Marketing & the Bottom Line, 2nd Edition
The Marketing Metrics to Pump up Cash Flow
By Tim Ambler
Financial Times / Pearson Education
334 Pages, 6 ½" x 9 ½"
Boards of directors are preoccupied with their companies' wealth. Research shows that, on average, boards devote nine times more attention to spending and counting cash-flow than to wondering where it comes from and how it could be increased. This book sets out to change this. Based on extensive and original research involving world-beating companies such as 3M, Accenture, British Airways, Diageo and MacDonald's, this book analyzes the impact that marketing has on the financial well-being of a company.
Viewing marketing as a strategic board-level function, the author sets out a new generation of marketing metrics designed to make marketing more accountable for what it does, what it spends and what it earns. However, this book is not just about even more figures and financial reports; it is designed to bring the excitement and fun of marketing into the board room and to focus the whole organization on wealth-creation rather than wealth-retention. Most companies don't have a clear picture of their marketing performance. In fact, they prefer to fumble around in the dark. It's easy to see why. Fumbling has a lot going for it, more adventure, more creativity and more surprises are all possible. About the author: Tim Ambler joined London Business School in 1991 and is a Senior Fellow. He holds Master's degrees in Mathematics from Oxford and Business from the Sloan School (M.I.T.).
Chapter 1: Is your metrics system good enough? The key performance measures ("metrics") should be compared with both internal aspirations (plan) and external benchmarks (competitors). Furthermore, short-term performance needs to be adjusted for increases, or decreases, in brand equity, or whatever the intangible market-based assets may be called. The chapter provides a checklist to evaluate a company’s existing system and metrics.
Chapter 2: Brand equity is an elephant Brand equity is the biggest, albeit largely unrecognised, asset in business. Definitions and recognition vary more because of managers’ different perceptions than because of any differences in the asset, i.e. most practitioners and academics measure some parts of brand equity but those measures rarely give a full picture. Furthermore, the choice of measures depends on the reason for measuring, e.g. valuing brand equity for sale differs from assessing year-on-year marketing performance. The relationship between brand equity and customer equity. Some typical reasons for measuring the "elephant" and how those circumstances were met. This chapter concludes with an overview of brand equity metrics and which are particularly relevant for which kinds of business issues or decisions.
Chapter 3: The dangers of reliance on shareholder value and other financial metrics The pressure to justify marketing expenditure in accounting terms has lead to an understandable desire to measure brand equity and marketing performance purely in financial terms such as brand valuation and shareholder value. This approach is dangerously flawed. Brand equity is essentially multi-dimensional and the metrics need to be understood not as signs of health but as indicators of ill-health. 99 metrics may indicate good progress but if just one is seriously bad, the brand could be headed for terminal decline. This is not to say that financial indicators should not be included in the overall package. When to use, and when to avoid, metrics such as brand valuation, customer lifetime value (CLV), managing for value and shareholder value.
Chapter 4: Metrics evolution: How did we get where we are? We need to understand how we got where we are if we are to make firm progress. How firms evolve from a rudimentary appreciation of what marketing does, and how it can be assessed, to scientific evaluation. The influences of the business sector and culture. The need to align the four main groups of metrics: external market (customers and competitors), internal (innovation health and employees), other stakeholders (analysts and shareholders) and the marketing mix (the performance of individual marketing activities such as CRM, e-marketing and advertising).
Chapter 5: A practical methodology for selecting the right external metrics The choice of external metrics needs to reflect two competing needs. The first is for benchmarking the firm’s performance against competitors in its own sector and other peers. Here firms look for standardised metrics, at least for that business sector. The second is to reflect progress along the firm’s unique strategic path that differentiates it from competitors. Here management looks for original and insightful ways to understand the market and progress within that market. So far we have mostly been concerned with single brand companies operating in just one market. How to cope with the complexity of multi-brand multinational companies. This key "how to" chapter provides the process for selecting the metrics involved in getting from where the firm is to where it intends to be.
Chapter 6: Using metrics to improve innovation performance Most firms recognise the importance of innovation but few are happy with their measurement of it. The most popular metric is the proportion of sales represented by products launched in the last 3 or 5 years but that looks back, not forward. The issue has less to do with the number of innovations than the way the firm fosters those that matter. A broader approach is to measure innovation health in terms of strategy, culture and outcomes.
Chapter 7: Employee brand equity There is increasing recognition, especially in the service sector, that internalising the marketing effort across all employees provides the driving force for success. Leading companies, such as BP Amoco, routinely assess employee brand equity. How marketing and HR should work together. Employees are the first customers.
Chapter 8: Monitoring other stakeholders’ brand equity Internal marketing would be expected to include innovation and employees, but shareholder relations are rarely brought into alignment. Yet the logic of shareholder value, which brings share prices into the equation, implies a wider view of marketing performance. All other things equal, the benefits of stronger marketing will lie in loyal shareholders, higher p/e ratios and more positive analyst recommendations. How stakeholder brand equity should be measured impacts how it should be managed.
Chapter 9: Assessing the performance of the mix Sometimes top management will wish to review major individual activities, such as CRM, e-marketing or advertising, as well as marketing as a whole. Assessment needs to distinguish efficiency (the ratio of returns to costs) from effectiveness (achieving pre-identified goals). Firms increasingly recognise the latter as more important. Where senior executives expect to review the outcomes of these types of activities, they should also agree their goals. The metrics appropriate for the major elements of the marketing mix.
Chapter 10: Getting the right metrics to the top table Few firms formally review how top executive meetings divide their time and what information they consider. And even when this is reviewed, transition to an ideal set of metrics is fraught with frustration. Most firms rely on their internally generated, mostly financial, figures and market metrics are added incrementally. Larger firms use more measures and have created marketing databases. Integrating metrics from diverse sources is another source of difficulty. Strategic assessment of the relative importance of the different segments (external market, internal, other stakeholders and marketing mix) and alignment of key metrics. The Chief Financial Officer is probably the best person to bring all metrics together to give top management a balanced and complete overview. Recommended step-by-step process for radically improving the metrics top management review.
Chapter 11: The fuzzy future From a financial point of view, the total marketing performance is the aggregation of the short-term gain in shareholder value adjusted by the change in the valuation of the brand equity(ies). At best that is only part of the picture. Non-financial numbers can give much of the rest but no complex beast such as this, or an elephant come to that, can be visualised just from a sheet of numbers. This chapter puts the metrics built up in the rest of the book into perspective. No business should be run by numbers; the drivers of success are people, not inanimate assets nor accounting ratios. Ambiguity is a key part of the freedom to develop. Fuzzy measurement and alignment maintains dynamism and growth. The book concludes with how to develop fuzziness in metrics as the ideal middle path between rigidity and lack of control. Appendices Glossary of market and brand equity metrics (with details for each metric of what is measured, how it is done and what it will and won’t show) Recommendations for marketing disclosures in companies’ annual reports to shareholders Innovation Health Metrics
"The subject is critically important and Ambler's ideas are provocative." Philip Kotler " Far and away the best book for a senior manager who is interested in understanding marketing's impact on his or her organization." Journal of Marketing, January 04 "It is time that marketing stood up and was counted. Literally. This book is the enabler. It's not full of prescriptive rules. Instead it poses questions to ask, suggests possible measurements to make and details experiences from real companies. It does not suffer from consultant speak and is grounded in the reality of the struggle to "make marketing accountable. It is important for the future of marketing." Market Leader "Marketers need to be far more accountable, and this book shows them not just how to provide measures of success but also how to achieve top management consensus about marketing investment. " Ken Bishop, Director of Marketing, IBM UK
"This is a succinct, witty and mould-breaking book on a very important topic. It should be read by all senior managers and marketers." Professor Hugh Davidson, Cranfield School of Management "This book is a big step forward in assessing marketing impact - an area which is short of regular performance management." Sir John Egan, CBI "Although Ambler's 'Marketing and the Bottom Line' may sound like a core text book that should be read by every undergraduate marketing student, its strength goes well beyond the bounds of academic study. To begin with, it's a really easy book to read. And although it's about the numbers that preoccupy the CFO and CEO, Ambler has demystified what could have been an impenetrable subject. What struck me about this book is that it's written by a marketer for marketers. The central tenant of the book is that most brand owners aren't making marketing accountable in a way that is relevant and meaningful. But it doesn't stop there and through some original research Ambler provides a blue print for the marketer to impress his or her boss in how to measure the value of their efforts. Numbers haven't been so much fun for a long time. Buy this book." Brand Republic
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