Tools of the trade
Marketing performance management sets leading organizations apart.
Many of the cutting-edge marketing tools and techniques that make a profound difference in the current business environment are well known to executives. These include measurement methodologies, campaign management and the infrastructure that makes it all possible: the enterprise data warehouse (EDW), customer relationship management (CRM) and analytics.
However, many executives admit they have yet to apply formal, systematic processes to manage marketing campaigns and still haven’t taken full advantage of supporting technologies. Among those who have, evidence shows that the combination of marketing best practices and technology has a direct and measurable impact on corporate performance. These conclusions are the findings of a research study of 252 Fortune 1,000 firms representing $53 billion in annual marketing expenditures. The study, conducted by my team at the Kellogg School of Management at Northwestern University, finds a direct correlation between companies executing marketing performance management (MPM) practices and success.
For the purposes of this survey, MPM was defined as designing and implementing processes that streamline marketing efforts with overall business strategy to ensure that optimal resource allocations will maximize performance. These principles are underpinned by the deployment of technology solutions that ensure that processes are efficiently and adequately managed and tracked.
Key approaches of advanced MPM-driven organizations include:
- Campaign selection. Codifying a selection process for prioritizing and investing in marketing campaigns as part of one’s operations
- A portfolio view. Holistically thinking about marketing and seeking ways to leverage multiple efforts
- Keeping score. Consistently monitoring and measuring the results of marketing efforts
- Ongoing learning and feedback. Encouraging a depth of learning and feedback with marketing processes
The general principles behind MPM have been applied for years against other critical business functions such as operations, production and finance. However, this is new thinking for many marketing organizations, which have typically operated in an ad hoc fashion, under their own rules.
The Kellogg School of Management study finds that even among the largest organizations, MPM practices are not particularly widespread. Only about 11% of the companies surveyed could be considered “advanced” MPM enterprises, according to the four broad principles mentioned above. (See figure 1.)
A majority of those surveyed lack professional processes for their marketing operations. For example, 61% do not have a defined and documented process to screen, evaluate and prioritize marketing campaigns, while 57% don’t use business cases to evaluate campaigns for funding. A glaring lack of measurement is used to assess results—only 52% say that they actively modify or terminate underperforming campaigns at any stage of implementation based upon ongoing evaluation. In addition, only 47% report that marketing campaign selection is guided by forecasts of return on investment (ROI), customer lifetime value or other metrics such as customer satisfaction.
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Most of the surveyed organizations are also slow to embrace the supporting technology—a marketing infrastructure—that makes MPM practices a reality. One out of five marketing executives say they take advantage of data warehousing and analytic capabilities to drive their marketing performance.
Most of these enterprises, in fact, have yet to substantially introduce technology into their marketing practices. For example, 71% don’t use an EDW or analytics to guide marketing campaigns, 80% don’t have an automated data source to guide event marketing, and 82% never track campaigns using marketing resource management software.
What makes such results eye-opening is how few organizations use analytics and enterprise data warehousing effectively.
Marketing leaders and followers
The research uncovered a divide between firms that leverage MPM and those that do not. The 11% with advanced MPM share some common characteristics. This group tends to be process-driven, effectively leverages technology solutions, and has better financial and market performance.
These high-achieving companies are more likely to invest their resources in a long-term strategy aligned with business goals rather than seeking short-term revenue gains. The survey found that overall, most marketing budgets go toward direct revenue generation. However, emphasizing this approach doesn’t necessarily result in increased marketing performance. Tellingly, the leading firms—those with higher market share, greater sales growth, enhanced brand equity and greater shareholder equity—spend more on branding, customer equity and infrastructure but less on using marketing to directly generate revenue.
The trailing firms, on the other hand, do the opposite: They spend more on revenue generation and less on branding and infrastructure. They are more shortsighted as their focus is driving revenues now, not profitability in the future.
A statistically significant link also exists between the use of advanced tools and marketing ROI. Specifically, firms that leverage an EDW to track campaigns, assets and customer interactions—along with deploying automated software such as marketing research management and active data warehousing to guide event-driven campaigns—report higher sales growth, increased market share and enhanced brand equity.
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Despite the notable effect of MPM on performance, few organizations are implementing optimized MPM, the study finds. What is holding them back? Adopting these practices means fundamental change, which is never easy. Most enterprises that underutilize existing infrastructure fail to realize significant results because investing in technology without putting high-performance processes in place won’t lead to greater performance. Technology investments must go hand in hand with appropriate processes. MPM requires a paradigm shift, a new culture, a change in attitudes and behaviors, and strong leadership. (See figure 2.)
Survey respondents point to several specific challenges, including:
- Poor top management support
- Inadequate measurement
- Insufficient employee skills
- A general lack of respect for marketing
In fact, more than half of survey respondents said most senior managers at their organizations perceive marketing as a “necessary evil.”
Successful MPM requires senior leadership and personnel with business know-how and the skills to analyze complex marketing data. Adopting a phased approach and a timeline with clear milestones will enable alignment of technology with the organizational structure. This is critical to transitioning from routine methods of managing marketing to a more optimized MPM process.