Laura Patterson President VisionEdge Marketing, Inc.€¦ · Marketing Doesn’t Make the Grade Only 17% of the 136 executives and marketing professional indicated that their CEO

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© 1999-2007 VisionEdge Marketing. All rights reserved.Not for reproduction or redistribution without written permission.

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Proving Marketing’s Value: Tangible Tools and Metrics for the 21st Century

Laura PattersonPresident

VisionEdge Marketing, Inc.



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Today’s Takeaways

1. Metrics Enable Us to Respond to the C-Suite2. Tactical vs. Strategic Measures 3. A Metrics Framework to Elevate Your Game4. Recommendations for Metrics that Link Our

Work to the Business5. Culture, Process and Proficiency Play a Role 6. Case Studies that Model the Way



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Marketing Doesn’t Make the Grade

Only 17% of the 136 executives and marketing professional indicated that their CEO would give marketing an A

A total of 48% felt that CEOs believe that their organization’s ability to measure marketing performance was only marginally effective.

Source: VEM MPM 2007 Study



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We’re Ineffective at Measuring our Value

How do you assess your company's effectiveness in measuring marketing?

Marginally effective (we have good measurement

processes, but need to improve our links to operational levers and organizational

accountabilities41.1%

Effective (we have good mesurement

processes and take action against the operational levers that most directly impact customer

experience)18.3%

Somewhat ineffective (we

attempt to measure, but don't trust the

output or understand the links to business

performance25.5%

Completely ineffective (we don't

measure)15.1%

Marketing is onlymarginally or somewhateffective at measuringeffectiveness

Deloitte 2006 study of over 460 executives



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The C-Suite Wants It

Regardless of size, the C-Suite in every company is demanding to understand the value of marketing in more quantifiable terms.

66% of business executives say marketing analytics and metrics are marketing’s greatest need

Booz Allen study

And we’re at risk: 34.9% of CEOs give marketing a C

grade, only 9.6% of CEOs give marketing an A grade, 8.4% give marketing a D grade

CMO Council Renovate to Innovate, 2005

1. 66% ranked Accountability as Chief Concern

2. Strong Brand Franchise followed at 48%

3. 45% cite developing integrated marketing communications

ANA 2005

Top Priority: Enhanced Return on Marketing Investment for their Marketing & Research Functions

Advertising Research Foundation (ARF) Survey of CEOs 2005



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So Why Can’t We Do It?

What have been your biggest challenges in improving measuring marketing effectiveness?

Lack of well-defined

performance measurement

capabilities35.0%

Insufficient knowledge on how

to do it7.1%

Have not focused on it thus far

18.0%

Lack of data12.8%

Lack of internal coordination and clearly defined accountabilities

27.0%

1. Lack of well-defined performance measurement capabilities 2. Lack of internal coordination3. Lack of clearly defined accountabilities– Deloitte 2006



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Compounded by A Sea of Metrics

1) Business acquisitions/demand generation metrics such as

market share gains

category growth

customer acquisition

Brand awareness

2) Product innovation/acceptance metrics such as

market adoption rates new

products as a percentage of revenue

time-to-revenue

user attachment & affinity

share of wallet, loyalty and referral rates

3) Corporate value metrics such as

growth in brand value & financial equity

customer franchise value

price premium,

retention of customers and employees

Brand championship

4) Corporate vision & leadership metrics such as

share of voice

share of distribution

retention & message Relevance & tonality of coverage

And even more…



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We often aim too low – metrics are too tactical

1. Activities such as response rates, number of press hits,

2. Operations such as cost/lead, lead aging, program-to-people ratio

32.9%

32.8%

11.0%

8.2%

5.5%

4.1%

1.4%

0.0% 10.0% 20.0% 30.0% 40.0%

Lead Quality

Sales Increases

Lead Volume

Market Share Gain

Brand Awareness

Cost per Lead

Brand Preference

Hearst Electronics Group 2005. 75 Senior Marketers



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Too Few Strategic Measures

2/3 do NOT include metrics in marketing plans- SCARY

Nearly everyone says business with existing customers is important, BUT ONLY 8% track or measure share of wallet (92% don’t) 3% report SOW regularly to management (97% don’t) 9% include it in their marketing plan and have a process in place to track it. (91% don’t) < 10% measure customer lifetime value, customer advocacy, customer tenure (90% don’t)

78% of marketing and business executives and professionals believe it is critical to acquire new customers in existing markets.

Other than leads to conversion, track little else. Only about 25% track and measure rate of customer acquistion (75% don’t) Only about 37% report a market share metric (60% don’t)

Only 1 of 4 measure marketing’s impact on business goals

Studies commissioned by VisionEdge Marketing 2003, 2004, 2005, 2006



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Bad Metrics Can Be Worse Than No Metrics

Too many measures can impede progress Inappropriate metrics may encourage non-

productive activities Metrics may be ambiguous and therefore

open to interpretation Targets can be set too low and are

inconsistent with strategy Disconnects between metrics and corporate

strategy



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Add the State of Banking and Things Only Get Worse

1. Customers know that they have choices: 55 percent agree that as compared to their primary financial services institution, there are many other good institutions from which they can choose.

2. Customer satisfaction is not a differentiating concern for many: 33 percent agree that as compared to their primary financial services institution, there are other institutions with which they are equally or more satisfied.

3. Employees impact customer acquisition :Having friendly (73 percent) and professional (75 percent) staff is a factor in determining a customer’s primary financial services institution.

4. Courtesy matters: percent says that the courtesy of customer service staff is the most important factor when interacting with their primary financial services institution—more important, in fact, than even the time it takes to be served (15 percent).

5. Customers are moving to the Web: 23 percent report calling their primary financial services institution with questions in the last three months, but nearly double that number (45 percent) have used the institution’s Web site for transactions. But loyalty is won at the branch level.

Source: Carlson Marketing



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The State of BankingConsumers are eager to engage with businesses that have an impact on their financial statusBanks top the relationship table scoring 19%But trouble is brewing:

While consumers are keen to strike up and maintain relationships with their banks

banks are extricating themselves from relationships with their customers.

Banks are moving from the branch culture towards self-service

Banks taking every available opportunity to push consumers to internet, automated telephone and centralized contact centre banking.

Saving money at the expense of the relationship. Banks now risk alienating customers at worst or missing valuable cross-selling opportunities at best.

Implications: massive potential wasted revenue loss or opportunity over the course of a customer's lifetime.



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As a Result Bank Loyalty is on the Wane

Banking is currently considered a commodity among consumers, especially younger ones, who are least likely to be loyal.

The total number of households with no primary banking relationship jumped from 7.6% in 2005 to 10.6% in Q3 2006, with younger adult consumers leading the rebellion, 12.6% of the so-called Generation Y (under 30

years old) households said they had no primary banking institution.

Generation X (age 30-39) came out at 11.4% Seniors (70+ years old) came out at 11.1% Baby Boomers (aged 40-59) came out at 10.4% Empty-Nesters (aged 60-69) came out at 8.6%.

Of those respondents who reported having a primary financial institution, the majority across all age groups said they would be "very likely" to recommend it to a friend or relative. Of those the lowest percentage was

among the Generation X and Y groups at 53% and 54% respectively.

Baby Boomers stood at 58.3%, while Empty Nesters were 67.4%, and Seniors were 67.8%.

As for those who would be "very unlikely" or "somewhat unlikely" to recommend their primary institution to a friend or relative, the younger generation led the pack with Generation Y at 6.8% and Generation X at 5.9%. They were followed by Baby Boomers at 4.9%, Empty Nesters at 2.7%, and Seniors at 2.8%.

Source: Claritas’ 2006 market audit



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Adopt a Framework

Need a new Framework that Transforms marketing into a

performance-driven, outcome-based-customer-centricorganization

Enables marketing to demonstrate value

Broadens our focus beyond sales support

Links Marketing to Business Outcomes

Identifies the impact to the organization’s economic performance & strengths

Measures financial & NON-FINANCIAL goals

Balances the ROI of current programs while still driving strategic issues that impact long-term viability

Creates a culture of Accountability



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How Do We Get There?

Start with the purpose of Marketing

“Marketing has the main responsibility for achieving profitable revenue growth”

Phil Kotler, 1999S. C. Johnson & Son, Distinguished Professor of International Marketing, Kellogg

Graduate School of Management, Northwestern University



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Marketing is Responsible for Three Customer Outcomes

Find/SecureProfitableCustomers

Acquisition

KeepCustomers

Penetration

GrowCustomer

Value

Monetization



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Our Three Roles Enable Us to Move Three Business Outcomes

Acquisition Penetration

Acquisition MarketShare

Penetration LifetimeValue

MonetizationBrand/CustomerEquity

Enjoy Economies of ScaleMaintain Greater ProfitabilityMore Leverage with Suppliers

Higher referral rateLess cost to serveLess price pressure

Less vulnerable to competitionBetter new product success rateHigher prices

Acquisition Penetration

Monetization



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Three Business Outcomes = Three Strategic Marketing Metrics Categories

Market Share Lifetime Value Brand/

Customer Equity

Find/SecureProfitableCustomers

Acquisition

KeepCustomers

Penetration

GrowCustomer

Value

Monetization



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Key Performance Indicators for Each Metric

5 Brand EquityIndicators Price Premium Net Advocate Score Customer Franchise

Value New Product

Acceptance/Adoption Rates

Product Margins

Certain Facets of PerformanceMove Needles for Each Gauge

4 Lifetime ValueIndicators Purchase Frequency Share of Wallet Advocacy/Loyalty Tenure

5 Market ShareIndicators Share of Preference Share of Voice Share of Distribution Rate of Customer

Acquisition Rate of Growth:Market



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Which Outcomes Are Right for Banks

Customer-centric outcome-based metrics around keeping profitable customers and growing their value

“Banks are finding that to make customers profitable, you have tohang on to them for the long-term and grow the share of wallet.”

“Banks have not traditionally focused on loyalty. In general, there have been very few strategies and they don’t measure who stays or goes.”

Banks are just starting to recognize that it’s also important how long people keep money in the bank and how they use it.” Financial Services Institutions Should Tackle Price Optimization

Forrester study 2007



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For Banks It Must Be About SOW, Loyalty and Customer Value

Over 60% of companies don’t consider increasing customer share of wallet, loyalty or improving customer profitability critical to success

And they don’t track these either

Source: VEM MPM Study



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Most Marketers Have Lost Their Way

Share of Wallet, Improving Loyalty and Retention are not priority initiatives



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Start by Knowing Your Customers

Studies in the 90’s concluded 70% of a banks customers weren’t profitable

Create Customer Segments High Value Customers – high margin, high loyalty, long tenure, high SOW,

receive high value from the bank Low Value Customers – marginal customers who may provide economies of

scale but who don’t or receive value. Credit card may have a lot of low value customers that increase the banks share

but negatively affect long term profitability Vulnerable Customers – high value to the bank but customer’s don’t receive

a lot of value back. Prone to defection. Revisit service strategy. Charles Schwab, best customers never wait longer than

15 seconds, other customers might wait as long as 10 minutes. Cherry Pickers – Get superior value from the bank, but the banks is on the

losing end. Maybe loosing money on your mortgage business but the problem may not be

the product, it may be the product was cherry picked. Adjust pricing and service strategies.



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Focus on Profitable Customer Relationship

Relationships drive important business results—and there is a way to create a meaningful relationship strength score, also known as a net advocacy score

As compared to respondents in a baseline condition of low relationship strength (1.00-4.75), those with medium (4.70–6.00) and high (6.01-7.00) levels show enhanced improvement across all three outcomes.

RSx/Advocacy Recommend Remain A Buy More to Friends Customer

Low 1.00X 1.00X 1.00XMedium 1.42X 1.28X 1.33XHigh 1.00X 1.33X 1.57X




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Customer Relationship Affects the Bottom Line

Fifth Third Bancorp Retail banking and problem resolution have been problem

areas Improve relationship by enhancing the customer experience

for every line of business – retail, commercial, asset management and payment processing

Key metrics Customer attrition – was at double digit rate Customer retention

Rolling out incentive compensation all the way down to the teller level a component will be based on customer experience scores



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Three Marketing Ingredients to Improve Your Relationship Score

1. Customization: A change in communication customization from low (2) to high (7) increases relationship strength on average by 35 percent.

Adapt the company’s behavior toward a customer based upon knowledge of the individual’s needs and value, in order to deliver a superior experience that would otherwise be difficult for the competition to duplicate.

Use customer-specific information to tailor the content of communications has a dramatic impact on relationship strength

2. The relevance of a communication: A change in communication relevance from “somewhat irrelevant” to “relevant” increases relationship strength by 39%.

Definition: the extent to which the content of the message is applicable to the customer’s current needs—strongly impacts the strength of the relationship In particular, moving from a state of being “somewhat irrelevant” to neutral has a greater influence (21 percent) on relationship strength than improving from neutral to “relevant” (16 percent).

3. Frequency: When communications are too infrequent, relationship strength suffers. On average most (68 percent) customers prefer monthly communications.



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Give Loyalty A Chance

Comparatively few survey respondents now participate in a financial services loyalty program, but would join one if it was offered—and most would then be disposed to use that institution’s products and services more frequently.

.

64% use products and services that have loyalty programs more frequently than those that do not

77% of respondents do not currently participate in a financial services loyalty program

51% would join a financial services loyalty program if offered




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Who In Your Space Can You Model and Benchmark

Source: Forrester Research



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Will It Make a Difference?

In 2006 Aberdeen benchmarked 500 companies and found that best-in-class marketers measure specific metrics that directly link marketing efforts and overall business goals and that these marketers and their companies consistently demonstrate higher performance in four areas: rate of customer acquisition, rate of customer retention, annualincrease in gross revenues, and return on marketing investment

BIC Performance Advantage

38%

37%

39%

24%

50%

60%

45%

31%

60%

76%

49%

43%

0% 20% 40% 60% 80%

Annual increases ingross revenues

Customer RentionRate

Customer AcquisitionRate

ROMI

Pe

rfo

rma

nc

e

Percentage

BIC

Average

Lagging



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What do Best-In-Class Companies do Differently?

Aberdeen found that Best-in-Class Companies have A strong marketing strategy planning process Use customer lifetime value/profitability modeling Track and assess ROI by channel And understand customers’ interaction preferences

BIC Do Things Differently

18%

16%

2%

1%

38%

33%

17%

17%

73%

61%

60%

59%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Has a strong marketingstrategy planning process

Use customer lifetimevalue/prof itability modeling

Can track and assess ROIby product/channel

Understand customers'interaction preferences

Ac

tio

n BIC

Average

Lagging



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Key Metrics for Banks and Everyone Else

Traditional metrics such as sales, share, customer satisfaction,product/brand profit still needed HBR 1995 Jones and Sasser found ctm sat customer loyalty HBR 2003 Reichheld found customer sat customer profitability Customer satisfaction ok to track, but not to manage by

Shift focus to outcome-based customer metrics Takes a long-term view and emphasizes customers as assets

Customer acquisition (rate and cost) Customer margin Customer retention (rate and cost) Customer Value Customer Relationship/Advocacy

Recommend Remain Loyal Buy More



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Think of Metrics Along a ContinuumTactical Strategic

Activity-Based

Operational

Outcome-Based

Leading-Indicators

Predictive

Counting:Press HitsTrade show leadsClick-Through Rates

Efficiency:Lead/RepLead AgingCampaign ROIProgram: People RatioCost/Billing DollarProgram spend/headcountProgram/Total SpendAwareness: Demand Ratio

Business Outcomes:Market ShareCategory OwnershipLifetime Value

Likelihood of Outcome:Share of WalletAdoption RatesRate of Growth:Market



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The Right Metrics are Outcome-Based

Outcome-based metrics enable marketers to: Measure Strategic Effectiveness Focus on Efforts with Greatest Impact and

Contribution to the Company’s Valuation Demonstrate Accountability Focus on Contributors to Company’s overall

Valuation Provide Quality Control Process



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Four Customer Metrics

ROI on marketing investments should be in the context of whether the effort is building customer value, improving the financial health of the institution, and shareholder value.

Avoid general goals such as “get more customers,”keep more customers”. Define specific dollars and numbers.

Set specific measurable goals around Customer value Customer profitability Customer retention Customer share of wallet



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Six Recommended Outcome-Based Metrics

Market Share & Performance Indicators Share of Preference Rate of Customer Acquisition

Lifetime Value & Performance Indicators Share of Wallet Recent Purchases and Frequency

Brand Equity & Performance Indicators Price Premium Net-Advocate Score



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Characteristics of Effective Metrics

1. Aligned. Effective metrics and KPIs are always aligned with business outcomes.

2. Owned: Every metrics and KPI needs to owned by an individual or group who is accountable for its outcome.

3. Predictive: The metrics and KPIs should measure drivers of business value and therefore should be leading indicators of desired performance.

4. Actionable. Effective metrics and KPIs enable the organization to make decisions and take action.

5. Manageable: Metrics should allow you to focus on a few high value initiatives/tasks.

6. Easy to understand: 7. Balanced and linked: KPIs should balance and be linked to each other.8. Transformative: KPIs should provide insights that enable the organization to

make positive changes.9. Standardized: Metrics and KPIs should be based on standard definitions,

rules and calculations.10. Contextual: KPIs should put performance in context.11. Relevant:



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Metrics Reporting

Accountability means Reporting Dashboard correlates Marketing investments

and Metrics Focus on the most relevant, essential, & valuable

actions Begin with business outcomes Identify most important measures of success Define performance indicators connected with these

measures Determine which data provides necessary information Analyze & report



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Marketing Executive Dashboard

Metrics for Every Marketing Dashboard1. New business metrics2. Competitive metrics3. Customer Value metrics4. Overall Net Advocacy Score5. Market Value Index6. Product Innovation



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Why Isn’t This a Dashboard?

A good dashboard Shows how marketing is

moving the needle Helps assess what is and

isn’t working Fosters decision making –

is actionable Provides a unified view

into marketing’s value Enables better alignment

between marketing and the business

Translates complex measures into a meaningful and coherent set of information

Design and develop new merged intranet site

Implement guidelines for continuous improvement of marketing and sales intranet site

Program #4Automated Online Direct Marketing

Program #5 - Create four regional Marketing Programs

Define Markets requiring emphasis, implement direct marketing program

Evaluate Mid-west ABCSaver opportunity

Enhance access and ease of use

Maintainance and create new materials needed

Corpoarate Capabilities Presentation

Program #6

Set up Profoma (Access to online direct marketing materials - customized, printed, shipped & tracked)

Link to Virtual Warehouse



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What Might Be on Your Dashboard

Marketing payback

$0

$100

$200

$300

200020012002200320042005

Pro

d R

ev a

nd

m

ktg

sp

end

$9.00$10.00$11.00$12.00$13.00$14.00

Mktg Return

Prod rev (mills)

Marketing spend (mills)

Payback (1 year lag)

Customer Acquisition

0

50

100

150

200

06Q1 06Q2 06Q3 06Q4N

um

ber

0

5001,0001,5002,000

2,500

Do

llar

s Target New Customers

Avg Customer Value

Cost to Acquire

SOW and Advocacy

0

20

40

60

80

06Q1 06Q2 06Q3 06Q4

Nu

mb

er

0

10

20

30

40

%

Avg # Prod/Ctm

Customers

NAS



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Six Steps You Can Take Tomorrow

1. Stop reporting on activities Think in terms of what information is needed to

make important strategic decisions

2. Conduct an Audit Start with the data you have, define your gaps

and your action plan to fill

3. Define 3-5 Business Outcomes Marketing Drives and identify the performance metrics that link marketing to these business results



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Six Steps You Can Take Tomorrow

4. Improve your Metrics Competency and Proficiency Recruit/Train Marketers with Metrics Skills Invest in tools, systems, & processes

5. Use Metrics to Guide Business Decisions Create Dashboards & Not The Usual Charts

6. Foster a Culture of Accountability “a personal choice to demonstrate ownership for

achieving desired results” Connors and Smith, 2004



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Create a Culture of Accountability

Companies with “formal & comprehensive” Marketing Performance Management System:

Outperform companies entering consideration phase

Achieve 29% better sales growth

32% better market share

37% better profitability CMO Council/Business Week MPM Survey October 2004



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Tie Compensation to Retention

Wells Fargo Set performance targets

reduce the number of high value customers who left in half each year Have 75% of Wells customers buy their next financial product from

their company Have over 50% of customers rank Wells at the best financial institution

in their community Experience creates loyalty

Made customer experience a number 1 priority Customer research revealed being able to resolve customer issues with one

call important Put technology in place to allow 90% of customers who phone the

company to get their issues settled without being transferred Increased branch staffing –number of household per banker has gone from

1100 to 750 Weighted compensation toward retention and customer experience

scores



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Culture of Accountability Litmus Test

How does a marketing organization know they have a culture of accountability? An organization with a culture of accountability can pass the following four-part litmus test.1. Marketing defines specific goals with measurable criteria to

achieve clear results that will impact the business.2. Each person in marketing assumes accountability for the ultimate

business outcome, not just his or her individual tasks3. There is a focus on achieving results beyond the boundaries of

each individual’s job4. Each person within the marketing organization knows how their

job advances the corporate and marketing goals. He or she understands he or she cannot be task-centric (e.g. updating the website, creating and implementing a campaign, revising the pricing model, etc) and instead, strive to be outcome-centric.



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Closing - Success Factors

For Effective Metrics:1. Commit to Strategies Linked to Metrics2. Validate Links between Performance

Indicators you Select and Strategic Metrics

3. Set Right Performance Targets4. Measure Correctly & Consistently



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Thank you

Questions? For Information About

MPM Three Year Trend Report Measure What Matters Metrics Continuum and Dashboards Subscription to free weekly Metrics

Newsletter www.visionedgemarketing.com



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“Measure What Matters”Presents a metrics framework marketing professionals and company executives can use to ensure marketing is tightly connected to business goals and provides an approach marketers can employ to demonstrate marketing’s contribution.

“ The book is full of useful tips and practical instructions for measuring the truly important metrics that enable marketing to impact a company’s most critical goals.”

“Should be required reading BEFORE the writing or formulating of any marketing plan or budget.”

“Measure What Matters ranks in my top 10 marketing books.”

“… one of those rare pieces of work that brings the right information to the table at precisely the right time.”

"There is something in here for every marketer who wants to prove that marketing, done strategically, can be a huge competitive advantage in driving profitable growth.”

Available for purchase online at www.visionedgemarketing.com



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About VisionEdge Marketing

Headquartered in Austin, TX, VisionEdge Marketing, Inc. VisionEdge Marketing, Inc. is a data-driven and metrics-focused marketing firm that specializes in improving marketing performance and helping organizations create a competitive advantage designed to attract, secure and retain profitable customers.

Services include marketing performance management, business intelligence, product and strategic marketing, pipeline re-engineering and revenue creation, and professional development.

The firm primarily works in the B-B space, predominantly technology-based companies with an emphasis on software, wireless, security, networking, computing, semiconductors, and medical devices. Some of our 70+customers include: Abbott Spine, a division of Abbott Labs; Adobe; BAX Global; Barber Foods; Boxx Technologies; ETS-Lindgren; Freescale, Infoglide Software; Motion Computing; ROC Software; SOR Instruments, SkyBitz; Tektronix and Zebra Technologies.

Documents

Laura Patterson President VisionEdge Marketing, Inc.€¦ · Marketing Doesn’t Make the Grade Only 17% of the 136 executives and marketing professional indicated that their CEO