To win in marketing, count on the ‘metric’ system

12/23/2009 - Mark Jeffery '01 is a hard-science guy transplanted into the soft soil of marketing. He likes his numbers; physicists usually do.

"My perspective is that you can measure anything," says Jeffery, a senior lecturer in technology. That's why he believes it's crucial to establish metrics for marketing initiatives, such as net present value, customer lifetime value and the effectiveness of word-of-mouth social media.

Jeffery earned a doctorate in theoretical physics from Drexel University in 1991, but soon afterward found that he enjoyed the challenges of managing scientific innovations as much as creating them. In 1999, he enrolled in the Kellogg School's MBA program to pursue this growing interest and is now the director of technology initiatives for the school's Center for Research in Technology and Innovation.

It's not surprising, then, that Jeffery's research generates some unusual results and perhaps even some discomfort among traditional practitioners, who might bristle at the attempt to quantify creativity.

That complaint gets short shrift in Jeffery's forthcoming book, Data-Driven Marketing: The 15 Metrics Everyone in Marketing Should Know (Wiley, 2010). In fact, Jeffery is less concerned with marketing content per se than with designing the process to manage it. One of the arresting insights in his book is that the best companies do precisely this.

"The vast majority of marketing organizations in big companies outsource the creative — 72 percent of firms surveyed," says Jeffery. "So the question becomes, 'What are the best practices for managing marketing?'"

Data-Driven Marketing — using metrics to measure day-to-day marketing activity and improve performance — provides a framework to answer that query and help companies allocate resources effectively. The book was written based on surveys of 250 firms capturing $52 billion of annual marketing spending, and intensive interviews with senior marketing executives from Fortune 1000 firms.

Jeffery's research shows that the best firms spend smarter than the competition. The top 15 to 20 percent spend more on branding, customer equity and technology that supports data-driven marketing. They spend less on "demand generation" marketing — sales, coupons, Internet promotions — the sort of thing Jeffery says can lead to a costly price war.

Data-driven marketing can help in several ways, including keeping score of all major marketing activities. Jeffery focuses on 15 metrics and divides these into three categories:

* Essential nonfinancial metrics, like brand awareness and churn;
* Essential financial metrics, like net present value and internal rate of return; and
* "New media" metrics, like customer lifetime value, bounce rate or word-of-mouth social media reach.

If readers find the jargon unclear, Jeffery says they are not alone: His research reveals that most professional marketers don't understand the terms either.

"It was absolutely eye-opening," Jeffery says. According to his findings, 80 percent of marketers do not track their work using metrics, while 55 percent of executives report that their staff does not understand financial metrics.

Jeffery hopes that his readers learn to use technology to collect and analyze data and, with it, create an effective marketing strategy. Easier said than done, he knows, since technology can prove to be a trickster as well as an enabler. Just ask those marketers who are already swimming in data they don't know what to do with.

His advice? Start small and build. "You don't need 100 percent of the data and a multimillion-dollar infrastructure to get going," he says.

What marketers do need is a new way of thinking. Traditional approaches poured cash into TV, radio, print advertising, direct mail or Internet promotions. Jeffery says his book pushes past these channel considerations to examine the effectiveness of that spend.

"Let's think differently and see what the marketing is actually doing and then infer strategic insights based upon that," he says.