Reviewed: McKinsey On Digital Marketing Metrics
Rob Schmults pointed me to an article in the latest issue of the McKinsey Quarterly titled, "How Poor Metrics Undermine Digital Marketing". The article summarizes findings from a June 2008 McKinsey survey of 340 leading marketers. The authors' take: "Hobbled by nascent technologies, inconsistent metrics, and a reliance on outdated media models, marketers are failing to tap the digital world’s full power."
My summary of their landscape:
1) The vanguard -- firms measuring more rigorously report greater satisfaction with digital marketing results;
2)The leading edge -- the frontier for competitive differentiation is now in online-offline optimization; and
3)The bleeding edge -- some firms are now mapping customers' relationships with each other to figure out influence networks and target offers accordingly (shades of this). For example,
McKinsey research on telephone users’ social networks suggests that even they can be measured to allocate marketing budgets more successfully. One telecom company, for example, has learned how to retain phone customers by assessing the strength of the relationships among them. The company used call patterns, changes in call volumes, types of payment (prepaid or contract), handset types, and other traits to identify customers likely to leave for another carrier. Meanwhile, it constructed a diagram of their social ties, derived from the people they called, the people those people called, and how often. In general, the more closely anyone was tied to someone who unsubscribed, the more likely that person was to unsubscribe in turn. In this way, the telecom company improved its churn prediction model by 50 percent. Moreover, by identifying the most influential potential churners and working to retain them with new services and price plans, the company not only retained a quarter of them but also reduced the churn rate within their social networks by almost 40 percent.
1) I disagree that we're hobbled by nascent technologies. The capability of today's tools significantly exceeds our effective use of them. What's missing is the hard work of education and training on how to use these tools in the context of supporting high-priority decisions, and the maintenance of associated queries, models, algorithms, data sets, tagging schemes, etc.
2)I agree that metrics are inconsistent -- both inside and across organizations. What's missing inside most firms is a shared understanding of how different target segments use / want to use multiple channels to discover, evaluate, and buy, and then collaboration within firms to maximize the outcome. For example, it's becoming clear that online and offline channels frequently complement each other (the authors offer stats on exactly how much that's true for different categories), and yet in many cases firms manage stores and direct/ e-channels as different businesses.
3)While it's useful as a high-level temperature check on where firms are on this issue, some of the conclusions are insufficiently nuanced. For example, the authors write,
When we asked respondents how they gauge the effectiveness of their digital-brand-building efforts and direct response advertising, their answers revealed a startling failure to measure. Only half of the respondents’ companies use even the most basic of metrics—the click-through rate—to evaluate the impact of direct-response advertising.
A finer-grained view of this would be that click-through rates for display ad campaigns have been heavily discredited lately as a primary metric; more sophisticated approaches today seek to correlate display ad impressions with searches and web traffic. A recent MITX session I attended on measuring brand impact online (writeup to follow) examined the state of play here helpfully. My guess is that there are shades of meaning behind the survey responses that might be mined usefully.
An interesting article. Certainly makes the case for greater attention to marketing analytics, and for investing beyond the tools themselves.