Not infrequently, the top management of an organization is not satisfied with the marketing results. However, at certain times, the contribution of marketing efforts to achieving objectives is not known because they are not measured.
This is why the issue of measuring marketing effectiveness has become so relevant today.
In this work the calculation of this concept is proposed through five general indicators and the why of its choice is discussed; hoping that the specialists of these departments can use the available tools that allow them to demonstrate the value of their management.
Introduction
Marketing can be understood as a managerial function that occupies a place within the organizational structure (Mintzberg, 1991) or as one of the key activities of the value chain (Porter, 1985).
The American Marketing Association defines marketing as an activity, set of institutions, and processes to create, communicate, deliver, and exchange value offers for consumers, customers, shareholders, and society in general (AMA, 2007).
Like the rest of the organizational functions, marketing needs to be directed, which implies the definition of objectives, allocation of resources to achieve it, effective management, and finally accountability to senior management for the results achieved.
For this reason, the study of this discipline, in one of its several edges, has been approached under the management approach. An exponent of the above is the academic Philip Kotler, who for more than 10 editions of his book Marketing Management has treated it this way.
Throughout his work, Kotler has maintained that the logical planning process of this organizational function is supported by two fundamental tools and guidelines: the strategy and the marketing plan; and that said process is structured as follows: (1) identification and analysis of opportunities, (2) search and selection of target audience and positioning of the offer, (3) design of strategies, (4) program planning and (5) management of the efforts carried out (Kotler & Keller, 2006).
In this way, both in its definition and in the organizational function, it can be seen that it includes the conversion of resources into results; This is most evident in the marketing approach, which maintains that the key to achieving the objectives of organizations is to be more effective than the competition in generating, offering and communicating greater value to the target market..
All of the above shows that it is assumed that this activity directly contributes to the achievement of organizational objectives. However, for some time this assumption has been strongly questioned.
In the article Whatever Happened to the Excellent Marketers? A Study of Financial Performance and Excellent Marketing (Ani Basuki and Henderson, 2003) provides a historical analysis of this contradiction. The analysis is presented below, as well as the authors' assessment of the main materials consulted by them.
After 1954, in which Peter Drucker, in his book The Practice of Management, assigned marketing a special meaning, connoting that it constituted a management philosophy, based on customer orientation, and which should permeate all the areas of the organization; and until the end of the eighties and the beginning of the nineties, the marketing focus and customer orientation were widely accepted in the academic and managerial world.
However, in 1988, Shapiro published an article in the Harvard Business Review entitled What the Hell is Market Oriented, in which he expressed serious doubts about the market orientation and therefore, the marketing philosophy. His ideas had a following in the academic world, and the year 1993 was particularly bad, since two authoritative studies by two prestigious consulting firms went beyond criticizing the techniques and tools of the discipline, since they observed that the expenses of these areas seemed not to produce high financial performance in organizations.
McKinsey found that many executives doubted that their marketing departments were an asset to the organization; while Coopers and Lybrand reported that they were living a lie in the organization, as many executives did not believe that marketers understood their clients, the economic aspects of the business, or the different distribution channels. These executives even claimed that marketing did not generate any profitable growth in their companies.
Faced with such questions, both academics and consultants responded in different ways, some ignoring the results of the studies, others looking for the most dissimilar explanations for the phenomenon, and others investigating how to demonstrate the contribution to the organization's results.
For this reason, in recent years, numerous studies and publications have been carried out, paying tribute to the lines of measurement of marketing performance, effectiveness and efficiency; some, such as those shown below, demonstrating the reality that, on the one hand, literature does not have a grounded theory on this subject; On the other hand, executives do not know with certainty the contribution of their efforts.
In a review of seven of the main journals in the discipline, considering the period from 1991 to 1995, it was found that only 11.5% of the articles consulted addressed, empirically, the indicated topic (Ambler and Kokkinaki, 1997).
In a study of British executives, 70% stated that the greatest challenge for them was measuring effectiveness (Brand Strategy, 2004).
Another study carried out in that year by the Chief Marketing Officer Council found that 90% of the executives surveyed considered effectiveness as a fundamental priority (Van Camp, 2004).
In 2004, marketing expenses in the US were estimated to be close to a trillion dollars, while in a study of that date, the surveyed marketers recognized that at least 20% of their budgets were wasted (Demma, 2004).
In an international study carried out by a consulting firm, only 9.8% of the analyzed firms dedicated a part of their marketing budget to measuring their effectiveness (Expertise Marketing, 2006).
These findings demonstrate the relevance of the Marketing Science Institute's decision (1998; 2000; 2002) to make the measurement of the effectiveness of this organizational function one of its research priorities in three consecutive biannual reports; while the Marketing Leadership Council (2001; 2002) has also assigned a very important weight to it.
However, due to the lack of a solid theory on the subject, it has been approached in different ways, using for it the terms measurement of performance, effectiveness and efficiency or productivity of marketing, interchangeably.
The dilemma of measuring Marketing Effectiveness.
Clark, Abela and Ambler, 2006 propose that the measurement of marketing performance is a business process that provides performance feedback to the organization on its results.
There are two different frames of reference to evaluate it, which are efficiency and effectiveness. The first comprises the relationship between inputs and outputs, while the second is seen as the comparison of actual results in relation to the previously defined goals (Drucker 1974; Clark, Abela, Ambler, 2006).
In this way, it is expected that the efforts will contribute to the achievement of the marketing goals (effectiveness), in such a way that the use of the resources employed (efficiency) is maximized, contributing to the achievement of the overall results of the organization (performance).
The term marketing effort that is related to effectiveness here denotes that the organization has to incur some type of expense or investment when executing the marketing planning process or the marketing functions.
The literature that addresses this topic concentrates more on the forms of measurement than on conceptualization. For this reason, as previously mentioned, the indicators used usually respond to both performance, effectiveness and efficiency, as they do not start from a clear concept.
In this work it is understood that an organizational function is effective when it achieves the results for which it exists. In this way, marketing effectiveness constitutes the scope of the expected end results of it.
Therefore, to delimit the effectiveness indicators correctly, it is necessary first of all to establish the expected final results of the object in function to be measured.
For this purpose, it is very useful to refer to the logic of the Balanced Scorecard (CMI) of Kaplan and Norton, which states that there are four fundamental strategic perspectives in the organization, which are logically-causally related, in such a way that each one depends on the one that precedes it to achieve its results.
Thus, Kaplan and Norton argue that value is created for shareholders and the organization (financial perspective) if value is created for their clients (client perspective), in turn, you can only have satisfied clients if all processes are well geared internal keys (process perspective), and these will finally work if management pays attention to building skills and competencies in their workers (innovation and learning perspective).
Therefore, the marketing function, located within the CMI, is in the process perspective; and from the causal logic that supports it, its effectiveness would be given in the ability to create value for the client, and consequently, value for the shareholder and the organization. Hence, two types of expected end results of marketing can be established: value creation for the customer and value creation for the shareholder and the organization.
Regarding the CMI, it is important to note that the first two perspectives are of internal operation (the function and marketing processes, like others, must be considered in these two perspectives), while the remaining two are oriented towards the final results. Of course, each function must be evaluated in terms of efficiency and effectiveness, however, the measure of effectiveness of an organizational function cannot be itself, but must lie with the external object for which it is intended to produce a result or effect.
Another necessary observation is that, although not explicit in the CMI, there is another perspective that can be related to the creation of value for the client and that is more evident in the definition of the marketing approach of Kotler, 2006, which maintains that the key to Achieving the objectives of the organizations is to be more effective than the competition in generating, offering and communicating greater value to the target market.
Kotler's definition coincides with the CMI in creating value for the customer and creating value for the shareholder and the organization; however, it goes a little further by looking at an intermediate perspective parallel to the first one: the competitive perspective. And it is logical to expect that if greater value is being generated, offered and communicated to the market, competitive performance must be superior.
For this reason, in order to operationalize the concept of marketing effectiveness, it is also useful to consider the competitive perspective.
The foregoing leads to the assumption in this work of the operationalization of marketing effectiveness through indicators in the perspectives or financial, competitive and customer dimensions.
Another important aspect is the need to distinguish between measuring the effectiveness of the marketing function in general, and each of the specific efforts (O'Sullivan, Abela, 2007).
Thus, an organization can measure the effectiveness of its efforts in a general way, but does not know which specific one (redesign of a product, advertising, etc.) is the inducer of said result. For this reason it is desirable to use dimensions at both levels, seeking to establish the causal relationship between them.
For the purposes of this study, the author considered it pertinent to delimit only indicators of general effectiveness for the three dimensions of the variable and in correspondence with the exposed logic, the following were chosen:
For the financial dimension:
- Return on investment of marketing expenses (ROMI).
For the competitive dimension:
- Market share.
For the customer dimension:
- Perceived quality of the organization's product (s) and / or service (s). Customer satisfaction. Customer loyalty.
The indicator “Return on investment of marketing expenses” is used by 3 of the authors consulted in the study, however others treat it independently, as a fundamental measure of effectiveness.
The formula proposed here is as follows: ROMI = ((Sales - Cost of Sales) - Marketing expenses) / Marketing expenses.
Although this indicator can be perceived as one of efficiency rather than effectiveness, since it relates inputs (marketing expenses) with results (gross profit), it is considered relevant and is chosen to measure the second, because it establishes, from a financial perspective, the contribution of efforts to results.
The ROMI is also useful because its disaggregated formula, where the Gross Profit = Sales - Cost of Sales, includes one more indicator that is considered valuable for measuring effectiveness.
Sales are employed by 8 of the authors consulted, and is a direct result of an organization's marketing efforts. When its behavior is analyzed over time, it can be seen if it experiences a pattern of growth or decrease.
The "Market share" is used by 8 of the authors consulted. It is non-financial in nature, belonging to the competitive dimension, and widely disseminated, as it allows comparing the market position with respect to competitors. However, it is necessary to be very cautious in its use due to the criticism that it has received.
Clark, 2001, analyzes the market share and points out that its emergence was linked to sectors where economies of scale had a great weight and, therefore, a high market share would have a wide repercussion on the organization's benefits. However, it would be useful to ask whether in sectors where economies of scale are not a key factor for success, the indicator can be directly linked to profit margins.
Another problem detected with this indicator is the assumption that the organization that uses it has correctly defined the target market for which it works, which is not an easy task. Along the same lines, there is the problem of comparability of the results by the prices of the organization and those of the sector: if these magnitudes differ, then the comparison in terms of value may be hiding the real market share.
For all of the above, Clark, 2001 recommends using market share with great caution, and to do so suggests: (1) determine if sales volume is predominant for the sector; (2) delimit the specific market as accurately as possible and (3) calculate and contrast it in units and in value.
The dimension "Perceived quality of the organization's product (s) and / or service (s)" is used by 6 of the authors consulted. Although it is classified in different ways, its inclusion in this perspective is considered important as a measure of effectiveness.
The American Society for Quality Control defines quality as "… the set of characteristics and distinctive features of a product or service that influence its ability to satisfy manifest or latent needs." Hence, the link between quality and marketing and market orientation is very close. However, its measurement, as is explicit in the concept, is necessary to adapt it to the type of product to be evaluated.
The indicator "Customer satisfaction" is used by 8 of the authors consulted. However, in the historical analysis of the marketing performance measures, Clark, 1999, found that customer satisfaction in the United States was high for a product category in most customers, regardless of the brand they consumed, which would imply that no company would have a competitive advantage over its rivals.
On the other hand, it detected a diversity of satisfaction measurement programs, which in most cases were very difficult to implement, and their results were highly susceptible to manipulation.
In addition, Reichheld, 2003, confirms the problems associated with the measurement of this indicator, since it states that most surveys are not very useful. The tendency is to formulate them in a long and complicated way, obtaining low response rates and ambiguous implications, which are very difficult for managers to operate. Furthermore, they are rarely audited or questioned, because most managers, board members, and investors do not take them very seriously. This is because their results do not largely correlate with profit or growth.
This same author, in a period of two years of research and after seeing the results of various studies and questionnaires on customer satisfaction and loyalty, realized that they were contradictory, to the point that a strong correlation between satisfaction was not observed. and sales growth. In the case of Kmart, the opposite occurred, an increase in satisfaction and a decrease in sales led to this bankruptcy.
Notwithstanding the foregoing, in this work it is considered important to include customer satisfaction as a direct criterion of effectiveness on the market, measuring it in a simple way, in order to receive a higher and more specific response rate.
Consequently, and to counteract the unwanted effects of the previous measurement, the indicator “customer loyalty” is included, which is used by 7 of the authors consulted.
Clark, 1999, starts from the hypothesis that there is a causal relationship between satisfaction and customer loyalty. In this way, the possession of a loyal customer base should increase the income generated by them, as they buy a larger volume, a wider range of products and / or pay a premium price for the company's products..
On the other hand, it should reduce marketing expenses, since it is much cheaper to retain customers than to acquire new ones, and current ones can advertise the company for free, recommending the products, which makes it much easier to obtain new prospects.
Customer loyalty can be measured through repeat purchase measures and lost customers, however, Reichheld, 2003, is of the idea that these do not constitute safe measures, since a satisfied and loyal customer to the company that You have changed to a higher socio-economic class, now you will want to buy other more expensive products that give you a higher status and that the organization may not be able to offer you. Therefore, the customer has not ceased to be loyal, but rather has changed markets.
For this reason, and after testing various measures of customer loyalty, Reichheld, 2003, proposes the use of the “Net Promoter”, which constitutes a percentage measurement calculated as the difference between the promoters of the company and its detractors; and which is obtained by asking customers the question: How likely are you to recommend the products of company X to a colleague or friend? This approach is used in this paper to measure loyalty.
So far the explanation of the choice of indicators to measure the overall marketing effectiveness of an organization. Although a large number of indicators can be found in the literature, only five are proposed in this paper.
This is due to taking into account the criterion of Clark, 1999, who recommends using a set of measurements small enough to be manageable, but in turn, comprehensive enough to provide an accurate evaluation of performance.
Conclusions and Future Research Directions
Although the topic of marketing effectiveness has been addressed in this paper from a theoretical perspective, the greatest challenge is to apply this concept to the daily activities of organizations.
Although not easy, the measurement of the proposed indicators can help marketing areas in the perception that the rest of the organization and the general management have about this organizational function.
An even bigger challenge is moving to the next level: measuring the impact of specific marketing efforts on results. However, if we start here, we will already have half the way traveled.
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