Importance of Metrics in Marketing Strategies - Case Study

 

Marketing is a fundamental responsibility for all activities related to advertising and sales strategies that are vital to the success of any organization. The ability of an organization to efficiently market its products and services is directly related to the success or failure of the company. As noted by Arikan (2011), metrics form the base of any effective marketing strategy. However, many firms fail to utilize metrics to calculate success or failure of their strategies. Most companies focus on the new leads generated overlooking other important formulas that analyze the actual success of any type of marketing strategy. As the business environment evolves, new marketing strategies and options are invented which requires marketers to stay a step ahead by understanding key metrics and what they mean for a company’s marketing strategies.

Ideally, these metrics are measurable values used to demonstrate the level of effectiveness of marketing campaigns on all marketing channels. Since marketers operate across many channels, their marketing strategy will involve a variety of activities, which makes it important to track progress and performance of their actions with the right performance indicators. This can help a business to reach its marketing targets and make improvements when facing challenges. Before choosing the right metrics, it is important to consider channels being used and who in the business will use the resultant information to make decisions (Arikan, 2011). For Athletics Supreme, following are five important metrics that the company should use to evaluate performance of their marketing strategies. For this assignment, 5 marketing metrics will be reviewed to display the anticipated success of the Pleasantly Plus, plus size retail boutique and consignment shop. Each factor is a subcategory of the marketing metrics main categories; sales metrics, customer readiness to buy metrics, customer metrics, distribution metrics and communication metrics. The assignment will review in detail equations used to forecast the following: sales growth, awareness, retention rate, number of outlets and response rate.

Sales Metrics

Strategic marketing plans are created to facilitate an elevated consumer awareness to promote and attract customers to purchase your product. Data related to sales volumes measure the rate at which sales of your product and is imperative for decision making for the overall fiscal sustainability and financial success This metric is also valuable for strategic planning and will determine future growth projects for the company. Athletics Supreme must also monitor sales data including total sales and types of products sold. Sales data must then be evaluated by the company to determine the effectiveness of the marketing strategy or to determine barriers to sales. The sales metric being utilized to determine the efficacy of the advertising methods used must be monitored with respect to creating sales through increased product awareness. In addition, this evaluation would also determine the tactics that have a negative impact on sales goals (Farris, 2010). These key indicators will be monitored by the marketing department over multiple sales periods.

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Athletics Supreme can utilize sales data to monitor growth and of the new product line Sales figures for the sports apparel product line will be monitored quarterly beginning with the date of the initial release of the products. This metric will be monitored for one year with the goal of establishing sales trend lines relative to seasonal sales. Sales growth represents the variance in comparing sales from differing time periods. This data can be reflected mathematically as:

(Current time period net sales- Previous time period net sales)

_________________________________________ x100

(Previous period net sales)

Or

As applied to Athletic Supreme ($50,000 net sales qtr 2- $35,000 net sales qtr 1

_________________________________________________________________ x100

$50,000

Athletics Supreme shows a growth rate from Qtr 1 to Qtr 2 of 30%

Customer readiness to buy metrics

Customer awareness is a method utilized to determine the number of consumers who have been made aware of the products offered, in this case by Athletics Supreme. From a marketing viewpoint, a strong awareness of your product increases potential consumer purchase. Marketers use customer readiness such as awareness, preference, purchase intention, trial rate, and repurchase rate as performance indicators of product branding therefore these indicators have a great deal of influence over strategic planning of a company (Hanssens, Pauwels, Srinivasan, Vanhuele, & Yildirim, 2014).

Consumer purchases are influenced by multiple stages of product awareness before purchasing. Consideration to the consumers thought process related to decision to purchase before determining an appropriate marketing plan. Athletics Supreme enters the sports apparel market with an edge over the competition due to having a presence in the industry. The company has a reputation for quality therefore, consumers have an established recognition of the name brand.

Athletic Supreme should collect behavioral purchasing data based on preferences gathered from sales databases. By evaluating consumer purchases, Athletics Supreme can gain valuable data on consumers’ product preferences (Kotler & Keller, 2012). Periodic surveys of customers that purchase the apparel would further assist in evaluation the most effective marketing tactics. Akrin (2011), notes that the quality advertising message will make customers more inclined to purchase sportswear. Athletics Supreme objective would be to obtain favorable response rates beyond 90 percent, and adjust marketing strategies accordingly.

Videos are another medium that would be used in the raising of awareness regarding the new line of sportswear products. The number of viewers of a video is an effective way of determining whether the products receive the attention of the target customers. The target customers are expected to be impacted by the viewership of the videos to engage in the purchase of the products being marketed (Arikan, 2008).

Based on the viewership metrics, Athletics Supreme should determine the most efficient marketing channel that facilitates the creation of awareness regarding the product to consumers. The Greater attention of the marketing medium that is most effective should be done to ensure that there is maximum exploitation of the medium to create awareness and influence consumers to make purchase decisions in favor of the sportswear products (Farris, 2010). As applied to Athletics Supreme, an approach to quantifying product awareness is based on cost per 1,000 contacts and then calculate the spend per contact for each advertisement.

Marketing Originated Customer % is a ratio that reveals the percentage of the new business that is a result of Marketing efforts. It is computed by getting the number of customers that started with a lead generated by Marketing and then dividing it with the total number of new customers that signed up in a period; the value is then multiplied by 100 (Zikmund & Babin, 2013).

This metric will show the portion of customers’ acquisition that originated from Athletics Supreme Marketing efforts in a certain period. This metric is best analyzed using a closed-loop marketing analytics system as manual computation is tiring and takes time (Kotler & Keller, 2012).

Customer metrics

Customer metrics is collection of data that can be used to determine what matters most to the customers: past, present and future. For Athletics Supreme a key subcategory in customer metrics to analyze would be the cost of customer acquisition. Per Arikan (2011), customer acquisition cost, is the cost incurred convincing a potential customer to buy a product or service. This metric is important to a company as well as its investors. Investors use it to determine a company’s profitability by analyzing the amount of money that can be extracted from potential customers and cost incurred extracting it. Marketing specialists on the other hand use the metric to optimize returns on their advertising investment. It highlights whether costs of extracting money from customers can be reduced which would help improve the company’s profit margin.

Mathematically, it includes all cost incurred in acquiring customers over a given period divided by the total number of customers acquired in that period. Ideally, this includes all sales and marketing costs including advertising cost, salaries, commissions, bonuses and relevant overheads in each period (month, quarter or a year) (Zikmund & Babin, 2013). For example, for Athletics Supreme, the Customer Acquisition cost in the first year will be:

Total Marketing costs for the whole year/number of customers acquired within the year

Therefore, if the company spent $50,000 on sales and marketing in a certain month and added 50 customers

CAC = $50,000/50

=$1,000

CAC will be important to Athletics Supreme, as it will indicate the effectiveness of the money invested in acquisition of new customers. A high metric will indicate the company is spending too much on sales and marketing while a low metric would indicate that the company is using low costs to gain customers (Arikan, 2011).

Customer Retention Rate

Customer Retention Rate is used to calculate the loyalty of customers. Acquisition of new customers usually costs more than it costs retaining current ones (Shank & Lyberger, 2014). Arikan (2011) argues that evaluating the dedication of a customer towards a company enables marketers to improve their strategies. Encouraging customers to stick with one’s business for long helps maximize revenues. It is calculated by subtracting the number of new customers from the total number of customers in a certain period divided by the number of customers at the start of the period and then multiplied by 100 to make it a percentage, i.e.

CRR= Customers End Period (CE)-New Customers for the Period (CN)/Customers at Start of the Period (CS) x 100.

For example, if Athletics Supreme starts a month with 50 customers and gains 20 new ones but lose 15 customers in that month, the CRR would be;

(55-20)/50*100

= 70%

This metric will help Athletics Supreme to assess the loyalty of customers for each of its brands. It will also reveal the company’s ability to nurture existing customers.

Customer lifetime value (CLV)

This metric is used to assess the economic value brought by a customer to a business for the entire duration the person remains a customer. It evaluates everything starting with the customer’s first interaction with the company to the final purchase. It is a comparison of revenues generated by a customer and the costs of acquiring and maintaining the customer. Calculating this metric helps to reveal whether there is value in maintaining long-term marketing channels. If the CLV value is high, a company needs to invest more in retaining customers for the long-term (Arikan, 2011).

For example, if Athletics Supreme fills 300 orders with revenue of $20,000, the company’s Average Order Value (AOV) would be $66.67. To determine Purchase Frequency (PF), the number of orders is divided by the number of unique customers. Assuming Athletics Supreme had 200 unique customers, PF would then be 1.5.

Customer Value (CV) would then be AOVxPF, which is 66.67×1.5 =$100

Once CV is determined, Customer Lifetime Value (CLV) is determined by multiplying the CV by the duration the customers have been in the company. Assuming the orders have a 4-year contract, CVL would be:

CVL = Customer Value (CV) x Customer Duration with the Business

=100×4

=$400

This means, Athletics Supreme Customer Lifetime Value over 4-year duration is $400.

Athletics Supreme will use this metric to analyze the potential value customers will bring into the company. According to Shank & Lyberger (2014), a high value of the metric means customers are bringing high value which the company should aim at. A very high value would however mean the company is under spending and thus restraining growth.

Distribution metrics

Simon (2012) considers percentage of shelf space, or the space necessary to sell an item as an essential marketing data point. Athletics Supreme would ideally like to occupy as much of the display space as possible. By occupying a large amount of shelf space, Athletics Supreme has effectively monopolized the stores’ All Commodity Volume (ACV), or the rate of everything sold in the store. Despite its retail prominence, Athletics Supreme must remain effective by maintaining a successful supply chain logistics. As Simon, (2012) argues that even if Athletics Supreme obtains maximum display areas for the new product line, including overstock for internet sales, it will lose customers if the supply is not adequate. Overall, most retailers with make decisions on inventory based on the potential of selling the item quickly.

Communication metrics is the gathering of data that can be utilized to determine the effectiveness of the varying forms of communication channels used. In this case, Athletics Supremes’ a key subcategory is effective reach. Effective reach is the subset of the target segment of the population that can be effected by an advertisement during a specified time frame. Additionally, the response rate data measures the rate of response that customers respond to information sent to the target market.

Communication Metric) Per Arikan (2011), marketing influenced customer percentage is similar to Market Originated Customer %. However, it factors in all new customers where marketing efforts touched and/or nurtured the lead at any point in the sales process as opposed to only originating the lead. For example, if the sales person of Athletics Supreme found a lead who later attended a marketing event and closed, the new customer is assumed to having been influenced by Marketing. This percentage is usually higher than that of the Marketing Originated Customer % as it is more inclusive. It usually ranges from 50-99%.

The retail industry is very competitive, therefore, Athletics Supreme must monitor the effectiveness of all forms of customer communication. For example, emails, coupons, and discounts offered on the next customer purchase. Increased sales figures after an email campaign would be a key indicator of the effectiveness of communication. The company can also measure its response rate via satisfaction surveys, Facebook and Twitter followers, and click through rates online. Per Kotler and Keller (2012), Athletics Supreme should focus communications based on frequency of purchase, which can manipulate response rates to double-digits.

Conclusion

Using metrics effectively will help Athletics Supreme understand the success of its marketing strategies. It will reveal areas where the company’s marketing team excels at and where the team needs to improve. Therefore, metrics play an important role in marketing efforts and the company should use the above metrics as well as add others that are relevant to its business.

References

Arikan, A. (2011). Multichannel marketing: metrics and methods for on and offline success. John Wiley & Sons.

Farris, P. W. (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. Upper Saddle River, NJ: FT Press.

Hanssens, D. M., Pauwels, K. H., Srinivasan, S., Vanhuele, M., & Yildirim, G. (2014). Consumer Attitude Metrics for Guiding Marketing Mix Decisions. Marketing Science, 33(4), 534-550. doi:10.1287/mksc.2013.0841

Jeffery, M. (2010). Data-Driven Marketing: The 15 Metrics Everyone in Marketing Should Know (1). Hoboken, US: John Wiley & Sons, Incorporated. Retrieved from http://www.ebrary.com

Kotler, P., & Keller, K. L. (2012). Marketing management

Shank, M. D., & Lyberger, M. R. (2014). Sports marketing: A strategic perspective. Routledge.

Zikmund, W. G., & Babin, B. J. (2013). Essentials of marketing research. Australia: South-Western Cengage Learning.