004a). Therefore, the marketing function has been of low interest to top
management. But if on the contrary a return on marketing investment could be documented, the role of marketing on both an organisational and a top managerial level would be significantly strengthened; if not, marketing will continue to be marginalised (Seth and Sisodi 2001). Munoz and Kumar (2004, p. 387) state that by demonstrating marketing’s “influence on broader business outcomes and returns, the marketer’s role will be elevated to the highest levels inside an organisation”. Thus, the challenge of the marketing function is to document how marketing activities can contribute to the company’s financial performance (Ambler 2003; Rust et al. 2004a, 2004b; Woodburn 2004).
Focus on Marketing Performance Measurement
This challenge has led to an increased interest in measuring marketing performance both among academics and practitioners (e.g. Ambler and Puntoni 2003; Clark 1999, 2002; Marketing Science Institute 2004; Marketing Week 2001, Woodburn 2004). Another aspect that has contributed to the increased interest in measuring marketing performance is the need to use relevant measures for improving marketing resource allocation and departmental effectiveness (CMO Council 2004). Thus, there is a need for new knowledge about relevant marketing performance measures. Marketing literature offers a wide and varied palette of possible marketing performance measures, both from a theoretical and a practical perspective. In practice it is often seen that major marketing departments work on the basis of long lists of performance measures which demand considerable resources to keep up to date and which do not necessarily contribute to a coherent and logical picture of the effect of
marketing investments. Meyer (1998, p. xvi) suggests that “firms are swamped with measures”; it is common for companies to have fifty to sixty ‘top-level’ performance measures, and some have over 100 measures. Therefore, fewer but more carefully selected measures would probably be required.
Consequently, there is a great need for identifying relevant marketing performance measures. In the light of this, the purpose of this paper is to do an annotated literature review in order to identify the most vital marketing performance measures. A Marketing Value Chain is proposed and used as the conceptual framework for categorizing the performance measures.
A Framework tor Marketing Performance Measurement
Shrivastava et al. (1998) have developed a value-based approach to marketing with key areas delivering shareholder value: Market-based assets ? market performance ? shareholder value. Here increased shareholder value should be the ultimate goal of any marketing activity. A later version of the chain includes the following elements: Marketing actions ? marketbased assets ? marketplace performance ? financial performance (Srivastava and Reibstein 2004). A corresponding chain is seen in the form of the Chain of Marketing Productivity (Rust et al. 2004b). It is a chain-of-effects model that relates marketing actions to overall value of the firm: Tactical marketing actions ? customer impact ? market impact ? financial impact ? impact on firm value.
We find the same elements in the Brand Value Chain, developed by Keller and Lehmann (2003), where focus is on how brands create value: Marketing programme investment ? customer mindset ? brand
performance ? shareholder value. Franzen (1999) has worked on a similar categorisation of effects. In the Brand Value Chain mental response (associations, emotions etc. in the customers’ mind) and behavioural response (brand performance) appear. We believe that mental response is an important element in the chain when it comes to developing relevant marketing performance measures. Moreover we believe that brand performance with advantage can be divided into performance on customer level and performance on aggregated level.
These approaches result in a natural link between the company’s marketing activities and its financial performance. By extending the Brand Value Chain to focus on not only value created by brands but also value created by marketing activities in a wider sense and by adding a stage, the Marketing Value Chain presented in Figure 1 appears. This value chain links the contribution of marketing actions (e.g. products and services, marketing communications, direct marketing and personal selling, pricing, marketing channels of distribution) to the financial performance of the company. The Marketing Value Chain gives a holistic, integrated approach to understanding the value created by marketing. This value chain will be used as the conceptual framework for our study of marketing performance measures.
Method for the Literature Review
Early in the history of measuring marketing performance it was common to use one or only a few financial or volume-based measures to track the output of marketing (Clark 1999). This changed during the 1970’s and hereafter there was an increasing interest in using more measures simultaneously and the measures also became market- and consumer-based. The result is, however that so many marketing performance measures exist today that it is difficult to get an overview of them and determine which one should actually be used. Based on extensive literature studies, we have made a selection of influential articles and books presenting and discussing a range of different marketing performance measures that are results of either the authors’ own literature reviews or surveys conducted among practitioners. In other words, contributions from both academia and practice are represented. The literature review leads to the development of a long-list of performance measures that are
• recommended in academic literature, and
• reported to reflect common usage and best practice.
Then this long-list is reduced to a more moderate and manageable short-list of measures. Marketing should only “present management with a handful of measures that are simple enough to be usable but comprehensive enough to give accurate performance assessment” (Clark 1999, p. 720). For this purpose we have used a number of screening criteria. The selection of the screening criteria is of course decisive for the design of the short-list we end up with. We will be using the following six criteria:
• Frequent occurrence in literature
• Importance to top management
• Importance to marketing management
• Importance to most of the companies
• Within the framework of the Marketing Value Chain
• Predictive power in the Marketing Value Chain
These screening criteria are selected on the basis of the discussion in the introductory section and inspired by Davidson (1999).
Overview of the Selected Literature
In the following the selected influential articles as well as a book within marketing performance measurement are presented. It is the review of this literature which will lead us to the subsequent listing of performance measures. Barwise and Farley (2004) have conducted a study of the use of six marketing measures in the top five global markets: USA, Japan, Germany, UK, and France. Five measures were selected as popular measures, and one measure (customer life time value) was added due to the increased interest in relationship marketing and management. The data were collected in the
form of telephone interviews with chief marketing officers (marketing director, VP marketing) in 2002, and the sample for each country was based on leading national advertisers. Usable data were obtained from 697 businesses. Barwise and Farley (2004) report and discuss the results and differences between the countries. In relation to the purpose of our paper, it should be emphasised that most large and mid-sized companies regularly report one or more of the marketing measures to the Board, and the average is 3.9 out of the six measures studied here.
Munoz and Kumar (2004) present and discuss brand measures according to Prophet’s 2002 Survey of Best Practices in Brand Management. The ive of the study was to understand how companies are
operationalizing their brands. The survey was conducted online in the fourth quarter of 2001 and comprised 90 respondents representing a variety of industries and various management levels within the organization (Prophet 2002). Ambler (2003) has produced an excellent book within marketing performance measurement. He focuses on brand equity which relates to both marketing inputs and to marketing performance. Of relevance to this paper, the book comprises numerous examples of marketing measures, based on reviews, original research and current practice in world-beating companies. This book has also contributed to our long-list of marketing measures.
Ambler and Kokkinaki (2002) have conducted 44 in-depth interviews with senior marketing and finance managers from 24 UK firms, representing all main business sectors, to discuss their marketing assessment practices, among other things the type of marketing performance measures collected and used. Based on this qualitative study a survey instrument (selfadministered questionnaire) was constructed for a quantitative large-scale study in UK. The questionnaire contained a list of 38 measures arrived at on the basis of the qualitative study and the perceived importance for assessing performance. The questionnaire was filled out by 531 senior executives (367 from marketers and 164 from finance officers) who among other things were asked to indicate the importance of each measure for assessing overall marketing performance in her/his company, as well as the importance of different levels in the organization (junior marketing,.., top board) (see the questionnaire in Ambler and Kokkinaki 2002, pp. 240-242). Results are presented by Ambler and Kokkinaki (2002) and later, additional results are presented by Ambler and Puntoni (2003) and Ambler et al. (2004), including a ranking of the top 15 marketing measures. The Marketing Leadership Council (2001) has conducted a study among their members. Ambler and Puntoni (2003, p. 306) report some of the results in form of a table showing the use of 26 measures across eight business sectors. The results show an average number of measures per company of 21 across business sectors.
Eagle and Kitchen (2000) have studied the impact and measurement of marketing communications on brand equity and the importance of brand equity as a valuation and performance measurement tool. In 1998 they conducted a survey among 25 senior marketing people from major marketing organisations and 12 advertising agency people in New Zealand. The respondents were among other things asked to indicate their perception of the effectiveness of 11 listed marketing-based measures as measures of brand value. There was moderate to high levels of support across all measures except for one. Davidson’s (1999) study has the purpose of identifying a set of marketing measures which will enhance the value of company reports. A long-list of 47 marketing measures is developed. Davidson started by
including the eight marketing measures used in Price Waterhouse Cooper’s research. Hereafter a thorough review of academic literature on measures of brand and marketing research was made, including an analysis of over 1300 articles in seven marketing journals over a five year period by Ambler and Kokkinaki (1997) as well as work by Doyle (1992) and de Chernatony et al (1998). Work related to marketing measures in the finance area was then studied, including the UK-based Accounting Standards Board’s (1991, 1993) contribution to financial reporting and best practice on the operating
and financial review, and a forward-looking company report format, published by the Institute of Chartered Accountants (1998). Finally, current practice among 25 leading companies (mainly UK- and US-based) was studied, and all the marketing measures mentioned in any of the 25 company reports reviewed were added.
The resulting long-list of 47 marketing measures for possible use in company reporting was designed to be comprehensive, and there is inevitably an overlap between some of the measures. In practice, the list is far too lengthy to be useable in company reporting and Davidson (1999, pp. 766-767) discusses criteria for selecting a shorter list of the most useful marketing measures… --Download Article
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