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There is No Silver Metric for Marketing Measurement

Tim Ambler Honorary Senior Research Fellow London Business School


There is No Silver Metric for Marketing Measurement Tim Ambler Honorary Senior Research Fellow London Business School


Agenda „

How not to measure marketing performance: „ „

„

Why brand equity is the key „

„

Discounted Cash Flow (DCF) Return On Marketing Investment (ROMI)

Measuring brand equity

Summary & Discussion 7


Top Management Perspective „

„

Marketers are slippery people who move the goalposts Never mind soft numbers like attitudes; let’s see the financial return „

„

i.e. “hard” numbers

Keep it simple: what is the bottom line?

8


The Hard Number Myth

„

„

„

Numbers are hard or soft according to how precise, certain and reliable they are Putting a $ sign in front of a number does not make it any harder or softer Enron published hard numbers?


Why Measure Marketing Performance Anyway? „

Most marketers want to be out there making it happen, not just keeping score.

„

Yet we need to learn from what went right and wrong to improve future performance. „

NB Measurement will not improve short term performance.

„

And planning should involve the comparison of alternative quantified outcomes.

„

And you need a “dashboard” to monitor progress toward objectives.


What “Marketing” are we Measuring? „

Identified marketing expenditure? „

„

What the marketing department does? „

„

That’s only a part, maybe a small part

NB Their responsibilities vary from company to company

The whole company’s satisfaction of consumers and thereby sourcing and harvesting of cash flow?


Financially Driven Marketing “Accenture Marketing Sciences is a world leader in marketing analytics consulting. Using sophisticated analytical techniques and advanced software technology, we help Fortune 500 CMOs optimize marketing investments to improve shareholder value. We measure the impact of marketing variables and improve marketing ROI effectiveness and efficiency through a full range of services and software: „ „ „ „ „ „ „

Customer-Centric Analytics Product Portfolio Allocation Market Investment Optimization Marketing Mix Optimization Trade Promotion Management Demand Planning Decision Support Tools”

Accenture Website


The Two Main “Silver Metrics” „

„

A “silver metric” (see silver bullet) is a single number top management can use to track marketing performance Discounted Cash Flow „

Customer Lifetime Value

„

Customer equity

„

Net present value

„

Brand valuation

(DCF)

„

Return on [Marketing] Investment (RO[M]I)

„

Lesser used silver metrics „

Payback

„

Return on Customer (Peppers & Rogers 2005)


What the Silver Metric Merchants Want to do

Marketing performance = Either Silver Metric for period (ROI) Or Short term financial results plus or minus change in marketing asset expressed financially as a silver metric


A Word on Brand Valuation „

It gets top management attention and that’s great.

„

We are looking at big numbers „

„

„

(Next slide)

Even if these numbers are internally consistent, The rankings of the main three valuers (Interbrand, Brand Finance & Millward Brown Optimor) are very inconsistent


Millward Brown Optimor – Top 10 Global Brands Rank 2010

+/2009

Brand Value $M

1

Google

2 3

% up 2009

114,260

14

IBM

86,383

30

Apple

83,153

32

4

-2

Microsoft

76,344

0

5

-2

Coca Cola

67,983

1

6

-1

McDonald’s

66,005

-1

7

+3

Marlboro

57,047

15

8

-1

China Mobile

52,616

-14

9

-1

GE

45,054 -25

10

-1

Vodafone

44,404 -17


Problems with DCF as a Performance Metric „

Lack of independence of forecasters from those whose performance is being judged. „

Subjective bias based on relationships.

„

Lack of confidence in the accuracy of forecasts.

„

Confounding forecasting error with performance variance „

„

Which of the multiple forecasts should be used? „

„

Is exceeding forecast a good result or a bad forecast? A large company, Kraft for example, may forecast the same period many times before the results are in.

Taking credit today for future marketing „

i.e. marketing by a new team not yet hired 17


Problems with RO[M]I as a Performance Metric Ratio developed for capital projects. Marketing expenditure is an expense, not an investment.

1.

„

It belongs to the P&L, not the balance sheet


Problems with RO[M]I as a Performance Metric All other performance measures, e.g. profits, subtract costs from revenue; ROI divides revenue by costs.

2.

„

„

So the ROI on zero expense is infinite OK if costs are constant but then the metric is pointless

19


Problems with RO[M]I as a Performance Metric Sub-optimal performance

3.

„

Maximizing ROI means lower sales and expenditure than is required for maximizing profitability


Problems with RO[M]I as a Performance Metric To measure the incremental R and I, we need the baseline, i.e. what revenue, costs and profits would have been without this marketing.

4.

„

“Counterfactuals”, i.e. what would have been are notoriously difficult to establish but without them, ROI makes no sense.


Problems with RO[M]I as a Performance Metric ROI has become a fashionable term for any performance measurement without regard for what it actually means.

5.

„

„

E.g. AMA 6 “ROI Measures Currently Used” (2005), none of which are actually ROI. Try asking a marketing practitioner to define it.


Problems with RO[M]I as a Performance Metric Short-term measure which ignores the ongoing marketing asset – brand equity

6.

„

„

Brand equity (Aaker 1991) is arguably the most important marketing concept since the 4 Ps. Ignoring brand equity will destroy an industry, e.g. British car manufacturing 1950 – 1970.


What is “Brand Equity”? „

It is the asset created by good marketing. „

similar to reputation but more than that

„

It is not a financial valuation, nor “customer equity”

„

Assets have different values in different contexts

„

A “brand” is what a company sells: it transfers

„

“Brand equity” is retained and grows with every sale

„

“Brand” and “brand equity” include the commodity „

how else can quality matter?


How does Marketing Work? „

Two stages: „

Creating demand, i.e. building brand equity

„

Converting brand equity to sales

„

Brand equity more from usage and satisfaction than promotion

„

Cash is the outcome of marketing, not the driver „

„

It helps but success comes from DMC, & time rather than money

Dynamic Marketing Capabilities: „

Empathy with the consumer

„

Energy in pursuing customer satisfaction


Keller (2010) MOM presentation, Slide 16: Dimensions of Brand Feelings Brand feelings can be divided into two broad categories: ƒ Experiential – immediate, short-lived during purchase/consumption ƒ Enduring – private, possibly part of day-to-day life Brands should have one, or ideally both, types of feelings

Increasing level of intensity

Experiential Feelings

Enduring Feelings

• Warm

• Sense of Security (Inner-directed)

• Fun

• Social Approval (Outer-directed)

• Exciting

• Self-Respect (Actualization) Self-Respect Sense of Security Social Approval Inner-Directed

Outer-Directed

Higher level of values & needs


Measuring Brand Equity „

It is a multidimensional asset „

„

One of them could well be its value „

„

So it needs more than one metric to describe it

If there is a reliable methodology for that

Indicators of future consumer behavior? „

E.g. Perceived relative quality, Brand feelings?

27


Measuring Brand Equity 2 „

„

„

Is the metric’s variance steady? „

Too volatile and it will mislead

„

Too stable (e.g. total awareness) and it will not indicate change

Do the top execs all understand the metric the same way? Did past movements predict current performance?

28


What Any Organization Should Do

Marketing performance = NEVER Silver Metric for period (ROI) BUT Short term financial results plus or minus changes in marketing asset expressed financially and non-financially as a dashboard


Agenda „

How not to measure marketing performance: „ „

„

Why brand equity is the key „

„

Discounted Cash Flow (DCF) Return On Marketing Investment (ROMI)

Measuring brand equity

Summary & Discussion 30


Marketing Accountability „

„

Most great businesses got there without formal measurement of marketing performance. They were far more concerned with feelings – the consumers’ and their own. „ „ „

„

They were empathetic first, Energetic second, And keeping score was a long way down the list.

No problem with that, but owners do not have to be accountable. 31


Marketing Accountability: The Moral „

Do it right or don’t do it at all. „

„

„

„

Doing it wrong wastes resources and misleads.

Understanding the measurement model focuses attention on the company’s most valuable asset: brand equity. UK research showed, on average, the top exec groups used 90% of their time spending their company’s money or counting it. And only 10% wondering where it came from or how to grow it.

32


Thanks!


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How Measure Marketing ROI