Includes Downloadable ROI Spreadsheets Data-Driven Marketing The 15 Metrics Everyone in Marketing Should Know Mark Jeffery Kellogg School of Management John Wiley & Sons, Inc. Copyright # 2010 by Mark Jeffery. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
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Library of Congress Cataloging-in-Publication Data: Jeffery, Mark, 1965- Data-driven marketing : the 15 metrics everyone in marketing should know / Mark Jeffery. Marketing–Mathematical models. Marketing–Case studies.8 To Ann, Anthony, and Mateo. CONTENTS DOWNLOADABLE ROMI RESOURCES XIII ACKNOWLEDGMENTS XVII INTRODUCTION XIX PART I Essentials 1 CHAPTER 1 The Marketing Divide: Why 80 Percent of Companies Don’t Make Data-Driven Marketing Decisions—And Those Who Do Are the Leaders 3 The 15 Essential Marketing Metrics 7 Case Examples 9 Marketing Budgets: Key Differences between the Leaders and the Laggards 17 Using Marketing Metrics to Weather Difficult Economic Times 20 The First Step: Defining the Data-Driven Marketing Strategy 22 Chapter Insights 25 Case Examples: Best Buy, Porsche Turbo Cabriolet Launch, DuPont Tyvek NASCAR vii viii Contents CHAPTER 2 Where Do You Start? Overcoming the Five Obstacles to Data-Driven Marketing 26 Overcome Obstacle 1: Getting Started—Focus on Collecting the Right Data and Create Momentum by Scoring an Easy Win 28 Overcome Obstacle 2: Causality—Conduct Small Experiments 33 Overcome Obstacle 3: Lack of Data—Strategies for Obtaining Customer Data 35 Overcome Obstacle 4: Resources and Tools—Build the Infrastructure for Data-Driven Marketing 39 Overcome Obstacle 5: People and Change—Create a Data-Driven Marketing Culture 44 A Road Map for Implementing Data-Driven Marketing 49 Chapter Insights 51 Case Examples: Royal Bank of Canada, Walgreens, Continental Airlines, Harrah’s Entertainment CHAPTER 3 The 10 Classical Marketing Metrics 52 Linking Marketing Activities to Metrics 53 A Balanced Scorecard for Marketing 62 Facing the B2B Measurement Challenge 67 Chapter Insights 71 Case Examples: MasterCard FIFA Sponsorship, Microsoft OEM Comarketing PART II 15 METRICS TO RADICALLY IMPROVE MARKETING PERFORMANCE 73 CHAPTER 4 The Five Essential Nonfinancial Metrics: #1—Brand Awareness, #2—Test-Drive, #3—Churn, #4—Customer Satisfaction (CSAT), and #5—Take Rate 75 Shaping Perception: Metric #1—Brand Awareness 75 Comparative Marketing: Metric #2—Test-Drive 87 Contents ix Loyalty Marketing: Metric #3—Churn 91 Customer Satisfaction: Metric #4—CSAT 96 Campaign Effectiveness: Metric #5—Take Rate 99 Chapter Insights 103 Case Examples: Philips Consumer Lifestyles, Navistar America’s Greenest School, Porsche First Mile, Intel, Ray-Ban, Lexus, Dental Care Partners, DSW Shoe Warehouse Downloadable Excel Templates: Churn, Take Rate CHAPTER 5 Show Me the ROI! The Four Essential Financial Metrics: #6—Profit, #7—Net Present Value (NPV), #8—Internal Rate of Return (IRR), and #9—Payback 104 Metric #6: Profit 105 Finance for Marketing Managers: Metrics #7—NPV, #8—IRR, and #9—Payback Defined 106 Return on Marketing Investment (ROMI) Framework for Management Decisions 115 ROMI for Sports Sponsorship 119 ROMI for a New Product Launch 122 Stress-Test the Numbers: Sensitivity Analysis 129 Chapter Insights 133 Case Examples: Sports Sponsorship and Web New Product Launch ROMI (Disguised) Downloadable Excel Templates: NPV, IRR, Payback, Campaign ROI, Sports Sponsorship ROI, New Product Launch ROI, Table Function Sensitivity Analysis, Monte Carlo Analysis CHAPTER 6 All Customers Are Not Equal: Metric #10—Customer Lifetime Value (CLTV) 134 Metric #10—Customer Value Defined 135 The New Marketing Strategy: Value-Based Marketing 138 Balancing Short- and Long-Term Customer Profitability 146 Customer Life Cycle Management 151 Chapter Insights 154 Case Examples: Sainsbury’s, 3M, Continental Airlines, Royal Bank of Canada, Carnival Cruise Lines x Contents Downloadable Excel Template: Customer Lifetime Value CHAPTER 7 From Clicks to Value with Internet Marketing Metrics: #11—Cost per Click (CPC), #12—Transaction Conversion Rate (TCR), #13—Return on Ad Dollars Spent (ROA), #14—Bounce Rate, and #15—Word of Mouth (WOM) 156 CPC versus CPM: Optimizing Metric #11—CPC Is the Google Innovation 157 Optimizing Sponsored Search: Metrics #12—TCR and #13—ROA 159 How Good Is Your Web Site? Metric #14—Bounce Rate 168 Changing the Internet Search Marketing Game with Attribution Modeling 172 Beyond SEM: Internet Display Advertising Impact 176 Hypertargeting Display Advertising in Social Media 178 Metric #15—Word of Mouth (WOM) Social Media Marketing Engagement 181 Chapter Insights 186 Case Examples: Google, Air France, Opinmind, Meteor Solutions, Palm Centro, Capcom Resident Evil 5 Downloadable Excel Templates: Search Engine Marketing Metrics (CPC, CTR, TCR, Take Rate, ROA), Air France Click Data, Google ROA Impact, Bounce Rate, Word of Mouth (WOM) PART III THE NEXT LEVEL 187 CHAPTER 8 Agile Marketing: Using Near-Time Data to Improve Performance by a Factor of Five or More 189 If You Are Going to Fail, Fail Fast 190 Design for Measurement 196 Chapter Insights 200 Case Examples: Microsoft Security Guidance, DuPont Performance Alliance Contents xi CHAPTER 9 Wow, That Product Is Exactly What I Need! The Three Essential Approaches to Analytic Marketing 201 The First Essential Approach to Analytic Marketing: Propensity Modeling 202 The Second Essential Approach to Analytic Marketing: Market Basket Analysis 206 The Third Essential Approach to Analytic Marketing: Decision Trees 207 Timing Is Everything: Event-Driven Marketing Case Examples 214 The Business Case for Analytic Marketing 218 Chapter Insights 220 Case Examples: Meredith, EarthLink, DIRECTV, National Australia Bank, Ping Golf Downloadable Excel Template: Analytic Marketing ROI Downloadable SAS File: EarthLink Retention Marketing CHAPTER 10 What’s It Going to Take? Infrastructure for Data-Driven Marketing 222 Which Data Do You Really Need? 223 Do You Need to Build a Ranch House or Empire State Building Infrastructure? 225 Requirement Complexity 229 Should You Forklift or Rearchitect Data in the Enterprise Data Warehouse? 233 What We Know Can and Will Go Wrong (If You Don’t Watch Out!) 234 Harrah’s Entertainment: Creating the Data-Driven Marketing Infrastructure Portfolio 237 Chapter Insights 246 Case Example: Harrah’s Entertainment CHAPTER 11 Marketing Budgets, Technology, and Core Processes: Key Differences between the Leaders and the Laggards 247 Marketing Campaign Management: The State of the Industry 249 xii Contents Research: Marketing Processes, Technology, and the Link to Firm Performance 252 B2B versus B2C Investment Portfolio Mixes: Leaders versus Laggards 256 Overcoming the Four Barriers to Professionalizing Marketing Processes 260 Upgrading Marketing Campaign Management Processes: A Three-Phased Approach 262 Lessons Learned from the Research: Complexity Requires Governance 266 The Creative X-Factor 268 Tying It All Together 271 Chapter Insights 272 Case Examples: Blendtec Viral Marketing, Nissan Qashqai New Product Launch APPENDIX FOR INSTRUCTORS How to Use This Book to Teach Data-Driven Marketing 275 NOTES 279 INDEX 285 DOWNLOADABLE ROMI RESOURCES Figure 4.9 Churn reduction impact template: Downloadable at www.com/ROMI 94 Figure 4.11 Take-rate analysis template: (a) for a fixed number of contacts and variable acquired customers and (b) for a fixed number of acquired customers.
Downloadable at www.2 Template for present value calculation using the Excel NPV function. Downloadable at: www.3 Templates calculating the four essential financial metrics: (a) for a three-year marketing program and (b) for a nine-month campaign. All dollars are in units of thousands. Downloadable at www.5 Campaign ROMI template: In this example, there are n campaigns in the base case and m new campaigns in the upside.
The analysis is for N time periods—in this case, years—but it can be for months also. Downloadable at www.6 New product launch ROMI template: Rather than campaigns, as in Figure 3.3, the xiii xiv Downloadable ROMI Resources impacts are for n segments over a time period of N years. You can substitute campaigns for segments and months for years, although a new product will usually have a useful life of a few years. Downloadable at www.7 Example sports sponsorship ROMI analyses.
The numbers are disguised for confidentiality. Downloadable at: www.10 ROMI analysis for a web portal new product launch. Downloadable at: www.11 Table function sensitivity analysis. The ranges of market share and order size (0 to 100 percent) are scaling the assumptions in Figures 5.9 from the worst to best case.
Downloadable at: www.12 Monte Carlo simulation for the new product launch ROMI example. Downloadable template at: www.com/ROMI and a 10-day free trial of the @RISK Monte Carlo software is available at www.1 Customer lifetime value (CLTV) Excel template for a single customer. The numbers can be changed for your customers. Downloadable at: www.2 Template for SEM metric calculation: (a) five example keywords with bid and CPC data and (b) related metrics.
The CPC data have been disguised but are representative. The template and complete Excel data file of 7,000 records is downloadable at: www.5 Template for the (ROA) impact of reducing CPC and increasing take rate for a representative Downloadable ROMI Resources xv Google campaign. Downloadable at: www.14 RE5 click data ranked by direct clicks and with WOM impact. These data have been disguised for confidentiality but are directionally correct.
Source: Ben Straley, Meteor Solutions, and Mark Jeffery, Agile Insights LLC. Downloadable at: www.5 ROMI template for analytic marketing: (a) assumptions in the model and (b) ROMI analysis. Downloadable at: www. 218 ACKNOWLEDGMENTS T here are many people who have helped in my journey to write this book.
First, I want to thank Richard Narramore, my editor at John Wiley & Sons, Inc., for his guidance and constructive input on the drafts of the manuscript. I also want to thank Mohan Sawhney, director of the Center for Research on Technology and Innovation (CRTI), for his support and early input on the research; and Dipak Jain, dean of the Kellogg School, 2001–2009, for enabling a significant sample for the research and for his guidance. The research was in collaboration with Saurabh Mishrah and Alex Krasnikov, as post- doctoral researchers at CRTI. They are now both professors, and I am incredibly appreciative of their effort.
The research discussed in Chapters 1 and 11 was partially funded by Teradata, and I want to thank Mary Gros for her continual enthusiasm. Many executives contributed their experience through my inter- views, and I have quoted them throughout. I want to particularly thank Rob Griffin for his in-depth feedback and input on the Internet search marketing in Chapter 7; David Schrader for providing the DIRECTV, NAB, and Ping case studies in Chapter 9; and Richard Winter for his deep insights and contribution to the architecture discussion in Chapter 10. Thanks also to Mike Collins and Nina Rotello for their detailed proofreading and feedback on the manuscript, and to Rob Komorous- King for the excellent graphics throughout.
Finally, this book would not have been possible without my wife, Ann—thanks for your under- standing and support!