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 / Spring 2009 / Issue 54(originally published by Booz & Company)


Measuring Your Way to Market Insight

For all of their interest in analytics, however, relatively few marketers have mastered them. Our own conversations with senior marketing executives suggest that perhaps one in 20 has fully developed analytical prowess. How can they build this capability? The starting point is data. Marketers must first learn how to identify and collect the data they need. There are two broad categories: financial data and customer response data.

Financial data. For the purposes of marketing ROI, financial data comes in two varieties. The first is data pertaining to the cost of the event. Event cost data includes all the expenses incurred preparing for, staging, and responding to an event. For a golf tournament sponsorship, for ­example, that might include the sponsorship fee; the cost of designing, printing, and installing signage; and the ancillary costs of hosting guests, such as tent rental, catering, and waitstaff.

It is relatively easy to collect event cost data because these expenses are paid from the marketing budget. But complications can arise when individual events are part of a larger program or media buys are outsourced. In cases like these, costs are often bundled together; isolating the data at the individual event level may require the marketer or vendor to do some extra work. Highly decentralized marketing spending, common in retail banking and with some retailers, can create another barrier to collecting event cost data. This may require the creation of data collection processes that extend throughout the organization.

The second type of financial data, profitability data, includes much of the information that companies use to calculate their margins, such as the selling price, variable cost of goods sold, and other variable costs such as shipping. (It does not include fixed costs such as overhead in a plant or at headquarters.) Essentially, this data answers the question, How much money do we make when we sell an extra widget thanks to our marketing program?

Profitability data is essential to the calculation of marketing ROI, but it can be more difficult for marketers to collect. Marketers’ access to such data varies widely. Some companies embrace the concept of open-book management and share profitability data across the organization; others refuse to provide even their senior marketers with profitability data.

Additional complications arise because some companies group their expenses into line items that make it difficult to isolate variable costs from fixed costs; others don’t account for costs with enough precision to enable reasonably efficient data collection. In these cases, the collection of profitability data can require changes in the reporting system. Nevertheless, there is a silver lining: Profitability data is internal data, and when marketers make a strong business case for gaining access to it, they must enlist the support of their colleagues in finance. They thus have an opportunity to begin creating organizational buy-in for an ROI approach.

Customer response data. This data also comes in two varieties. The first is self-reported data, information that customers provide about themselves. This information includes attitudinal data such as brand loyalty, awareness, and the willingness to recommend a product to others, as well as purchase data (in this case, information that customers volunteer about their purchases).

Self-reported data is gathered in a variety of ways. Most large companies have in-house market research departments that survey current and potential customers to learn about their attitudes and behaviors vis-à-vis the company’s brands. There are also many external sources, such as independent research firms that package and sell this data or accept commissions for dedicated studies.

The second variety of customer response data is behavioral data. This can be observed or recorded, as in test-drive statistics for car dealerships or reports on the forwarding of marketing e-mail. But most often, behavioral data is based on transactions, collected at the point of purchase from scanners at cash registers; from retailers, dealers, and distributors; and from a variety of other sources. Transactional data tells the marketer what the customer bought, where and at what time the purchase was made, the frequency of repurchase, and similar hard facts. It is the most valuable ROI data because it represents actual customer behavior.

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  1. --> Michael Farber, Tom Greenspon, and Jeffrey Tucker, “The Practical Visionary,” s+b, Spring 2008: Describes how reliance on better data suggests a new, more comprehensive role for the chief information officer.
  2. Gregor Harter, Edward Landry, and Andrew Tipping, “The New Complete Marketer,” s+b, Autumn 2007: How chief marketing officers can lead a profit-driven approach for the whole company.
  3. Rich Kauffeld, Johan Sauer, and Sara Bergson, “Partners at the Point of Sale,” s+b, Autumn 2007: Shelf-centered collaboration among manufacturers and retailers provides a major new opportunity for marketing analytics.
  4. Leslie H. Moeller and Edward C. Landry, with Theodore Kinni, The Four Pillars of Profit-Driven Marketing: How to Maximize Creativity, Profit­ability, and ROI (McGraw-Hill, 2009): Along with analytics, shows how to deploy decision support tools, a better marketing process, and organizational alignment to build stronger brands and customer relationships.
  5. Leslie H. Moeller, Sharat K. Mathur, and Randall Rothenberg, “The Better Half: The Artful Science of ROI Marketing,” s+b, Spring 2003: An early wake-up call that introduced the concept of using sophisticated analytics.
  6. Christopher Vollmer, Always On: Advertising, Marketing, and Media in an Era of Consumer Control (McGraw-Hill, 2008): Introduction to the new marketing and media world created by digital media, in which analytics and profit-driven marketing are more relevant than ever.
  7. For more on marketing and sales, sign up for s+b’s RSS feed.
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