Mark Wilson

Marketing is something that has been around since the dawn of time. Before we even coined the term, it started as word of mouth. But as the years progressed and the products available grew, ‘marketing’ became the foundation to promoting sales.
When business started, we marketed blind, because nobody knew how to track returns. And because everybody did it, we kept going, but nobody measured it.

This is where Marketing Information Management comes in hand. Over the years, we have created many tools and applications to help monitor our return on marketing investment.

For example, we can fairly easily analyze the results of advertising with something like a coupon. When brought in, the store collects the coupon and gives the customer their discount.
They take the total amount of redeemed coupons to see the volume of business it generated and multiply that by the contribution each discounted item generated (or total Revenue).
Coupons Redeemed x Revenue of Discounted Item = Gross Sales
i.e. 1000 coupons x $2 Revenue each = $2000
We then determine the total coupon ad cost. Coupon cost multiplied by the total # distributed.
Cost per coupon x Total Coupons = Total Marketing Cost
i.e. $0.01/coupon x 100,000 coupons = $1000
From there we can determine how successful our coupon was in various ways…
1. Coupon Return-On-Investment (ROI) – $2000/$1000 = 200%
2. Coupon Redemption Rate – 1,000/100,000 = 1%
3. Cost per coupon redeemed – $1000/1000 = $1/coupon

The reason this is important is because it allows us to determine whether or not the entire initiative was profitable and where we could improve our efforts. A 1% redemption rate may be very weak in this industry, so they might need to revamp the coupon itself or change the item discounted. If this ad resulted in a negative return, we might scrap the whole program and try something different.
The only aspect this might not calculate is the brand awareness it generates. Those 100,000 coupons may have generated a lot of brand awareness in their distribution and created additional sales of other items. This means we have to take into consideration many aspects of any marketing initiatives and not just a single item sales analysis.

Some measurements can be more difficult to measure accurately. For example, how many sales were generated from a new commercial ad released on TV.
A typical calculation would have Company X comparing last year’s sales for that period to this year’s sales of that period with the launched ad (Year 1 Q3 vs. Year 2 Q3).

However, this calculation does not take into account the average year-on-year growth. This growth may have a significant impact if the company is growing (or shrinking!) rapidly. The new TV ad would not be responsible for this change, so it needs to be removed from the equation.

For instance, we would calculate this as follows:
Calculate Year-on-Year Growth (YOYG)
Year 2 Q3 Sales/Year 1 Q3 Sales = Year-on-Year Growth (i.e. 5% increase)
Subtract the growth Year 2 would have gained based on average year growth trends
Year 2 Q3 – YOYG Portion (i.e. subtract the 5%)
Then compare the Year 1 Q3 to Year 2 Q3
Year 2 Q3 vs. Year 1 Q1

This takes the average yearly growth out of the question, enabling the company to compare apples to apples and analyze whether or not the marketing efforts were effective.

Unfortunately, a lot of companies don’t calculate marketing investment results and at times continue an advertising initiative that generates negative returns. If they ARE measuring, they might not take into account the yearly/monthly growth. In the case of a rapidly growing company, this is a very important factor, because the commercial ad should not be getting credit for basic year-on-year growth.

These are only a couple examples of why marketing metrics are so important in the analysis of marketing initiative effectiveness. Companies need to capitalize on a day and age that we have so many tools available to enable marketing measurements. Our global economy is still suffering, so maintaining high efficiency can be the key to surviving a recession and maximizing profitability.