If you're attacking your market from multiple positions and your competition isn't, you have all the advantage and it will show up in your increased success and income.Jay Abraham
No matter what your product is, you are ultimately in the education business. Your customers need to be constantly educated about the many advantages of doing business with you, trained to use your products more effectively, and taught how to make never-ending improvement in their lives.
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.
“Accountability” is the new (old) buzzword in marketing today. Managers report intense pressure to justify the worth of marketing activities in a flagging economy. For the third consecutive cycle.
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. Sometime during the 1980s, non financial perspectives began taking hold in academic and management imaginations, beginning with both rigorous research and management success stories in the area of customer satisfaction. From the late 1980s onward, new concepts in performance measurement ran riot. Customer satisfaction, customer loyalty, and customer value management competed for attention as key intermediate performance figures that would ultimately lead to profits. At the same time, brand-measurement research burgeoned and drew attention to other marketing assets as well. Finally, the apparently paradigm-shifting impact of electronic commerce whipped measurement schemes into a frenzy of data, measures, and concepts.
Unprotected by tenure, marketing managers’ imaginations, if not their budgets, are being circumscribed. Although the new measurement concepts of the 1990s have not disappeared, a faltering economy has driven managers into survival mode. To paraphrase George Orwell, all measures are equal, but some measures are more equal than others, and financial survival drives an emphasis on financial measures. The marketing budget has traditionally been considered a possible source of spare change, but there are two reasons to believe that the cries of anguish emanating from marketing managers are worse this time. First, as Sheth and Sisodia (1995) observe in a prescient article, previous recessions and new management practices have led to dramatic rationalization of manufacturing and administrative costs, meaning that the last big item on the income statement to squeeze is the marketing expense. Second, the explosive growth of data and the market-research firms that provide them has changed the problem from a lack of data on marketing performance to the interpretation of vast quantities of data that just might provide a true understanding of the marketing
Into this miasma of fear and loathing steps Tim Ambler, Senior Fellow at the London Business School and former Joint Managing Director at International Distillers and Vintners, which is now a unit of Diageo. The second edition of Ambler’s Marketing and the Bottom Line is an ambitious effort to “provide a complete guide to making marketing fully accountable” (p. 3), especially to senior management. The book examines a broad variety of potential measures, how to report marketing performance effectively to key audiences, and how to use measures to manage the marketing efforts of the organization. Although the book is not perfect, it is far and away the best book for a senior manager who is interested in understanding marketing’s impact on his or her organization.
Marketing and the Bottom Line’s thesis can be boiled down to five themes: First, top management, not just top marketing management, has a fundamental obligation to measure the performance of marketing activities. Ambler argues that understanding the future financial wealth of an organization requires understanding from where cash will come. The primary provider of future cash flow is customers, so it is necessary to understand exactly how and why customers give organizations their money. Allowing marketing to remain a black box is unacceptable both in terms of accountability to senior management and shareholders and in terms of organizational learning and growth. This book, Ambler notes (p. 3), “is not a paean of praise for marketing.” Indeed, the book seems aimed at the board of directors and chief executive officer more than midlevel marketing managers (marketing executives may resist measurement precisely because understanding the effects of their budget can undermine justification of their budget), but marketing executives will still find the book useful in considering what they need to understand and how to report marketing upward in the organization.
Second, financial measurement is not enough. Although understanding the financial impact of marketing is important, it is insufficient on two grounds. First, there is the problem that many income statement measures (e.g., sales, profit) are fundamentally backward looking
Ambler argues that many of the popular financial methods to guide marketing (return on investment, shareholder value analysis, customer lifetime value) are seriously flawed in their application. For example, disagreements among the valuation methods are often pedantic, in that they become debates about how to label cash flow within an organization. He points out that valuation methods for different equities usually rely heavily on discounted cash flows. For example, brand equity can be valued as the incremental cash flows a company would earn beyond those it would earn from an unbranded product. Customer lifetime value similarly examines the total cash flow from a particular customer (or, more frequently, a customer segment). Market capitalization has long been considered a projection of overall future cash flows to the firm. An organization’s cash flow can be broken up on the basis of how much each brand brings in or how much each customer group brings in. Either way, it is the same cash.
Third, marketing performance is equal to the outcome of an organization’s marketing activities in a given period, adjusted for change in the organization’s underlying “marketing assets.” Marketing activities have shortened long term effects. Scholars and practitioners have argued that the assets marketing creates for the corporation (e.g., a strong brand) are too often ignored in the measurement of marketing performance. For example, a promotion might increase sales in the current period but have damaging effects in the long run if it erodes brand equity. Conceptually, Ambler’s means of dealing with the long/short distinction is to adjust short-term results for long-term effects on the assets that marketing has created for the organization. This is best done by using a blend of financial and non financial and intermediate and final measures, taken over time and compared to organizational goals. Practically, this does not appear to be so much a quantitative adjustment (e.g., take profit and reduce by 10% because brand equity was damaged) as is the entirely appropriate analogy from financial analysis that changes in both the income statement (short-term activities) and the balance sheet (long-term capabilities) can be used to assess the health of the organization.
Fourth, strategically, the marketing asset represents the reservoir of future customer-based cash flow that has been built up by the firm’s previous customer-related activities. Ambler construes the marketing asset broadly: It arises from multiple audiences (e.g., consumer, trade customer, employee, journalist, shareholder, supplier) and thus must be measured in multiple ways. A definition of total (marketing) equity, he avers (p. 42), would be “the sum of the equities in each stakeholder segment.” He devotes chapters to brand equity, employee satisfaction, innovation, and investor relations as underlying components of the marketing asset. Given that there are vast research bases in each of these areas, experts in each might disagree with some of Ambler’s arguments, but the overall approach is quite practical and managerial.
Fifth, measurement is equal to strategy is equal to management. Ambler effectively turns the aphorism “you can’t manage what you can’t measure” on its head, making a compelling case that whatever an organization is currently measuring is its strategy and correspondingly its management implementation. Measurement indicates and, in an emergent sense, drives the organization’s strategy and implementation. In this sense, tightly controlled measurement is problematic. Ambler argues that tying executive bonuses to measurement is an invitation to counterproductive gaming. Close benchmarking of competitive measurement systems guarantees measurement uniformity in an industry and thus strategic uniformity.
I suspect that practicing managers will ignore this particular theme. The temptation to tie compensation to numbers is too well ingrained to resist in many organizations, and managers seem inordinately fascinated with the measurement schemes that other companies use. In the latter sense, managers will appreciate Marketing and the Bottom Line because it provides so many concrete examples of good measures and good measurement from both individual companies and benchmarking surveys.
The source material for Marketing and the Bottom Line is a broad swath of academic and benchmarking studies of marketing performance measurement. The first edition of the book was based heavily on the Marketing Metrics project in the United Kingdom, a 30-month research effort cosponsored by several marketing-practitioner institutions and the London Business School. The second edition broadens this base significantly, drawing on two major studies by the U.S.-based Marketing Leadership Council, Jean-Claude Larreché’s Global Competitiveness project at INSEAD, and a host of more specialized studies from various academics and practitioners. Ambler also has conducted dozens of interviews with U.S. and U.K. executives to pin down specific examples of practice. Indeed, a drawback of the book is that it is sometimes hard to tell the exact scope of the underlying research: An appendix with a paragraph or two on each of the key research projects would have clarified the knowledge base significantly. The book still seems somewhat focused on the United Kingdom, partly because of the preponderance of U.K. firms among Ambler’s examples. However, the range of U.S. and European examples (there is relatively little coverage of Asia) should not trouble executives in an increasingly global world.
In terms of measures, Ambler’s treatment of the marketing asset is the most innovative part of the book. The breadth of his conception is both a strength and a weakness. While Amber discusses brand equity, he alludes to the tale of blind men each trying to identify an elephant by feeling one part of the animal. Strategically, it is clear that the sum of customer-related activities in an organization is as big as an elephant. Senior management will appreciate this book precisely because it steps aggressively across organizational boundaries: Marketing performance is not a marketing department issue but an issue that cuts across all customer related parts of the organization.
Unfortunately, because the definition of the marketing asset is so broad, the reader may occasionally be hard pressed to understand where the elephant ends. If the asset encompasses a half-dozen diverse stakeholders, their concerns, and all the activities that affect them, what part of the organization is not the marketing asset? The case is not helped by some idiosyncratic definitions of terms. When readers have become accustomed to the definitions, there is no problem, but the initial reading can be jarring. For example, brand equity is not specifically tied to a brand name but is defined (p. 34) as “any market-based asset, be it reputation, goodwill or customer satisfaction ... even though the term ‘brand’ is not generally used by some sectors.”
To be fair, Ambler claims that “brand equity” is the term companies most frequently used for the asset in his research, and he is also scrupulous in his examples to identify what each company calls the asset. Other definitions, though, are either more broad or narrow than a marketing reader might expect. Innovation refers (p. 132) to “management inspired changes that alter the firm’s position in the market ...
[including] introducing new brands and products, finding new customer segments for existing products ... or new ways of selling, [and] servicing or using the brand.” The marketing mix is defined (p. 193) as “all expenditures intended to strengthen brand equity” and explicitly excludes spending on promotions and discounts under the assumption that these do not build brand equity.
Leaving aside the specific measures that senior management might use, an important strength of the book is its treatment of the management issues regarding marketing metrics. Ambler describes a pattern of metrics evolution that is intriguing in its implications. On the basis of his research, he posits five stages of evolution (pp. 80–81): (1) Top management of the company is unaware of the issue of assessing marketing performance; (2) on becoming aware, management considers assessing marketing in terms of financial evaluation; (3) in response to the inadequacy of financial measurement alone, a multitude of non financial measures are added to the financial ones; (4) the resulting company confusion leads to a streamlined set of financial and non financial metrics that gives a coherent view of the market; and (5) Mathematical modeling of a measure database provides a short list of predictive marketing metrics.
The evolution appears to suggest a U-shaped relationship between the measurement stage and satisfaction with measures. Because the company is blissfully ignorant in Stage 1, it is relatively satisfied. Early attempts to value marketing financially lead to increasing frustration, and the many-measures stage probably represents a company nadir before satisfaction climbs again across the final two stages. Ambler further suggests that not only is it difficult to shortcut this evolution, but it may not be advisable to try because it will limit the organization’s ability to learn. Furthermore, depending on data availability and industry sector, it may not be feasible for all organizations to progress to the fifth stage.
Ambler provides voluminous advice on how to manage marketing metrics regardless of stage. The book provides several sets of useful diagnostic questions to help managers understand their current situation and metrics needs. Ambler dives into the details of managing measurement, is definite in his opinions, and is often quite witty in expressing them. The book is full of provocative metaphors and vivid writing.
Ambler clearly distinguishes the measurement problems of small and medium-sized enterprises as compared with large ones, though the book is definitely slanted toward large firms. He devotes an entire chapter to the tension between developing and applying a single set of global metrics and creating strategy-specific measurement sets for different units, as in strategy maps (Kaplan and Norton 2000). I began this chapter firmly in the strategy-specific camp, and Ambler himself admires the tailored approach, but by chapter’s end I found myself seduced by the logic underlying his general set of nine basic marketing metrics. He provides enough detail, including useful diagnostic questions, to help the thoughtful manager pursue either approach.
Ambler also diligently tackles the thorny problem of how to measure in multidivisional, multinational organizations, suggesting separate reporting for the key brandmarket units (one brand in one market) that provide the bulk of an organization’s shareholder value while relegating the remaining units to aggregate figures. The book is similarly strong in discussing internal and external reporting issues
Ancient Greeks told the tale of Sisyphus, who was eternally condemned in the after life to roll a boulder to the top of a hill, from where it would tumble back to the bottom only to be pushed up again. Marketing performance measurement sometimes seems like just such futile labor. It is difficult to identify the performance impact of any single marketing activity, much less marketing as a whole. Given a sufficient sample size, statistical significance can be generated, but the R2 or practical significance of a given variable is often low. The teasing out of causality among the many factors that might affect overall performance is particularly challenging even with a large sample size. Whether this is because of myriad interactions or because, ahem, no causal path exists between marketing and overall business performance is difficult to discern. By the time researchers figure out what has happened, the market may have changed.
The practical realities of organizational life also mitigate against strong measurement. Given the “fire fighting,” . “solve-the-latest-crisis” mode that absorbs so much of management time, it will be difficult to devote attention to developing a measurement system when that distracts from tasks such as selling, advertising, and product development. This is probably especially true in the current economic environment, which ironically is simultaneously creating greater pressure to justify marketing activities. In discussing innovation, Ambler notes the paradox that whereas every company needs new initiatives, most managers are buried in what he calls “initiative overload,” which leads to lower morale and probably poorer marketing. A marketing metrics system will be one more big, ugly initiative on the organization’s plate.
Career incentives to do this measurement spadework are probably low. The costs in time and money are immediate and concrete, whereas the benefits are distant and diffuse. Ambler notes that even if senior marketing managers wanted to develop a strong metrics system, the time it might take probably exceeds their likely tenure in their positions. Furthermore, performing companywide measurement well requires gathering often incompatible data from the four corners of the organization, which the chief marketing officer may not have the power to achieve. Ambler suggests that a better course may be having the chief financial officer in charge of marketing metrics, since he or she is already accustomed to collecting and aggregating data from across the organization. Although marketing managers may pale at this suggestion, it does have the virtue of moving the costs of measurement to the chief financial officer’s budget. Ambler also believes that it may give marketing metrics higher credibility, given the profession’s reputation for being selective or manipulative with information. At the least, a serious metrics system will need to be developed in consultation with the finance function to ensure comparability of units across financial and non financial measures.
Ambler adopts a perspective in describing what he calls “the fuzzy future” of marketing metrics. Metrics can be considered as representing a mechanism for control (everything will occur as planned or it will be known why it did not) or direction (where is the firm and where should it be going?). Ambler suggests (p. 237) that “fuzzy future” means that metrics should be used for “broad positioning rather than precision and for illumination rather than control.” Rather than worry about precisely identifying the level of an organization’s health, a firm should be able to sense whether it is getting sick or better. Perfect alignment between strategy and measurement is not only infeasible but inadvisable as well, because it will cause the company to ossify rather than experiment and change.
Ambler notes that in his research, some respondents found “fuzziness” in measurement uncomfortable, desiring the perfect alignment that an information technology–driven Balanced Scorecard dashboard seemed to promise Kaplan and Norton (1996), but others embraced a freer future. He suggests that a balance between alignment and flexibility is the answer. I agree.
I recommended the first edition of this book to advanced MBAs and executives and will happily do the same with the second. It is most suited for individual reading by senior managers at larger organizations, but it could be used as a text for a performance measurement seminar. Although the book is occasionally idiosyncratic in approach, it has a strategic sweep and insight that will help any senior manager interested in measurement think through the relevant issues. The many practical examples, measures, and implementation tips will maximize the likelihood of any measurement effort being a success. In summary, although it is not perfect, this book is definitely “pretty good,” and it is the best general book available on the topic.
Conclusion 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.
Brand equity is an elephant Brand equity is the biggest, albeit largely unrecognized, 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.
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.
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).
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 standardized 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. Using metrics to improve innovation performance Most firms recognize 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.
Employee brand equity There is increasing recognition, especially in the service sector, that internalizing 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. 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.
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 recognize 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.
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.
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 visualized 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
No matter what your product is, you are ultimately in the education business. Your customers need to be constantly educated about the many advantages of doing business with you, trained to use your products more effectively, and taught how to make never-ending improvement in their lives.
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.
“Accountability” is the new (old) buzzword in marketing today. Managers report intense pressure to justify the worth of marketing activities in a flagging economy. For the third consecutive cycle.
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. Sometime during the 1980s, non financial perspectives began taking hold in academic and management imaginations, beginning with both rigorous research and management success stories in the area of customer satisfaction. From the late 1980s onward, new concepts in performance measurement ran riot. Customer satisfaction, customer loyalty, and customer value management competed for attention as key intermediate performance figures that would ultimately lead to profits. At the same time, brand-measurement research burgeoned and drew attention to other marketing assets as well. Finally, the apparently paradigm-shifting impact of electronic commerce whipped measurement schemes into a frenzy of data, measures, and concepts.
Unprotected by tenure, marketing managers’ imaginations, if not their budgets, are being circumscribed. Although the new measurement concepts of the 1990s have not disappeared, a faltering economy has driven managers into survival mode. To paraphrase George Orwell, all measures are equal, but some measures are more equal than others, and financial survival drives an emphasis on financial measures. The marketing budget has traditionally been considered a possible source of spare change, but there are two reasons to believe that the cries of anguish emanating from marketing managers are worse this time. First, as Sheth and Sisodia (1995) observe in a prescient article, previous recessions and new management practices have led to dramatic rationalization of manufacturing and administrative costs, meaning that the last big item on the income statement to squeeze is the marketing expense. Second, the explosive growth of data and the market-research firms that provide them has changed the problem from a lack of data on marketing performance to the interpretation of vast quantities of data that just might provide a true understanding of the marketing
Into this miasma of fear and loathing steps Tim Ambler, Senior Fellow at the London Business School and former Joint Managing Director at International Distillers and Vintners, which is now a unit of Diageo. The second edition of Ambler’s Marketing and the Bottom Line is an ambitious effort to “provide a complete guide to making marketing fully accountable” (p. 3), especially to senior management. The book examines a broad variety of potential measures, how to report marketing performance effectively to key audiences, and how to use measures to manage the marketing efforts of the organization. Although the book is not perfect, it is far and away the best book for a senior manager who is interested in understanding marketing’s impact on his or her organization.
Marketing and the Bottom Line’s thesis can be boiled down to five themes: First, top management, not just top marketing management, has a fundamental obligation to measure the performance of marketing activities. Ambler argues that understanding the future financial wealth of an organization requires understanding from where cash will come. The primary provider of future cash flow is customers, so it is necessary to understand exactly how and why customers give organizations their money. Allowing marketing to remain a black box is unacceptable both in terms of accountability to senior management and shareholders and in terms of organizational learning and growth. This book, Ambler notes (p. 3), “is not a paean of praise for marketing.” Indeed, the book seems aimed at the board of directors and chief executive officer more than midlevel marketing managers (marketing executives may resist measurement precisely because understanding the effects of their budget can undermine justification of their budget), but marketing executives will still find the book useful in considering what they need to understand and how to report marketing upward in the organization.
Second, financial measurement is not enough. Although understanding the financial impact of marketing is important, it is insufficient on two grounds. First, there is the problem that many income statement measures (e.g., sales, profit) are fundamentally backward looking
Ambler argues that many of the popular financial methods to guide marketing (return on investment, shareholder value analysis, customer lifetime value) are seriously flawed in their application. For example, disagreements among the valuation methods are often pedantic, in that they become debates about how to label cash flow within an organization. He points out that valuation methods for different equities usually rely heavily on discounted cash flows. For example, brand equity can be valued as the incremental cash flows a company would earn beyond those it would earn from an unbranded product. Customer lifetime value similarly examines the total cash flow from a particular customer (or, more frequently, a customer segment). Market capitalization has long been considered a projection of overall future cash flows to the firm. An organization’s cash flow can be broken up on the basis of how much each brand brings in or how much each customer group brings in. Either way, it is the same cash.
Third, marketing performance is equal to the outcome of an organization’s marketing activities in a given period, adjusted for change in the organization’s underlying “marketing assets.” Marketing activities have shortened long term effects. Scholars and practitioners have argued that the assets marketing creates for the corporation (e.g., a strong brand) are too often ignored in the measurement of marketing performance. For example, a promotion might increase sales in the current period but have damaging effects in the long run if it erodes brand equity. Conceptually, Ambler’s means of dealing with the long/short distinction is to adjust short-term results for long-term effects on the assets that marketing has created for the organization. This is best done by using a blend of financial and non financial and intermediate and final measures, taken over time and compared to organizational goals. Practically, this does not appear to be so much a quantitative adjustment (e.g., take profit and reduce by 10% because brand equity was damaged) as is the entirely appropriate analogy from financial analysis that changes in both the income statement (short-term activities) and the balance sheet (long-term capabilities) can be used to assess the health of the organization.
Fourth, strategically, the marketing asset represents the reservoir of future customer-based cash flow that has been built up by the firm’s previous customer-related activities. Ambler construes the marketing asset broadly: It arises from multiple audiences (e.g., consumer, trade customer, employee, journalist, shareholder, supplier) and thus must be measured in multiple ways. A definition of total (marketing) equity, he avers (p. 42), would be “the sum of the equities in each stakeholder segment.” He devotes chapters to brand equity, employee satisfaction, innovation, and investor relations as underlying components of the marketing asset. Given that there are vast research bases in each of these areas, experts in each might disagree with some of Ambler’s arguments, but the overall approach is quite practical and managerial.
Fifth, measurement is equal to strategy is equal to management. Ambler effectively turns the aphorism “you can’t manage what you can’t measure” on its head, making a compelling case that whatever an organization is currently measuring is its strategy and correspondingly its management implementation. Measurement indicates and, in an emergent sense, drives the organization’s strategy and implementation. In this sense, tightly controlled measurement is problematic. Ambler argues that tying executive bonuses to measurement is an invitation to counterproductive gaming. Close benchmarking of competitive measurement systems guarantees measurement uniformity in an industry and thus strategic uniformity.
I suspect that practicing managers will ignore this particular theme. The temptation to tie compensation to numbers is too well ingrained to resist in many organizations, and managers seem inordinately fascinated with the measurement schemes that other companies use. In the latter sense, managers will appreciate Marketing and the Bottom Line because it provides so many concrete examples of good measures and good measurement from both individual companies and benchmarking surveys.
The source material for Marketing and the Bottom Line is a broad swath of academic and benchmarking studies of marketing performance measurement. The first edition of the book was based heavily on the Marketing Metrics project in the United Kingdom, a 30-month research effort cosponsored by several marketing-practitioner institutions and the London Business School. The second edition broadens this base significantly, drawing on two major studies by the U.S.-based Marketing Leadership Council, Jean-Claude Larreché’s Global Competitiveness project at INSEAD, and a host of more specialized studies from various academics and practitioners. Ambler also has conducted dozens of interviews with U.S. and U.K. executives to pin down specific examples of practice. Indeed, a drawback of the book is that it is sometimes hard to tell the exact scope of the underlying research: An appendix with a paragraph or two on each of the key research projects would have clarified the knowledge base significantly. The book still seems somewhat focused on the United Kingdom, partly because of the preponderance of U.K. firms among Ambler’s examples. However, the range of U.S. and European examples (there is relatively little coverage of Asia) should not trouble executives in an increasingly global world.
In terms of measures, Ambler’s treatment of the marketing asset is the most innovative part of the book. The breadth of his conception is both a strength and a weakness. While Amber discusses brand equity, he alludes to the tale of blind men each trying to identify an elephant by feeling one part of the animal. Strategically, it is clear that the sum of customer-related activities in an organization is as big as an elephant. Senior management will appreciate this book precisely because it steps aggressively across organizational boundaries: Marketing performance is not a marketing department issue but an issue that cuts across all customer related parts of the organization.
Unfortunately, because the definition of the marketing asset is so broad, the reader may occasionally be hard pressed to understand where the elephant ends. If the asset encompasses a half-dozen diverse stakeholders, their concerns, and all the activities that affect them, what part of the organization is not the marketing asset? The case is not helped by some idiosyncratic definitions of terms. When readers have become accustomed to the definitions, there is no problem, but the initial reading can be jarring. For example, brand equity is not specifically tied to a brand name but is defined (p. 34) as “any market-based asset, be it reputation, goodwill or customer satisfaction ... even though the term ‘brand’ is not generally used by some sectors.”
To be fair, Ambler claims that “brand equity” is the term companies most frequently used for the asset in his research, and he is also scrupulous in his examples to identify what each company calls the asset. Other definitions, though, are either more broad or narrow than a marketing reader might expect. Innovation refers (p. 132) to “management inspired changes that alter the firm’s position in the market ...
[including] introducing new brands and products, finding new customer segments for existing products ... or new ways of selling, [and] servicing or using the brand.” The marketing mix is defined (p. 193) as “all expenditures intended to strengthen brand equity” and explicitly excludes spending on promotions and discounts under the assumption that these do not build brand equity.
Leaving aside the specific measures that senior management might use, an important strength of the book is its treatment of the management issues regarding marketing metrics. Ambler describes a pattern of metrics evolution that is intriguing in its implications. On the basis of his research, he posits five stages of evolution (pp. 80–81): (1) Top management of the company is unaware of the issue of assessing marketing performance; (2) on becoming aware, management considers assessing marketing in terms of financial evaluation; (3) in response to the inadequacy of financial measurement alone, a multitude of non financial measures are added to the financial ones; (4) the resulting company confusion leads to a streamlined set of financial and non financial metrics that gives a coherent view of the market; and (5) Mathematical modeling of a measure database provides a short list of predictive marketing metrics.
The evolution appears to suggest a U-shaped relationship between the measurement stage and satisfaction with measures. Because the company is blissfully ignorant in Stage 1, it is relatively satisfied. Early attempts to value marketing financially lead to increasing frustration, and the many-measures stage probably represents a company nadir before satisfaction climbs again across the final two stages. Ambler further suggests that not only is it difficult to shortcut this evolution, but it may not be advisable to try because it will limit the organization’s ability to learn. Furthermore, depending on data availability and industry sector, it may not be feasible for all organizations to progress to the fifth stage.
Ambler provides voluminous advice on how to manage marketing metrics regardless of stage. The book provides several sets of useful diagnostic questions to help managers understand their current situation and metrics needs. Ambler dives into the details of managing measurement, is definite in his opinions, and is often quite witty in expressing them. The book is full of provocative metaphors and vivid writing.
Ambler clearly distinguishes the measurement problems of small and medium-sized enterprises as compared with large ones, though the book is definitely slanted toward large firms. He devotes an entire chapter to the tension between developing and applying a single set of global metrics and creating strategy-specific measurement sets for different units, as in strategy maps (Kaplan and Norton 2000). I began this chapter firmly in the strategy-specific camp, and Ambler himself admires the tailored approach, but by chapter’s end I found myself seduced by the logic underlying his general set of nine basic marketing metrics. He provides enough detail, including useful diagnostic questions, to help the thoughtful manager pursue either approach.
Ambler also diligently tackles the thorny problem of how to measure in multidivisional, multinational organizations, suggesting separate reporting for the key brandmarket units (one brand in one market) that provide the bulk of an organization’s shareholder value while relegating the remaining units to aggregate figures. The book is similarly strong in discussing internal and external reporting issues
Ancient Greeks told the tale of Sisyphus, who was eternally condemned in the after life to roll a boulder to the top of a hill, from where it would tumble back to the bottom only to be pushed up again. Marketing performance measurement sometimes seems like just such futile labor. It is difficult to identify the performance impact of any single marketing activity, much less marketing as a whole. Given a sufficient sample size, statistical significance can be generated, but the R2 or practical significance of a given variable is often low. The teasing out of causality among the many factors that might affect overall performance is particularly challenging even with a large sample size. Whether this is because of myriad interactions or because, ahem, no causal path exists between marketing and overall business performance is difficult to discern. By the time researchers figure out what has happened, the market may have changed.
The practical realities of organizational life also mitigate against strong measurement. Given the “fire fighting,” . “solve-the-latest-crisis” mode that absorbs so much of management time, it will be difficult to devote attention to developing a measurement system when that distracts from tasks such as selling, advertising, and product development. This is probably especially true in the current economic environment, which ironically is simultaneously creating greater pressure to justify marketing activities. In discussing innovation, Ambler notes the paradox that whereas every company needs new initiatives, most managers are buried in what he calls “initiative overload,” which leads to lower morale and probably poorer marketing. A marketing metrics system will be one more big, ugly initiative on the organization’s plate.
Career incentives to do this measurement spadework are probably low. The costs in time and money are immediate and concrete, whereas the benefits are distant and diffuse. Ambler notes that even if senior marketing managers wanted to develop a strong metrics system, the time it might take probably exceeds their likely tenure in their positions. Furthermore, performing companywide measurement well requires gathering often incompatible data from the four corners of the organization, which the chief marketing officer may not have the power to achieve. Ambler suggests that a better course may be having the chief financial officer in charge of marketing metrics, since he or she is already accustomed to collecting and aggregating data from across the organization. Although marketing managers may pale at this suggestion, it does have the virtue of moving the costs of measurement to the chief financial officer’s budget. Ambler also believes that it may give marketing metrics higher credibility, given the profession’s reputation for being selective or manipulative with information. At the least, a serious metrics system will need to be developed in consultation with the finance function to ensure comparability of units across financial and non financial measures.
Ambler adopts a perspective in describing what he calls “the fuzzy future” of marketing metrics. Metrics can be considered as representing a mechanism for control (everything will occur as planned or it will be known why it did not) or direction (where is the firm and where should it be going?). Ambler suggests (p. 237) that “fuzzy future” means that metrics should be used for “broad positioning rather than precision and for illumination rather than control.” Rather than worry about precisely identifying the level of an organization’s health, a firm should be able to sense whether it is getting sick or better. Perfect alignment between strategy and measurement is not only infeasible but inadvisable as well, because it will cause the company to ossify rather than experiment and change.
Ambler notes that in his research, some respondents found “fuzziness” in measurement uncomfortable, desiring the perfect alignment that an information technology–driven Balanced Scorecard dashboard seemed to promise Kaplan and Norton (1996), but others embraced a freer future. He suggests that a balance between alignment and flexibility is the answer. I agree.
I recommended the first edition of this book to advanced MBAs and executives and will happily do the same with the second. It is most suited for individual reading by senior managers at larger organizations, but it could be used as a text for a performance measurement seminar. Although the book is occasionally idiosyncratic in approach, it has a strategic sweep and insight that will help any senior manager interested in measurement think through the relevant issues. The many practical examples, measures, and implementation tips will maximize the likelihood of any measurement effort being a success. In summary, although it is not perfect, this book is definitely “pretty good,” and it is the best general book available on the topic.
Conclusion 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.
Brand equity is an elephant Brand equity is the biggest, albeit largely unrecognized, 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.
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.
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).
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 standardized 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. Using metrics to improve innovation performance Most firms recognize 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.
Employee brand equity There is increasing recognition, especially in the service sector, that internalizing 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. 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.
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 recognize 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.
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.
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 visualized 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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