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Marketing activities in an organisation have the typical features of an IIO. Marketing activities“act as a mediator between these external actors and various internal corporate processes”(Clark, 2007). In an IIO, marketing is the process of gathering, processing and delivering valuable information to stakeholders (Keefe, 2004).
There are many approaches to measure marketing performance.According to Neely (2007), the main methods used to measure marketing performance are as follows. (1) Clark’s framework for marketing measurement;(2) customer satisfaction; (3) contextual framework; (4) activity-based performance measurement by Marshall Meyer (2007).
Other key business performance measurement methods can be applied in analysing marketing effects, including the performance measurement matrix,SMART pyramid, the results-determinants framework, the input-processoutput-outcome framework by Brown (1996), balanced scorecard, and European Foundation for quality management framework.
The traditional framework for marketing measurement can be traced back to the 1970s (Clark, 2007). The framework is based on calculating the return on marketing investment. Clark (2007) summarised the recent development of the traditional framework according to the chain of effects.The traditional framework is composed of four parts: marketing activities,intermediate outcomes, final outcomes and marketing assets, as shown in Figure 2.5. Clark argues that marketing activities and marketing assets have direct effects on intermediate and final outcomes, while the outcomes have a feedback effect on marketing assets and activities. The same relationship also exists between marketing activities and marketing assets. Intermediate outcomes have direct effects on final outcomes. The direct effects and feedback effects can be treated as the direction of information flows within the organisation.
Figure 2.5 A DFD Example
In each part of this framework, there are independent indicators to measure the performance.
Indicators in the catalogue of marketing activities are quite similar to the traditional marketing mix measurement approach, i.e., price, place, product and promotion. In Clark’s argument, post-sale service should also be added to the indicators because it weighs more in modern business. Based on the marketing mix modelling by Doyle (2004), Clark proposed the indicators for marketing activities, as shown in Figure 2.6. These indicators can be used to measure marketing activities quantitatively.
Figure 2.6 Clarks’ Framework for Marketing Measurement (Clark, 2007)
The category of“product”includes the number of new products introduced for last year and number of stock-keeping units. “Price” includes the price relative to key competitors, mark-up on cost and retailer margin.“Promotion”includes the number of promotional events, sales calls made and advertising exposures. “Place” includes the number of distribution outlets and products carried per outlet. Aside from the traditional 4 factors in marketing mix, indicators in post-sale service include delivery time,percentage of perfect orders and mean time to resolve customer problems.
Intermediate outcomes include customer awareness, attitude toward a product and pre-purchase behaviours (Ambler, 2003). The quantitative indicators are as follows.
(1) The number of phone calls received;
(2) The number of website visits;
(3) The number of emails received;
(4) The frequency of in-person visits.
According to Ambler and Riley (2000), final outcomes indicators measure the volume of sales and also the profitability of the sales. It consists of these factors.
(1) Sale；
(2) Cash flow；
(3) Market share price.
Marketing assets, or brand assets, cover the relationships with external stakeholders (Clark, 2007). The brand assets can be measured by a behavioural approach, or financial approach. The behavioural approach is based on customer survey questions to measure the value and quality of a product (Yoo and Donthu, 2011). The financial approach is based on an analysis of incremental cash flow (Simon and Sullivan, 1993).
Key indicators in the behavioural approach are as follows.
(1) Customer satisfaction；
(2) Customer loyalty (repeat sales).
The strengths of the traditional framework for marketing are follows.(1) Easy to understand and widely used (Rust et al., 2004); (2) various models in different industries have been developed (Kincaid, 2000).
Meanwhile, the weaknesses are as follows. (1) It encourages under spending in marketing (Ambler, 2003); (2) it focuses on short-term ROI rather than the long-term (Neff, 2005), which results in the drawback in the consistent effect of marketing; (3) the indicators of measurement are interchangeable (Kumar and Petersen, 2005).
The customer satisfaction measurement approach started in the late 1980s and early 1990s (Haistead et al., 1994). It concentrates on the measure of success and predictor of success of a product or service in satisfying customers’ needs. Customer loyalty and customer relationship management(CRM) are two key components in this approach. Models are developed to measure customer loyalty and CRM to reflect the effect of marketing(Anderson et al., 2004; Gruca and Rego, 2005; Bolton et al., 2004).
The strength of the customer satisfaction approach is that it is well developed with a large number of software programmes available to calculate customer satisfaction in practical use (Gupta et al., 2004). However, this approach requires historical data to set up benchmarks. A new business with little customer history can hardly use this method (Clark, 2007).
Activity-based performance by Meyer (2007) transfers the focus from firm-centric to activity-centric. “The measurement for the firm is finding those activities that add value for the customer and generate revenues in excess of cost, extending those activities, and reducing or eliminating activities that incur only costs” (Meyer, 2007). This method analyses specific activities in marketing, identifies the added-value activities and non-added-value activities.
Activity-centric performance measurement views the business from a return on investment perspective and provides a micro approach for analysing value. It calculates the cost and revenue of each activity, and uses the ratio between revenue and cost to measure the value generated by this activity. A business should increase the activity with more value based on the same level of cost, while limits the activity with high cost and less value.
In the activity-centric performance measurement, cost and revenue of each activity can be measured directly. Marketing activities that can add values can be identified and extended while the unvalued one can be reduced.This method is easy to use by business employees (Meyer, 2007). Meanwhile,Meyer also points out the weaknesses of this approach. The measurement is more suitable in product manufacturing companies rather than complex service businesses. Revenue for service activity is based on experiences and needs more specific understanding of the historical data. Moreover, financial departments in businesses criticised this approach as being imprecise and inaccurate. Activity-based performance measurement provides a micro level view in assessing marketing effects. This approach is still in its formative stage.
The performance measurement matrix by Keegan et al. (1989) separates performance measurement to financial and non-financial elements. For the financial part, it inherited the traditional financial ratios used to calculate ROI.For the non-financial part, it brings repeat buyers, customer complaints,market share, design cycle, percentage on-time delivery and new products to the framework (see Figure 2.7).
Figure 2.7 The Performance Measurement Matrix (Keegan et al., 1989)
Performance measurement matrix provides a comprehensive approach to assess business performance (Morgen et al., 2002). Inclusion of non-financial factors enables this method to be more comprehensive than the other approaches. However, it provides few indicators for further measurement and application.
The SMART, strategic measurement and reporting technique, pyramid includes both an internal and external focuses (Lynch and Cross, 1992). It utilises a cascading concept to measure the business. The levels include corporate vision, business units, core business processes, work teams and individuals (see Figure 2.8).
Figure 2.8 SMART Pyramid (Lynch and Cross, 1992)
The SMART pyramid demonstrates the importance of cross-functional department measurement within an organisation (Bititci et al., 1998). Marketing effect assessment cannot be limited to the marketing department. Other functional departments also have influence on the outcome of marketing. The cascading measures provide a comprehensive approach to understand the overall performance of business at different levels. Involvement at the management level ensures the successful implementation of the measurement.However, the key problem of SMART is the absence of specific indicators or a mechanism to implement the measurement (Pun and White, 2005). It is difficult for a business to apply SMART in practice.
Fitzgerald et al. (1991) proposed the results-determinants framework. As shown in Figure 2.9, this method divides the measurement focus to results and determinants. Then, each element is further divided to financial performance, competitiveness, quality, flexibility, resource utilisation and innovation.
The main strength of the results-determinants framework is that, it provides a specific measurement for practical use. Models with reasonable indicators are developed based on this method (Brignall and Ballantine, 1996).Additionally, this framework also includes the factors that have an indirect influence to the results. It examines both the result and process in business.However, the results-determinants framework does not consider the factor of customer in measurement. The performance assessing dimension is not fully balanced (Pun and White, 2005).
Figure 2.9 Results-determinants Framework (Fitzgerald et al., 1991)
Brown (1996) proposed the input-process-outcome framework for marketing measurement. As shown in Figure 2.10, the whole framework aims to achieve the goal of repeat business. The framework is divided to four parts:inputs, processing system, outputs and outcomes. Indicators are established in each part to measure the separated performance.
As shown in Figure 2.10, skilled, motivated, happy employees, customer requirements, raw materials, and capital are essential inputs to a business.Measurement indicators in this part are as follows:
(1) Employee satisfaction;
(2) Supplier performance;
(3) Financial measures.
The processing system consists of design of products and services design,production of products, and delivery of services. Indicators are as follows.
(1) Process and operational measures;
(2) Financial measures.
Products, service and financial results are key outputs. Correspondingly,indicators are as follows.
(1) Product/service measures;
(2) Financial measures.
In this part, delighted customers and satisfy customer’s needs are two essential objectives. The key indicator is customer satisfaction.
Figure 2.10 The Input-process-output-outcome Framework (Brown, 1996)
The input-process-outcome framework established is based on cause and effect relationships. Each previous stage determines the performance in the next one. This framework provides a set of useful indicators in performance measurement.
The input-process-outcome framework is simple in application. It provides specific fields and indicators to measure in business. However, this approach just provides a guideline for assessment but not specific indicators,such as how to measure the delight of a customer or the happiness of an employee. The framework has proved particularly popular in the public sector rather than the private business sector (Brown, 1996).
Balanced scorecard was proposed by Kaplan and Norton (1992). It consists of four parts: financial, internal business, innovation and learning,and the customer. It aligns the business strategy with performance measures(Kaplan and Norton, 2001).
As shown in Figure 2.11, this method answers four basic questions: how do customers see us, how do we look to shareholders, what must we excel at,and can we continue to improve and create value (Pun and White, 2005)? The four parts are interlinked and helps manager in a business focus on key contributors to business performance.
Figure 2.11 Balanced Scorecard (Kaplan and Norton, 1992)
This method is one of the most popular approaches in business performance measurement (Neely, 2007). It not only integrates key factors to measure business performance from an overall perspective, but also aligns all the levels in the organisational hierarchy. However, like the resultsdeterminants framework, balanced scorecard lacks specific and explicit methods for implementation (Wongrassamee et al., 2003). Business applicants need to develop their own set of indicators. Moreover, this approach omits the factors of competitors and employee satisfaction (Neely,2007).
As introduced in the previous section, information plays a significant role in the modern business. To measure the performance of a business, the methods to assess the effect and function of information is critical.
Table 2.1 summarises the strengths and weaknesses of each method for business performance measurement discussed in previous sections. The common weaknesses of these approaches can be summarised as follows.
(1) Current approaches do not reflect the role of information in the measurement. Morgen et al. (2002) argues that information occupied a key role in businesses. However the research on business performance measurement so far has not treated information as a key factor in the assessment. The traditional framework for marketing measurement,activity-based performance measurement, results-determinants framework and Brown’s input-process-output framework concentrate on the final outcome of marketing or each marketing activity. Customer satisfaction focuses on assessing the feedback from customers. SMART pyramid and balanced scorecard measure the marketing performance by considering performance of all functional departments in a business. All of these methods do not have a special focus on assessing the performance from the perspective of information. The function of information is not reflected in these approaches.
(2) Feedback from customers is critical. From the coverage of dimension of performance, lack of consideration of feedback from customers is a common drawback. In current measurement methods, only the methods of customer satisfaction and balanced scorecard consider the feedback from customers. However, the method of customer satisfaction needs adequate historical data to set up benchmarks, and cannot be used in new business.Balanced scorecard treats customer as a key factor in assessment. But one of the key weaknesses of this method is that it does not include the competitors,which is a critical factor in marketing. For the other methods, information flows from the customers are not well considered.
(3) Lack of systematic indicators for measurement. The methods of performance measurement matrix, SMART pyramid, and balanced scorecard provides a relative comprehensive dimension for assessment. They can cover almost key aspects in marketing, such as financial performance, customer,internal functional departs, external stakeholders and so on. However, these approaches just provide a general framework for performance measurement. Applications in business have to develop their own models with specific indicators to implement the assessment. The gap between theoretical framework and practical use still exists.
There are still many other methods, such as the comparative business scorecard (Kanji and Sa, 2002), Cambridge performance measurement (Neely et al., 2002), consistent performance measurement systems (Flapper et al.,1996), integrated performance measurement systems (Bititci et al., 1998) and many others. They all developed from the above frameworks and are adjusted according to the application domain. However, few of them treat information as a key contributor in the performance assessment which leaves the field open for the development of a new theory or method to assess the performance of information based activities in IIOs. To develop an approach that focuses on assessing the effect and function of information in IIOs is critical. This method should also consider comprehensive aspects in assessing marketing performance with practical indicators to use.
Table 2.1 Comparison of Approaches in Business Performance Measurement
Continued
