the first 10 metrics - part i

HTTP://EMAGINE-GROUP.COM BRAND FOCUSED, SOCIALLY ACTIVE, DIGITALLY ENABLED

The First 10 Metrics – Part IWhere Intelligent Marketing Begins


A Story Before We Start


When I first started teaching marketing measurement to executives, I was told quite rudely that I “didn’t understand.”


“Marketing is creative and you can’t measure creativity,” I was told.


So I asked a question of the executives –


“How many of you outsource the creative component of your

marketing?”


72% of the executives outsourced the creative


What does that tell us?


Marketing organizations are not in the creative content business, but instead manage the process of marketing.


Now, I know that most organizations and marketers struggle to measure their marketing activities given the hundreds of possible metrics.


I have consulted for Fortune 100 companies that have scorecards with more than 50 metrics, which took a great deal of time to put together and provided no value to the organization.


Why?


There is too much data and these data do not provide managers with information they need to make decisions.


You need a simple approach to think through which metrics are important for a specific marketing activity


Linking Marketing Activities to Metrics


In the 1960s, the standard marketing behavioral impact model was published. It was called the purchasing funnel.


The idea was that different marketing activities take the customer through the stages of awareness, evaluation, trial and loyalty


In other words, marketing activities are designed to “funnel” customers from awareness to ultimately becoming loyal customers.


Awareness Marketing Awareness marketing comes in

many forms – TV advertising, billboards, sports sponsorship, naming rights to stadiums

Awareness & branding are intimately related

A brand is a consumer perception of a particular product or service and may encompass the whole company

The perception is driven by marketing, experience with the product & recommendations from friends and colleagues


Awareness Marketing But in the purchasing cycle,

awareness is furthest from the customer purchase

There is also a significant time delay between awareness marketing & actual sales

Financial metrics are not useful in measuring awareness & brand marketing


Awareness Marketing We use brand awareness

surveys to track customer awareness across geographies and over time

Typical metrics measure the effectiveness of awareness marketing like number of attendees at events, eyeballs on a a website & media impressions


Tiger Wood’s win in the 2005 Masters received $10.4 million of TV exposure for Nike


Jeff Gordon received $9.9 million of exposure for DuPont brand when he won the 2005 Daytona 500


The problem is these metrics do not connect to purchase intent and do not capture the effectiveness of the marketing.


Brand Awareness MetricAbility to Recall a Product or Service


Top of Mind Recall means that in the purchasing cycle, your product/service will be one of the first the consumer thinks about to consider purchasing


How is it measured?

By asking


For (product/service), what is the first name you think of?

For (product/service), what other names have you heard of?


These questions uncover the unaided reception of your product/service and the relative ranking of brands relative to it


These questions are the starting point and should be refined for the specific campaigns with follow-on questions to uncover brand and messaging impact and intent to act (purchasing intent).


Let’s look at bottled water


Pure water is an odorless, tasteless liquid made from molecules of 2 hydrogen atoms and 1 oxygen atom (H2O) and approximately 70% of the Earth is cover in water


The point – as far as products go, water is pretty much on the low end of complexity and fairly abundant


But then there are bottled water brands… how many can you name?


Why spend Rs. 20 a bottle for the brand and not drink the generic store brand when the products are identical?


“It’s really different – my water comes from a mountain spring high in the Alps.”


Do you really think there is a guy hand dipping millions of bottles a month into a stream to fill those bottles?


Bottled water emphasizes the power of brand – the product embodies a feeling, an experience, and perception of repeatable quality that the customer is willing to pay a premium for.


Brand equity, the value of a brand, is difficult to express in a financial value.


One way is to take all the assets of the company and subtract it from the market valuation of the company based on stock price – the remaining value is the “brand.”


But this isn’t correct because there are so many unknowns that end up multiplying together that the derived “brand equity” is almost a random number


The better approach is to use surveys to ask how much a person will be willing to pay for the branded vs. non-branded product


The percentage difference multiplied by product sales is the approximate value of the brand.


A Simple Example Branded Product = 1000 Non-Branded = 500 Product Sales = 400,000

Find the Percentage Difference

(1000/500) = 200%

Multiply by Product Sales200% x 400,000 = 800,000

Brand Value = 800,000


Another way is with the internet and SMS messaging


Placing a URL or SMS number on a billboard can quantify the impact of the marketing telling you how many people acted as a result of the awareness advertising.


Evaluation Marketing Evaluation marketing is

designed to drive customer purchase intent by enabling customer to compare different products or services

Examples are – product white papers, print ads with breakdowns of the benefits and features, product brochures and websites with product descriptions


Evaluation Marketing Evaluation marketing

demonstrates the value proposition of the product/service, the benefits and cost trade-offs

The challenge is the time delay between the evaluation and purchase that could be weeks, months or longer depending on the product

Another challenge is linking the evaluative marketing with an actual purchase


Evaluation Marketing Standard metrics for

evaluative marketing include product information downloads for a website or impressions of marketing print ads

However, these metrics do not measure the impact of evaluative marketing well

So how do we quantify the effectiveness?

We find metrics that point to future sales


Dell competes based on price because it has a low-cost direct channel to the customer and outstanding supply-chain management that drives low-cost manufacturing.


In Dell advertising, the price of the product is prominently featured in Dell’s evaluative marketing with a list of the facts.


This is a great method if the customer criteria is solely price – it lets them quickly evaluate product features and weigh the price against performance trade-offs.


Apple takes a different approach in its evaluative marketing, emphasizing the cool designs and product innovations


Apple iPhone ads highlight the innovative benefits of the technology, such as the App Store


When we look at Apple laptops, Apple charges a price premium over Dell and de-emphasizes price in the evaluative marketing – you don’t see the price on the Apple website until you configure your computer


So how do we define a metric with these things in mind?


Anyone who has purchased a car has probably gone to a dealer and picked up brochures for the new cars that fit their purchasing criteria & then done side-by-side comparison of these glossy documents


These brochures are examples of evaluative marketing in the auto business, but what is the value of the glossy brochure?


That is hard to quantify, but we can define a metric that is a measure of future purchasing intent that embodies the collective impact of the evaluative marketing activities – the test drive.


Metric 2 – The Test Drive Customer Pretest of a Product/Service Prior to Purchase


It turns out that someone who test-drives a car is very likely to purchase the car. The purchase probability is not 100% because of a test drive, instead there is a probability of purchase.


By measuring the number of test drives and the number of customers who subsequently purchase, we calculate the average probability of purchase.


Number of purchases/number of test drives

= average probability of purchase


Test drives are a leading metric that point to future sales. So evaluative marketing should be designed to increase the number of test drives by increasing the amount of foot traffic.


So we design experiments and measure traffic and test drives resulting from specific marketing activities.


Intel Chip Sales


Intel has a greater than 80% market share in processors for Windows-based PCs and servers. This almost monopoly power drives Intel’s sales model.


It has a very large direct sales force that engages OEM partners with the goal of selling additional Intel chips on the motherboard.


Intel’s sale cycle takes roughly 18 months, from initial discussions to the manufacture of OEM boards with new Intel processors. This poses a problem for because of the long sales cycle.


How does Intel do their test drive?


Within a few months of the initial discussions with Intel, the OEM must create a team to study the feasibility of incorporating the Intel product into the motherboard.


This is the “design win” for Intel and the test drive that points to future revenues.


Why?


When the OEM puts together a team to investigate manufacturing feasibility, it requires people and money, which is not possible without an implied commitment to purchase.


By collecting data from its operational CRM, Intel can measure the conversion rate from design wins to sales to predict the probability of future sales revenues.


So, for Intel, the focus is on improving evaluative marketing material to drive more design wins


What do we learn?


The test drive is an essential metric at the evaluation marketing stage of the purchasing cycle


You should first decide what the “test drive” for your product is, then design the evaluative marketing campaigns to incentivize the test drive.


Metric 3 - ChurnThe Percentage of Existing Customers Who Stop Purchasing Your Product


Churn is the essential loyalty metric because it measures the percentage of existing customers who stop purchasing your products/services each year


Customer churn is an interesting metric and impacts some industries more than others.


For example, the U.S. cell phone industry, for example, has a churn rate on average of 22% per year.


That means in 4 years, a firm could potentially lose all of its customers.


In South Africa, the churn rate is 50%.


When we talk about loyalty marketing, there is again a significant time delay between the marketing activity and the repurchase, especially if the product is a high-end appliance.


This is part of the reason why churn is such an important metric – reducing the average annual churn rate over the product life cycle can be directly translated to improving annual sales.


Where do we start?


Firms that do not know who their customers are often don’t know what their churn rate is.


My friend Bob &

his Lexus


Bob lives in an old house in the Chicago area with a garage door that is somewhat small. One day, he scrapped the side door of his Lexus while pulling into the garage.


Now, we all know how much it costs to get a small dent fixed and for a Lexus that price can easily be tripled, so Bob went to the Lexus dealership expecting the worst…


When he got the dealership, the dealer took the keys to his Lexus and gave him a free loaner car and told Bob to return at the end of the day.


When Bob got back, he asked

“How much do I owe for the repairs?”


“There is no charge sir. Touch ups are free.”


How much does that improve customer loyalty?


In the auto industry, Lexus has incredibly loyal customer – approximately 70% of Lexus owners repurchase a Lexus as their next car.


So how do we calculate Lexus’ churn rate?


Lexus Churn Rate If we assume that a car is

purchased every 5 years, that means Lexus has a churn rate of 30% over 5 years

Since churn is calculated on an annual basis, in one year Lexus loses 6% of its customers

6% x 5 years = 30%


How does Lexus keep their churn rate so low?


Loyalty marketing initiatives for Lexus include – a free loaner car, free car washes, free breakfast on Saturday morning at certain dealerships, a free subscription to the Lexus lifestyle magazine and of course, free touch-ups.


Free touch-ups are important to Lexus because so many Lexus owners trade in their old Lexus for a new one.


This low-cost service prevents rust and increases the resale value of the “pre-owned” Lexus after trade-in.


This is the best type of loyalty marketing because it is low-cost to the company, high perceived value to the customer and creates opportunity for the sale of additional high-margin products/services, building loyalty & increasing retention.


Loyalty marketing reduces churn!


Calculating Churn Customer Base– 100,000

Annual Revenue/Customer– 1,000

Annual Churn Rate– 30%

Revenue without Churn– 100,000,000

Customers Lost to Churn– 30,000

Revenue Lost to Churn– 30,000,000

Revenue After Churn– 70,000,000


Most business-to-consumer (B2C) companies have direct access to customer data.


For these companies, a loyalty card and/or branded credit card is often the key to measuring and tracking churn, and frequent flyer point rewards or card-only discounts incentivize continuous purchases.


Churn measurement may seem challenging, though, especially for B2B companies, if you do not know who your customers are.


How do we get started?


First, measure your customer churn rate either by tracking repeat purchases or through surveys.


More likely than not, the churn is higher than you think.


Implement loyalty marketing campaigns to the highest value customers and run experiments on a small sample to measure the effectiveness of the campaigns

the first 10 metrics - part i

Business