Marketing Metrics

Marketing Metrics
Module-1
IMT Hyderabad
1
Why Marketing Metrics
• What gets measured gets improved
• Time and money are your scarcest resources. You want to make sure
you are allocating them in highest-impact areas.
• Few managers appreciate the range of metrics by which they can
evaluate marketing strategies and dynamics. Fewer still understand
the pros, cons, and nuances of each.
2
• Identify needs and wants of
customers
• Design products that satisfy
needs/wants better than
existing products
• Promote / communicate
benefits to motivate purchase
• Price at right level to ensure
customer willingness & ability
• Make product available at right
place
3
Figure 1.1 Marketing Metrics: Marketing at the Core of the Organization
From Marketing Metrics: The Manager's Guide to Measuring Marketing Performance, 3/e by Paul Farris, Neil Bendle, Phillip E. Pfeifer and David J.
Reibstein (0134085965) Copyright © 2016 Pearson Education, Inc. All rights reserved. 4
What we will discuss today
• Goal Setting
• Overall success evaluation
• Individual element evaluation
5
Linkage of departmental goals to overall
Company Goal
R&D – speed &
range of new
Manufacturing – products Sales – increase
increase capacity market coverage;
& productivity OEM coverage
No.1 in
market share HR – develop
Finance – lower
in 2Wheeler competency of
cost of credit to
tyres in 5 salesforce from
trade
years order-taker to
demand generator
IT – Provide best in Marketing – Drive

class digital tools up purchase intent
scores
6
Goal Setting
Organisation
Strategic
Objective
Promotion Product Channel Pricing

Goal Goal Goal Goal
Tactical Goals
7
Why Metrics
• Promote benchmarking
• Identification of best practices
• Superior business performance
• Direct employee behaviour
8
Multiple level targets
External
Internal
Stretch
9
Pitfalls to be careful of
• Narrow focus by employees
• Neglect of non-goal areas
• Ensure the right goals are set
• Goals to reflect true organisational desires
10
Developing Metrics
11
Internal vs
End-result Intermediate
External
metrics metrics
metrics
• Important to keep in mind:

• Consistent with one another
• Aligned with strategic objective of business
12
Intermediate End-Result
Internal Average Items Carried Average Basket Size
Abandonment Rate Average unit Retail Price
Cost per Click Cannibalisation
Cost per Impression Conversion
Initial Markup Factor
Payback Period
Customer Acquisition Cost
Customer Lifetime Value
Metrics
Portfolio Balance
Traffic
Unique Site Visitors
Gross Margin %
Gross Margin Return on Inventory Investment
Inventory Turnover
Perspectives
% of Sales from New Products
% Sales on Deal
ROI/ROMI
Sales per Sq foot
Same store Sales
External Brand Awareness All Commodity Volume
Brand Preference Market Share
Clickthrough Rate Net Promoter Score
Distribution Percentage Share of Wallet
Product Superiority
Purchase Intentions
Share of Shelf
Share of Voice
13
Metrics Matrix
ROI,
Overall ROMI Market NPS,
Payback
CLV
Share CSAT
Metrics Period
Promotional Pricing Channel Product

Metrics Metrics Metrics Metrics
14
Promotional Metrics
1.Brand 2.Brand 3.Purchase

Awareness Preference Intent
SOV
CPI/ Brand
CPC Strength
Brand
Acq Adds to Equity
Attract
Cost Role in co. Price
future
performance Premium customers
15
Pricing Metrics
% sales AUR, IMU Gross

on deal MAP margin %
• Constant evaluation of margin at all stages of planning is critical
16
Channel Metrics
Avg
ACV / Share
Items Distribution / Availability
Breadth of Shelf
Carried
Inventory
GMROII Inventory
Turns
Same
Sales /
store
sq ft
sales
Outlet / Site
Avg
Convers
Traffic basket
ion
size
17
Product Metrics
% of sales Product
Portfolio
from new cannibalis-
balance
products ation
Freshness of Customer liking Risk profile of

portfolio; NPD of existing product
ability product portfolio
18
Summarising….
• Set goals for each marketing activity
• Clearly spell out strategic goals & metrics for each activity supporting
the strategic objective
• This will help in evaluating performance & redefining tactics where
required
19
Marketing Metrics
Module-2
IMT Hyderabad
28 Jan 2022
1
“Link today’s actions with tomorrow’s goals”
2
Today’s discussion
• Why Balanced Scorecard
• What is a Balanced Scorecard
• Perspectives
• Framework
• Strategy Map
• KPIs, Strategic Initiatives
• Cascading
3
Why Balanced Scorecard
• Traditional financial measures vs company’s short-term actions
• Clarify & update strategy
• Communicate strategy throughout the organisation
• Link strategic objectives to short & long-term targets and annual budgets
• Identify & align strategic initiatives
• Align departmental & individual goals with the strategy
• Prioritize projects, products, and services
• Measure and monitor progress towards strategic targets
4
“Financial measures tell the story of past events, an adequate story
for industrial age companies for which investments in long-term
capabilities and customer relationships were not critical for success.
These financial measures are inadequate, however, for guiding and
evaluating the journey that information age companies must make to
create future value through investment in customers, suppliers,
employees, processes, technology, and innovation.”
5
Why is it called Balanced?
Traditional
Balanced Strategic Measures
Financial Measures
6
The 4 Perspectives
7
Translating Vision & Strategy
Objectives Measures Targets Initiatives
8
A series of ‘steps’
This combined benefit of lower
cost/higher customer engagement
increased profit and financial return
• The Balanced Scorecard
As internal processes improve, there is about the layers of a
will be positive impact on pyramid. The pyramid
when built up in the right
customers as well as directly reduce
order, leads to success.
costs It helps to :
Create a tangible road-map :
'current state’ >> successful
Ability to better manage internal 'future state'.
processes Identify major roadblocks and
areas where you lack the
critical competencies to
proceed to the next stage.
Ability to learn and grow directly
dictates……
9
10
11
Sample Scorecard - Airlines
12
Sample Scorecard – Petroleum player
13
Strategy Maps
• What is a Strategy Map?
• A strategy map is a simple graphic that shows a logical, cause-and-effect
connection between strategic objectives.
• It is based on the four Balanced Scorecard Perspectives: Financial, Customer, Internal
Processes and Organisational Capacity.
• The key element of the Strategy Map is that it is linked to the ‘scorecards’ that monitor the
progress towards the Strategic Objectives.
• Quickly communicates how value is created by the organization.
• Most people are visual learners and so a picture of your strategy will be
understood by many more employees than a written narrative.
• Plus the process of developing a strategy map forces the team to agree on what
they are trying to accomplish in simple, easy-to-understand terms.
14
The Strategy Map
Vision: Transforming society through the provision of ultra-high speed mobile information services
Mission: The number one provider of ultra-high speed mobile networks and content to the United Kingdom
Financial
Increase Revenue Increase Profit Decrease

Per User Operating Costs
Customer
Improve Clarity of Improve Market Improve End User

Offering Perception Experience
Internal
Processes
Improve
Improve Offering Improve Ease of Improve Stock
Information
Selection use for End Users Reliability
Services
Organisational
Capacity
Improve
Improve Content Improve
Knowledge and
Supply Technology
Skills
15
An Integrated Strategy Map
16
KPIs (Performance Measures)
For each objective on the KPIs indicate
strategy map, at least one • progress toward a
measure or Key desirable outcome
Performance Indicator (KPI) • monitor implementation
is identified and tracked and effectiveness of
over time. organization’s strategies
• operational efficiency
• A KPI is a Key performance indicator. It is one of a small number of measures that are designed to
reduce the complex nature of organisational performance and turn it into something that can be
understood easily and acted upon quickly. Much in the same way as a doctor or nurse will
monitor pulse rate and temperature to determine the overall health of an individual, managers
can monitor KPIs to determine the health of an organisation.
• KPIs must contain both leading and lagging measures. Most strategic plans concentrate on
lagging measures. Leading measures are harder to identify but they are the only measures that
can be influenced and therefore make a difference.
17
Strategic Initiatives
Projects designed to help organization achieve Strategic
Objectives
Explicitly defined
Some are short-term (taking
• owner
Have significant only a few days to
• schedule
organization-wide implement) while others can
• resources needed
impact take years to fully
• action steps
implement.
• expected results
18
Cascading
Translates organisation-
wide scorecard (referred Tier-1
to as Tier 1) down to first
business units /
departments (Tier 2) and
then teams or individuals
(Tier 3). Tier-2
• Focuses entire organization on strategy

• Creates line-of-sight between work people do and
high level desired results. Tier-3
• As the scorecard is cascaded down through the
organization, objectives become more operational
and tactical, as do the performance measures.
• Accountability > ownership is defined at each level.
19
Benefits of Balanced Scorecard
• De-facto method to gather information, make decisions and implement strategy.
• Creates a right balance between the components of organization's objectives and vision; It
provides an extensive overview of a company's objectives rather than limiting itself only to
financial values.
• Improved organisational alignment and communication. It becomes a single standard for all. The
best approach is to start small (usually at the executive level) and roll out over a defined period.
• Better strategic planning – The creation of a Strategy Map using the Balanced Scorecard
methodology forces an executive team to think hard about the relationship between a strategic
objective, initiatives to fulfil the objective and the metrics. The strategy map therefore becomes
the cornerstone in strategic planning.
• The Balanced Scorecard focuses the mind on those things that need to be reported to the
management and executive teams.
20
Marketing Metrics
Module-3
IMT Hyderabad
1
“Marketing Managers are the drivers of earning money for a
Business“
2
• Key concepts of Margins & Profits
• Margin analysis at various stages
• Variable costs & Fixed costs
• Marketing Spending
• Break-even analysis
• Contribution analysis
• Setting sales & profit targets
3
Margins & Profits
Metric Purpose
Unit Margin Determine value of incremental sales. Guide pricing & promotions
Margin % Compare margins across different variants. Determine value of incremental sales.
Guide pricing & promotions
Channel Margins Evaluate channel value adds. Calculate chain price effect.
Avg Price/Unit Understand how average prices change by changes in pricing & product mix
Price/Statistical Unit Isolate effect of price changes from mix changes by standardising SKU mix
4
Unit Margin & % Margin
• Unit Margin (Rs) = Selling Price per Unit (Rs) – • Selling Price can be defined before or
Cost per Unit (Rs)
after various charges like discounts,
• % Margin = Unit Margin (Rs) / Selling Price per
commissions, warranty claims, etc
Unit (Rs) • Some industries calculate margin as a
% of costs.
• % Margin = (Total Sales Revenue (Rs) – Total
Cost (Rs) ) / Total Sales Revenue (Rs) • Margin & Markup are different
• Gross Margin :
• With multiple products with different prices • Selling Price – COGS
and different quantities
• Overall % Margin can be calculated by
• Total revenue & Total costs for all products as
base
• The Rupee weighted average of % margins of
different products as base
5
Channel Margins
Figure 3.1 Example of a Distribution Channel
Reibstein (0134085965) Copyright © 2016 Pearson Education, Inc. All rights reserved.
Channel Margins
• One must always ask – “Whose cost is this?” and “Who sells at this
price?”
• Gross Margin : channel members may incur costs which are not part
of COGS
• Hybrid Channels
• Recognise your most profitable / potential channels
• Develop programs to grow them
• Evaluate weighted average channel margins
7
Average Price per Unit and Price per
Statistical Unit
• Needed when selling different variants, pack sizes, etc
• Helps in calculating meaningful average selling prices within a product line that
includes different variants (SKUs)
• Average price per Unit = Revenue (Rs) / Unit Sales (nos)
Or
(Unit Price of SKU 1 * SKU 1 % of Sales) + (Unit Price of SKU 2 * SKU 2 % of Sales) +
so on….
• Price per Statistical Unit
• Statistical Units composed of fixed proportion of different SKUs. It is like a set of SKUs which
determine an Index.
• The proportions making up the Statistical Units need to be monitored constantly
• Astute judgement is required to decide the composition – consumer attitudes,
channel mix, historical trends, projected segment growth, etc
8
Carl’s Coffee
Carl’s Coffee Creamer is sold in 3 sizes : 1 L economy size, 0.5 L fridge friendly; 0.05 L single
serve. Carl’s 12 L statistical case is defined as
• 2 units of economy size = 2 L (2 * 1 L)
• 19 units of fridge friendly = 9.5 L (19 * 0.5L)
• 10 units of single serve = 0.5 L (10 * 0.05 L)
SKU Names Size Price per Number in Litres in Total Price
Item Statistical Statistical
Case Case
Economy 1L Rs. 8 2 2 Rs. 16
Fridge Friendly 0.5 L Rs. 6 19 9.5 Rs. 114
Single Serve 0.05 L Rs. 1 10 0.5 Rs. 10
TOTAL 12 Rs. 140
• Total Price of 12 L statistical case in Rs. 140. Per litre price within the statistical case in
Rs.11.67
9
Fixed & Variable Costs
• Fixed Costs : Do not change with no of units sold or manufactured
• Variable Costs : Changes directly with sales / manufacturing
• Marketing managers need to understand how costs divide between

Fixed & Variable –
• To forecast earnings generated by variations in sales & subsequent impact of
proposed marketing campaigns
• To understand price & volume trade-offs
10
Figure 3.3 Fixed and Variable Costs
Figure 3.4 Total Cost Consists of Fixed and Variable Costs
Figure 3.5 Total Cost per Unit Falls with Volume (Typical Assumptions)
Fixed & Variable Costs at Increasing Volumes
Units Sold 1 10 100 1000
Fixed Costs Rs.500 Rs.500 Rs.500 Rs.500
Variable Costs Rs.10 Rs.100 Rs.1000 Rs.10000
Total Costs Rs.510 Rs.600 Rs.1500 Rs.10500
Total Cost per Unit Rs.510 Rs.60 Rs.15 Rs.10.50
Variable Cost per Unit Rs.10 Rs.10 Rs.10 Rs.10
To Keep in Mind :
• Many times variable costs per unit may not be constant through out (quantity discounts, process
improvements)
• Classification of costs as Fixed or Variable depends on context. Eg Rent
• Total cost per unit is not same as Variable cost per unit
• Total cost always increases with increase in volume. However, it can reduce with quantity
discounts/rebates at higher volumes
14
Marketing Spending
• It is important to
• Forecast marketing spending
• Assess budgeting risk
• Distinguish between fixed & variable marketing costs
• Marketing Spending : Total expenditure on marketing activities

• Typically includes advertising and non-price promotions
• Sometimes includes sales force spending & some price promotions
15
Fixed & Variable Marketing Costs
• Classification as Fixed or Variable will depend on organisation structure and on specific
management decisions
Fixed Marketing Costs Variable Marketing Costs
Sales force salaries; advertising campaigns, Sales commissions, sales team incentives,
marketing team, sales promotional material, performance linked incentives to trade, local
distribution costs, etc promotional costs reimbursements, etc
• The more variable a marketing budget is, the more it is accurate.
• Variable marketing costs have lower risk than fixed marketing costs
• To keep in mind
• Fixed costs are easier to measure (with advanced MIS, this changes)
• Complication may arise – some VCs apply to only a certain portion of sales; some expenses are
stepped (fixed to a point, then become variable);
• Decision of which costs to expense in current period & which costs to amortize over several
periods
• Marketing spend as a % of Sales
16
Break-Even Analysis & Contribution Analysis
• Break-even is only possible if firm’s prices are higher than its variable costs
• Difference between selling price per unit and variable cost per unit is
Contribution Per Unit
• Break-even Volume = Fixed Cost / Contribution per Unit
• Break-even Revenue = Break-even volume * Price per unit
Or
Fixed Costs / Contribution margin
• Break-even analysis provides a rough indicator of earnings impact of a marketing
activity
• At break-even total contribution = fixed costs
• Break-even on incremental investment
17
Figure 3.6 At Break-Even, Total Costs = Total Revenues
Profit-Based Sales Targets
• Marketers are expected to generate volumes that meet target profits of the
organisation. They need to revise sales targets as prices & costs change
• Marketing & Sales objectives must mesh with Profit objectives
• Target Volume = (Fixed Costs + Target Profits ) / Contribution per Unit
• Target Volumes Not Based on Target Profits

• Eg: Target to achieve top-line growth as a primary objective
19
Marketing Metrics
Module - 4
IMT Hyderabad
1
Context
• It is necessary to coordinate marketer’s plans with other functions
• Sales forecasts, budgeting and estimating returns from marketing
initiatives are often discussed between marketing & finance
2
• Net Profit & Return on Sales (ROS)
• Return on Investment (ROI)
• Economic Profit (EVA)
• Project Metrics: Payback, NPV, IRR
• Marketing ROI
3
Metric Purpose
Net Profit The basic profit equation
Return on Sales (ROS) Give % of revenue that is being captured in profits
EBIDTA Rough measure of operating cash flow
• Net Profit – important to allocate overheads properly
• ROS helps evaluate how much a particular sales or marketing initiative adds to overall corporate profit
• ‘Healthy’ ROS depends on the industry and capital intensity
• EBIDTA is a rough way of calculating how much cash the business is generating
• It removes factors that change view of performance basis accounting & financing policies
4
Net Profit = Sales Revenue – Total Costs
Return on Sales = Net Profit / Sales Revenue
EBIDTA = Net Profit + Interest + Taxes + Depreciation & Amortisation Charges
ROI
Metric Purpose
Return on Investment Describes how well assets are being used
(ROI)
• Marketing influences investment levels

• New plants/equipment, inventory, receivables
• ROI (%) = Net Profit (Rs) / Investment (Rs)
• Marketers should be conscious of seasonal variations in sales while evaluating ROI over specific periods
6
EVA : Economic Value Added
Figure 11.2 EVA Is After-Tax Profit Minus a Charge for Capital Usage
EVA
• EVA is a Rupee metric.
• It reflects not only rate of profitability but the size of the business
• Marketers are being made aware of how their decisions influence amount of
capital invested or assets employed
• Fixed assets, receivables, inventories
• Improvements in supply chain processes
• Make trade-offs correctly
• EVA shows magnitude of profits after cost of capital is subtracted
• Gives a sense of volume of profits
8
Time based metrics
Metric Purpose
Payback Simple return calculation to calculate how long it will take to recover investment
Net Present Value (NPV) Summarises value of cash flow over multiple periods
Internal Rate of Return (IRR) Threshold rate to determine whether to invest in a project or not
• Deals with economic consequences occurring at different points in time

• Evaluates returns on projects spread over multiple periods of time
• Helps prioritise / choose among different projects
9
Calculation
• Payback (Yrs) = Investment (Rs) / Return per year
• NPV (Rs) = (Cash Flow (Rs) * 1 ) / ((1+Discount Rate (%)) ^ Period (Yrs))
Key Points:
• Projects with shorter payback periods are favourably viewed
• As resources can be re-used quickly
• Less uncertainty involved
• Not a good metric for evaluating projects of longer duration
• Determining discount rate is a critical decision for management. Discount rates vary by risk, hence
different projects may have different discount rates
• IRR determines at what rate % return should the company go ahead with a project (threshold
level)
10
Marketing ROI (MROI)
Metric Purpose
MROI Evaluates productivity of marketing programs. The % terms helps comparison across
programs of varying magnitude
• Marketing funds are typically ‘risked’ compared to investment in plants &

machinery
• MROI helps to measure the rate at which spending on marketing contributes to
profits
• MROI (%) = (Incremental Financial Value Created by Marketing (Rs) – Cost of Marketing
(Rs)) / Cost of Marketing (Rs)
11
Figure 11.3 Evaluating the Return to Marketing
MROI : Approaches to Measuring Financial Return
Valuation Methods Financial Return Assessed
Comparable Costs Cost savings for achieving equivalently valuable contacts
Funnel Conversions Future period incremental sales & profits based on estimated conversion
rates
Baseline Lift Current period incremental sales & profits
Customer Enquiry Changes in customer lifecycle value
Marketing Assets Changes in brand & firm valuations
Key Points:
• Dealing with important interactions between different marketing programs
• Diminishing returns
• Strategic vs tactical programs
13
Marketing Metrics
Module-5
IMT Hyderabad
1
Market Share
• % of market (defined in terms of units or value) captured by a
firm/brand/product
• Also known as Volume Share or Revenue Share
• The value-volume market share equation is not usually linear:
• A unit may have high value and low numbers, which means that value market share
may be high, but volumes share may be low.
• In industries like FMCG, where the products are low value, high volume and there are
lots of freebies, comparing value market share is the norm.
• Key indicator of a firm’s market competitiveness vs competitors

• Critical factors in defining market share:
• Too broad vs too narrow market definition
• Data parameters – unit, value; primary sale, secondary sale, tertiary sale
2
3
Market Share – Key factors
• Investors and analysts monitor market share to understand a firm’s relative
competitiveness
• A company that is growing its market share will be growing its revenues
faster than its competitors.
• A company can try to expand its share of the market, either by lowering
prices, using advertising, or introducing new or different products. In
addition, it can also grow the size of its market share by appealing to other
audiences.
• Mature/cyclical industries - Changes in market share have a larger impact
• Intense competition. Margins tend to be lower and operations run at maximum
efficiency due to competition. Heavy investment in marketing
• Growth industries - Changes in market share have less impact on
companies 4
What does it mean to have a higher market share
• Market share is a measure of the consumers' preference for a product over other
similar products.
• A higher market share usually means:
• Economies of scale
• greater sales & higher market power
• lesser effort to sell more
• strong barrier to entry for other competitors.
• Market leaders develop unique competitive strategies and have higher prices for
their higher-quality products than do smaller-share businesses.
• A higher market share also means that if the market expands, the leader gains
more than the others.
5
Relative Market Share = Brand’s Market Share(%) / Largest Competitor’s Market Share(%)
Figure 2.1 The BCG Matrix

Market concentration
• Degree to which a relatively small no. of firms account for large
proportion of market
• Usually for top 3-4 firms in market
• Herfindahl Index = sum of squares on individual market shares of all

players in a market
• Higher the Index, higher the concentration; market dominated by large
players
7
BDI & CDI
Metric What is it
Brand Development Brand sales in a specified segment, compared with sales of that brand in the market
Index as a whole
Category Development Category sales in a specified segment, compared with sales of that category in the
Index market as a whole
Purpose :
• To understand the relative performance of a brand or category within specified customer groups
• Helps identify strong & weak segments (demographic or geographic)
8
Market Share break-down
Metric Purpose
Category Penetration Measures category acceptance by defined population. Useful in gauging acceptance
of new product categories. Measure of popularity.
Brand Penetration Measures brand acceptance by defined population. Measure of popularity.
Penetration share Ratio of Brand Penetration to Category Penetration. Measures comparative
acceptance of brand within its category
Share of Requirements / Brand purchases as a % of total category purchases by buyers of the brand. Gauges
Share of Wallet level of commitment to a brand by its existing customers
Usage Index Measures relative usage of a category by customers of a specific brand. Gives insight
into source of volume & nature of a brand’s customer base
Market Share(%) = Penetration Share (%) * Share of Requirements (%) * Usage Index
Marketers have to decide which of these 3 they need to improve to gain market share
9
Awareness, Attitudes & Usage (AAU):
Metrics of the Hierarchy of Effects
• AAU studies enable marketers to quantify trends on customer knowledge,
perceptions, beliefs, etc.
• Companies track long term changes in customers
• Should have comparatives for best impact
• AAU metrics provide marketers with insights into consumers’ overall relationship
with brand.
10
Figure 2.2 Awareness, Attitudes, and Usage: Hierarchy of Effects
AAU
Metric Purpose Considerations
Awareness % of total population that is aware of a Aided or unaided
brand.
Top of Mind Saliency of brand Recency of communication exposure
Ad awareness Measure of advertising’s effects Schedule, reach & frequency of
advertising
Knowledge Extent of product familiarity, beyond name Aided or unaided
recognition
Consumer Beliefs Consumers view of product captured via Consumer beliefs with varying degrees
surveys. Captures perception of brand by of conviction
attributes
12
AAU
Metric Purpose Considerations
Purchase Intention Measures pre-shopping disposition to Analyse ratings of stated intentions
purchase
Purchase Habits Frequency / quantity of purchase. Helps May vary widely among purchase
identify heavy users occasions
Loyalty Indicates future revenue stream. Measures New product entries may alter loyalty
include share of requirements, willingness to levels
pay premium, willingness to search
Likeability Shows overall preference before shopping
Usage Measure of customers’ self-reported
behaviour
13
Customer Satisfaction & Willingness to
Recommend
• Customer Satisfaction Ratings are powerful tools in an organisation
• Indicators of market perceptions
• Builds focus among employees to fulfil customer expectations
• Ratings are a strong barometer of an organisations future sales & profitability
• Satisfied customer will Recommend to others…a powerful advantage
• Metrics like market share show current position; Customer
Satisfaction show expected future positions
• Trade Satisfaction
• No. of complaints
14
Figure 2.3 Ratings
Figure 2.4 A Typical Five-Point Scale
Figure 2.5 Hotel Customer Survey Response
Net Promoter Score (NPS)
• NPS is a measure of the degree to which current customers will recommend a
brand
• NPS = % of Promoters - % of Detractors
• On a scale of 1 to 10, when customers are asked will they recommend the brand
– Promoters 9-10 / Passives 7-8/ Detractors 0-6
• High NPS generally means that the brand is doing a good job of securing
customers loyalty & recommendation
• To keep in mind
• Zero NPS can indicate highly polarised or highly ambivalent customers
• Important to understand who the detractors are & to work hard to retain them
• Don’t be tempted to give sweetened deals just before the survey
18
Willingness to Search
• Assesses the commitment of the customer base
• WTS% = % of customers willing to delay purchases, change stores or reduce
purchase quantities to avoid switching brands
• How well can the brand sustain continued pressure from competition
• Gives big leverage with channel
19
Neuroscience Measures
• Technological advances enable marketers to gain insights into how consumers
react
• How consumers view visual stimuli
• Which parts of the brain are active while deciding
• Decision making less deliberate & relies more on early emotional responses
20
Neuroscience Measures - Tools
Tool Purpose
EEG - Measures brain waves in terms of frequency & amplitude. Branding, Advertising
Electroencephalography Useful in exploring what is the consumers immediate
response to an advertisement thru rapid monitoring of
general brain activity.
FMRI – Functional Consumer shown a stimuli & their brain responses Branding
Magnetic Resonance monitored. Colour codes indicate relative brain activity.
Imaging
FACS – Facial Action Identifies consumer’s mood/reaction thru facial Product Testing,
Coding System movements. Users are trained to identify these. Used to Advertising testing, Brand
analyse reactions to proposed advertising or product emotions
features.
Eye Tracking Provides real-time record of where visual attention is Product & Package design,
directed. Measures include fixation per sec; eye Advertising, Shopper
movements; pupil sizes; blinks per sec marketing
21
Marketing Metrics
Module – 6-7
IMT Hyderabad
1
Customer Profitability - Context
• It is necessary to understand the performance of individual customer
relationships
• Quality of customers is an important barometer of profitability &
future business prospects
• Need for planning maximising future profit from existing customers
2
Customers, Recency & Retention
• Used to count customers & track their activity
• To monitor firm performance in attracting & retaining customers
• Customer : important to define customer unit
• Mobile connection family pack – single customer or multiple customers
• Family insurance policy – single customer (policy) or multiple customers
(beneficiaries)
• Bank: Household vs individuals in the house
• Multiple usage points – corporate gas user vs no. of meters installed in that
corporate
• No. of transactions or no. of visitors – retail stores
• Newspaper buyer vs no. of readers
• Centralised buyer vs dispersed buyer
• Buyer vs user (eg toys; kidswear; equipment buyer for large organisation)
• You must count buyers who are alike in defined ways
3
Customers, Recency & Retention
• Recency: Length of time since a customer’s last purchase
• Firms use it to define active customers
• Retention Rate: The ratio of the number of customers retained to the

number at risk
• Complement of retention is ‘churn’ or ‘attrition’
• Ratio of total no. of customers at end of year to total no. of customers at end of
year is not retention rate.
4
Customer Profit
• Calculating customer profitability is important to prioritise customer relationships
• Identify profitability of individual customers
• Important to analyse who are profitable & who are not. This will determine firm’s strategic
course
• Overall firm profitability can be improved by treating dissimilar customers
differently
Customer profitability What you can do

Most profitable Should be retained. Reward them with value adds.
Average profitable Grow them. Develop programs to take them up
Low or negative profitable Fire them. Charge them more or let go of them
5
Figure 5.1 Customer Profitability by Decile
Figure 5.2 The Whale Curve
Customer Profit
• Measuring customer profitability requires detailed information
• Easier to assign revenues to customer; more difficult to assign costs
• Consider changed dynamics across time periods – low profit customers nurtured
today may be very profitable customers tomorrow
• Some unprofitable parts of business may need to be retained to maintain
appropriate mix of offerings
• If a low or no profit customer helps in covering fixed costs, it will be better to
retain till you find a profitable customer
8
Who is your best customer?
• Customers who are the most profitable
• Customers who are the most loyal
• Customers who are the easiest to attract and retain
..… How about all of the above?
9
“Some customers are more equal than others”
• CLV is the Rupee value of a customer relationship based on present value of

projected future cash flows from a customer relationship
• CLV encourages firms to focus on long-term health of their customer relationships
• While Customer Profitability shows the past; CLV looks forward
• Quantifying CLV involves forecasting future activity
• Customer Lifetime Value model helps businesses to track down that how good
they are resonating with their consumers
• Customers valuable data can help for any economic decision making in a
company which includes marketing budgets, resources, profitability and
forecasting
10
11
• CLV model has only 3 parameters:
• Constant margin
• Constant retention probability per period
• Discount rate
• Assumptions:
• Customer once gone is gone forever
• First margin will be received at end of first period
CLV (Rs) = Margin (Rs) * (( Retention rate(%) / (1+Discount rate(%)-Retention rate(%)))
12
• Cohort & Incubate
• Collect data of cohort (group) of customers acquired during a similar time
period.
• Reconstruct their cash flows over a number of finite periods
• Discount the cash flows for each customer to calculate customer CLV
• Average all CLVs to arrive at CLV of each new acquired customer
• Works well when customer relationships are stationary
• Helps marketers in deciding the threshold level of acquisition spend
13
• Retention rate is assumed to be constant across the life of customer
relationship
• For products & services that go thru trial, conversion & loyalty progression,
retention rates will increase over the lifetime of the relationship
• Discount rate has to be chosen with care
• Margins may increase over time. This needs to be factored in
• Infinite Horizon Assumption
• Depending on strategic risks perceived, finite horizon can be informative
14
What hinders CLV growth?
• Siloed organisation lacking coherent approach to marketing
• Poor systems hindering customer experience
• Competitive market place
• Inability to measure CLV
• Unsophisticated online strategy
• Inability to gain senior buy-in for investments for customers
• Lack of customer trust
• Lack of emotional connect with customers
15
How to increase CLV – Tyre Retailer
Value Increase for Customer
Car Wash
Headlight Aligner
Oil Change
Tyre Repair
Alignment & Balancing
Tyre Purchase
Revenue Increase for Retailer 16

Starbucks – Determining CLV
• How much is a customer worth
• As much as the value of coffee she drinks
• Starbucks estimates that the average CLV is $14,000/-
• So, they are not selling a $5 cup of coffee
• Pareto’s rule : 20% of customers are of far higher
value than the rest 80%
17
Prospect Lifetime Value Vs Customer Value
• To account for lifetime value of a acquired customer when making
prospecting decisions
• It is the value expected from the prospect minus the cost of prospecting
• Firm has to spend money in converting a prospect to a customer
• Firm has to compare acquisition cost with the future cash flows from
the new customer
PLV (Rs) = Acqsn Rate(%) * (Initial Margin(Rs) + CLV (Rs)) – Acqsn Spend (Rs)
• If PLV is positive then spend on acquisition
18
Prospect Lifetime Value Vs Customer Value
• Biggest challenge is estimating CLV as it requires longer-term projections
• Acquisition spending, acquisition rate & initial margin are all near-term projection
• One needs to factor in the impact of multiple acquisition tactics
• Approach that gives highest PLV must be chosen
• Some methods include initial margin as part of CLV
19
Acquisition Vs Retention Cost
• Helps determine the firm’s cost of acquisition & retention
Avg Acqsn Cost (Rs) = Acqsn Spend (Rs) / No of customers acquired

Avg Retention Cost (Rs) = Retention spend (Rs) / No of customers retained
• Important to analyse as it helps marketing managers in understanding where to

focus – acquisition or retention
20
Marketing Metrics
Module - 8
IMT Hyderabad
1
How to increase CLV
• Improve the onboarding process
• Easy & fast
• Simple walk thru guides, videos, tutorials
• Communicate value upfront
• Provide value-packed content to customer
• Identify what the customer values & present how you contributed to it
• Map customer journey – show how at each stage you are their best partner
• Top Class customer service
• Increases retention; improves customer experience
• Have multiple channels of communication
• 24X7 support; Live Chat
• Monitor social media
2
How to increase CLV
• Build relationships with customer
• Regular interactions with key personnel
• Make customer feel listened to & appreciated
• Listen to customers
• Collect actionable feedback
• Do regular customer satisfaction studies
• NPS: Engage Promoters to spread positive WOM; Reach out to Passives & prevent churn;
Identify Detractors & solve their issues
• Offer customers personalised experience
3
How to increase CLV
• Encourage customers to get into annual billing cycle
• Gives you more time to prove value of your product/service
• Gives you time to respond to issues & set your systems right
• Upsell & Cross-sell
• Bundle products
• Offer upgrades
• Increase pricing
4
How to increase CLV
• Foster Community
• Make it hard for a customer to leave a set of people she/he identifies with
• Reward your most valuable customers
• Give them a sense of exclusivity
5
Context
• Customers are the most important assets of most companies,
• Such that customer equity has been used as a proxy for shareholder value.
• However, linking customer metrics to shareholder value without considering debt and
non-operating assets ignores their effects on relative changes in customer equity.
• Percentage changes in customer equity translate into changes in shareholder value.
• The average leverage effect in more than 2000 companies across ten years is 1.55, which
indicates that a 10% increase in customer equity is amplified to a 15.5% increase in
shareholder value.
• The findings challenge previous notions about the dominant effect of the retention rate
and underline the importance of predicting the number of future acquired customers for
a company.
• Customers have to be treated as assets that increase shareholder value by accelerating
and enhancing cash flows, reducing cash flow volatility and vulnerability and increasing
the residual value of the firm.
6
• CLV & Customer Equity has grown to be a critical measure of a company’s
performance
• Changes in customer metrics impact Share Holder Value (SHV)
• Customer Based Valuation (CBV) evaluates companies on basis of their customer base
• Including debt & non-operating assets alters the impact of relative changes in
customer equity on SHV. Otherwise, neglecting debt and non-operating assets
leads to biased estimates of SHV.
7
• The leverage effect dictates that relative changes in customer equity
do not translate directly into parallel relative changes in SHV.
• Rather than a 10% increase in customer equity leading to a 10% increase in
SHV, the increase will be greater for companies with high debt and lower for
those with substantial non-operating assets.
• By taking into account the leverage effect, one can determine precisely the
value contribution of marketing actions that attempt to change customer
metrics.
• This should enable marketing managers and chief marketing officers (CMOs)
to encourage the view of marketing as an investment rather than an expense
and thus improve its influence within the company
8
Managerial implications
• Marketing managers must plan resource allocations for individual marketing
activities. Relative changes in customer equity on SHV increases or decreases
according to the company’s debt and non-operating assets. Managers should
incorporate this leverage effect into their determinations of the value
contributions of marketing actions that attempt to change customer metrics
• Marketing managers can use this to highlight marketing’s value contribution and
increase accountability.
• The leverage effect might lead companies to become even more customer-
centric; on average, the payoff from customer management activities is 55%
greater than originally expected.
• Marketing managers should consider the long-term impact of their actions
because only long horizons properly reflect SHV.

Marketing Metrics - 1-8 Combined

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Marketing Metrics - 1-8 Combined

Uploaded by

Copyright:

Available Formats

IT – Provide best in Marketing – Drive

Promotion Product Channel Pricing

• Important to keep in mind:

Promotional Pricing Channel Product

1.Brand 2.Brand 3.Purchase

% sales AUR, IMU Gross

• Constant evaluation of margin at all stages of planning is critical

Freshness of Customer liking Risk profile of

Objectives Measures Targets Initiatives

Increase Revenue Increase Profit Decrease

Improve Clarity of Improve Market Improve End User

• Focuses entire organization on strategy

Figure 3.1 Example of a Distribution Channel

• Marketing managers need to understand how costs divide between

• Marketing Spending : Total expenditure on marketing activities

• Target Volumes Not Based on Target Profits

• Net Profit – important to allocate overheads properly

Return on Sales = Net Profit / Sales Revenue

EBIDTA = Net Profit + Interest + Taxes + Depreciation & Amortisation Charges

• Marketing influences investment levels

• ROI (%) = Net Profit (Rs) / Investment (Rs)

• Deals with economic consequences occurring at different points in time

• Marketing funds are typically ‘risked’ compared to investment in plants &

• Key indicator of a firm’s market competitiveness vs competitors

Figure 2.1 The BCG Matrix

• Herfindahl Index = sum of squares on individual market shares of all

• Gives big leverage with channel

• Retention Rate: The ratio of the number of customers retained to the

Customer profitability What you can do

• CLV is the Rupee value of a customer relationship based on present value of

CLV (Rs) = Margin (Rs) * (( Retention rate(%) / (1+Discount rate(%)-Retention rate(%)))

Alignment & Balancing

Revenue Increase for Retailer 16

• If PLV is positive then spend on acquisition

Avg Acqsn Cost (Rs) = Acqsn Spend (Rs) / No of customers acquired

• Important to analyse as it helps marketing managers in understanding where to

You might also like