January 10th, 2018
How Marketing Metrics Evidence an Entity’s Profitability
1.0 Executive Summary
Marketing plays an important role in the entity especially ensuring retention of customers in a highly competitive business environment. Despite such a role, most entities have relied only on the traditional financial metrics to access firm value thus preventing marketing from playing its core role in enhancing organizational outcomes.
Marketing metrics however demonstrate a clear link between marketing activities and an entity’s profitability. For instance, metrics that assess brand equity and customer value have been shown to have a positive association to shareholder value enhancement, evaluated through aspects such as earnings per share, retention levels, revenue, stock price, and Tobin’s q. Use of such metrics helps to delineate the link between an entity’s marketing strategy and its financial performance thus providing a way for the entity to identify weaknesses in its marketing strategy that impede better financial performance. Accordingly, entity’s that fail to use marketing metrics lose the opportunity to develop their strategies to position them for a better and sustainable performance.
With such importance of marketing metrics, entities need to appreciate the role of such metrics and create an environment that ensures use of appropriate metrics. Such an environment develops through the focus on customer value addition. In selecting the metrics to use, entities need to consider how appropriate the metrics are in measuring marketing productivity effectively, helping in developing forward-looking marketing strategies, helping in forecasting the future value of consumers and help in forecasting the future value of the firm. Examples of such metrics are those that provide the entity’s brand value, customer value, and customer acquisition and retention.
Marketing activities play an important role in ensuring an organization’s success especially with an increasingly competitive business environment. For instance, the increasing importance of marketing could be inferred from the evolving landscape where organizations set up independent marketing functions headed by Chief Marketing Officers (CMOs). In one European survey, for instance, Chief Executive Officers (CEOs) expressed confidence that marketing was going to be a core driver of their entities strategies in this decade (Deloitte & Touche LLP 2007). Despite such importance of marketing, firms have traditionally focused on financial metrics to measure firm performance, with marketing being challenged to account for its contribution to an entity’s value considering its expenditures (Woodburn, 2004). This report identifies the importance of using marketing metrics to identify an entity’s profitability and discusses why failure to use marketing metrics could result to failure of an organization in an increasingly competitive environment.
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