PERFORMANCE MEASUREMENT

Measuring Performance :
The Marketing Perspective

Bruce Clark
Business Performance Measurement
(2004)
 Measuring Performance :
The Marketing Perspective

 Importance of assessing marketing performance

 increasingly important task for managers
and other corporate stakeholders.
 multi-disciplinary perspective on
performance measurement (balanced
scorecard) are increasingly the attention
given to non-financial measures of
performance in general.
 investors and analysts are increasingly
asking for information on the marketing
performance of the firm.
 Assessing
Assessing Marketing
Marketing Performance
Performance

• Unfortunately,
 assessing marketing performance is
also very difficult to do.
• Marketing performance depends on external
 uncontrollable actors, such as
customers and competitors.
History of Measuring Marketing Performance

 Long history of measuring the performance of

marketing, begin with :
“the marketing productivity paradigm”.
 conceptions of marketing outputs and inputs.
 The expansion to the development of 4 important
recent measures of the health of an
organization’s marketing
 market orientation, customer satisfaction,
customer loyalty and brand equity.
 Marketing Productivity : Industry-level

 Marketing  at this point in time was defined as

distribution (1939 – 20th century).
 Most of the cost of finished goods came from

distributive activities, but that distributors

themselves remained less profitable than
manufacturing firms.
 The most common output variables used were (in

order of frequency) services provided, dollar

sales, unit shipped, and value added.
 The most common inputs : man hours, capital and

number of person employed.

 Marketing Productivity : Firm-level

 Marketing work:
 moved the productivity paradigm to the firm
level
 effectively allocate their marketing resources
(advertising, sales force, promotion,
product development) to maximize
financial return
 attempted to integrate finance and
accounting perspective (especially cost
accounting) into evaluating the marketing
function.
 Marketing Productivity : Firm-level
 Goodman (1970, 1972)
 examining profitability and the ROI of
marketing activities.
 Buzzell and Chussil (1985); Day and Fahey (1988)
 advocate the use of discounted cash flows as
a way of calculating the NPV of
marketing strategies (continues to be
discussed to this day).
 Bonona and Clark (1988)
 output: in order, profit, sales, market share
and cash flow; inputs: marketing expense,
investment, number of employees.
 Measures of output
 From the late 1970s – the late 1980s
 a move to expand the consideration of output
measures  to non-monetary measures.
 BCG and PIMS project concluded

(1)  market share was a strong predictor of cash

flow and profitability.
 ms. for a product with price premium is
qualitatively different performance than
the same level of ms sold at a discount.
 the market share-profitability relationship
has proven both complicated and controversial.
 Measures of output
(2) The benefit to a customer of using a product,
 attempts to account for the services that add
to simple form utility, logistical services (e.g.
delivery), informational services (e.g. product
information), product functional services (e.g.
warranties, packaging).
(3) The adaptability or innovativeness of a firm’s
marketing.
 Organizations may measure the % of sales
accounted for by new products, or the
number of successful new product
launches in a given period.
 Refocusing on good Marketing Inputs:
Activities and Assets

• Increasing frustration of managers with traditional

financial and accounting output measures
 under estimate the long-term value of what
marketing does for the firm.
 interest in better specifying “good” marketing
inputs.
 research in this area has focused on 2 types of
marketing inputs : (appropriate) marketing
activities and (valuable) marketing assets
 both should lead to improved financial
performance in the long-run.
 Refocusing ……. (cont.)

► The earliest performance assessment tools to refocus

inputs
 “marketing audit”  systematically evaluate
the activities and assets a firm uses in
marketing, given the firm’s
situation.
 a six-part framework for auditing (Kotler,
Gregor, and Rogers, 1977)  evaluation
of the environment, to understand the
situation the firm is in, then examination
of strategy, organization, system, and
productivity of marketing
 Refocusing ……. (cont.)

 Bonoma (1985, 1986); Bonoma and Crittenden

(1988)
 focuses on the firm’s marketing skills, and
marketing structures (e.g. systems and
procedural support),
 argues that good marketing is the product of
the interaction between the two.
 Recent and continuing attention paid to the notion of

developing good marketing assets (Piercy, 1986;

Srivastava, Shervani, and Fahey, 1998).
 Refocusing …… (cont.)
 Piercy (1986):
 an asset: “value-producing resource” for the
firm,
 marketing assets are generally outside the
scope of financial evaluation except as
“goodwill”.
 Srivastava, Shervani and Fahey (1998):
 assets can be divided into relational
(covering relationships with current
external stakeholders) and intellectual
(knowledge the firm has about is
environment) assets.
 Refocusing ……… (cont.)

 The most valuable assets  take time to develop

 represent a significant advantage in the
marketplace.
 An asset-based perspective on marketing
 the good marketing develops good marketing
assets,
 which in turn can be leveraged to generate
superior business performance over the
long term.
 Recent Innovations in Performance
Measurement

 In the past decade  4 concepts

 representing good marketing inputs,
 more on developing long-term relationships
with profitable customers,
 The following concepts :
* Market Orientation,
* Customer Satisfaction,
* Customer Loyalty,
* Brand Equity.
 Performance Measurement in Marketing:
Market Orientation
 Described as : marketing oriented and market driven,
 Suggested that good marketing involves activities that

develop and use intelligence about the market.

 The market knowledge developed should be an

important asset to future marketing efforts.

 Common components of being market oriented :

systematic gathering, analysis, dissemination, use

of market information within the organization.
 Maintaining a balanced perspective between

customers and competitors.

 Performance Measurement in Marketing:
Market Orientation
 Many of the market-oriented activities suggested by
the measures of orientation used:

“We have interdepartmental meetings at least

once a quarter to discuss market trends and
developments”

“Pay attention to the market!”

 Customer Satisfaction
 The basic notion behind CS
 customers have expectation about the products
and services they buy, and are more or less
satisfied depending on how well the
consumption experience meets or exceeds
those expectations.
 Having a satisfied customer base is considered an
important marketing asset  because it lead to
increased loyalty  with its consequent revenue
implications and lower marketing costs.
 Measurement of CS  accomplished by surveys the
customer base.
 Customer Satisfaction
 2 problems :
* Managerially  a high satisfaction rating may
have little consequence if customers are
equally satisfied with competing products.
* Academically  the highly skewed distribution
reduces the likelihood that a significant
correlation between satisfaction and other
performance variables will be observed.
 low variance in the satisfaction measure
makes it unlikely that any clear
relationship with other variables will
be revealed.
 Customer Satisfaction

• Difficult to implement :
* more subject to manipulation (dissatisfied
customers do not receive the survey),
* disconfirmation-of-expectation has produced
mix results, leading to multiple competing
satisfaction frameworks  whether one
must measure multiple aspects of
satisfaction with a product, either in
terms of multiple processes or individual product
attributes.
 Customer Loyalty

• It is not whether customers are satisfied that affect

cash flow
 it is whether they stay a customer of the
firm over time.
• Good marketing attracts the right customers
 whose loyalty the firm is able to earn and
keep.
• A loyal customer base  should be an important
marketing asset.
 Customer Loyalty

 A loyal should be an important marketing asset,

the reasons : loyal customers:
* are easier to retain  marketing costs for them
should be lower,
* should be less likely to search out information
on competing products, and more resistant
to persuasion efforts by competitors.
* are willing to pay a price premium
* may reduce the acquisition cost for new
customers through WOM
 Customer Loyalty
• Financially based measure  to calculate the
“lifetime value” of the customers in this base.
 measuring (estimating) in each time period :
* the revenue generated from a customer,
* the costs of serving/retaining that customer,
* the length of the customer’s relationship with
the firm.
 construct cash flows for each customer over
time, subtracting the initial cost of
acquiring the customer
 discount these cash flow  produce a
NPV for each customer.
 Customer Loyalty
 Good marketing should :
* produce customer bases with high lifetime
value
* measurement of this kind is clearly useful, but
difficult to do, especially for small firms or
large firms in new business  have little
customer history.

 Loyalty research has been better at describing :

what to do  have a loyal customer base
(than how to obtain such a base).
 Brand Equity
 A powerful brand  the most important marketing
assets a firm can manage.
 Strong brands :
1) allow firms to charge price premiums
2) can be used to extend the company’s business
into other product categories,
3) reduce perceived risk to customers (and,
perhaps, investors).
 Good marketing  produce brands with high equity.
 Hard to use as a short-term performance measure for
managers.
 Brand Equity
 Measuring this strength  2 difficult approaches:
* Behavioral approach
 customer response to the brand
(perception or purchase),
 behaviorally based brand equity is:
“the differential effect of brand knowledge
on customer response to marketing of the
brand” (Keller, 1993).
* Financial approach  to define the financial
value of the brand to firms and their
investors  incremental cash flow.
 Brand Equity

• The relationship between behavioral and financial

approaches to brand equity are at present
not well-integrated.

• Brand equity appears a powerful measure of

performance  but hard to use as
a short-term performance measure for
managers.
 Current Challenges
 Issues that are likely to be important in measuring
marketing performance in the future.
 Activities not only create assets and outcomes, but
are created by them  as feedback loops.
 The point of creating assets is to then exploit it.

 Psychologically, previous success or failure can

have profound consequences for further
managerial behavior.
 Measures of marketing performance have generally
been developed by researcher or consultants,
then “applied” to the management community
 Translating multiple measures into practice

 Measures of marketing performance have become

increasingly multi-dimensional
 reflects: theoretical and psychometric
perspective,
 performance cannot be summarized in a
single measure,
 The challenge is to present management and
researchers with a handful of measures
 simple enough to be usable, but
comprehensive enough to give an accurate
performance assessment.
 Unit of Analysis
• To be important to measure performance at different
level of the firm’s organization  a market-
driven activities become the responsibility of units
throughout the organization.
• 2 units of analysis:
* marketing performance at the level of
marketing programs  a combination of
marketing activities and assets targeted at a
particular product market.
* Evaluate overall corporate marketing.
• The combination of these 2  more effective
resource allocation.
 Subjective versus Objective Measures

 The debate : subjective – objective measures of

performance  remains unresolved;
 Asking managers their perceptions of performance

 a better predictor of their future behavior

than is a given objective measure.
 This subjective perceptions  retrospective bias.

 The best advice in this area

 to measure both types and try to understand

the correlation between the two.
 Reporting Issues
• If marketing activities and assets do have long-term
financial consequences  it seem logical that
investors would want to have information on
these marketing dimension as part of regular
reporting by the corporation.
• Increasing demands by the investment community
for non-financial information, such as
marketing activities and success.
• The critical question  what will be reported
regarding marketing to whom, and how
compliance will be monitored.
 What to do while managers were waiting
 Research must take into account how well
marketing produce the desired outputs of
the firm (Sheth and Sisodia, 1995).
 Research to resolve these issues will take many

years  while managers must decide

what to do tomorrow.
 While waiting for researchers to come up with
results, managers do:
1) Begin systematically collecting data, beyond
on financial measures, measuring CS,
relative to that of competitors.
 What to do while managers were waiting
“If you believe your brand is an important asset for
your company, begin measuring brand
awareness and attitude toward the brand as
psychological measures of brand equity”.
“Purchase intention measures can give a (probably
optimistic) sense of likely customer loyalty in the
future”.
2) Track these data to develop leading indicators.
3) Develop measures by market segment
 knowing CS varies across different market
segments, provide powerful management
insight