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Marketers Turn to Metrics to Measure the Impact of Their Initiatives

“Half my advertising is wasted. I just don’t know which half.” Countless other executives have felt the same as John Wanamaker, the 19th century department store magnate and marketing pioneer who uttered those words many decades ago. To be sure, companies have tried in rudimentary ways to measure the impact of their marketing initiatives on their companies’ profitability. For the most part, though, marketing has remained perhaps one of the only corporate departments that does not use the kind of metrics that are meaningful to bottom-line-oriented people like chief executive officers or chief financial officers.

But that indifference to metrics is becoming a thing of the past. Experts from Wharton, McKinsey & Company and the Marketing Science Institute (MSI) say that the search for better marketing metrics is underway throughout Corporate America. Marketing executives are devoting more attention than ever to ways in which they can link traditional marketing variables, such as market share and customer awareness, to hard-core financial concepts, such as a company’s stock price or return on investment.

Metrics are such a hot topic that a session will be devoted to the issue at a conference at Wharton on September 19 and 20. Titled the “CMO Summit: Excellence in Marketing,” the conference is co-sponsored by McKinsey, MSI and Wharton and it aims to provide a forum where chief marketing officers can discuss their challenges and concerns about the impact of marketing on business performance.

“When marketing people talk about what they do, the variables they cite aren’t the ones the CFO cares about,” says Donald Lehmann, a marketing professor at Columbia Business School and executive director of MSI, a Massachusetts-based non-profit organization that acts as a bridge between companies and academia. “Customer awareness, customer satisfaction and market share are metrics, and they are nice to know about. But the CEO [is more concerned with] shareholder value, market capitalization, return on assets and return on investment. In marketing, people don’t talk that way.”

“Historically, when the CEO wanted to know the ROI of marketing spending, the marketing people would say, ‘If you spend more, your market share will go up.’ But the marketing people haven’t done a great job quantifying that,” says Wharton marketing professor David Reibstein, a former executive director of MSI. John Forsyth, a principal at McKinsey and a leader of the firm’s marketing practice, says McKinsey’s clients are increasingly concerned about metrics. Many clients are “unhappy with the metrics they currently use “because they aren’t linked to performance as much as they ought to be.”

To read the rest of this article, visit http://knowledge.wharton.upenn.edu/articles.cfm?catid=1&articleid=513

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