The role of financial and behavioural metrics in marketing evaluation

 

Measuring marketing performance is a huge challenge as it involves many intangible benefits like brand value, brand awareness, customer relationships. It makes the individuals involved in marketing more accountable for the revenue growth. Sales revenue and profit margin give a good indication of how the company is performing. However, marketing metrics tells us the reason for the performance. Hence, it serves as a diagnostic tool and helps managers improve their strategies. In order to quantify and compare different costs and benefits, we need marketing metrics. Marketing metrics or key performance indicators help in evaluating the performance of different marketing strategies and its spending. We take a closer look at the financial and behavioural metrics here.

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Financial metrics

Profit contribution: The direct costs are compared with the sales revenue.screen-shot-2010-03-02-at-6-20-30-am

Profit margin It gives data about how much the company is earning by selling a particular product. While having a good profit margin indicates a good performance and vice versa. But sometimes profit margins can decrease due to other reasons like the research costs and number of products sold and product life cycle. Having more sales with a lesser profit margin is considered a better indicator than having more profits and fewer sales (Sharp, 2013).

 

Return on investment

It gives the value of a marketing strategy based on the extra sales it could generate. Marketing strategies not only improve sales but also help in maintaining the current sales. Being a percentage the ROI value is based upon how much profit it makes in terms of dollars rather than a percentage (Sharp, 2013).

Customer value

The value added to the company in retaining a customer in terms of the customer’s profitability. The major difficulties in measuring this are, behavioural changes, having many relations with the same company and measuring the customers profitability for competitors. Customer lifetime value is measured in terms of profitability expected in the customer’s lifetime. It helps marketers in identifying what’s the right amount to spend on acquiring new customers or retaining customers (Sharp, 2013). Investing on customer retention by providing better services and discounts will be more beneficial in a local grocery store where the customer is more likely to return than when applying a similar strategy in tourist destinations.

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Behavioural metrics

Sales

Although it looks like a straightforward metric in quantifying marketing performance, there are situations where it becomes irrelevant like, sales data of Amazon tablets was measured on the shipments to retailers and not to customers. It gave a false indicator of sales in 2012 as the inventory piled up with the retailers due to the 2011 shipments (Sharp, 2013).

http://www.bloomberg.com/news/articles/2015-07-23/amazon-surpasses-wal-mart-as-biggest-retailer-by-market-value

 Market share

It indicates the sales of a particular product compared to the similar ones in competing brands. But focusing on just improving market share by reducing the profit margins is not a sensible idea. Ultimately a company’s success is determined on the profit and profit margin it makes (Sharp, 2013). For example, Flipkart incurred a 2000cr loss in order to gain market share by giving heavy discounting  (timesofindia-economictimes, 2015).

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Market penetration

It indicates the customer base of a company in a particular period. A longer time would give the customer more chance to buy. Hence, market penetration of varying period should not be compared. Market penetration also depends on the category that is being measured. A narrow category has a higher penetration score (Sharp, 2013). For example, if we calculate the market penetration of iPad among the total number of Apple devices the market penetration would be quite high. But when we consider the same among the total number of tablets sold it would be reduced. It would further reduce when whole personal computers of similar category are taken into consideration.

http://www.macrumors.com/2015/07/29/idc-ipad-tablet-numbers-q215/

 

Purchase frequency

It indicates how often a customer buys in that particular period. It gives us a measure of brand loyalty. Apple introduced a new to increase customer retention as well as increase purchasing frequency.

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http://www.mirror.co.uk/news/technology-science/technology/new-iphone-every-year-no-6414719

 

 

 

 

References

timesofindia-economictimes. (2015). Flipkart suffers Rs 2,000-crore wound in bruising discount war. [online] Available at: http://articles.economictimes.indiatimes.com/2015-12-03/news/68741935_1_flipkart-and-snapdeal-flipkart-internet-mukesh-bansal [Accessed 13 May 2016].

Sharp, B. (2013) Marketing Metrics Marketing: Theory, Evidence, Practice. Oxford University Press, Melbourne, Australia.

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