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Bendle, N. T., & Bagga, C. K. (2016). The metrics that marketers muddle. MIT Sloan Management
Review, 57(3), 73-82.

Despite their widely acknowledged importance, some popular marketing metrics are regularly misunderstood and
misused. One major reason for marketing’s diminishing role is the difficulty of meaning its impact: The value marketers
generate is often difficult to quantify. The main goals of this article are to understand how these marketing metrics are
used and understood and to develop ideas to help marketers unmuddle their metrics. The authors conducted surveys
from managers from all functions across the business-to-business and business-to-consumer industries.

 

5 Best Known Marketing Metrics:

–       Market share

–       Net Promoter Score (NPS)

–       The Value of a ‘Like’

–       Consumer Lifetime Value (CLV)

–       Return on Investment (ROI)

Market Share

Market share is a popular marketing metric. One reason for why manager value market share is that research
from the 1970s suggested a link between market share and ROI; however, the linkage may be less clear: the
studies have found it is often correlational rather than causal. The survey found that there were two ways
managers used market share: as an ultimate objective or as an intermediate measure of success. Increasing
market share is not a meaningful ultimate objective for maximizing shareholder value and stakeholder
management: If the aim is to maximize the returns to shareholders, increased market share offers no benefits
unless it eventually generates profits. In some markets, bigger can be better; however, economies of scale do not
automatically apply all markets.

Unmuddling Market Share:

The authors suggest a simple set of rules for the appropriate use of the market share metric:

–       Managers should not consider market share as the ultimate objective or as a proxy for absolute size.

–       Managers should evaluate it from the competitors’ and consumers’ point of view. If an increase in market
share is not going to get positive feedback from competitors and consumers, then an increase in market share
will not lead to a productive result.

–       Managers should analyze whether market share drives profitability in your industry. Companies with
superior products tend to have high market share and high profitability because product superiority causes both.

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This means that the two metrics are correlated, BUT it does not necessarily mean that increasing market share
will increase profits.

 

Net Promoter Score (NPS)

This metric is used to measure customer loyalty to a firm. Companies among diverse industries have embraced
NPS as a way to monitor their customer service operations while NPS also has been seen as a system that allows
managers to use the scores to shape managerial actions.

One of the advantages of NPS is its simplicity: It is easy for managers and employees to understand the goal of
having more promoters and fewer detractors. However, there are weaknesses: E.g., in the net promoter literature,
a customer’s worth to Apple has been described as the customer’s spending, ignoring the costs associated with
serving the customer. It is also easy to imagine how to increase the net promoter score (such as making
customers happier) while destroying even to-line growth (by slashing prices). Another problem with NPS as a
metric is the classification system: The boundaries between scores of 6 and 7 (detractors and passives) and 8 and
9 (passive and promoters) seem somewhat arbitrary and culturally specific.

Unmuddling NPS:

The value of NPS depends on whether a manager sees it as a metric or as a system. The authors suggest that the
NPS metric cannot change the marketing performance. However, they advise using this metric as a part of a
system employed in evaluating the performance which might lead to a cultural shift within the organization.

 

The Value of a ‘Like’

This metric is used for measuring the social media capital of the company. New approaches are being developed
all the time and they have the potential to aid understanding of how social media creates value. It is measured as
the difference between the average value of customers endorsing the company and the average value of the
customers who are not endorsing the company. The majority of managers link between their social media
spending the value of a ‘like’. However, it does not mean that the cause of the differences in users’ value is
attributable to a company’s social media strategy. And the reason that social media strategy shouldn’t be seen as
the driver of value difference between fans and nonfans is because customers who are social media fans will
differ from nonfans for reasons unrelated to the company’s social media strategy.

Unmuddling the Value of a ‘Like’:

This difference between two groups of consumers does not suggest an effect of online marketing activity or lack
thereof. It should be investigated thoroughly by the managers. If the management is using the revenue to
measure customer value, then this marketing metric does not give a good estimate. However, if the company
does want to understand the impact of social media marketing, they should use randomized control experiments
to derive causal answers.

Consumer Lifetime Value (CLV)

Consumer lifetime value (CLV), which is the present value of cash flows from a customer relationship, can help
managers in decision making related to investment in developing customer relationships, as it is used to measure
the value of the current customer base. If the management is using the customer value in their decision-making
process, then CLV is a useful tool for them.

Unmuddling CLV:

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The authors suggest that CLV calculations should not include the customer acquisition cost and the estimated
CLV should be compared to the estimated acquisition cost to derive conclusions. The bigger the difference
between the estimated CLV and the estimated acquisition cost, the better the acquisition campaign.

Return on Investment (ROI)

Return on investment is a popular and potentially important metric allowing for the comparison of disparate
investments. A critical requirement for calculating ROI is knowing the net profit generated by a specific
investment decision. According to the authors, there is confusion within management over the use of ROI.
However, as ROI is understood across disciplines, it is a powerful metric to communicate across the
organization.

Unmuddling ROI:

The authors advise that if a manager is assessing the financial return on an investment, then ROI is an
appropriate metric and can be calculated by dividing the incremental profits by the investments. Agribusiness
marketing managers who are passionate about establishing the credibility of the value created through marketing
should be thorough in their use of metrics. Most importantly, they should be able to understand the metric, its use
and what it represents.