The Case for Marketing Performance Management
“What is the ROI of marketing investments?” “How do marketing expenditures enhance shareholder value?” These are some of the burning questions facing marketing managers today. For a long time, marketing has been considered the “creative” side of business and, since creativity cannot be quantified, marketing has been perceived to lack accountability. However, with increasing financial pressures facing firms in today’s hypercompetitive environment, this perceived lack of accountability has undermined marketing’s credibility and has begun to diminish marketing managers influence and standing in the firm. So what can marketing executives do? The answer lies in designing and implementing processes that streamline marketing efforts with overall business strategy to ensure optimal resource allocations that will maximize marketing performance. We refer to this as Marketing Performance Management (MPM).
Mark Jeffrey defines marketing performance management (MPM) as the combination of tools, processes, and methods used to develop, monitor, measure, and control marketing campaigns and programs to increase the return on both individual and aggregate marketing investments. Marketing campaigns are defined to include all direct and indirect organizational marketing endeavors such as promotions, advertising, analyst relations, customer relationship management initiatives, etc.
The Marketing Investment Portfolio
According to a survey of marketing leaders conducted by Mark Jeffrey, a professor of marketing at the prestigious Kellogg School of Management, Northwestern University, and author and leading authority in the field of data-driven marketing, on average, organizations allocate their marketing budgets in the following manner across the marketing investment portfolio:
- 12% in shaping markets.
- 22% in building brands and customer assets.
- 52% in generating revenue,
- 14% in infrastructure and capabilities.
The Marketing Divide - High Performers vs Low Performers
Jeffrey also discovered that are distinct differences between how lower performers and higher performers invest their marketing portfolios as you can see from the following graphic.
- Lower performers on average spent 58% of their marketing dollars on short-term sales promotions (demand generation) compared to only 48% for high performers.
- High performers placed higher emphasis on long-term marketing strategies such as branding (13%) compared to lower performers (7.5%) and building customer equity (14%) compared to lower performers (11%).
- Higher performers placed less emphasis on shaping markets (9%) compared to lower performers (14%).
- Higher performers also placed higher emphasis on infrastructure and capabilities (16%) compared to lower performers (10%).
The survey results and interviews overwhelmingly support that taking a portfolio approach to managing marketing activities and implementing MPM (discussed below) has a significant positive impact on organizational performance in the form of higher market share, sales growth, and increased brand equity.
The Current State of MPM
The survey results and interviews show that senior marketing executives are committed to making marketing more transparent to the rest of the organization. They recognize the need to speak the language of finance and strategy, and they are willing to go the extra mile to ensure that the marketing department is well integrated with the business strategy and goals. However, they are also struggling to optimize marketing management in their organizations. Although, the benefits of MPM are evident there is a significant gap in the MPM process in most organizations.
For example, while selecting marketing campaigns:
- 73 percent do not use score cards rating each campaign relative to key business objectives prior to a funding decision.
- 61 percent do not have a defined and documented process to screen, evaluate, and prioritize marketing campaigns.
- 57 percent do not use business cases to evaluate marketing campaigns for funding.
- 44 percent do not consider inter-campaign synergies at the time of marketing campaign selection.
- 38 percent do not think holistically comparing worthwhile marketing campaigns to each other, funding the best overall set of campaigns.
- Only 47 percent report that marketing campaign selection is guided by forecasts of campaign ROI, Customer-Life Time Value (CLTV), and/or other performance metrics such as customer satisfaction.
- Only 32 percent report that marketing campaign selection is guided by experiments contrasting the impact of pilot marketing campaigns with a control group
Once campaigns are selected, during campaign management there are other evident shortcomings:
- 63 percent report that they do not break down each marketing campaign in stages and do not use metrics to review the campaigns at each stage.
- 53 percent say they do not actively modify or terminate under-performing campaigns at any stage of implementation based upon ongoing campaign evaluation.
- 43 percent indicate that they do not actively track and monitor realized benefits (vs. targets) after completion of marketing campaigns.
- 40 percent report that campaigns are often not designed to be measured and specific metrics for success are not defined.
Finally, with regards to learning and feedback:
- 43 percent say they do not use metrics to guide future marketing campaign selection and management.
- 36 percent of organizations do not conduct post-implementation reviews to solicit campaign team opinions and intuitions regarding successes and mistakes of past campaigns to guide future marketing campaign selection and management.
- 34 percent do not use insights gained from analysis of data from past campaigns to guide innovations in future marketing campaigns.
- 29 percent do not identify and share lessons gained from both discussions with campaign team members and analysis of past campaign data
Why MPM Hasn’t Happened
One of the most revealing insights from the study is that despite the impact of MPM on performance, very few organizations appear to be implementing optimized MPM. What is holding them back? Survey respondents point to a number of specific challenges.
TOP MANAGEMENT SUPPORT
- 69 percent say that business leaders do not understand that ROI is not always applicable to marketing campaigns.
- 63 percent said that senior managers primarily make funding decisions for individual marketing campaigns based on their gut feel and intuition.
- 50 percent report that the top management in their organizations does not provide specific strategic goals based on metrics such as return on investments (ROI) to guide marketing campaigns.
- 49 percent indicate that marketing is not perceived by the CEO as the main driver of strategic advantage.
- Only 68 percent say that their business and strategy decision makers have a good knowledge of marketing
CROSS-FUNCTIONAL ALIGNMENT
- 48 percent do not solicit a cross-functional senior executive input to allocate their marketing campaign funds.
- 56 percent claim that in their organization most senior managers perceive marketing as a “necessary evil”.
- 54 percent claim that in their organization there is a lack of mutual respect between marketing and other business executives.
- 25 percent say that within their organization marketing is not an essential component of business activities.
- Finally, 21 percent report that marketing is not an important integrated function within their organizations.
EMPLOYEE SKILLS
- 64 percent report that they do not have enough employees who have the skill to track and analyze complex marketing data.
- 47 percent said that overall their marketing staff does not have sufficient working knowledge of financial concepts such as ROI, NPV, and CLTV
MPM Implementation: A Phased Approach
The primary conclusion drawn from the discussions about implementation hurdles is that successfully optimizing MPM is not a matter of a “big-bang” initiative but instead involves a deliberate step-by-step progress. A phased approach will help keep implementation momentum up, foster senior executive confidence that will increase their buy-in, warrant a planned and manageable increase in cross-functional alignment, and give employees enough time to develop their skills and comfort levels with the use of these tools.
THREE STAGES OF MPM SOPHISTICATION
Mark Jeffery's study identified three broad categories of MPM adoption competency: Defined, Intermediate, and Advanced, each illustrated in the following graphic.
The three stages of MPM sophistication are approximations based on the survey responses and personal experiences shared in interviews.Survey questions were maplped into criteria that characterized each category. An MPM “level score” in the range of 0 to 100 was computed for each respondent. The score was based on an average of the total affirmative responses to questions across all categories. The distribution of those scores was used to determine the general category groupings of respondents. A chart of the distribution of MPM scores for all respondents is shown above.
STAGE ONE: DEFINED
The average organization in the “Defined” level focuses on developing processes and procedures that provide general objectives and goals to guide marketing campaign selection and management. Organizations at this level have put in place a centralized database that tracks the performance of all marketing campaigns and assets. Finally a learning culture, albeit weak, is in place where campaign team opinions and intuition regarding mistakes and successes of past campaigns is used to guide future campaign selection and management. In short, a “Defined” process is established to manage all marketing activities for the organization.
The benefits of performing these processes are straightforward:
- Decision-making is simplified by a single comprehensive view of all marketing assets, investments, and resources.
- Unmonitored marketing spending is eliminated and resource utilization is improved.
- Provision of general objectives and goals reduces planning and management rework.
- The marketing manager is better equipped to learn from past mistakes and therefore improve marketing management over time
STAGE TWO: INTERMEDIATE
The average organization in the “Intermediate” level has already achieved a centralized view of marketing assets, investments, and resources. “Intermediate” organizations have also adopted the practice of providing general objectives and goals to guide marketing campaign selection and management and also learn from past mistakes. MPM efforts at this level are focused more on rigorous provision of objectives and goals regarding final deliverables of marketing investments and application of advanced metrics for planning, managing, and reviewing marketing investments. “Intermediate” level organizations have adopted the use of an enterprise data warehouse (EDW) to track customer interactions with the firm and marketing campaigns. Finally, along with opinions of campaign team members, analysis of data is also used to guide future campaign selection. In short, an “Intermediate” process is established to manage all marketing activities.
The benefits of achieving competency at this level include:
- Improved alignment of marketing spending with corporate strategy to reduce or eliminate stranded marketing investments.
- Better communication with a corporation’s finance department and corporate leadership through the common language of financial metrics.
- Easier comparison of results with peer companies.
- Frequent review cycles to help address deviations from plans in scope, budget, and strategic alignment allowing for corrective actions earlier rather than later
STAGE THREE: ADVANCED
The most savvy marketing management teams distinguish themselves by their ability to track and monitor marketing campaigns and assets using automated software such as MRM. “Advanced” level organizations use Active Data Warehouse (ADW) to guide automated event driven marketing and utilize score cards rating each campaign relative to key business objectives to guide campaign funding. Finally, they have a holistic view of all their campaigns and apply portfolio management techniques to fund overall best set of campaigns, while continuously monitoring realized benefits and business value (ROI) for marketing campaigns during campaign execution.
The benefits observed by these organizations include:
- Improved valuation of marketing investments.
- Broader spectrum of quantitative metrics to use in tracking marketing campaigns.
- Ability to maximize the value of the marketing campaign portfolio while ensuring alignment with corporate strategy.
Courtesy of Mark Jeffrey and the Kellogg School of Management, Northwestern University whitepaper published in 2007 titled "Strategic Marketing Permance Management: Challenges and Best Practices"
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