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Marketing Metrics

Marketing Metrics
Tim Ambler

A fundamental problem for measuring


marketing performance is defining and
identifying both the best metrics and best
practice. This article, based on a threeyear research project among major
companies, summarises both what firms
do and what the research implied they
should do. It proposes a common use of
language as a prerequisite to defining
metrics and introducing performance
measurement systems. Boards should
establish and regularly review both
external and internal market metrics,
including innovation health. The author
explains why he thinks market research
responsibility, and reporting marketing
performance to the board, should be
turned over to the finance director or chief
knowledge officer.
How does your board assess marketing performance?

Does it actively probe end-user behaviour


(retention, acquisition, usage and so on) and why
consumers behave that way (awareness,
satisfaction, perceived quality and so on)?
Are the results of end-user research routinely

reported to the board, annually or semi-annually,


in a format integrated with financial marketing
metrics?

In the reports, are these results compared with the


levels previously forecasted in the business plans?

Are they also compared with the levels achieved


by your key competitor using the same indicators?

Is short-term performance adjusted according to


the change in your market-based asset(s) (brand
equity)?

If the answer to any of those questions is no, your


measurement system is not best practice and your
business is unlikely to be market-oriented.
The point is simple: if you want to know what your
future cash flow will look like, investigate where it
comes from: the market. What concerns a farmer
whose livelihood depends on a river flowing through
his land is the upstream situation, especially if the river
could be diverted to a neighbours property. Whether
companies that look to the sources of cash flow those
that think about the market are more profitable than
others is still disputed. However, our research (Ambler
2000), along with many other studies, comes down
firmly in favour of a link (we found a 0.25 correlation
between customer orientation and performance).
Understanding where corporate wealth comes from
involves questions like why consumers buy now, why
they might buy more [often] and which other kinds of
people might buy these products for other reasons?
This precept is equally true for every type of for-profit
Summer 2000

Tim Ambler

and not-for-profit business. Empathising with the final


users of the companys products stimulates the wellspring of cash flow. Industrial or business-to-business
sectors need to begin by identifying the end users.Train
drivers have quite different interests from those who
buy the trains.
This call to identify with the customer may seem
nothing new but the great majority of businesses do
not follow the logic through. Our research suggests
that, on average, boards give only about 10% of their
time to customers of all kinds; mostly, they concentrate
on how the firms money is spent, not on how it is
generated. If recognised at all, marketing for that is
what it is is delegated to middle managers. The
companys marketing performance is rarely assessed
at board level. For instance, in the monthly accounts,
it is common for just one line to be given to the sales
revenue from immediate customers. The source of the
cash flow the end users does not even get a mention.
Why the Board Should Spend More Time on
Marketing
Companies cannot survive without marketing, though
they may call it something different or not even notice
that they are doing it. Securing customer preference
opens up the main cash flow for every business. There
are four reasons why all boards should give priority
to marketing.

Marketing is how the firm secures its key


objectives, ie how it sources the cash flow. On the
widely accepted assumption that a firm is more
likely to achieve what it measures, any board
should review those indicators it considers to be
the most significant milestones along its intended
path.
Marketing assessment discourages short-termism.
Lord Sheppard, then Chairman of GrandMet
(owner of leading food and beverage brands such
as Burger King, Pillsbury and Smirnoff), used to
dismiss the need for balancing short- and long-term
priorities on the grounds that the long term is
merely the sum of all the short terms: optimising
the short term, in his view, took care of the long.
That is true only if brand equity, the brands health
in its internal and external markets, is adjusted for.
If brand equity has strengthened, its value has
increased and the short-term profits are enhanced.
But if it has weakened, the reported short-term
profits are misleadingly high. Marketing metrics

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provide the diagnosis.

Marketers should be accountable. Few firms today


pay their advertising or promotions agencies by
results. Why not? In future this will become
common practice.

As noted above, market-oriented, customerfocused companies are more profitable in the long
term than those primarily concerned with
production, the bottom line or other stakeholders.
And market-oriented companies can be identified
by the attention they give to marketing metrics
(Ambler 2000).

What Should the Board Do?


Prescription is treacherous, both because every
companys situation is different and because the
exploration of what matters to the firm, and how that
should be measured, is itself important.
Consider the simple situation of a business trading
under a single brand name in a single marketplace/
country (for more complex structures, see Ambler
2000). Board members may find it useful to regularly
establish and review the following three sets of
information:

The external market metrics. Performance can be


expressed as short-term (profit and loss account)
financial measures adjusted by the change in
brand equity. Unfortunately, brand equity needs
many non-financial measures, so the adjustment
is conceptual, not in cash. It is this non-financial
adjustment which distinguishes best practice
metrics companies, like Unilever or Diageo, from
the rest.

The internal market metrics: These assess


innovation health and employee alignment and
commitment.

The process: How the metrics of both types are


collected, assembled and reviewed.

The adjustment for changes in the marketing asset


from the beginning to the end of the period, usually
the financial year, is no different from the treatment
of any other assets the inventory, for example. Unless
we do this we cannot know if the short term is just
living off the accumulated but unrealised assets of the
past, or building assets for the future. Is the cash flow
in the metaphorical upstream reservoir increasing or
reducing?

Marketing Metrics

External market metrics


One approach, adopted by for example the brewing
and leisure firm Bass (owner of Holiday Inn), is to
adapt Kaplan and Nortons Balanced Scorecard
Language
One symptom of lack of top level interest in
marketing is confusion over language. There is no
consensus on language for market-based assets
despite their being most companies most valuable
assets. Unlike accountants, marketers are divided by
their understanding of even common words such as
marketing or brand. Some recommendations for
shared language are set out below.
Marketing means one of three things:

Pan-company marketing is what the whole


company does to secure customer preference and
thereby achieve higher returns for the
shareholder. Every company in the world engages
in marketing in this primary sense, even if it
doesnt realise it is doing it. Pan-company
marketing is therefore not an option but a
necessity. The difference is between those which
consciously espouse this customer-oriented
philosophy and those which market by
happenstance.
Functional marketing is what marketing
professionals do, and this varies from company
to company. Some have charge of product
specification, pricing, sales and trade marketing
functions whereas others are seen as staffers,
outside the main direction of the business.
In a budgetary context, marketing means visible
marketing expenditure, usually advertising and
promotion. When people talk of the return on
marketing, this is the marketing they generally
mean. But the incremental gain on advertising
and promotional expenditures should be
evaluated in the context of the wider meanings
of marketing.

Brand, once used only for consumer goods, now


applies to every sector. For example, Compass, the
UK business-to-business catering firm, is a brand and
so is the Church of Jesus Christ of Latter Day Saints.
While the word began as simply an identifying
symbol, today it includes the whole bundle of
benefits for the end user. It is what the firm sells:

(1992). Another approach was that taken by Andersen


Consulting, where marketing was recognised late as
an internal discipline. Andersen Consultings eight
components of brand equity were taken from the

Brand = Product + Packaging + Added Values


In the case of industrial, service or retail marketing,
the packaging is not, of course, a physical wrapping,
but the way the product is presented: a retail shop
front, for example. The added values are the ways
that the consumer thinks and feels about the product:
for example as cheap and cheerful, innovative, or
only for kids. They may be psychological or
perceived quality and economic benefits over and
above those provided by the product itself (Blaug
1991).
Brand equity is the intangible asset in customers
minds built by good marketing, whatever the sector.
Brand valuation is not the same; it is what the asset
is worth. Back in the 1980s, no firms were formally
measuring brand equity. By 2010, no professionallymanaged business will fail to do so. (This means
measuring customer-related dimensions of brand
equity, not necessarily trying to put a financial value
on it, which is likely to remain controversial.)
A metric is a performance measure that top
management should review. It is a measure that
matters to the whole business. The term comes from
music and implies regularity: the reviews should
typically take place yearly or half-yearly. A metric is
not just another word for measure while all metrics
are measures, not all measures are metrics. Metrics
should be necessary, precise, consistent and sufficient
(ie comprehensive) for review purposes. Metrics may
be financial (usually from the profit and loss
account), from the marketplace, or from nonfinancial internal sources (innovation and employee).
Diagnostics are lower-level measures that explain
variances, eg sales by channel.
Derivatives are trends, eg sales this year as a percent
of last years. Most boards will wish to look at trends
rather than snapshot metrics and will to know about
how the trends are changing (double derivatives):
eg, whether the rate of sales increase is slowing down.

Summer 2000

Tim Ambler

academic and professional literature. They were:


inclusion in the consideration set, awareness,
preference, consultant attributes, personality traits,
perceived capability, corporate image, satisfaction.
For most companies we suggest that the best place to
begin is with a model similar to that in figure 1 which
represents a synthesis of the types of external market
metrics we have found in our research. Once the sketch
is in place the question becomes: How do these boxes
rank in terms of their contribution to cash flow?
Starting from the position that the total number of
metrics must be manageable, it makes sense to allocate
metrics pro rata to what matters most. We found that
metrics evolve through a number of stages and best
practice therefore involves following those stages from
unaware to scientific. Evolution can certainly be
accelerated. But the leading companies who
participated in the Metrics research project, such as
Shell, McDonalds, and Cadbury, showed similar
patterns of development.
What we suggest below is a top-down approach. Our
proposed framework can then be compared with the
firms existing or proposed metrics, of which figure 1
is a typical example. The synthesis of best practice
would allow firms to short-cut to a balanced set of
metrics (although that would bypass much of the
learning available).

The financial results are driven by sales turnover (trade


customer) less (marketing) costs. The other key metrics
summarized in figure 1 are non-financial: consumer
intermediate (what is in the consumers head), and
consumer behaviour (which is always driven by the
brain, however unconsciously). Both of these
categories of metric can be compared with competitor
performance. Marketing activities interact both with
direct customers (via employees), and consumers/endusers, via advertising and promotion.
Our research showed that metrics fell into categories
that are determined by the nature of the business. For
example, at Cadbury, the confectionery company, key
measures include performance against strategic
milestones, market share, advertising spend, brand and
advertising awareness, penetration and average weight
of purchase, and percent of total volume accounted
for by new products. At retail bank LloydsTSB, key
metrics are the numbers of new customers gained and
retained.
Retail chains, such as McDonalds, substitute the retail
branch for the trade customer and monitor both
consumers and branches (eg using mystery shoppers
market researchers who visit as surrogate shoppers,
or diners, and report back on their experiences). For
McDonalds, brand equity has become increasingly
important since it introduced the concept in the early
1990s.

Figure 1

A typical business map

Marketing
activities

Trade customer/Retail
branch

Consumer intermediate
Financial results

Consumer behaviour

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Competitive
market

Marketing Metrics
Table 1

Most commonly used external market metrics


Large UK comapnies 1999

Metric

% of firms
giving very
important
rating

Loyalty/retention
Relative perceived quality
Consumer satisfaction
Number of complaints (level of dissatisfaction)
Total number of customers
Relative price (market share value/volume)
Market share (volume or value)
Perceived quality/esteem
Awareness
Distribution/availability

% where
reaches board

67
62
47
45
40
38
37
36
28
18

% where
measured at all

51
53
36
30
37
35
34
32
28
12

64
63
68
69
66
70
78
64
78
66

Source: Ambler 2000

The first and second columns of this table show the


percent of companies in our survey which rated each
metric as very important for marketing assessment and
where each metric reaches the top board. These move
reasonably in step, as they should but note the low
ratings for usefulness given to awareness and
distribution.
These metrics are calculated differently in different
sectors. For example, loyalty may be the share of
category requirements in packaged goods markets (eg
the amount of Persil a user buys as a percent of total
laundry detergent purchases over a year), or the churn
rate (percent of customers lost over a given time
period) in communications businesses such as mobile
telephony.
So far we have focused on customers at various levels
through to the ultimate users. For many metrics the
question is not how satisfied the customer is, but how
this compares with how satisfied the competitors
customers are. They may even be the same people. An
80% satisfaction level is great if the rate for the
competition is 70%, but not so good if theirs is 90%.
Therefore, no board should ignore the firms relative
customer satisfaction, nor the relative prices of its main
products, nor its consumers perceptions relative to
the way its competitors are seen. About two-thirds of
firms seem not to review these data at board level.
Returning to the short-cut to best practice metrics,
three considerations provide a fair approximation:

The three conventional profit and loss account

metrics (sales value/volume, marketing investment


and bottom line, eg profit) should be compared
with both competition and plan. So far, nothing
new.

For each customer segment, five metrics will give


an approximation of brand equity (see table 2).
Some composite of these measures will indicate
when brand equity is strengthening or weakening
and that should adjust any reading of the profit
and loss account.

Table 2

General Brand Equity Metrics


Consumer Metric

Measured by

Relative satisfaction

Consumer preference or
satisfaction relative to averagem
for market/competitor(s). The
competitive benchmark should
be stated.

Commitment

Index of switchability (or some


similar measure of retention,
loyalty, purchase intent, or
bonding)

Relative perceived
quality

Perceived quality satisfaction


relative to average for market/
competitor(s). The competitive
benchmark should be stated.

Relative price

Market share (value)/market


share (volume)

Availability

Distribution eg value-weighted
percent of retail outlets carrying
the brand

Summer 2000

Tim Ambler

Finally, what is distinctive about your firms


strategy should be measured as you move along.
The case for having metrics tailored to the
companys unique situation is set out below.

A general, universal approach is beguiling but some


tailored metrics are needed too. Marketing metrics
are marker posts along the companys chosen strategic
route. To suggest that all companies should have the
same, and only the same, metrics is to suggest that all
companies should have the same marketing strategy.
Since differentiation lies at the heart of marketing,
such an outcome would guarantee failure for them
all. Metrics should be tailored to the companys
strategy, although some metrics, eg market share,
should certainly be general and thus comparable.
Metrics help the firm achieve its specific goals. This
puts pressure on the board to explain what success
will look like. Firms need multiple measures and these
measures need to be relevant to the companys
situation. Few men need pregnancy testing and few
business-to-business companies have to worry about
share of [advertising] voice. What matters is for each
firm to determine the relevant-to-them indicators of
internal and external market health or ill health, as
the case may be.

Internal market metrics


Monitoring the firms internal market takes two forms.
We need to assess two things:

Innovation health, ie how good your firm is at


achieving the kind of innovation you want.

How well attuned the staff are to understanding


what the firm is trying to achieve and how
committed are they to doing it. In a sense, the firms
employees are its first customers. If they do
everything right, they will take care of external
market place issues, including the end user.

Our research has found general and increasing


recognition of the importance of innovation. Top
managers want to monitor innovativeness yet few
believe that key performance indicators (KPIs) provide
the solution. Boots, the UKs major health and beauty
care retailer, has appointed a director of innovation,
but carries out little measurement beyond the number
of product launches and the proportion of sales from
recent launches.
The crux is the quality of innovation, not the quantity.

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Indeed, many large firms today suffer from an excess


of attempted innovation, or initiative overload. The
three phases of innovation (creativity, development
and implementation) require different skills. Culture
(the way things are done) and process (what is done)
are merely enablers, not drivers.
3M very successfully uses just a few simple metrics,
such as the proportion of sales attributable to recent
innovations. Many other firms have copied these
metrics, but few have succeeded because their
leadership styles and cultures are different. The moral
is that firms should get away from the detail and first
measure these bigger picture variables. Thus
innovation is mostly a question of leadership, and then
culture, rather than process. In large companies, much
of the formal process gets in the way and should be
dismantled.
Some companies, especially consumer service
companies, see employees as their first customers. They
believe that if management correctly markets to
employees, then the front-line employees will take care
of the external customers (Rucci et al 1998). In this
perception, internal marketing becomes, for the board,
more important than external marketing and needs
its own set of metrics. Whether marketing includes
employees is academic: synergising human resource
and marketing skills can bring rich rewards. The
employer brand concept helps these two functions
to learn from each other. Tobacco company Gallaher,
for example, sees marketing in pan-company terms
and has marketing sales and financial people working
together in teams.
Many firms now measure employee indicators but few
cross-fertilize employee and customer survey
techniques and measures. BP-Amoco is an exception
in the way it does.The oil giant found, unsurprisingly,
a good correlation between employee and customer
satisfaction. To some extent, employees can provide,
far more cheaply and easily, proxies for external
research though this needs careful quality control.
In a service company especially, customers form most
of their impressions, ie brand equity, from their
interactions with the employees.
A combined internal set of metrics covering innovation
health and employer brand equity is set out as table
3. The same caution about using a direct short-cut
and thereby avoiding the learning inherent in evolution

Marketing Metrics

performance too.

Table 3

Internal market metrics


Strategy

Culture

Outcomes

Awareness of goals (vision)


Commitment to goals (vision)
Active innovation support
Resource adequacy
Appetite for learning
Freedom to fail
Relative employee satisfaction
Aggregate customer brand empathy
(Composite index of how well
employees see company brands as
consumers do)
Number of initiatives in process
Number of innovations launched
% revenue due to launches during last
three years

applies to internal metrics. Table 3 should be seen as


a checklist for comparison rather than a solution.

The process for collating the metrics


Having established what the external and internal
metrics might be, we turn now to the final stage:
getting them onto the board agenda.
Marketing metrics are hard to assemble. Different
metrics are scattered all over large companies for
different time periods, different customer and
stakeholder segments, and a multitude of purposes.
Each market research firm supplies data efficiently,
according to its own system. This keeps costs down
and makes the information affordable, but it does not
make it comparable. It may be easier to commission
new research than to locate reports that are gathering
dust.
This is not about fiddling with costs but about taking
a holistic approach to external and internal marketing
information: the information is mostly there, but
someone needs to take charge of bringing it all
together.
Very large companies may, like Unilever, have scope
for departments that specialize in marketing
information, independent from their marketers. But
for most companies, the only function which can
realistically be expected to integrate financial and nonfinancial marketing metrics is the finance department.
In other words, you should turn over market research
responsibility to the finance director or chief
knowledge officer. And board reporting of marketing

This proposal is clearly contentious. Here are a few


reasons why it deserves serious consideration:

Marketers are widely seen as selective and/or


manipulative in the way they present information.
Independence would add credibility.

Metrics are not high on marketers priorities.


Marketers are more interested in making runs than
in scoring. Perhaps this is as it should be.

Marketing information is widely dispersed in large


organizations. Only part of it exists in the
marketing department.

Action This Day


Understanding and nurturing the sources of cash flow
deserves a prime position on every board agenda and
substantial attention every six months at least. Making
the space and hoping the marketers will fill it is not
enough. It is an old joke, but marketing really is too
important to be left to marketers.
This article has mostly addressed pan-company
marketing. This deserves board attention not least
because it involves the whole company. But the same
approach needs to be adopted for functional and
budgetary marketing (for definition, see box on
language earlier in this article). In these areas, the
number of metrics which need to come to the board
are of course much smaller. Indeed, the board may be
well advised not to conduct reviews itself, However,
all boards should ensure that they take place.
Here are six things the board needs to put into action,
and today is as good a time as any:

Appoint a team, led by a board member ideally


the CEO to develop the metrics reporting system.
This should be aligned with customer insights,
business strategy, goals and required performance.
Include marketing information responsibilities in
its terms of reference.

Ensure it is cross-disciplinary with members from


finance, human resources, sales and marketing (at
least). Give it a six-month deadline, with an interim
board report after three.

Publicize the task, the reasons for it, and encourage


worldwide participation. Set out the new language
of measurement, the intention to compare financial

Summer 2000

Tim Ambler

and market measures against both plan and


external benchmarks and the role of brand equity.
Constructive participation requires the ground
rules to be made explicit.

Ensure that those commissioning significant


advertising and promotional campaigns evolve
complete assessment programmes so that learning
can be maximised from the debriefing.

When the selection of metrics is at an advanced


stage, the board should participate in the final
inclusion/exclusion decisions. Put the meeting on
the calendar now.

References
Ambler, Tim (2000 forthcoming) Marketing and the
Bottom Line: Health Drives Wealth, London: FT
Prentice Hall
Blaug, Mark (ed) (1991) St Thomas Aquinas (12251274) Aldershot, England: Edward Elgar Publishing

Business Strategy Review

Tim Ambler is a Senior Fellow at London


Business School. This article is based on the
Marketing Metrics research project 1997-1999.
This was sponsored by the Marketing Council,
the Marketing Society, the Institute of
Practitioners in Advertising, Sales Promotions
Consultants Association and London Business
School and was also partly funded by the
Marketing Science Institute (USA).

Kaplan, Robert S. and David P. Norton (1992) The


Balanced Scorecard Harvard Business Review Jan-Feb
Rucci, Anthony T, Kirn, Steven P. and Quinn, Richard
T. (1998) The Employee-Customer-Profit Chain at
Sears, Harvard Business Review, 76 (JanuaryFebruary), 8297.