Is Account-Based Marketing Right for Your Business?

One of the hot topics in B2B marketing circles today is account-based marketing (ABM). ITSMA (the Information Technology Services Marketing Association) led the development of account-based marketing about a decade ago. Although it started in the technology sector, ABM is now used by many kinds of B2B companies.

ITSMA defines account-based marketing as:  "A structured approach to developing and implementing highly customized marketing campaigns to markets of one, i.e. accounts, partners, or prospects." (emphasis added) By this definition, the distinguishing characteristic of account-based marketing is that it entails the development of a unique marketing strategy and communications program for each target account.

Recently, some marketing consultants and software companies have been arguing for a broader view of account-based marketing. For example, SiriusDecisions has identified four varieties of ABM - large-account marketing, named-account marketing, industry-account marketing, and customer marketing. For a description of these four varieties of ABM, read this post at the SiriusDecisions blog.

Firms that advocate the broader view use the term account-based marketing to describe marketing programs that focus on a specific group of named accounts, but do not necessarily involve the implementation of a unique marketing program for each target account. While these programs are often based on solid marketing principles and can be very effective, they are not true account-based marketing, at least in the original sense of the concept. In this post, I'm using the term account-based marketing as it was defined by ITSMA.

It's now clear that account-based marketing can be highly effective in the right circumstances, but is ABM right for your business?

Your answer to this question largely depends on the attributes of your universe of existing and potential customers. True account-based marketing is typically used only for very high-value customers and prospects because it's expensive to execute. For example:

• ABM requires both marketing and sales personnel to be deeply involved in the development and execution of each account plan.
• Many of the activities involved in ABM cannot be automated because they require the exercise of human judgment.
• Account-based marketing will usually require the development of unique marketing and sales content resources for each target account.

Because of the costs associated with account-based marketing, most companies that use ABM do so selectively. The diagram below illustrates how account value and the diversity of account needs influence which approach to marketing is most appropriate.

The lower left corner of the diagram represents accounts (existing customers and prospects) with relatively low value and relatively homogeneous needs. A mass marketing approach (i.e. "one size fits all") is probably most appropriate for this group of accounts. Note, however, that this group represents a small part of the total universe of accounts.

The top portion of the diagram represents very high-value accounts. These are the types of accounts that are suitable for account based marketing, even when their needs are fairly homogeneous. In most companies, these accounts also represent a fairly small portion of the total account universe.

As the diagram illustrates, targeted marketing (which may, in fact, focus on a specific group or set of named accounts) is the most appropriate marketing approach to use for most accounts. As I'm using the term, targeted marketing refers to the use of customized marketing messages for market segments and buyer personas, but not for individual accounts. When targeted marketing is done correctly, it enables a company to obtain many of the benefits of account-based marketing at a significantly lower cost.

So what's the bottom line? If you're a B2B company with a few existing customers who are "too big to lose," and/or if you can identify a small number of potential customers who would provide exceptionally high value to your company, then consider implementing account-based marketing for those selected accounts, and use targeted marketing programs for the rest.

How to Know if Your Marketing Strategy is Working

The foundation of all effective marketing efforts is a sound marketing strategy. Most marketing leaders feel fairly comfortable formulating strategy, but many find it difficult to measure how well their marketing strategy is actually working. The solution for this perennial challenge is a marketing Balanced Scorecard.

When Robert Kaplan and David Norton introduced the Balanced Scorecard in the early 1990's, they saw it as simply a better way to measure organizational performance. However, many early adopters started using the Balanced Scorecard as a tool for implementing business strategy. They recognized that if the objectives and measures included in their Balanced Scorecard were derived from their strategy, the scorecard would become an effective tool for describing the strategy in
measurable terms. Therefore, the Balanced Scorecard quickly evolved from a pure performance measurement system to a tool for managing strategy.

This is my third post about using a Balanced Scorecard to measure and manage marketing performance. In my last post, I described the four "perspectives" used in a Balanced Scorecard. In this post, I'll describe how a Balanced Scorecard can help you determine how well your marketing strategy is working.

The key to using a Balanced Scorecard to manage marketing strategy is something called a strategy map. A strategy map is essentially a set of linked strategic objectives that are organized using the four Balanced Scorecard perspectives. The diagram below depicts a high-level, generic version of a Balanced Scorecard strategy map for marketing.



Each of the rectangles in a Balanced Scorecard strategy map will contain objectives that are derived from your company's marketing strategy. In the above diagram, the rectangles contain descriptions of the kinds of objectives that would be included. For example, in the internal process perspective, one set of objectives will relate to the campaigns or programs that marketers design and execute.

In a Balanced Scorecard strategy map, the lines connecting the rectangles represent the cause-and-effect relationships that exist among your company's strategic marketing objectives. These causal relationships define the "logic" of your marketing strategy, and they tie the objectives together to create a cohesive strategy. Describing these cause-and-effect relationships is one of the most critical steps in building a sound marketing strategy, and using a strategy map forces you to make these relationships explicit and visible.

In a Balanced Scorecard strategy map, the cause-and-effect lines indicate that achieving one objective is what enables another objective to be achieved. For example, the above diagram is indicating that if a company successfully achieves its customer value proposition objectives, the company will achieve its objectives relating to customer acquisition and customer loyalty. And, if the company achieves its customer acquisition and customer loyalty objectives, it will be able to reach is revenue growth objectives.

The most powerful argument for using a Balanced Scorecard to measure and manage marketing performance is that it provides a mechanism for demonstrating and documenting how individual marketing activities fit into and support your marketing strategy, and for connecting individual marketing activities and programs to ultimate business outcomes. The objectives and measures used in the customer, internal process, and learning and growth perspectives are leading indicators of the business outcomes that define marketing success. So, by monitoring your progress toward achieving all of the objectives included in your strategy map, and by testing the validity of the cause-and effect relationships you've defined in your strategy map, you are also measuring the effectiveness of your marketing strategy.

How a Balanced Scorecard Measures Current and Future Marketing Performance

In my last post, I argued that marketers should use a Balanced Scorecard to measure and manage marketing performance. The Balanced Scorecard was introduced by Robert Kaplan and David Norton in the early 1990's, and it's become one of the most popular and effective business management tools. In the Management Tools and Trends 2013 survey by Bain & Company, business leaders from around the world ranked the Balanced Scorecard as the fifth most widely-used management tool.

The Balanced Scorecard was created to address the deficiencies of performance management systems that rely exclusively on financial performance metrics. One of the main shortcomings of financial accounting measures is that they are lagging indicators. They measure the financial consequences of actions taken in the past, but they can't measure how today's activities will affect future performance.

To address these deficiencies, a Balanced Scorecard uses both financial and non-financial metrics, and it includes measures of both leading and lagging performance indicators. This framework enables company leaders to monitor both current performance and the factors that drive future
performance.

These capabilities make the Balanced Scorecard a powerful tool for measuring and managing marketing performance. A Balanced Scorecard measures marketing performance across four perspectives - financial, customer, internal process, and learning and growth. The financial perspective measures the current performance of the overall marketing function, while the other three perspectives measure the drivers of future performance. The diagram below shows the basic architecture of a Balanced Scorecard.

A thorough explanation of how the Balanced Scorecard is used for marketing would require a book, not a blog post. In this post, I'll briefly describe the four perspectives of a marketing Balanced Scorecard. In my next post, I'll describe how you can use a Balanced Scorecard to measure the effectiveness of your marketing strategy.

The Four Perspectives of a Balanced Scorecard

Financial Perspective - As noted earlier, the financial perspective of a Balanced Scorecard measures the current financial performance of the marketing function. When a Balanced Scorecard is used for marketing, the ultimate financial measure is usually return on marketing investment.
This perspective will also typically include objectives and measures relating to revenue growth and the operational efficiency of the marketing function. For example, most marketing Balanced Scorecards will measure overall revenue growth. Depending on a company's growth strategy, this perspective may also contain specific objectives and measures pertaining to certain sources of revenue growth, such as growth from specific customer groups, products, or geographic market areas.

Customer Perspective - The customer perspective of a marketing Balanced Scorecard will contain a set of objectives and measures relating to customer acquisition and to customer retention, growth, and satisfaction. This perspective will also typically include objectives and measures that focus on the most important aspects of your customer value proposition. Some of the measures commonly found in this perspective include number of new customers acquired (or number of new customers of a particular type) and average deal size. The "logic" of a Balanced Scorecard is that if a company achieves the objectives included in this perspective, the company will achieve the revenue growth objectives in the financial perspective.

Internal Process Perspective - This perspective will contain objectives and measures relating to the internal activities and processes that are critical to (a) understanding your current and potential customers, and (b) communicating your value propositions to prospects and customers. Some of these processes relate to how you gather and use data from and about your customers and prospects, and some will relate to how you design and execute marketing campaigns and programs. So, for example, this perspective is where you track the performance of lead generation and lead nurturing programs. The internal process perspective will also include objectives and measures relating to the operational processes in the marketing function that affect efficiency and productivity.

Learning and Growth Perspective - The fourth and final perspective of a Balanced Scorecard is the learning and growth perspective. This perspective measures the intangible assets that your company must posses in order to perform your critical internal processes with a high level of competence. This perspective will typically contain objectives and measures relating to three types of intangible assets - human capabilities, technological capabilities, and organizational/cultural attributes.

So, how do you determine what objectives and measures should be included in a Balanced Scorecard? In my next post, I'll explain why objectives and measures should be derived from your marketing strategy. When this is done, the Balanced Scorecard becomes a powerful tool for managing your strategy and measuring its effectiveness.

Why Marketing Needs a Balanced Scorecard

Earlier this year, ITSMA, VisionEdge Marketing, and Forrester Research surveyed marketing leaders about how they demonstrate marketing's value to the business. The survey revealed that marketers are producing more performance data than ever, but that most of the data doesn't resonate with senior company leaders. For example, the survey found that only 9% of CEO's and 6% of CFO's rely on marketing data to make business decisions.

The study authors contend that most marketing metrics don't do a good job of communicating the value of marketing for three reasons.

• They measure marketing activities, but not important business outcomes.
• They measure operational efficiency, but not the effectiveness of marketing.
• They measure past performance, but they don't provide predictive insights about future outcomes.

Measuring the impact that marketing has on company revenues and profits is a critical aspect of managing marketing performance, but an effective performance management system for marketing must also perform several other functions. For example:

• It must measure the performance of individual marketing activities and programs so that marketers can make investment and marketing mix decisions that will maximize results.
• It must enable marketers and other business leaders to evaluate how well their company's marketing strategy is working.
• It must support both strategic and tactical decision making.
• It must enable marketing leaders to measure the efficiency and effectiveness of operational marketing activities and processes.

In order to perform all of these functions, a performance management system for marketing will necessarily include several types of metrics, including some of the kinds of metrics that are now being criticized. Specifically, a comprehensive marketing performance management system will include:

• Financial and non-financial measures
• Metrics for leading and lagging performance indicators
• Measures that focus on the strategic impact of marketing and metrics that support tactical decision making
• Measures of ultimate business outcomes and measures of activities, outputs, and intermediate outcomes
• Revenue and cost metrics

To prove the value of marketing to C-level executives and manage the marketing function effectively, marketing leaders need a balanced scorecard for marketing. Since its introduction by Robert Kaplan and David Norton in the early 1990's, the balanced scorecard has become one of the most widely-used and effective tools in the business management arsenal.

In my next post, I'll describe what a balanced scorecard for marketing looks like.