1992. Presidential elections. James Carville succinctly delivers the focus of the campaign: “It’s the economy, stupid.” To deliver the same for the marketing world today, I say: “It’s the measurement, stupid.”
The importance of measurement cannot be overstated. Organizations spend billions of dollars every year on marketing, so it isn’t surprising that they want to know the ROI of their marketing investments.
Companies that have a good measurement setup — based on a methodical, structured and iterative analytical approach — have a good handle on the effectiveness of different marketing activities. But they’re missing something big: the ability to accurately measure and compare across channels and campaigns. Knowing which email campaign works best is good. Knowing which campaign among all the marketing activities you’ve got going on — from sponsored events to direct mail to your website — is much, much better.
Let’s look at something outside marketing to get a fresh look. Say someone is considering a move from Charlotte, North Carolina, to Dallas, Texas. She finds that Texas has no state tax, housing and groceries will be cheaper, but utilities and transportation will cost more. A formula that combines these different data into a single, comparable cost-of-living on a 0 to 1.0 scale, might give Charlotte a 1.0 and Dallas a 0.97. Now she can look beyond the specific costs of line items and know with certainty that Dallas is a less-expensive place to live.
That’s the value of a single, comparable metric. It’s a way to accurately make choices without getting mired in the details — as long as you’ve built and chosen the correct metric.
Marketing is no different. Two campaigns can have the same budget and generate the same sales, which makes them look equivalent. But they may not be for any number of reasons. Perhaps one must be repeated far more often to keep getting good results, while the other has quickly diminishing returns if you repeat it too often. The right metric will allow you to instantly see this difference.
Now that we’ve established the value of having a single, comparable metric, how do you go about making one?
I must tell you right now that it’s not easy. I’ve been doing this for years for large and mid-size companies. The details can be mind-boggling. But here are four principles I believe are critical for getting started in the right way.
Design the single, comparable metric to be as close as possible to the problem being solved.
Is it response rate or sales? Which one does the company really want to achieve? Getting this step right is essential. For a credit card company, for example, response rate optimization may result in a flood of less credit-worthy applicants, who may default, resulting in a net loss. But a measure of, say, the long-term profit generated by new credit card customers as a ratio to the total marketing expense to acquire and keep those customers might cause your overall marketing dollars to be spent entirely differently.
Associate all campaigns with profit, either retained or generated; and use customer segmentation and targeting as an effective tool.
I can hear it now: “But not all of my campaigns are necessarily about generating revenue! My newsletters create relationships.”
That’s a valid operational argument, but by using effective segmentation and targeting, one can determine the contributions that loyalty and relationship-marketing programs make toward generating additional revenue. A test-and-control approach for such programs geared toward at-risk, high-propensity-to-churn customers can help you derive their profitability.
Ensure that the single, comparable metric can be related to different program components.
A good metric will help you evaluate the success of different programs on the same level. To realize the most benefit, however, it is important to relate it to the different components of each program. Then you will be able to compare different programs, as well as different components of every program. That truly gives you the ability to adjust and improve the efficiency and effectiveness of your entire marketing spend. That’s what makes it a single, comparable metric.
As always, test and confirm before you establish the metric as a standard practice.
Test your new metric by predicting what it will be for different components of a program, then compare that to the actual value you get. Take your time with this. It’s quite common to adjust the metric several times before you arrive at one that works well on an ongoing basis for many different programs.
I hope these tips are useful and provide you with a good starting point to design and launch a single, comparable metric to improve the success of your marketing campaigns. I’d like to hear your thoughts. Do you agree with these four? If not, why not? Do you think there are more than four? Please comment here or directly to me at satnam.singh@javelindirect.com. Good luck!
Satnam Singh is Vice President of Decision Support and Interactive Marketing Analytics for Javelin Direct.
