Monday, March 13, 2006

Siloed Measures = Fractured Knowledge

Many of today’s marketing organizations have made significant strides in the development of sophisticated analytical approaches to improve marketing measurement. Ph.D. statisticians are now common in most large marketing departments, as are research departments, media-mix models, and models for assessing the return from a proposed initiative.

But what are they really measuring?

The image below shows the three most common measurement “pathways” marketers are pursuing today.

The customer metrics pathway looks at how prospects become customers. From awareness to preference to trial to repeat purchase, many companies track progression through a “hierarchy of effects” model to track evolution of broad market potential to specific revenue opportunities. This customer pathway also tends to include robust attitudinal data on customer segments — why they want what they want or buy what they buy — which is often correlated with actual customer transactional data to create a robust segmentation model. The segments are then monitored for “mobility” — the directional progression of prospects/customers from one segment to a presumably more valuable one. In many B2B organizations, this customer pathway can go all the way to developing a customer-specific P&L.

The cash-flow metrics pathway focuses on efficiency of marketing expenditures in achieving short-term returns. Program and campaign ROI models measure the immediate impact or net present value of profits expected to be derived from a given investment initiative. Media-mix models use statistical regression techniques to identify which combinations of media placements, integrated media elements, and even copy executions generate the most profitable response from customers. And all of those inputs feed a focus on optimizing resource allocation in the context of generating near-term results.

The brand metrics pathway seeks to track the development of the longer-term impact of marketing through brand health. Survey-based tracking studies gauge customer and prospective customer perspectives on the brand — its functionality, personality, accessibility, and value propositions. Brand scorecards track the evolution of these perspectives over time within market segments and across multiple constituencies like employees, regulators, and community influencers. And many have taken the successful leap to develop financial models for estimating the financial value of the brand as a means of determining the aggregation of assets on the balance sheet as an outcome of marketing investments.

While most larger marketing departments have managed to build effective measurement systems within one or more of the three pathways, few have been able to synthesize across pathways in a manner that helps one pathway explain another or clarifies the predictive drivers of the business on a broader level.

For most companies, it’s actually not possible to do this scientifically because it’s not an econometric modeling problem solvable by equations and computers. Each pathway measures very different components of marketing effectiveness in very different ways. Some are shorter term and some longer term. Linking them algorithmically forces you to make some very large assumptions that may be unreliable in the face of actual marketplace dynamics. And even if you can solve it algorithmically, you will likely have to employ statistical techniques of such sophistication that no one in either marketing or finance will understand sufficiently to embrace and defend the method.

A marketing dashboard helps present the insights from all three of the pathways in a graphically related view that facilitates the human brain’s incredible power to find subtle contextual links. This is the point where the “art” and “science” of marketing need to blend.

Most CMOs still struggle to close the gap and embrace the scientific measurement practices and the remaining “art” components that seemingly defy measurement in any reasonable fashion yet are highly correlated with success. As with most other aspects of business, the science enables greatness, but the application of imagination and innovation is what delivers it.

It is this very “art” component of marketing that requires the CMO to have the full confidence and trust of his or her CEO and the executive committee. To win this credibility, today’s CMO needs to find ways of measuring risk that are transparent and understandable to all. If you want top management to accept the art you bring to the process, you have to do a better job of quantifying the chances for success. Only in the rarest organizations will marketing chiefs get by with the words “trust me.” These days, leaps of faith come with pretty heavy price tags.

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