The aim of marketing evaluation is to measure the effectiveness of a marketing campaign or plan. But what do we measure? Sales Numbers, Return on Investment (ROI), Discounted Cash Flow (DCF), Return on Customer (ROC), Customer Acquisition Cost (CAC)? It can all get a bit confusing, from The 6 Marketing Metrics & KPIs Your CEO Actually Cares About to the 10 Online Marketing Metrics You Need To Be Measuring and don’t forget about the 6 Metrics You Need to Track. The most important thing to remember is there is no “silver metric”, companies must use a combination of both financial and non-financial metrics to measure marketing. Let’s look at some of the more common measures, namely ROI, DCF and ROC.
Return On Investment, sometimes called Return On Marketing Investment, is perhaps the measurement most used to determine if marketing campaigns are effective. This is the part that the Board and the Executive Directors understand and it helps the Chief Marketing Officer (CMO) get and keep a seat at the big kid’s table. ROI is the net return of an investment divided by the cost of the investment; sounds fair enough, however there are a number of flaws with using ROI to measure marketing. Would ROI be useful if a campaign’s sole objective was not about sales? McDonald’s promoting freshness is not all about sales. ROI is also normally a short term metric that would ignore long term brand equity increases but what if the campaign is focused on the long term?
Discounted Cash Flow could mean many things, Net Present Value (NPV), Customer Lifetime Value (CLV), Brand Valuation. In simple terms, DCF techniques use future free cash flow projections and discount them to arrive at a present value. The main problem with DCF techniques to measure marketing effectiveness has to do with time. DCF techniques are designed for future analysis, therefor implementing them to evaluate performance to date can be problematic.
In 2005, Peppers & Rogers proposed Return on Customer, a twist on ROI. ROC is the current-period cash flow from customers, plus any changes in the underlying customer equity, divided by the total customer equity at the beginning of the period. Customer equity is the NPV of all cash flows a company expects its customers to generate over their lifetimes. The problem with ROC is the “crystal balling”, we don’t know with any certainty who our future customers will be or how much they will spend.
The above three examples are financial metrics. But how do you track your brand name online, customer loyalty or brand recognition? Marketing performance is a multidimensional construct so its measurement has to be a combination of financial metrics as well as sophisticated non-financial metrics such as customer satisfaction, market share, new product adoption rate and website clicks.
By example, in June 2015 Coca-Cola launched their “Share a Coke” campaign in the US with outstanding success, achieving a 2% increase in soft-drink sales, increasing Coke consumption from 1.7 to 1.9 billion servings per day, and making #shareacoke a No. 1 global trending topic on social media. This is an example of the type of metrics that can be combined to measure the effectiveness of a marketing campaign. By speaking the same financial language as the rest of the organisation (sales and consumption), senior management can gain a greater understanding or the marketing campaign and its success. Conversely, by tracking #shareacoke on twitter they can watch, in real time, as their campaign and brand gains greater exposure on social media.
Measuring the effect of marketing is crucial to understand if the campaign is working and to help create future campaigns. However, the metrics used to measure effectiveness depends on the objectives of the campaign. Inevitably you will need a combination of both financial and non-financial metrics to provide a full picture, similar to Coke’s “Share a Coke”. Remember, when it comes to marketing evaluation, “Don’t aim for Silver”.
Daniel Morgan / 214533584 / danielmorgan8