by Jim Lenskold
When you think of marketing metrics, it’s not likely that the customer experience immediately comes to mind. The warm and fuzzy stuff isn’t as easy to calculate as your typical marketing measurements. Yet leading CMOs will tell you that customer experience is key when building solid marketing measurements.
At Dow Corning, for instance, the marketing organization has done a terrific job implementing Six Sigma methodologies—the discipline of improving predictability and precision through structured measurements and processes—to drive marketing success. CMO Scott Fuson describes Dow’s “voice of the customer” as the cornerstone of its process, guiding the company’s marketing measurements toward clearly defined critical customer requirements.
Measurement of such key performance indicators supports sales and marketing in developing stronger customer loyalty and proactively addressing issues that negatively impact long-term customer profitability. The results have been significant in both shifting Dow’s culture and generating more than 20 times the financial returns on external spending.
I co-chaired a conference that featured more than a dozen CMOs from companies such as Hewlett-Packard, The Home Depot and Allstate. The topic: measuring marketing’s impact on the bottom line. As you would expect, these CMOs provided insight into their journeys toward greater profitability management. They talked about the difficulties in developing their measurement infrastructure and acknowledged the need for building accountability.
But the theme that was most prevalent—and least obvious in terms of relating to marketing measurements—was the importance of managing the customer experience.
When you think about it, how can you really manage marketing profitability without thinking about the customer experience? After all, for the vast number of companies, the real profits roll in not with new customer acquisition, but with repeat purchases from the most profitable customer segments.
Paul Koulogeorge, vice president of marketing at EB Games, an electronic game retailer with more than 2,000 stores worldwide, is attentive to customer experience numbers and knows that repeat business is critical to his company’s success. He tells a story of how the company occasionally receives letters from concerned parents complaining about how store employees had a Mohawk haircut, tattoos or “a bit of an attitude.” Koulogeorge describes his typical reaction to these letters as: “Great!”
“We hire raving fans and include free trials and midnight openings for new games to ensure the store experience is unique and completely focused on the young male audience who are avid gamers,” says Koulogeorge. “The in-store experience has to be centered on this core audience and entice them to return again, whether they make a purchase or not at that time.”
Funnel management is a major component of marketing profitability management. A customer funnel lays out the progression from unaware prospect to long-term customer; it is central to marketing measurement because it creates the link between marketing activities intended to motivate customer behaviors and the impact of those behaviors on financial outcomes for the company.
Allstate, HP and Siebel all include the customer funnel as part of their management of marketing measurement and the overall customer experience. CMO Joe Tripodi describes how Allstate’s marketing scorecard tracks customer progression through key milestones such as quote rates, close rates, cross-sales and renewals. His Balanced Scorecard broadens to include business results (quote volume generated, ROI), brand health (awareness, consideration) and customer experience (retention, customer loyalty, referrals). Given that Allstate’s advertising is intended to generate incremental business by building strong emotional bonds, measurements around the customer experience before and after the initial purchase are critical.
Think about it this way: Your marketing efforts through all of your touch points influence a select segment of customers to be more inclined to buy from you. At any point in the funnel, leakage can result from a single gap in the experience, such as a failure to communicate a critical piece of information, a disconnect in positioning, or delivery of products and services that fall below expectations. Leakage points represent lost profit opportunities. Your marketing measurements must be structured to uncover the leakage points in the funnel in order to guide new strategies, tighten integration across diverse marketing initiatives and motivate a common commitment to improving profitability.
The former CMO of a leading heating and air-conditioning equipment company told me that, shortly after joining the company, he recognized that the real opportunity for growing profits lay in taking ownership of the customer experience. His efforts to get the company to become more customer-centric, integrate sales and marketing, and manage the complete brand experience were largely driven by the work he did to establish the right metrics for the organization.
While there are many lessons to be learned from this CMO, I saw four key steps that really made the difference in his success. Initially, he took the approach of questioning the obvious. He came into a sales-driven organization where the primary business metrics were transaction-based and reflective, tracking products sold by region. There were no predictive metrics to indicate how current performance would affect future sales and no customer-based metrics to indicate who the top customers were.
On the surface, the current metrics indicated overall business performance was going well. To get a deeper understanding of the customer and sales process, he met with top sales executives, conducted customer focus groups and initiated customer satisfaction research. He discovered that the likelihood that recent customers would repurchase from his company was 50-50 at best, so he knew the current metrics were not telling the full story.
He then mapped out the customer experience with a close look at all touch points, including the sales process. The sales approach shifted from pushing products to selling customer-specific solutions. He also sought to move the company from being product-centered to being customer-centered. Such buy-in was significant, since the introduction of new metrics would mean a disruption in the current sales compensation plan.
The last critical step before initiating the transition was defining key metrics for the organization. Its core metrics were shifted to align with its customers’ success metrics.
A carefully constructed customer satisfaction measurement was designed to correlate with sales performance. Other customer-driven metrics included contribution to the customer’s speed to market, total cost of ownership and compliance with customer regulatory requirements. Common metrics were established across all sales and marketing groups. Now the company’s sales and marketing culture is attentive to not only customers’ satisfaction but also the satisfaction of its customers’ customers.
Consider what your current marketing metrics actually tell you in terms of the entire customer-funnel progression. If you are measuring awareness and consideration, do you look at your performance as a single metric across your broadly defined target audience? Or do you assess your position for noncustomers, new customers and loyal customers differently? The results for each group provide very different insight into your potential success.
And if you are running marketing mix modeling, are you content with the correlation between advertising spend and total sales volume? Or are you drilling down to uncover the underlying behavioral shifts by new customers, short-term shifts in buying patterns or sustainable shifts in loyalty? Are you completing the right research to identify how the customer experience influences future purchase decisions or leads to leakage from the funnel?
I encourage you to bring your analysis down to the customer level, whether it’s through mining your customer database, creating a new approach to modeling, running quantitative research studies or observing the actual customer experience. As you learn how your marketing influences the behaviors of prospects and customers over time, you’ll be better positioned to design future strategies and tactics and project the financial outcomes from those initiatives.
Copyright © 2005, CXO Media Inc., reprinted by permission from CMO Magazine.