Jack says, “Hey, how are things in marketing?”
Jill responds, “YOY revenue up 6%. Listen to the earnings call.”
Jack walks away, secure that marketing is having an impact on revenue. Sure it is; but revenue as the ultimate marketing metric
You know the story …
… the company that experienced rapid YOY growth (maybe 30%) then one year started on downward spiral and failed? Everyone starts asking, “What happened?” and it’s a sincere, authentic question. How could SwissAir (so financially stable, it was once dubbed the “flying bank”) end up in bankruptcy court? Circuit City, Digital Equipment, Betamax … so many others from the annals of history that tell similar stories.
Show me a failed company and I’ll show you a sales driven organization that valued revenue as the mother of all metrics. The one thing failed organizations overwhelmingly share: an obsession with analysis of the past at the expense of seeing the future.
What are indicators of future value?
It’s important to look in the rear view mirror. You need to understand past results. But make sure you analyze things that signal how customers are shifting what they value. For example:
Appoint a futurist
This type of work won’t get done without an owner. Hence, I am starting to see many marketing organizations assign the role of Futurist (can be a part time role you even rotate; doesn’t have to be full time). Have this individual produce a quarterly report that connects the dots among the various items you’ve identified as indicators of the future.
Predicting the Future is Hot
One can conclude that understanding the future – is one of marketing’s hottest trends right now, based on the success of firms such as KXEN, Opera Solutions, IBM Predictive, SAS and a score of other providers that market predictive analytics. Books on predictive analytics are also flying off the shelves.
Customer Lifetime Value (CLTV)
This metric embodies both past and future. Past, in that it helps you identify what your highest value customers bought previously. And, analyzing the buying patterns of your highest value customers provides insight into how they are changing.
For example, Harrah’s (the Las Vegas hotel/casino) compared the “take rate” of a Challenger offer given to high value customers versus a control group. The control group got the existing offer (which bundled a hotel room discount, two free dinners, and $30 in free chips). The Challenger offered no bundle; rather $60 in free chips.
Customers preferred the Challenger because it was “easiest to fulfill” even though the alternate offer was the better deal. This insight was used to update other offers as well as construct new ones. The big bonus to marketing: the offer that was cheapest to implement turned out to be the highest generator of positive return.
Harrah experiment underscores a trend we’re seeing eveywhere. Convenience rules.
Ask marketers how they’re evaluated, and the most common response is pure and simple: Revenue. In fact, most marketers will equate revenue as the mother of all metrics. Mind you, revenue is the lifeblood of any organization. But, be aware of its limitations.