The series of blog posts on Marketing Performance Measurement continues in 2010 with an insight on sales force management, as part of the front-end facet of the marketing process.
Sales force and sales channel management is a crucial part of marketing, especially when dealing with a push approach towards the marketplace. Monitoring the effectiveness of the sales system is essential for business as on its success relies the future of the business. www.smartKPIs.com contains over 40 examples of Key Performance Indicators published in the online database. Some of these are highlighted by category below:
Category 1. Sales force efficiency
It represents a generic name for metrics used for monitoring salesperson or sales team performance by means of various criteria, such as calls or contacts made, accounts (potential, activated, re-activated), revenue generated etc. Examples:
Compensation measures the amount of payments made to a sales person or to a sales team. Sales force is usually compensated by bonuses or commissions, added to the baseline salary, and those are proportional to their sales results. Monitoring compensation spending is important as it helps assessing whether progress of the sales crew is in accordance to the set goals and the costs associated with their activity are generating the results desired.
Category 3. Sales goals or objectives
In accordance to their compensation, sales people have to meet sales goals, representing the sales target for the following period, as is follows:
$ Sales goal = % Share of the sales person in the territory in the prior year * $ Forecated sales in the territory
Goals are set to motivate sales people and establish benchmarks, but set too high or too low would make the effort of no relevance and even damaging. Thus, some rules have to be followed when setting sales goals so as they are SMART:
Specific to a sales person/team/territory
Measurable in numbers
Achievable considering the resources of the person/team and the market potential,
Realistic so as not to be considered too high and
Time-bound, attainable in a clear time-frame, with a precise deadline.
The workload of the sales person/team should be taken into consideration when setting sales goals and providing sales compensation. Workload generally defines the amount of work of a person/team and, in the context of sales, this it influenced by the number of active accounts that need to be served, on one hand, and the number of potential accounts that are targeted, on the other hand:
# Sales workload = (# Active accounts * # Average time to serve an active account) + (# Potential accounts * # Average time to convert a prospect into an active account)
Other sales force KPIs focus on pipeline analysis. Sales pipeline performance will be covered in a future blog post.
One of the important events of 2009 for the Retail industry and Sustainability community was the launch of the Sustainable Product Index initiative by Walmart and the establishment of the Sustainability Consortium.
The Sustainable Product Index is intended to be an open source worldwide standard of measuring the sustainability of a product.
The Sustainability Consortium is an independent group of scientists and engineers from leading academic research institutions around the world who engage with other leading researchers from the NGO, Governmental and Industrial sectors. The primary function is to develop the science to support the indexing of consumer products throughout all phases of the products life.
The initiative was announced by Mike Duke, president and CEO, Walmart at the July 2009 Milestone Meeting. The 20 minutes video of the address is available below:
Key discussion points:
On measurement
Retailer at hart, with engineering training (Alumni of Georgia Tech)
I like metrics, I like measurements, I like to set goals and measure results. I guess it comes with that qualitative measurement approach.
If you can’t measure it, you can manage it.
In some ways we have got measurements already, we think there is a need of much more in this area of measurement.
On customer expectations
Consumers have much higher expectations from retailer and suppliers:
Savings. The Global Financial Crises brought on new expectations from consumers. Customers want to save money even more and they are smart about what and how they are spending.
Transparency. The speed of information is higher. Greated transparency in the future is expected and will accellerate. If businesses are not transparent, they will not have the trust of consumers.
Sustainability. World population is currently 6.7 billion, growing to over 9 billion by 2050 . We are depleating the natural resources of the world if consumer patters will be mantained or accelerate.
On the Product Sustainability Index
A global standard to be used across the world with all retailers, in all countries. Will help raise quality and lower cost, while enabling innovation across the supply chain.
1. Supplier Assessment
A 15 questions questionnaire will be provided to suppliers to evaluate therir approach to sustainability. The questions are dedived into four areas:
Energy and Climate
Natural resources
Material efficiency
People and Community
Piloted with the top 50 suppliers from the USA and gradually rolled-out globally to over 100,000 suppliers.
2. Lifecycle Analysis Database
Consortium of universities that will collaborate with suppliers, retailers, NGOs and government to develop a global database of information on the lifecycle of products – from raw materials to disposal.
Arizona State University and the University of Arkansas will jointly administer the consortium.
The company will also partner with one or more leading technology companies to create an open platform that will power the index.\
3. A Simple Tool for Consumers
Standard database available to tell customers about the sustainability index of they product they are purchasing.
The sustainability consortium will help determine the scoring process in the coming months and years.
Quotes
“The index will bring about a more transparent supply chain, drive product innovation and, ultimately, provide consumers the information they need to assess the sustainability of products. If we work together, we can create a new retail standard for the 21st century.”
Mike Duke, President and Chief Executive Officer, Wal-Mart Stores, Inc.
Walmart Sustainability Milestone Meeting, July 16, 2009
“I think from a business perspective there is another opportunity that Since the beginning of modern retailing in the US, there has never been a retail brand that’s transitioned from one generation to the next. This is our opportunity to connect with the next generation. By leading in sustainability and being able to deliver quality products at low prices, to be able to deliver our value proposition, we will connect with these consumers. We may never be cool, but we care and we can make a difference.”
John Fleming, EVP and Chief Merchandising Officer, Wal-Mart Stores, Inc.
Walmart Sustainability Milestone Meeting, July 16, 2009
Videos from the Walmart Sustainability Milestone Meetings, July and November, 2009
Retailer at hart, with engineering training (Alumni of Georgia Tech)
I like metrics, I like measurements, I like to set goals and measure results. I guess it comes
with that qualitateive measurement approach.
If you can’t measure it, you can manage it.
In some ways we have got measurements already, we think there is a need of much more in this
area, of measurement.
Consumers have much higher expectations from retailer and suppliers.
1. Savings. The Global Financial Crises brought on new expectations from consumers. Customers
want to save money even more and they are smart about what and how they are spending.
2. Transparency. The speed of information is higher. Greated transparency in the future is
expected and will accellerate. If businesses are not transparent, they will not have the trust
of consumers.
3. Sustainability. World population is currently 6.7 billion, growing to over 9 billion by
2050 . We are depleating the natural resources of the world if consumer patters will me
mantained or accelerate.
Walmart Sustainability Index
A global standard to be used across the world with all retailers, in all countries.
Help raise quality and lower cost.
Create innovation across the supply chain.
1. Supplier Addessment
A 15 questions questionnaire will be provided to suppliers to evaluate therir approach to
sustainability. The questions are dedived into four areas:
Energy and Climate
Natural resources
Material efficiency
People and Community
Piloted with the top 50 suppliers from the USA and gradually rolled-out globally to over
100,000 suppliers.
2. Lifecycle Analysis Database
Consortium of universities that will collaborate with suppliers, retailers, NGOs and
government to develop a global database of information on the lifecycle of products – from raw
materials to disposal.
Arizona State University and the University of Arkansas will jointly administer the
consortium.
The company will also partner with one or more leading technology companies to create an open
platform that will power the index.
3. A Simple Tool for Consumers
Standard database available to tell customers about the sustainability index of they product
they are purchasing.
The sustainability consortium will help determine the scoring process in the coming months and
years.
“I think from a busines sperspective there is another opportunity that Since the beginning of modern retailing in the US, there has never been a retail brand that’s transitioned from one generation to the next. This is our opportunity to connect with the next generation. By leading in sustainability and being able to deliver quality products at low prices, to be able to deliver our value proposition, we will connect with these consumers. We may never be cool, but we care and we can make a difference.”
John Fleming, EVP and Chief Merchandising Officer, July 2009 Milestone Meeting – Sustainability Index
At macro level, marketing performance appraisals focus on customers as a whole, on how they perceive the brand, what knowledge they have about it, the level of their satisfaction and how they respond to various marketing efforts (advertising, pricing strategies etc.).
Managing customer relationships at micro level can be a very complex process, where performance management looks at improving the administrative aspects that can influence customer satisfaction (such as sound document flows with customers), as well as achieving long term goals (as the customer lifetime value). The major purpose of customer performance management is to measure and enhance profitable interactions with customers.
smartKPIs.com documented several customer metrics that can be good KPI candidates:
We invite you to explore our database of KPIs for more details on these metrics.
The current blog post aims at providing an in-depth view of customer profitability.
Why is exploring customer profitability important? Because it is vital to differentiate profitable customers from unprofitable ones, in order to either give up on the relationship with the latter ones, or to increase efforts for making them profitable.
$ Customer profitability allows analysis of the profits generated by a particular customer/customer group within a specific time frame. Measurement involves calculating the difference between the revenue generated by the customer and the costs associated with that customer relationship.
Often, it is quite difficult to make such measurement, to quantify all revenue and all costs associated with one customer. For example, in terms of revenue, to simplify things, companies often measure the value of the customer purchases performed in that data capture period. But customers can generate revenue by making a recommendation of the company to another customer that will make a purchase based on that. Or even by word-of-mouth advertising, dispensing the company of the costs for that advertising. So, companies will focus on the clear money flows with the customers.
Measurement can be facilitated by the use of various customer relationship management software. At first, the subtraction of the costs from the revenues generated by each customer (or group) is done. Then, customers will be sorted based on profit levels, usually in three categories:
Top Tier: are the most profitable, probably the less price-sensitive and need to be retained. Usually, the strategy is to reward these customers so as to consolidate the relationship with them.
Second Tier: they generate moderate profits, but may have a growth potential, so relationship needs to be fostered with them in the direction of transforming some in top tier customers.
Third Tier: these are the unprofitable customers that affect company results. Efforts could be made in order to moving them to the superior levels, but if they can be identified at very early stages of the relationship, it might be the right thing to dispose of them.
Measuring customer profitability has a retroactive focus, but there is a metric that looks forward in the relationship with the customer: the customer lifetime value.
$ Customer lifetime value calculates the present value of the future cash-flows derived from the relationship with the customer.
It is based on forecasts that envisage the lifetime of a customer, on one hand, and the cash-flows that will be during that period, on the other hand. The value represents the upper limit of what the company is willing to pay to either acquire that customer or maintain the relationship with an existing one.
The calculation is done by multiplying the cash margin of each period to the present value of the estimated length of the customer relationship, as it follows:
$ Period margin represents the per-period cash margin (revenue minus costs)
% Retention rate is the rate at which the customer is estimated to be retained, based on past retention rates
% Discount rate is the rate by which the future cash flows are brought to present
Many cautions have to be taken into consideration when applying this calculation formula, such as periods of inactivity in customer relationships or variations in the expected cash margin. When these apply, more complex models have to be used for calculation.
It is widely known that the pricing strategy is one of the core elements of marketing. Dr. Philip Kotler, the father or modern marketing, considers it of the four Ps within the Marketing Mix.
Creating an deploying a pricing strategy can be a complex task, where fundamentals and consequences are to be seen interdependently. A sound pricing strategy ought to consider costs, consumer acceptance and competition prices.
Implementation of the pricing strategy is a homogeneous part of product positioning, therefore things are quite complex. Here are several metrics that help measuring performance and soundness of the pricing strategy and serve as foundations stones for decision-making.
# Relative price, also known as # Price premium, compares the price to a benchmark price, most commonly the average price on the market. Construction of this metric is done by dividing the difference between the price and the benchmark price to the latter one. Also, calculation can be done by dividing the % Revenue market share (market share in terms of sales value) to the % Unit market share (market share in terms of sales volume). If the result equals 1, there is no price premium. Price premium exists only if value share is greater that volume share. If the result is negative, then there is no price premium, so it means that consumers are not quite willing to pay extra for your product. What ought to be carefully considered here is the price we take into consideration: is it the charged price or the price actually paid by customers? Usually, it is much easier to gather data on the prices that are charged by competition and calculate an average price based on these.
$ Reservation price represents that maximum level of charged price above which consumers are not willing to pay. This metric helps understand the value the consumer places on the product, being useful in estimating demand as a function of various price levels. Finding each customer’s reservation price is extremely difficult and costly, therefore marketers usually resort to measuring another metric: % Good will. This involves focusing on a population on which to test several price levels, asking the respondents whether they consider these levels of “good value” or not.
# Price elasticity reflects how consumers respond to small changes in price levels. Calculation is done by dividing the % change in quantity demanded to the % change in price. The result can help anticipating how sensitive will be the demand in case of price changes.
These are three major performance measures that are of great use in assessing pricing strategy effectiveness and consumer responsiveness to this. Of course, other issues can arise in management of pricing strategies. For example, for an interesting article on a particular issue that can arise in pricing – the prisoner’s dilemma – we recommend you read more about the pricing war between Wal-Mart and Amazon on top-selling hardcover books.
Notes:
For more insight on pricing, we recommend: De Michael V. Marn, Eric V. Roegner, Craig C. Zawada (2004) The price advantage. John Wiley & Sons, Inc., Hoboken, New Jersey (available on Google Books).
If you are a pricing professional or your activity involves in pricing-related issues, you might find of interest visiting the Professional Pricing Society.
In a previous post (“Marketing performance: measuring brand equity“) we have reviewed the concept of brand equity and the various methodologies suggested by practitioners and academics for measuring it. Today’s blog post aims to clarify several brand dimensions used in measuring performance in branding.
The performance measures that we consider of interest in this context are the following:
% Brand awareness- refers to the population that is aware (i.e. has heard of the brand) from the total target population. When measuring brand awareness, a particular attention needs to be given to the methodology: will prompted or unprompted awareness be measured?
% Brand knowledge – extends awareness to population that besides being aware of the brand, have some knowledge of that brand. Here, too, knowledge can be prompted or unprompted and, most important, a clear definition of the knowledge should be developed (What kind of data should consumers know about the brand and at what extend so as to be considered they have “brand knowledge”?).
% Top of mind - measures the population that indicates the brand as coming first on their mind when asked to mention brand names for a particular type of product. It can give indication on brand preference, yet its relevance can be lowered by the fact of being the result of the most recent advertisement seen or contact had with the brand, rather than the result of a long-term experience.
% Brand preference – refers to the population that chooses the brand over competitor brands. The battle to gain consumer preference is a continuous one, as failing to deliver the brand promise can determine immediate switch to competition and therefore a switch in brand preference. The goal for each brand is to become the upmarket brand – the first in the list of brands consumers prefer the most.
% Brand coherence – measures the population that believes correlation between various brand attributes exists. Coherence or incoherence are rather difficult to measure, as people fail or don’t bother to analyze subtle brand attributes. Still, obvious incoherence can have negative impact on the brand. This happened with Pepsi, which tried twice to introduce new concepts that lacked to correlate with the attribute of brown that consumers associate with Pepsi – it is the case of Pepsi Blue in 2002 and Pepsi Crystal in 1992. Both faced strong resistance on behalf of the customers.
Notes
These are only some of the brand performance measures. Practice and literature reveal various models of measuring brand performance that integrate various brand measures. No matter the integrated model used, or even developing own concept of what to measure, when and how, organizations need to have clear understanding of the dimensions they measure and well-articulated methodologies (in terms of target groups, periods of measurement, survey questions etc.).
Limitations
Gathering performance data for these measures is generally done through consumer surveys. This makes the measurement rather expensive and subject to consumer subjectivity (which can translate into dishonesty in some cases).
Purpose
Still, they are helpful in assessing a brand ’s position within its relevant market and consumer beliefs and attitudes towards it. Whereas market and sales results measures reflect actual consumer behavior (frequency of purchases, dormancy rates etc.), brand dimensions help understand consumer attitudes that enhance and influence this behavior. They involve deep dives into customer perceptions, attitudes and beliefs, all of these standing at the base of their actual actions in respect to the physical product that the brand encompasses.
Further reading
Rajagopal (2008), “Measuring brand performance through metrics application”, Measuring Business Excellence, Vol. 12 No. 1, pp 29-38.
Continuing the series of blog posts on marketing performance measurement, today’s post is reviewing brand metrics.
As a sub-process of marketing, branding refers to the development and maintenance of a brand. A brand is a „promise”, as it represents all that exists in the consumer’s mind with reference to a particular product. Thus, measuring becomes more difficult in the context of branding, dealing with intangible aspects.
The dimensions that are measured are also abstract, the most common being brand:
Image
Awareness
Recognition
Association
Dominance
Equity
Literature and practice reflect various models of measuring these dimensions.
It is argued that brand measurement can be done from three different perspectives:
Published brand valuation tabulations
Market capitalization, as brands seem to influence the value to shareholders
Internal performance measurement initiatives
From these three different options, the first one seems to be the most comprehensive and relevant, as the share price can be influenced by other factors besides consumer perceptions (macroeconomic trends, for example). The internal measurement, though important for the overall value of the corporate brand, seems to work more as a HR strategic tool.
The metric that covers all brand dimensions is the $ Brand equity.
Brand equity refers to the monetary valuation of the brand. Various models for measuring brand equity have been suggested by both academics and practitioners.
A. One such calculation considers the brand value equal to the goodwill or the amount of money the buyer of a company pays, in addition to the value of its tangible assets. This is a rather simple approach, as it exclusively focuses on the capitalization or the internal perspective of the brand.
B. Interbrand publishes jointly with Business Week the top 100 global brands report. It developed a model for brand valuation that suggests separating tangible product value from intangible brand value. Interbrand uses three dimensions in brand valuation:
the earnings that the brand is expected to generate for the following six years
the % of these earnings that can be attributed to the brand (and not to tangible aspects) and the strength of the brand.
It is argued that whereas the financial data Interbrand uses is collected from reports issues by the companies that are subject to brand valuation, the other data is a matter of subjectivity of the evaluator when choosing the consumer base for the research, for example.
Here are the results for the year 2009 (Source: Millward Brown Brandz Report 2009:
C. Another well-known method of brand valuation uses the BrandAsset® Valuator (BAV) metric, developed by Young & Rubicam Brands. The method measures four dimensions that reflect consumer attitudes towards the brand:
Perceived differentiation within the market,
Brand’s relevance to consumer lifestyles,
Esteem in which consumers hold the brand and
Consumers’ knowledge of the brand.
D. A more clear brand valuation model, that uses three well-defined metrics aggregated in a calculation formula is the one developed by William T. Moran in 1994. The methodology is the following:
$ Brand equity = % Effective market share x # Relative price x % Durability, where
% Effective market share is calculated by weighting the share of a market segment by the segment’s percentage of brand sales.
$ Relative price is the brand’s price, divided by the average market price.
% Durability is an estimation of how many of the brand’s consumers will purchase in the following year.
Stay tuned as additional brand metrics will be presented in future post.
When assessing the overall firm performance within the market it operates in, measurementfocuses on macro metrics, that capture data regarding the overall market, respectively firmposition within this market.
These metrics help understanding market trends and dynamics, both those of the firm, and those of competition. We will not focus on brand elements in this context, as we intend to deal with them in afuture post dedicated integrally to these.
The most common Key Performance Indicators used in employing performance measurement initiatives at a market level are the following:
1. % Served market refers to the portion of the total market in which the firm operates. From the overall market for a particular product, a firm might might not serve some geographic regions, for example. Therefore, its served market excludes these regions from the total potential market. This is important to assess when desiring to calculate market share; to be relevant, the share will refer only to the portion of the market that is served.
2. % Market share measures the part of a market accounted for by a particular business/entity.
In can be measured either in units sold – % Unit market share, or in sales revenue – % Revenue market share. These two metrics differ in that the first one reflects sales in terms of volume, whereas the second one reflects sales in terms of revenue being influenced, therefore, also by the prices at which products are being sold.
3. ÷ Relative market share measures the firm’s market share relative to the share of the market leader. This metric helps in benchmarking firm position against that of the industry leader.
4. # Market share rank measures the position of the firms in its market by arranging market shares of all players on the market in descending order, on the 1st position being that of the firm with the largest share.
5.% Market concentration measures the portion of the market accounted for by a small number of firms (usually, the largest two or three). This is important to calculate as it can indicate the degree at which a small number of firms can influence market parameters (prices, imposing industry norms etc.).
6. % Market growth measures the increase in demand for a product, by comparing demand from one period to demand from the period before.
Along with % Market share, the % Market growth is used in constructing the BCG (Boston Consulting Group) matrix used for making decisions regarding product strategy.
An important thing that ought to be carefully dealt with when measuring market dimensions is providing a clear definition of the market; this should be not too narrow and not too broad. Managers should define the market by focusing on a specific list of clear parameters: products, competitors, geographic areas and time intervals.
All these performance indicators should be measured and monitored when assessing market trends and dynamics. It is important to clearly define the relevant market from the overall market, to measure how much of this market is accounted for by the business, how great is this share by comparison to competitor shares, especially that of the largest competitor. Also important is the awareness of the market composition, this indicating the degree of free competitiveness. Finally decisions should be made based on market growth predictions.
We have inserted below a figure of how these market KPIs relate to each other in the way they are constructed and cover various market dimensions:
According to a study conducted in 2001 by Accenture, 68% of the marketing executives in U.S and U.K acknowledged the fact that their company was not able to measure the marketing campaign Return on Investment (ROI). Although still a major provocation for most of the companies, data-based marketing has swept recently through the business world.
It is commonly argued that the marketing department performance assessment should be done simply by looking at the sales result, be in sales volume or in the turnover. In this respect it is considered that all marketing efforts, all that getting to know the market, understanding customer needs and habits and analyzing competition should reflect in sales.
One of the main goals of businesses is to sell, but it is sometimes up to the sales department or, in some cases, the sales force, to understand and use the marketing department intelligence to enable sales. So the quality of this intelligence also needs to be monitored to ensure quality sales outcomes.
In fact, measuring marketing activities can be very complex and can focus on various dimensions, such as marketing efficiency (envisages costs to deploy marketing programs), program effectiveness (comparing costs to results), brand attitudes (such as brand awareness, brand recognition, brand loyalty, share-of-hart), customer behavior (customer satisfaction, willingness to recommend, lifetime value of a customer), product and portfolio management (cannibalization rate, repeat volume) and even online or web-based marketing.
The taxonomy of Marketing KPIs and can also include public relations, product and brand management, advertising, promotion & lead generation, customer relationship, business development activities.
In the upcoming weeks, we will begin a series of posts regarding KPIs used in Marketing Performance Measurement.
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