marketing effectiveness definition

For us at Magnus Consulting, Marketing Effectiveness is how to measure the role of marketing in delivering sustainable long term growth for the organisation. Effectiveness thinking starts with strategy and must permeate through all of marketing’s remit. It includes everything from alignment with sales and the performance of all activities to marketing’s influence on the business and the value it creates.

We know the role of marketing is to drive sales and increase customer loyalty by providing exceptional brand experiences. Therefore, marketing effectiveness is the strategic ROI methodology used to best understand the impact and performance of marketing. It can be measured with key metrics including brand effectiveness, marketing influenced revenue, cost per acquisition (CPA), customer lifetime value (CLTV) and customer retention.

Introduction

Marketing is at a critical intersection

Hovering between great success and unfulfilled opportunity, marketing has a point to prove, as organisations navigate technological changes, dynamic and often unstable markets, the ever-changing needs of customers and ever-more congested competitor landscapes.

Yet with business facing challenges on many fronts, there is a significant opportunity for marketing and marketing leaders to drive growth in an organisation. To get there, they must demonstrate real impact, clear strategy, alignment with the goals of the business and confidence about the crucial role of marketing.

At Magnus Consulting we help our clients achieve greater success through effective marketing. We spend a lot of time debating, challenging and testing marketing effectiveness methodologies. And we read. A lot.

But with so many different theories and insights out there, it can be an overwhelming subject. So we’ve pulled together the best of the best into one easy read, with tangible actions to get you moving in the right direction. Whether you’re a marketing leader or a senior executive that realises that marketing can contribute powerfully to the growth of your organisation, this paper will give you the tools you need to make a significant difference to you and your organisation.

Enjoy it. And if you want to talk to us about it, let’s chat.

Teresa Allan

how to increase The effectiveness of marketing

Measurement and marketing effectiveness go hand in hand

Shifting category conventions, changing customer behaviours and threats of disruptive competitors place increasing pressures on organisations to get the most out of their marketing department. But these disruptions have created an environment that focuses on immediate and short-term strategies to meet growth targets, skewing the presentation and interpretation of performance data.

Measuring and defining the value of marketing isn’t easy and will require a shift in mindset, but for marketing to truly achieve its potential there must be a robust way to demonstrate impact. Marketing effectiveness is the strategic ROI methodology used to best understand the impact and performance of marketing.

In our report, we explore the conventional wisdom that has created the framework for measuring and defining marketing effectiveness, and seek to explore ways organisations can use a balanced approach of short-term and long-term planning to achieve equilibrium. And we will uncover crucial metrics that should be used to judge marketing effectiveness to influence sustainable long-term growth.

We will show that:

• It is essential to create a shared vision for what effectiveness is and how it can be measured.
  
• Specific effectiveness measures you should implement are: brand effectiveness, Cost Per Acquisition (CPA), Customer Lifetime Value (CLTV) and Customer Retention.
  
• Understanding how marketing is contributing to organisational growth requires investment – in people, processes and technology.
  
• The emphasis on short-term results has skewed marketing effectiveness and decreased organisational growth over the long-term.
  
• The B2B Effectiveness Ladder is a good barometer to measure marketings output.
  
• Organisations that significantly outperform the market invest heavily in brand.
  
• To operate at peak performance, marketing needs to be both efficient and effective.
  
• Tapping into effectiveness starts with understanding where you are now and what the current role of marketing is to best inform organisational changes.

1. The elusive world of effectiveness

Marketing effectiveness has become a hot topic in the last few years, as organisations seek to better understand the value and impact of their marketing activities

Inevitably, this has led to bold claims being made about what makes campaigns effective. Yet while many organisations present a good game, in practice they often lack clarity on how to define and measure the role of marketing effectiveness within the ROI mix.

Understanding how marketing effectiveness drives growth and preference for a brand is now being recognised as increasingly important – DemandGen¹ reports that “Measurement is a growing priority for 86%”. But are the right indicators being measured? DMA’s report² into measurement suggests not: “Many marketers measure what they can, rather than what they should”. Are organisations, then, lost and confused in the wilderness of instant vanity digital metrics? Have they lost sight of the purpose and impact of measurement?

The Institute of Practitioners in Advertising (IPA) is an organisation at the forefront of defining and measuring marketing and advertising effectiveness. They commissioned a report from Gain Theory³ which found that effectiveness is far from solved for organisations, saying that “Everyone talks about Marketing Effectiveness but it’s not always clear what it means. And Measurement Strategy cannot be implemented successfully without an agreed definition.”

The report concluded that, “In speaking to more than 40 brand representatives responsible for more than £7bn advertising spend in the UK, we found that no single organisation was wholly satisfied with the way that Marketing Effectiveness was addressed.” Could it be that there is a disconnect between measuring long-term impact and measuring all the little things that are possible? Are people in fact using all this data to do nothing more scientific than reading the tea leaves? Perhaps, in a way we have all been bamboozled by the thousands of instant vanity metrics.

But for us, marketing effectiveness should be defined as the measure of marketing’s role in supporting the organisation to achieve long-term growth success. Effectiveness is a strategic ROI, best viewed through the lens of strategy rather than go-to-market activations.

Challenges to measuring

Potential roadblocks^1,4 to creating an effectiveness attribution model include:

• Short sighted view on data that misses longer-term trends / performance
• Unstructured and dark data
• Training and talent challenges
• Lack of visibility across channels and platforms
• Integrated campaign measurement that becomes overly complex
• Missing effectiveness reports

2. Standing on the shoulders of giants

how the best in the business measure effectiveness

In DMA’s Making Measurement Meaningful2 they suggest that in the last few years there has been a decrease in overall marketing effectiveness that is being driven by instant metrics.

‘Siloed thinking and a fragmented agency landscape mean there’s often little acknowledgement or systematic measurement of the combined effects of brand and direct response spend. This results in an inconsistent view of short and long-term campaign impact².’

To help us better understand the role of marketing effectiveness – and to understand how to conduct effectiveness research within your organisation – let’s take a moment to delve into the current conventional wisdom, to curate some of the best effectiveness thinking in the business. We’ll concentrate on two approaches: the B2B Effectiveness Ladder and Les Binet & Peter Field’s balancing of long and short-term strategies.

3. Arranging your measurement scorecard

To help you strike effectiveness gold, we have reviewed the latest thinking in effectiveness measurement and identified key metrics for more accurate and reflective reporting

These will help you remove the bias of vanity metrics and focus more on long-term strategic impact. Marketers would benefit from looking beyond the numbers to help your team emotionally understand the value and impact their work is having, to revitalise team dynamics and bring back some of the hope and ambition that has been challenged by the difficulties of the last few years.

1. Brand Effectiveness

We all know that brand is important to any successful organisation, yet it has become ‘unfashionable to invest in brand’, which has made way for short-term demand generation campaigns⁸.

Yet Kantar⁹ has noted that “Your brand is one of your business’ most valuable assets.” And Forbes¹⁰ goes so far to say “understanding both brand and revenue generation metrics is critical to achieving return on marketing investment.”

We often have conversations with organisations about the value of brand and investing in it for long-term success. And we find there is usually an undercurrent of disbelief, formed by entrenched thinking that its execution is expensive and its value hard to demonstrate. It is often the first victim of the demand for instant metrics and short-term results.

And there’s no doubt it can come at a cost: understanding your brand’s effectiveness data points within the category increases costs by using external research partners and external suppliers. But this is a small investment when the result is a better understanding of your brand value, share of voice vs competitors and wider category conventions.

Branding needs rebranding – or, as your strategists will say, ‘reframe brand’.

In How Brands Grow¹¹, Prof Byron Sharp outlines why awareness and distinctiveness are the two most important drivers of brand growth and long-term company success¹². (If you don’t have a copy of this book it is highly recommended and might just help you unlock the next stage in your career, too! Insights within the book will help you shape future strategies with robust thinking on mass targeting vs hyper targeting, propositions and creativity.)

Cost Per Acquisition (CPA)

A more immediate and short-term effectiveness measure, CPA is an aggregated metric that measures the marketing investment to secure a new customer. This effectiveness measure is perhaps better suited to organisations that have a short sales cycle and a product that can be easily purchased, such as SaaS companies or ecommerce businesses. The way you calculate will be different depending on how your marketing strategy and activation are tailored, but a good place to start for the formula is:

CPA = Total ad / channel spend divided by total attributed conversions

CPA is arguably more useful as a long-term effectiveness measure when also viewed alongside customer lifetime value and customer retention metrics. CPA can be viewed as a short-term effectiveness measure but avoid the pitfalls misallocation of marketing budget to cater for the demands of CPA on quarterly reports.

Customer Lifetime Value (CLTV)

The predicted total of all future revenues or profits that a customer or account will generate for the organisation, having accurate CLTV data will better inform your strategic approach to the market and where best to invest to achieve your growth targets. Moreover, CLTV will move your planning into the long-term, allowing you to view beyond short-term metrics.

If you are not tracking this you are not alone: “1 in 5 CMOs almost never measure Customer Lifetime Value… of those that do measure it, the largest share do so on an ad hoc basis, while others measure it annually or semi-annually¹⁴.”

CLTV will arm you for informed conversations around the organisation and can be used to show marketing’s impact on long-term growth. CLTV data will help solve key questions on the performance of the business and market strategy as well as product and service positioning:

• How much marketing budget is required to acquire a new customer?
• Which audience segment is most profitable?
• Which audience segment is a loss?
• Which products / services have the biggest margin and profit?
• Is the cost of the relationship worthwhile vs the lifetime value?

How you set your CLTV measurement will be different depending on sales cycles, category conventions and routes to market, which all impact how CLTV should be measured accurately as possible – but here is a starter for 10 to proceed with:

CLTV = Avg order value x frequency rate of purchase x avg customer lifetime

Having access to accurate first party customer data will support you on your journey to effectiveness measurement. Without getting too deep into the tools and platforms, data enrichment will support deep customer relationships leading to improved CLTV and customer retention.

Customer Retention

Maintaining a healthy customer retention rate, by turning customers into repeated buyers and preventing competitors from getting them to switch, creates a strong strategic advantage in many B2B categories. The Customer Retention metric measures the rate your organisation has retained customers over any given period. Typical time periods to review are: 90 days, six months, and annually. Define your customer retention rate with the following formula:

Customer Retention Rate = (Customers at the End of the Period) – (New Customers Acquired) / Customers at the Start of the Period

The retention metric when viewed on its own is a good indicator of product and service performance. When connected to wider effectiveness measures, retention can be seen by the cost of acquisition over time, which can help reduce the focus on short-term strategies.

4. Efficiencies lead to effectiveness

It is worth highlighting at this stage that efficiencies and effectiveness are interconnected. Confusion around the role of efficiencies drives short-termism¹. For example, driving down costs of media by any means to make a campaign appear more successful without taking into account if the media is effective, or considering the wider implications on long-term strategic levels.

You can use the Efficiency x Effectiveness matrix to better understand the strategic challenges ahead:

5. Making effective change today

In the end, the role of marketing is to drive sales and increase customer loyalty by providing exceptional brand experiences

Even if you are on stage one of the B2B effectiveness ladder, it is still important to strive to show how marketing is positively impacting overall business performance. Taking steps to become a more marketing-effective, focused organisation will require collaboration and buy-in from various teams with your organisation, with strategic guidance from the leadership team to increase marketing’s influence.

Effectiveness thinking starts with strategy and must permeate through all of marketing’s remit. And the attitudes and behaviour of the marketing team should be focused on correctly understanding the performance of activities. Supported by insights from your MarTech stack, ensure accurate data is collected through the funnel so you can get increased insights about leads and conversions that can be repurposed for future optimised campaign work.

Starting today you can move to an effectiveness mindset by aligning marketing’s responsibilities to the ambition and vision of the organisation. Becoming an effectiveness champion will involve an honest review of your strategy, the structure of the marketing team, approach to market and cadence of metric reporting.

Aim for effectiveness and everything else will fall into place.

Measure what matters

• Business impact: marketing’s contribution to revenue and meeting business goals.
  
• Customer Lifetime Value: the total worth to your business of a customer over the whole period of the relationship, providing a balanced view on retention and advocacy as well as acquisition.
  
• Brand value/equity: the financial and reputational value of the brand.
  
• Campaign-specific ROI: depending on the campaign objective, make sure there are agreed KPIs for measuring success.

Action plan

• Identify the current role of marketing and where you sit on the effectiveness ladder, asking:
  
  • How is success measured within marketing?
  • What does the rest of the organisation expect of you?
    
• Agree the future role of marketing within organisation and with stakeholders from the wider organisation. Ask:
  
  • What could marketing be doing to help achieve the business goals more effectively?
  • Where does the organisation need the specific support of marketing within the customer journey?
    
• Outline gaps between the current and future state of marketing:
  
  • Can the current marketing team deliver on the new goals?
  • Do you have the right people, processes and technology to deliver on these and measure success?
    
• Agree the changes required to meet the future state:
  
  • People changes (upskill, new resource, redeploy)
  • Process change (make sure the team are clear on roles and responsibilities and new ways of working to promote accountability)
  • Tech changes (ability to segment, measure and connect across the customer journey and link to sales)
    
• Agree KPIs on how the future role of marketing will be measured and align with business goals:
  
  • Set out annual marketing goals and measurable metrics, taking into account previous performance, benchmark best-practice, capability, budget and resource availability.
  • Standardise performance reporting and share with wider business.

About Magnus Consulting

Magnus Consulting is a B2B strategy consultancy with a single aim: to increase the effectiveness of marketing within your organisation. We passionately believe in the power of marketing to drive positive impact and sustainable business growth.

We partner with ambitious organisations that recognise the vital role of marketing in achieving their ambitions. We are often brought on board following significant change, rapid growth, investment, an M&A or digital transformation. When we are pivotal in aligning marketing with business goals to deliver sustainable growth.

We unlimit the potential of every organisation.

References

1. Demand Gen. Marketing Measurement & Attribution Survey Report: B2B Organizations Double Down On Tried-And-True Methods With A Focus On Tracking Digital Engagement [Internet]. 2021.
2. Gibbs I, DMA. Making Measurement Meaningful [Internet]. 2021.
3. Webb J, Gain Theory, EffWorks. Measurement Strategy, getting the best in class [Internet]. 2018.
4. Deloitte. Brand Marketing Effectiveness Study [Internet]. 2020.
5. B2B Institute, WARC, Lions. The B2B Effectiveness Code [Internet]. 2021.
6. Binet L, Field P, IPA. The Long and the Short of It: Balancing Short and Long-Term Marketing Strategies [Internet]. 2013.
7. IPA. The Crisis in Creative Effectiveness [Internet]. 2019.
8. IPA. About EffWorks [Internet]. [cited 2022 April].
9. Kyriakidi M, Kantar. Why and how should you measure brand equity? [Internet]. 2021.
10. Biderman-Gross F, Forbes. Metrics that matter: How to measure your B2B Marketing Success [Internet]. 2021. Updated 2022: Biderman-Gross F, Forbes. Metrics that matter: How to measure your B2B Marketing Success [Internet]. 2022.
11. Sharp B. How Brands Grow: what marketers don’t know. 1st ed. Oxford: Oxford University Press; 2010.
12. Braaten J, Huebert J, Brandata. The Top 32 Brand Awareness Tips: A Complete List of 2022 Growth Ideas [Internet]. 2022.
13. Lehmann S, Liedtke N, Rothschild P, Trevino E, McKinsey. The future of brand strategy: It’s time to ‘go electric.’ [Internet]. 2020.
14. Marketing Charts. 1 in 5 CMOs Almost Never Measure Customer Lifetime Value [Internet]. 2021.