Measuring the Value of Marketing
November 27th 2007
One of the reasons—if not the biggest reason—that marketing is not well respected in business circles is because it is difficult to measure the value marketing provides to the company. In an earlier post, I stated:
Once we get to the point where marketing is left unaccountable because those responsible for it don’t know how to track it or measure its worth, ownership begins to have serious doubts about the value of marketing. Ownership thinks there’s no way to verify marketing’s worth, so instead of seeing marketing as an investment to be returned to the company’s bottom line, it’s seen as an expense.
Thus, since it can’t be tracked and the value to the company is essentially unknown, marketing is tossed aside as a “nice-to-have” business accessory.”
The best remedy? The obvious answer is to quantify marketing’s efforts. The trick, of course, is how does one do that? The first step is to understand what marketing’s role really is and then to create quantitative objectives that support that role.
Ultimately, the marketing objective must support the corporate goals. At a high level, the goal of any company is to create customers. Without customers, there would be no revenue. Once customers have been created, the company has another goal: to retain customers. It is frequently cited that it is cheaper to sell to existing customers than to acquire a new one by a factor of five. So, if only from a cost perspective, it is imperative to retain customers.
Now we know that we are in business to create customers, to generate revenue. This is fairly obvious. Yet, generating revenue, or more specifically, generating profit, is in itself, a meaningless statement of purpose for any business. Without a clear view of the customers and how to serve them properly, there would be no profits. Or, conversely, if the only goal of the company was to make money, then you could be in any business. But you aren’t. You are in a specific business, serving specific customers. As Peter Drucker states, “The customer determines what a business is and is the foundation of a business.”
By focusing on your customer as the end goal, you are building in an inherit marketing value … the value proposition, the reason that your customers come to you in the first place. If you still aren’t sure, think about this: What would happen to your company if all your customers went away? Now, turn that around. Would your customers miss you if your profit machine disappeared? How about, Would they miss you if the value you created for them went away? See the difference?
Therefore, creating profit is not a meaningful goal. Ted Levitt argues that “The purpose of a business is to create and keep a customer.” Philip Kotler states that “profits are not the objective, but are the reward for creating satisfied customers.”
In other words, the only worthwhile measure of what a company is doing is measuring profitability through customer satisfaction. Since customers are satisfied by the value the company creates for them and this value is created by the role marketing MUST play in any organization. Marketing’s role, which shall be addressed in a separate article, is to articulate the company’s capabilities and match them with the customer wants.
Because marketing plays a pivotal role in creating the value and is a key player in creating customer satisfaction, marketing’s value can be understood by measuring customer satisfaction.
Nirmalya Kumar, in his book “Marketing as Strategy,” poses eight questions that should be asked by businesses, but are frequently ignored. The answers to these questions will provide you a way to understanding the health of your company, especially if you understand that customer satisfaction is the main goal of the company, and through customer satisfaction, you will be rewarded with profits. I don’t recommend you throw away the P&L statements, but these questions will provide a better way to understand the value that marketing brings to your business and gives you a road map of sorts to help steer your company to success.
- Are we servicing our customers better?
- Have we truly differentiated our products in a clearly visible way that matters to the customer?
- Is our differentiation generating profits?
- Does our price premium reflect the additional value delivered to customers?
- Are we satisfying our customers better than our competition?
- Are we exploiting market opportunities faster than others?
- Do our people understand how we create value for our customers?
- Must distributors carry our products to maintain legitimacy in the industry?
