Measure marketing's financial impact

The Marketing Capabilities Diagnostic Tool

Let’s focus on a marketer's role as an architect and discuss market-related capabilities and how those capabilities lead to success.

During the last ten years, I have used a diagnostic tool to assess the marketing capabilities of organizations. The diagnostic tool consists of 42 items that help you understand which capabilities you have developed and which capabilities need more development.

The results presented here are based on the survey's initial round, where 104 CMOs or commercial managers from different industries reported their capabilities using this survey. The 104 responses come from a very broad range of industries. If you do this for a wide range of industries rather than for a particular sector, research logic would assume that it’s very hard to find significant results because the markets and the industries are different. We actually do see some effective results – and that means that the survey, the way we designed it, is highly applicable over a broad range of industries.

Measuring marketing performance is always difficult. We use a combination of the following five indicators as a proxy for marketing success. The respondents assess if their company performs better or worse than the competition in the following areas:

·???????Achieving customer satisfaction and loyalty

·???????Achieving or maintaining the envisioned market share

·???????Gaining new customers

·???????Making profits

·???????Fast reaction to opportunities and threats in the market

?Of all the variables tested in the survey, the following three items have the strongest impact on marketing performance.

1.????“The marketing department in our firm is effective at linking its activities to financial outcomes.”

2.????Speedy response to competitor’s price changes. Note that this item was stated in reverse for psychometric reasons: “It takes us forever to decide how to respond to our competitor's price changes.”

3.????“Principles of end-user market segmentation drive new product/service development efforts in this firm”

?While these three items might not be the top three priorities for your marketing team, they generally seem to drive success.

The 3rd edition of my new book “Real Marketing Impact” is based on exactly this premise: marketing is more effective if its activities are linked to financial outcomes. To ensure this linkage, we always have to define the business case behind the marketing case. We use metrics such as Marketing ROI, Marketing Contribution Impact (MCI) or Customer Lifetime Value (CLV)

?The Five Competencies that Drive Marketing Performance

The first factor, and therefore the most important one, is institutionalized marketing – If institutionalized marketing is high, that means the company is likely to be successful. You can measure this dimension with the following items:

·???????“The marketing department in our firm is effective at linking its activities to financial outcomes.”

·???????“Marketing personnel in our firm spend time discussing customers’ future needs with other functional departments.”

·???????“In this firm, we do a lot of market research.”

·???????“We periodically review our product development efforts to ensure that they are in line with what customers want.”

·???????“The marketing department in our firm shows the financial outcomes of their plans.”

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The second factor is competitive responsiveness – the better you respond to competitors' actions, the more likely you will be successful.

·???????“If a major competitor were to launch an intensive campaign targeted at our customers, we would implement a response immediately.”

·???????“We are quick to respond to significant changes in our competitors’ pricing structures.”?

·???????“It takes us forever to decide how to respond to our competitors’ price changes.” – this item is recoded, or a negative-formulated item. Here, it would be best if you scored low to be successful.

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The third factor is recovery response –how well can you respond to the customer after something has gone wrong?

·???????“Customer complaints fall on deaf ears in this firm.” – this item is reverse-stated.

·???????“When we find out that customers are unhappy with the quality of our service, we take corrective actions immediately.”

·???????“When we find that customers would like us to modify a product or service, the departments involved make a concerted effort to do so.”

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The fourth most important factor is customer-driven innovation – meaning how much of your R&D is driven by customer insights?

·???????“Our business plans are driven more by technological advances than by market research.” – reverse-coded and negative-formulated, so the opposite is better

·???????“The activities of the different departments in this firm are well-coordinated.” – this is a way of saying that you don’t work in silos, but you work together.

·???????“The product lines we sell depend more on internal politics than real market needs.” – again recoded

·???????“Even if we came up with a great marketing plan, we probably would not be able to implement it in a timely fashion” – again, negative-formulated.

·???????“When we talk to our customers, we always emphasize the customer benefits and not the attributes and features of our products and services.”

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The fifth factor is coordination – how well do you coordinate the marketing activities within your firm?

·???????“We have interdepartmental meetings at least once a quarter to discuss market trends and developments.”

·???????“We periodically review the likely effect of changes in our business environment – for example, regulation and customers.”

·???????“Several departments get together periodically to plan a response to changes taking place in our business environment.”

·???????“When something important happens to a major customer of a market, the whole firm knows about it within a short period.”?

The book "Real Marketing Impact" is now available on Amazon. ISBN 978-3-907311-03-5