For most companies, one of the key aspects to any new or ongoing initiative is being able to measure return on investment or ROI. How do we know that what we’re doing is paying off, or working better than what we’ve tried before? In the book, Marketing Metrics: The Manager’s Guide to Measuring Marketing Performance, now in its fourth edition, David Reibstein, a professor of marketing at The Wharton School at the University of Pennsylvania, examines the quantitative formulas, applications and analytics techniques that are necessary to develop the most effective metrics to measure marketing investments. 

Marketing Science Institute executive director Barbara Kahn, who is also a Wharton marketing professor, recently sat down with Reibstein to discuss the most recent edition of the book, and how marketing metrics are evolving.

An edited transcript of the conversation follows. 

Barbara Kahn: Why are there four editions of this book?

David Reibstein: Part of it is because there constantly are new terms that are being invented. Every day there is a new term, there’s a new way of looking at things. When we first wrote this, there was very little social media that was going on. Neuroscience hadn’t been developed to any degree, at least not for use in marketing. And so, we’ve got new terms that are coming up, and what we find is we keep adding to it. The first edition was 50+ metrics. We’re now at more than 130 metrics.

Kahn: But that begs the question right away: If I’m a marketing manager listening to this, I might be thinking, “I don’t want all of those metrics; I just want the right metrics.” So, is there some kind of priority?

Reibstein: The answer is absolutely. In fact, I’ve got another paper that I’m working on right now, funded by MSI, where we’re looking at what subset of measures managers tend to use, and do they use different measures when they’re thinking about pricing decisions versus when they’re thinking about new product development or thinking about advertising.

While several metrics are available, you certainly don’t want to use all of them, and you certainly don’t want them for every decision. You need to come up with a subset of measures that you’re going to end up using, and generally it will be a relatively small number. When I say ‘small,’ it’s probably going to be five to 10 metrics that you end up using for most of the decisions you make.

It’s interesting, we have the term of a dashboard, and it is a nice metaphor as you think about the dashboard on your car. If you’ve ever seen the dashboard for a 747 [airplane], it’s all these different dials and measures and everything. If I had that on my car, I would drive into a telephone pole. What you want to know is how much fuel have I got, what is my speed, what are my RPMs, and maybe the temperature, but that’s it. I’ve got just a few things. When we’re driving our business, there are a few things that you need to be regularly monitoring. And when you’re making a decision, you only need a few of these.

Kahn: Which metrics are the most widely used by CMOs?

Reibstein: Actually, we see that a transition has gone on. The metric most commonly used by CMOs in edition one was customer satisfaction. Now what we’re seeing is that people are moving more and more towards a measure of retention. Why is that? I wanted to know satisfaction because I was really curious about retention. But we weren’t measuring retention 10 years ago like we are today. That’s probably one of the most common ones that we see [near the top of the list] today. Certainly, people are looking at the old common ones of, ‘I want to know what my market share is.’ I certainly want to know that. I certainly want to know some of the financial measures, like what my contribution is — or profitability. But there is a standard set, and my next answer to your question is get the book, because I can’t answer that question without saying, “Well, it depends what industry you’re in; it depends on what types of decisions you’re making.”

Kahn: Let me go back to that notion of satisfaction versus retention. When they were talking about satisfaction moving to retention, a really big popular measure was the NPS, the net promoter score. I wonder about your thoughts about that, and also more recently, I’ve heard a lot about customer effort or consumer effort as a measure. I guess maybe Amazon has pushed that. People want it as easy as possible. Do you have any reflections on any of those measures — NPS or customer/consumer effort?

Reibstein: Yes, what I will tell you is that with a net promoter score, some people say that’s the single measure that’s the most important to them. I did an interview with the then chief marketing officer of General Electric, and he said to me, “The most important measure, maybe the single most important, is the net promoter score.” I find a few people who say that, but the more recent survey that I’ve done has said that net promoter score is not that widely used. And so, it’s a select few [who use NPS], but it’s not pervasive everywhere. And that seems to be the case. 

Kahn: What about customer effort? Is that another trend in metrics?

Reibstein: My answer is going to be, “No, it is not.” It is something that we are concerned about, and we want to make sure that it’s easy for the customers to be able to buy from us, but it’s not a measure that most businesses are looking at. I think it makes sense. I think it is a logical one that maybe they should be looking at, but it’s not one that’s commonplace today.

Kahn: One of the things we see — and I wonder if you have metrics on this — is about the move to brands having a purpose, a lot more of the stakeholder or sustainability kinds of issues for brands. Do you have measures of that, or do you have thoughts about how you can prove that dollars spent on sustainability efforts, for example, pay off from a marketing point of view?

Reibstein: I’m a huge believer in measuring aspects of branding. In the book, we’ve got a section that talks about brands and things that one could measure about them. I personally am enthused about looking at the brand’s financial value. I want to try to measure the financial value of the brand. Then we can start looking at the broader meaning of brand or brand essence that one could think about — and brand promise. There are measures about that…. And so different people are going to have different things that they’re interested in. The hard part, by the way, is I spend money, and I want to know how that affects my brand. There aren’t many people who are making that connection, but I think it makes sense for us to regularly be monitoring the brand.

What I will tell you is there is some data that indicates that a brand’s value is close to about 20% of the overall market cap for a firm. And if that’s the case, we really need to be measuring that and trying to protect one of the most critical assets of the firm. I know you believe that, because I know you’ve been teaching a course on branding.

Kahn: Yes, I definitely do believe that. And I think that you can measure brand, and I agree with you. I think that the financial worth of the brand is one very important measure. I would imagine there’s also a lot about social marketing. What kinds of measures are you looking at to value word of mouth or the impact of social media?

Reibstein: You mentioned word of mouth. One of the things that people are looking a lot at are shares. How many times are people sharing what it is that we have? And so, when you think about it, I’m buying and paying for some advertising. How wonderful is it when that advertising ends up being shared with others, and I’m not paying for those additional exposures? If I wanted to mention a metric that I think has become much more popular and one that everybody is looking at, it involves how much content about the brand is shared — and that’s all on social media.

Kahn: Yes, so whether or not the content is shared [is important]. I don’t know how you feel about “likes.” I know there’s a lot of controversy on the importance of “likes,” but you could imagine shares would be a tangible measure because someone is seeing the content via a friend and then sharing it with their own network. So, the brand is getting more exposure, for sure.

Reibstein: Well, “likes” would be another one, and “likes” make sense, because we want people to like whatever it is that we’re exposing them to. But shares are even more important because, first of all, they’re most likely to share it if they like it, and it gives us additional exposure. And the sharers have a tail, because I share it with somebody, and they share it with somebody else. And so those are all additional exposures that I’m not paying for.

Kahn: Should reporting marketing performance to the board be turned over to the finance director, or should that be something that the CMO is responsible for? In other words, are these marketing metrics that you’re talking about, particularly the financial ones — are they in the domain of marketing, or are they in the domain of finance?

Reibstein: The answer is yes, they are in the domain of marketing, but as marketers we need to connect the metrics to the financial side. If marketing is not doing a good job of communicating that and communicating the financial value, then we’d better let finance do it. But finance also needs help. And finance needs to know, “OK, you tell me how many shares there are; you tell me what the retention rate is. What does that do for us?” So, marketing needs to connect this with the financials of the firm, and that’s what it is that needs to get reported to the board. The board doesn’t want to hear just these softer marketing measures that are out there without knowing how they are connected to the financial statements of the firm.

Kahn: When you put forth these metrics, which is all your book is trying to do, you also shine a light on accountability in some sense. That’s what you’re talking about there. One of the things that’s somewhat controversial is that if you start getting these measures, and you try to measure the effectiveness of advertising, you sometimes can’t find evidence that advertising works, particularly top-of-the-funnel advertising, it’s very low correlation many times to ROI. What do you think about that, just philosophically? 

Reibstein: I absolutely know what you’re saying, and what I will tell you is that often in marketing we say, “No, don’t hold me responsible for sales because there are so many other things that intervene.” And so, as a marketer, particularly if we think about the softer side, the advertising side, hold me responsible for awareness. But I will tell you my personal philosophy on it, which is I don’t want to spend a dollar on marketing unless it ends up delivering something that translates down to sales. And so, I want to know what that connection is, and I think that’s the responsibility of marketing. 

…I want to know, “I spend money, and it generates a certain amount of awareness. I want to know what that trickle-down is.” What percent of those who are aware end up actually having some particular interest? And what percent of those end up having some consideration? And what percent of those end up generating a sale? And so, I’m always interested in that. And then I want to know about that retention or the repeat purchases that end up happening. So, I want to know all about that, and I want to know how it is that it ends up going through that particular decline. I can look at awareness and say, “Here’s what awareness is, because I know that for every 100 people that I make aware, what percent of that ends up leading to a sale.”

Kahn: But the problem is that sometimes you’re not going to find tangible evidence of ROI for advertising. And the question then, because the numbers are just not that high right now from what I’ve seen: Is that advertising worthwhile? I can see that you might be able to show awareness, but by the time you get all the way down, whether or not you can show the sale effect, that’s the question. And the more measures we have, the more data we have, the more we may show that advertising isn’t as effective as we had hoped.

Reibstein: By the way, that would be good to know. If advertising is not as effective as we thought it might be, I would really like to know that, but I think we can see that particular connection. The biggest difficulty is not that there are so many intervening variables that are in there. The biggest difficulty in my mind is the time lag. I spend and I create this awareness, and maybe that consideration happens when I’m making a purchase further down the line. And so, if we’re talking about products where I advertise it, I make you aware of it, and you end up buying it today or in the next week. That makes sense. If I’m doing something that’s creating some little awareness that increases the next time you’re considering buying a car, which might be two or three years from now, trying to connect that advertising today with something that happens two or three years later — now that’s tough.

Kahn: That’s the attribution problem, and that’s what some sophisticated marketing modelers are trying to get at, but I agree with you. That’s pretty hard to measure, but I still believe that’s there. So, I am a believer in the importance of advertising, even if it’s hard to measure.