In the Classroom
Driving Performance With Marketing Dashboards

A team of managers at a beer manufacturer wrestles with complex decisions about issues such as pricing, launching new products, and spending on advertising, viral marketing, and trade promotions. Should they introduce a new light beer? What is the optimal strategy for increasing market share or profits? What could competitors do to derail the strategy?

Using a marketing "dashboard" to assess the outcomes of their decisions, teams of participants in Wharton's Marketing Metrics: Linking Marketing to Financial Consequences program, representing different beer makers in an interactive simulation, discussed which strategies to pursue for their individual brands. They made their decisions based on feedback from a dashboard, which reported current market share, profits, and other information, and also on the results from a test market experiment. But even with this information, there were many judgment calls to make. What would be the result of their decisions across many periods? What would happen when competitors' decisions were factored into the equation?

Measuring the impact of marketing initiatives is increasingly important. "We are past the point of ‘trust me' marketing," said William Moult, founding partner of Sequent Partners, LLC, and former President of the Marketing Science Institute, who is a faculty member in the program. "Every other part of the organization is being held accountable, so it is about time that marketing's feet are held to the fire. Years ago, marketers would have to stand there and say: ‘We know 80 percent of people like this new product.' Now we can say: ‘You'll have $12 million sales in the first year, and here's the profitability.' Which conversation is going to get more attention from finance?"

Dashboards as a "Reverse Prism"

The dashboard translates complex measures into a simple and coherent set of information that allows marketers to assess the current situation and act quickly. At some point, the dashboard might be boiled down to a small set of graphs on a cell phone screen. Like an automobile dashboard, it can give managers a hands-on feel for the impact of actions and progress without taking their eyes off the road.

"It only works if it is simplified, to bring the situation into focus," Moult said. He said a marketing dashboard is like a "reverse prism" that pulls together a rainbow of data, key performance indicators, graphics analysis, and modeling into a coherent and focused beam.

But it takes a complex process to make a simple interface. To build effective dashboards, managers need to think carefully about the choice of measures and how metrics from different parts of the organization — particularly marketing and finance — fit together.

A System, Not a Number

First, managers need to choose the right measures. "There is no shortage of metrics in your companies," said Moult. "You can certainly find 50 metrics that are being used for one purpose or another. It is unclear which of these metrics to focus on and which have value."

Different parts of the organization are looking at different types of measures, and often these "silos" are unconnected. While marketing research may focus on consumer behavior, the CFO is concerned about ROI and creating shareholder value. Moult said that there is a need to draw the connections between finance, marketing, customer attitudes, and behavior.

Financial and marketing decisions interact in ways that can build or erode value. For example, in driving new product development, finance may decide to make investments in new products to grow revenue. Marketing tests the concept for a new product and, based on the outcome, pursues a new product launch. As a result, the consumer becomes aware and interested. This awareness leads to changes in behavior, including trial. If it is a great product, people buy it and the revenue targets of finance are exceeded, so finance then makes more investments. This is a virtuous cycle.

On the flipside, however, if a competitor responds to the launch by lowering its price, the new product may lose share as customers become aware of the rival product and change their behavior. This leads to negative financial results. Finance, looking at these shortfalls, then cuts marketing expenditures. Awareness drops further, and sales continue to spiral down.

Because of these interactions among different functions and relationships among data sets, companies "need a system, not a single number," said Wharton Professor David Reibstein, academic director of the program. Managers need to be careful to consider the impact of the actions of competitors and look beyond single brands to portfolios of brands.

"It is amazing how many people think of value as a checklist," Moult said. "Build linkages between the key metrics. The checklists are almost worthless."

The Right Time Frame

In addition to selecting the right measures and understanding their interactions, selecting the right time frame is also important. Many marketing expenditures don't have an immediate impact. It can be about 18 months before marketing initiatives might result in measurable changes in consumer attitudes and behaviors. "You have human beings in the process here, so it takes time to learn and earn profits," Moult said.

This may be why studies have shown that the immediate payback for marketing expenditures have been poor. For example, studies of advertising have found that a $1 investment pays back in the short term just 87 cents for nonpackaged goods and a mere 54 cents for packaged goods.

Given these results, why would anyone invest in marketing? It is because, in the long run, strong brands, like other intangible assets of the firm, appear to be very valuable. One research study, for example, found that brands rated strong by Interbrand had higher returns with lower risk. "If you are smart, over time, you turn the brand value into earnings," Moult said. "If you don't have long-term measures of brand value, you can make a lot of decisions that make sense in the short term but not in the long term."

Moult compared the potential of a strong brand to a battery that can be tapped to produce short-term "false earnings" that erode its long-term charge, ultimately driving the brand into free fall. Growing the brand, in contrast, may not produce current earnings but can build potential for the future.

Using Simulations To Explore the Future

A dashboard, however good it is, "provides a clear view, but it is a clear view of the past," Moult said. A dashboard with real-time information provides a current view of the organization's situation.

A simulator can offer a more forward-looking and dynamic view of the impact of marketing strategies to allow managers to do "what-if" tests of different strategies. Through a simulator, such as the one that participants use in the Wharton executive education program, managers can discuss options, take actions, and see the simulated results before spending a single real dollar in the way that pilots in a flight simulator can experiment with reactions to emergencies without the risk of crashing a real plane. They also can examine the long-term impact of these decisions. With this richer feedback, managers have an opportunity to test the sensitivity of investments in different elements of the marketing mix and different assumptions about the environment to develop more robust and successful strategies.

Reibstein said that while all managers create models, the process of developing dashboards and simulations makes these models explicit so they can be shared with others. "You are all model builders, whether you like it or not," he said. "You are all acting on some notion about how the business runs. We have mental models, but the task is to make these models explicit."

Wharton Executive Briefing
Professor David Reibstein will present Marketing Metrics with Financial Muscle in San Francisco, California on November 13, 2003; and in New York City on November 20, 2003.

• Marketing Metrics: Linking Marketing to Financial Consequences

• Wharton Executive Education
  
  
• The Wharton School

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