Measuring marketing and sales metrics

There is a wide range of marketing-related activities that greenhouse companies engage in that use various advertising and promotional tools.
Photo by Todd Johnson, Oklahoma State UniversityAt a time when greenhouse operations are cutting costs, it is essential for all functional areas within a company to be financially accountable. This reinforces the need for timely measurement, as without measurement it is impossible to be accountable. You cannot manage what you do not measure. To adequately measure the return on your company’s marketing efforts, it is essential to treat marketing expenditures as an investment and not merely as discretionary expenditures.
 
Traditionally many growers have viewed marketing activities as short-term expenses to be employed when times are good and finances are plentiful, and to cut these activities in times of hardship. However, this short-term way of thinking can be detrimental to a company’s long-term viability and survival.
 
Treating marketing as an investment entails more than just the existence of financial metrics. Another condition that needs to be satisfied is defining the causal links between marketing and financial outcomes.
 
In the past, marketing metrics were often seen as standalone items to be achieved independently of other measures. For example, a company might set targets for market share or customer satisfaction, but never really investigate how these relate to the company’s financial performance. However, to truly measure the return on marketing, a company must develop metrics that explicitly link all aspects of marketing performance together and connect the dots between simply doing these activities and how these activities relate to profitability (see Figure 1).

Figure 1. Dimensions of benchmarking metrics needed to adequately address marketing functions within a greenhouse company. Adapted from Marketing Metrics: The Definitive Guide to Measuring Marketing Performance by Farris et al.

Marketing tools and metrics
There is a wide range of marketing-related activities that greenhouse companies engage in that use various advertising and promotional tools. While not all-inclusive, these include catalogs, trade shows, branded pots and tags, point-of-purchase materials, industry trade journal and consumer magazine ads, informational and commerce-generating web sites, third-party merchandising services, cause-related promotions, mail order sales, civic and community-based promotions, professional certifications and various social media tools such as Facebook and Twitter.
 
There are three basic challenges to fully and accurately measure the productivity and profitability of these marketing tools. The first challenge is relating these marketing activities to long-term effects. The second challenge is separating the effects of individual marketing activities from other actions of a company. Third, the use of purely financial methods has proved inadequate for justifying marketing investments – various non-financial metrics are also needed.
 
Marketing and sales metrics that companies have used for measuring the effectiveness of various green industry marketing tools include:

1. Mind share and market share.
2. Marketing margins and profits.
3. Product and portfolio management.
4. Customer profitability.
5. Sales force and channel management.
6. Pricing strategy.
7. Effectiveness of promotional activities.
8. Advertising and web media effectiveness.
9. Financial return of marketing investments.

NOTE: For more details on the marketing and sales metrics that companies use for measuring the effectiveness of various marketing tools, click here.

These are metrics that we have either personally witnessed green industry businesses using or are contained in the latest marketing literature. Growers should not feel compelled to use them all in their benchmarking efforts. They can be used to identify metrics that may augment already existing benchmarking efforts.

Marketing assets
It is important to understand that short-term marketing actions (e.g., advertising, service improvements or new product launches) can help build long-term assets such as brand equity and customer equity. These assets can, in turn, be leveraged to deliver short-term profitability. That is, advertising and promotion expenditures related to stronger brands are often more productive and therefore generate more sales. Thus, marketing actions both create and leverage market-based assets.
 
It is also important to distinguish between the “effectiveness” and the “efficiency” of various marketing actions. For example, promotions of price discounts can be efficient in that they deliver short-term revenues and cash flows. However, to the extent that they invite competitive actions and destroy long-term profitability and brand equity, they may not be effective as originally thought.
 
A greenhouse company’s strategic marketing strategies dictate the specific tactical actions undertaken by the business such as advertising campaigns, service improvement efforts, branding initiatives, etc. These tactical actions, in turn, then influence customer satisfaction, attitudes toward the brand, customer loyalty and other customer-centered elements. At the company level, these customer measures can be aggregated into “marketing assets,” which can be measured by such indicators as brand quality, customer satisfaction and customer equity.

Forward-thinking versus historical metrics
As customer behavior influences the market, market share and sales levels are constantly changing. At any point in time, tactical marketing actions will make changes in customers’ mental states, but they may not yet have influenced a company’s profit-and-loss statement.
 
Marketing assets represent a reservoir of cash flow that accumulated from marketing activities, but has not yet translated into revenue. This lag time obviously exacerbates the ability of a greenhouse company to measure the full financial impact of its marketing efforts in the short run. As the old adage goes, managing marketing efforts by historical performance is like trying to drive by looking in the rear view mirror. Clearly, if the future green industry competitive environment is going to be different from the past, then there is some benefit in creating forward-looking estimates rather than relying on historical performance. At the same time, this hints at the fundamental problem, namely how to create metrics that are based on more than just projecting past results into the future by some inflation factor.
 
Such estimates need to take into account factors such as changing competitive dynamics, environmental shifts and internal initiatives such as new product launches and brand extensions. The reality is that while many companies express a desire to develop forward-looking metrics, most still rely on traditional historical metrics such as product contribution margin, incremental revenue and gross margin percentages.

Focusing on customer-oriented metrics
Developing forward-looking metrics starts with an initial mind-shift transformation from simply marketing products and service to one of cultivating customers. Such a mindset means that companies need to pay less attention to current sales and more to the lifetime value of individual customers. For example, a company in decline may have good current sales but poor prospects for the future or vice versa.
 
The customer lifetime value metric evaluates the future profits generated from a customer or prospective customers and is properly discounted to reflect the time value of money. Lifetime value therefore focuses the company on long-term health of the business.
 
This new focus also requires companies to shift their focus from one of capturing market share to one of capturing mind share. The focus must shift from brand equity (the value of a brand) to customer equity (the sum of the lifetime values of a company’s customers).
 
Increasing brand equity is best seen as a means to an end -- a way to build customer equity. Customer equity also has the added benefit of being a good proxy for the future financial value of a company.

Your marketing dashboard
Various models are being explored as to how to best present these metrics to managers so that they are able to make more informed decisions regarding their marketing asset base. There is no silver bullet marketing metric that serves as the point of reference regarding marketing effectiveness. Marketing performance is multi-dimensional so a spectrum of metrics is needed to fully capture the essence of marketing’s contribution to a company’s success.
 
Companies outside the green industry have experimented with developing scorecards (or baskets of metrics) that summarize marketing performance. Greenhouse owners and managers should consider using a collection of metrics that is comprised of their current metrics and augmented with selected metrics from those mentioned above that encompass the full range of primary sales- and marketing-related activities that they primarily engage in as a company. This metrics collection then becomes a company’s own customized scorecard or marketing dashboard. It can be used to determine both the historic performance of a company’s marketing activities and for planning the best marketing strategies to position a company for long-term viability, above-average financial performance and enhanced competitiveness within the green industry marketplace. 
 

Charles Hall is professor and Ellison Chair in International Floriculture, Texas A&M University, Department of Horticultural Sciences, charliehall@tamu.edu. Paul Thomas is professor and extension specialist, University of Georgia, Department of Horticulture, pathomas@uga.edu.