Marketers are Measuring the Wrong Metrics

NEWS UPDATE October 2005

The name of our company, BrandMetrics, implies measurement. That was what we intended when we registered the name in 1999. We thought then that measurement in the marketing field would become important and we planned that, through our Wits University developed measurement model, we would become the metric of choice.
Because of the academic background to the BrandMetrics approach we were well aware of the trends in marketing and in the distant but converging field of accounting. We did not realise that the trends would move together with such startling velocity.
To highlight the point, within the space of a few months this year the measurement of marketing is under the spotlight:
· Building Marketing Dashboards for Better ROI – American Marketing Association (AMA) conference, September.
· Marketing Accountability – Association of National Advertisers (ANA), September and October.
· Brand Valuation – A two day conference at Emory University, Atlanta, July
· Marketing metrics: Measuring what Matters Most. GIBS in Johannesburg, October
· Brand Equity and Marketing Metrics. Research priorities for 2004 – 2006 Marketing Science Institute (MSI) in Boston.

In addition the marketing literature regularly features articles by leading academics such as Tim Ambler, Roland Rust, Raj Srivastava and others who are making this field their own. As a book fetishist, I have bought three new titles on the topic in the last few months.
And to place this in a critical context, we are witnessing the transformation of the accounting profession as they move from historic cost to a forward looking fair value orientation and as they start to recognise that brands are assets that can be measured (See our July news update).
Missing a trick

But, there is a disturbing flaw that a close examination of these programmes exposes. In not one case is there, for example, an accountant talking about the new accounting standards that already do (IFRS 3) or will very soon (IFRS 38) accept brands as assets. None of the organisers have thought it necessary to find out how brands will be recognised for balance sheet acceptance, and none have thought it advisable to feature an insight into what will constitute a reliable measurement of brands at their fair value.
There is brave talk about building and protecting shareholder wealth, but in not one instance is there a slot on a programme for an investment analyst or a merchant banker to talk about how they will factor in brand value and supporting marketing activity to their company worth evaluations.
The function of marketing is to create competitive branded products and services; place them before the relevant consumers, and generate an income flow from those consumers that continually accelerates and is enhanced over time. You won’t read this definition in any textbook or as the credo of marketing associations but it is, we suggest, pretty much what marketing is supposed to do.
Shareholders invest in companies because they expect their investment to grow and to pay them dividends. They judge the success or otherwise of their investment by the performance of the company and how its income translates into shareholder wealth.
The accounting bodies in the USA (FASB) and for the rest of the world (IASB) are currently working together to thrash out the true meaning of income . Is it revenue less expenses, or is it assets less liabilities plus what was consumed during the period?
Either way the numbers that are used are directly related to what customers spend with the firm and what it costs to achieve these sales. That connects the marketing activity directly to income and to shareholder wealth. And yet, nobody from the world of corporate finance has been invited to any one of these events to talk about this crucial link.
Even more bizarre

Tim Ambler is a top research professor at the London Business School. He has been studying marketing metrics for almost a decade. The results of his major work, which has been published in numerous academic journals and in his book tell an extraordinary tale. He has identified a very long list of the metrics that are currently used in marketing to measure the activity. In the survey that underpins his writing he asked his sample the extent to which these measures were in use and the extent to which they were examined by the top board. The results ranked by those used by the board (top six) are set out in the table. A closer look at Ambler’s numbers shows that marketers are measuring the wrong metrics. Most of what they use to measure their performance achieve extremely low “board interest” ratings.
Apart from profitability, sales volume and value and gross margin, the next ten measures in the Ambler list that are used to measure marketing have board level scores that range from 11,5% to 37,4%. Only measures of loyalty and retention make it to 50%. Measures such as esteem and consumer satisfaction have usage levels in the high sixty percents, but attract board interest at round about 30%.
What marketers have to do
What marketers fail to understand is that the language of the boardroom is different to the one they speak. Only measures that relate to the performance of the company and to protecting and enhancing shareholder wealth have any real appeal. The table makes that clear and in fact drives the point home by underlining the relative lack of interest in measures other than shareholder value. After that interest in marketing falls away alarmingly.
There is no question that marketers perform a vital task. As we indicated above, they are the custodians of the company’s income. You don’t get any more “vital” than that.
For various reasons that we will talk about in another news update, Ambler has historically been resistant to brand valuation. He recommends that it should be just one of a raft of measures applied to marketing. We do not disagree with that, but believe firmly that the measures used must be relevant to the company’s financial management. If the board or management committee that considers the company’s performance do not find the measures useful, then they should not be employed.
As the accountants develop standards that recognise the existence of brands as intangible assets that can be recognised for balance sheet purposes, so management will be calling, increasingly stridently, for ways in which these assets can be measured and tracked. Now is the time for the marketing industry to find and agree on these measures. If it fails to do that now while the accountants are still grappling with the standards, they will eventually turn their attention to measurement and then the initiative will be lost.