In recent years, data-based marketing has swept through the business world. In its wake, measurable performance and accountability have become the keys to marketing success. However, few managers appreciate the range of metrics by which they can evaluate marketing strategies and dynamics. Fewer still understand the pros, cons, and nuances of each.
In this environment, we have cometo recognize that marketers, general managers, and business students need a comprehensive, practical reference on the metrics used to judge marketing programs and quantify their results. In this book, we seek to provide that reference. We wish our readers great success with it.
1.1 What Is a Metric?
A metric is a measuring system that quantifies a trend, dynamic, or characteristic.1 In virtuallyall disciplines, practitioners use metrics to explain phenomena, diagnose causes, share findings, and project the results of future events. Throughout the worlds of science, business, and government, metrics encourage rigor and objectivity. They make it possible to compare observations across regions and time periods. They facilitate understanding and collaboration.
1.2 Why Do You Need Metrics?" When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind: it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the stage of science."—William Thomson, Lord Kelvin, Popular Lectures andAddresses (1891-94)2
Lord Kelvin, a British physicist and the manager of the laying of the first successful transatlantic cable, was one of history's great advocates for quantitative investigation. In his day, however, mathematical rigor had not yet spread widely beyond the worlds of science, engineering, and finance. Much has changed since then.
Today, numerical fluency is a crucial skill forevery business leader. Managers must quantify market opportunities and competitive threats. They must justify the financial risks and benefits of their decisions. They must evaluate plans, explain variances, judge performance, and identify leverage points for improvement—all in numeric terms. These responsibilities require a strong command of measurements and of the systems and formulas thatgenerate them. In short, they require metrics.
Managers must select, calculate, and explain key business metrics. They must under-stand how each is constructed and how to use it in decision-making. Witness the fol-lowing, more recent quotes from management experts:
"... every metric, whether it is used explicitly to influence behavior, to evaluate future strategies, or simply to take stock, willaffect actions and decisions."3
"If you can't measure it, you can't manage it."4
1.3 Marketing Metrics: Opportunities, Performance, and Accountability
Marketers are by no means immune to the drive toward quantitative planning and eval-uation. Marketing may once have been regarded as more an art than a science. Executives may once have cheerfully admitted that they knew they wasted half the moneythey spent on advertising, but they didn't know which half. Those days, however, are gone.
Today, marketers must understand their addressable markets quantitatively. They must measure new opportunities and the investment needed to realize them. Marketers must quantify the value of products, customers, and distribution channels—all under various pricing and promotional scenarios. Increasingly,marketers are held accountable for the financial ramifications of their decisions. Observers have noted this trend in graphic terms:
"For years, corporate marketers have walked into budget meetings like neighborhood junkies. They couldn't always justify how well they spent past handouts or what difference it all made. They just wanted more money—for flashy TV ads, for big-ticket events, for, you...