Sunday, December 13, 2020

Measuring the Long-Term Impact of Marketing

The conventional wisdom in the marketing community is that measuring the performance of marketing is now both necessary and achievable. And the conventional wisdom is accurate, at least in part.

The explosion of available data about customers and prospects and the expanding capabilities of marketing and analytics technologies have made some aspects of marketing easier than ever to measure. At the same time, however, measuring the impact of marketing on major business financial outcomes remains a difficult task.

Last year, Google published a white paper that discussed three of the most difficult challenges relating to the measurement of marketing effectiveness. The authors of the paper acknowledge that perfect solutions for these challenges don't currently exist. In fact, the primary objective of the paper was to focus on the areas where existing methods of measuring marketing effectiveness are "running up against the boundaries of the possible."

In my last post, I discussed the first challenge addressed by the Google authors - demonstrating a valid cause-and-effect relationship between a particular marketing activity and a particular business outcome. This post will cover the second "grand challenge" identified in the Google paper.

"Measuring the long term, today"

Some marketing programs are designed to produce results quickly, while others will have an impact over a longer period of time. According to some industry experts, many marketers have become too focused on the short term, to the detriment of overall marketing effectiveness.

Several recent research studies have confirmed that marketers are heavily focused on running short marketing programs and measuring short-term results. For example, in a 2020 survey of B2B marketers by The Marketing Practice (in association with Marketing Week), only 18% of the respondents said they run campaigns for more than six months, and only 20% said they measure the impact of campaigns beyond six months.

This survey was fielded about two months after COVID-19 economic lockdowns began, and the pandemic almost certainly affected the survey responses. But marketing "short termism" began long before COVID-19 reared its ugly head. The Google paper cited a 2018 survey of UK marketers by ISBA in which 61% of the respondents said they measure the impact of their marketing campaigns solely while the campaign is running or in the first three months after it ends. Only 13% said they measure impact for more than a year after a campaign ends.

A number of factors are driving this focus on short-term marketing results, but one of the most important is that long-term marketing effects are difficult to measure. And it's particularly difficult to measure the long-term financial impact of marketing. With marketing leaders under constant pressure to prove the value of their programs, it's not surprising they tend to favor marketing tactics that are easier to measure.

Despite the measurement difficulty, it's important that marketers and other senior business leaders understand the true value of longer term marketing programs. Research has shown that the highest level of marketing effectiveness is achieved when companies use both long-term ("brand building"} and short-term ("sales activation" or "demand generation") marketing programs.

What Marketers Need

The current state-of-the-art method for measuring long-term marketing impact is an enhanced version of marketing mix modeling. Unfortunately, this method requires several years of data, and the cost can be prohibitive for many companies. Equally important, this method, like all forms of marketing mix modeling, is backward looking, so it isn't that useful for marketers who need to make decisions in the present.

What marketers really need is a leading indicator - or a set of leading indicators - that can reliably predict longer-term business outcomes. Recently, share of search has emerged as a promising metric for this leading indicator role. Share of search can be defined as the volume of search queries for a specific brand as a proportion of all the search queries for all the brands that define a competitive category.

For example, suppose that there are five brands (A, B, C, D and E) in a particular product or service category and that over a given time period, a total of 100 searches were performed that included any of these brands. If brand A accounted for 35 of those searches, its share of search was 35% for that time period.

What makes share of search potentially valuable is that it is readily available on a real-time basis and it may be predictive of future outcomes like sales and market share. Recent research by Les Binet has shown that share of search can predict future market share in three categories - automobiles, energy (gas and electricity) and mobile phone handsets. Binet's research found that in these three categories, if a brand's share of search increases, its market share will rise over the following months. And conversely, when share of search declines, so does future market share.

Binet's research is very important, but it was also relatively narrow. It only involved three product categories. We will need more research to determine whether and to what extent share of search predicts future revenue growth and market share in other product and service categories. But if share of search does work in a wide range of categories, many marketers will have one of the key tools they need to make the measurement of long-term marketing effects straightforward, timely and affordable.

Image courtesy of Mike Lawrence ( via Flickr CC.

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