Proper use of popular marketing metrics
Bendle, Neil T.; Bagga, Charan K. "The Metrics That Marketers Muddle." MIT Sloan Management Review (2016).
Dr. Bhagyashree Katare, Assistant Professor, Department of Agricultural Economics
Despite their widely acknowledged importance, some popular marketing metrics are regularly misunderstood and misused. The main goals of this article are to understand how these marketing metrics are used and understood and to develop ideas to help marketers unmuddle their metrics. The authors conducted surveys from managers from all functions across the business-to-business and business-to-consumer industries.
What this means for food and agricultural businesses
It is very difficult to quantify the impact of value generated through marketing, especially in the cases of image and brand development, advertisements and promotions. The five common marketing metrics can be used to measure the return on investment (ROI) on dollars spent on marketing. However, these marketing metrics are misunderstood and misapplied. This article tries to clarify the metrics for the managers to put them to appropriate use, and also help the senior management have a systematic understanding of the metrics for better interpretation of the marketing data.
It is important for agribusiness managers to have a good understanding of the marketing metrics so that they are able to evaluate and demonstrate the influence of marketing in creating agribusiness value.
Using the data collected through surveys of marketers and managers, the authors try to evaluate the five popular marketing metrics: market share, net promoter score, the value of a “like,” customer lifetime value and return on investment.
In the article, authors suggest a simple set of rules for the appropriate use of the market share metric. They do not want managers to consider market share as the ultimate objective and want to evaluate it from the competitors’ and consumers’ point of view. If an increase in market share is not going to get positive feedback from competitors and consumers, then an increase in market share will not lead to a productive result.
Net Promoter Score (NPS)
This metric is used to measure customer loyalty to a firm. The authors suggest that the NPS metric cannot change the marketing performance. However, they advise to use this metric as a part of a system employed in evaluating the performance which might lead to a cultural shift within the organization.
The Value of a ‘Like’
This metric is used for measuring the social media capital of the company. It is measured as the difference between the average value of customers endorsing the company and the average value of the customers who are not endorsing the company. This difference does not suggest an effect of online marketing activity or lack thereof. It should be investigated thoroughly by the managers. If the management is using revenue to measure customer value, then this marketing metric does not give a good estimate. However, if the company does want to understand the impact of social media marketing, they should use randomized control experiments to derive causal answers.
Customer Lifetime Value (CLV)
This metric can help managers in decision making related to investment in developing customer relationships, as it is used to measure the value of the current customer base. If the management is using the customer value in their decision-making process, then CLV is a useful tool for them. The authors suggest that CLV calculations should not include the customer acquisition cost, and the estimated CLV should be compared to the estimated acquisition cost to derive conclusions. The bigger the difference between the estimated CLV and the estimated acquisition cost, the better the acquisition campaign.
Return on Investment (ROI)
According to the authors, there is confusion within management over the use of ROI. However, as ROI is understood across disciplines, it is a powerful metric to communicate across the organization. They advise that if the manager is assessing the financial return on an investment, then ROI is an appropriate metric and can be calculated by dividing the incremental profits by the investments.
Agribusiness marketing managers who are passionate about establishing the credibility of the value created through marketing, should be thorough in their use of metrics. Most importantly, they should be able to understand the metric, its use and what it represents.