• by Kelly Shermach , November 6, 2007

Benchmarking is opening marketing opportunities. By gaining insight to budget and planning shifts in other companies--even those outside of their verticals--marketers can build a case for changing their strategies, tactics and resource allocation. The promise of benchmarking is that marketers who check in on competitors and parallel participants in unrelated industries are evangelized to the necessity of disciplined marketing measurement.

Marketing benchmark studies satisfy the natural curiosity about competitors' spending, but also include operational metrics such as the marketing budget ratio (marketing spending as a percentage of forecasted revenue), programs-to-people ratio, program mix, campaign costs and staff mix. Benchmark key performance indicators (KPIs) that look at marketing effectiveness may include compound annual growth rate of returns, operational income and market share.

Intimate benchmarks--in which two non-competing companies are set against each other--inspire innovative marketing. The results are often richer than those coming out of larger, syndicated studies because non-competing companies are more forthcoming, knowing there is no threat to either's business model.

The press for accountable marketing spending has converted CMOs from rebellious risk-takers, looking for the most lucrative opportunities, to cautious revolutionaries. Their new modus operandi is to point to evidence that innovation will succeed. Benchmarks note others' successes and back up their bets.

"While each marketing organization faces unique internal pressures, marketers in every industry can benefit from a window into the investments their peers are making and the strategies other organizations are successfully employing," says Aaron Lotton, research director at the Marketing Leadership Council. "Often, the most lucrative marketing opportunities have the least predictable returns, but if marketers can point to peers at other companies who've successfully placed bets on a given strategy, that visibility can help marketing build its case for a change."

Benchmarks: The Beginning and Middle, but Not the End
"Benchmarking information may illustrate that marketers are shifting their advertising and communications budgets into new media channels, but this shift logically leads marketers to ask how they specifically should be evaluating the effectiveness of those channels and how to plan communications across an increasingly broad spectrum of channels," Lotton says. "That's where best practices come in."

The council augments its benchmarking data with tools, templates and methodologies of marketers who have worked through common marketing challenges. Not only do marketers need these to make appropriate decisions, they need them to build dashboards of repeatable metrics. Only by creating a history of measurements can they make educated market forecasts and prove the soundness of their spending.

Syndicated surveys are the standard benchmark fare. They can be deployed quickly, and often serve as a proof test of a change in corporate direction. Because benchmarks are growing in prevalence and popularity, marketers are getting more funding for benchmark studies.

"Benchmarking is only the starting point for insight," says Christine Overby, principal analyst at Forrester Research Inc. "For example, 'net new customers' is a fine benchmark for high-level comparisons, but it won't tell you whether or not your new customers fall within your most valuable or profitable segments."

"We find marketers love to understand how their investments and priorities compare to other marketers, both in their industry and cross-industry," she continues. "They use this comparison as a way to determine if they are keeping pace with their competitors or driving innovation."

Custom benchmarks are collected to answer specific problems. They make sense for marketing departments that use a dashboard to optimize the marketing function and, in the end, corporate profits. They supplement the middle of marketing measurement.

Benchmarks are a "perfectly appropriate way to gauge status" in the marketplace, she says, adding that "moving past competitors" requires a broader measurement approach including predictive modeling; balanced scorecards; a marketing dashboard with predictive or forward-looking KPIs by geography, business unit, product line and channel; and specific methodologies like Net Promoter.

Case study: Net Promoter
Companies like General Electric and Enterprise Rent-A-Car seek to quantify "net promoters" to measure the effectiveness of marketing, products and customer experiences.

The "net promoter" metric was introduced by Fred Reichheld as the truest measure of customer loyalty--the one that best predicts future profitability. A firm's "net promoter" score is the percentage of customers who are highly likely to recommend the marketer, minus the percentage of detractors. Promoters are assets and detractors are liabilities.

While this simple metric may pinpoint trouble spots at a high level, companies relying on the quick count may miss other indicators of growth (or diminished sales) and profitability (or share erosion).

A "net promoter" score by itself does not separate the most profitable promoters and the most harmful detractors from the general grouping of either satisfied or dissatisfied customers. If a high number of unprofitable customers are promoters, a singular focus on the "net promoter" score might hurt company profits. An over-reliance on the metric also lacks a recommendation for response. How can the marketer leverage promoters? How can it silence or pacify detractors? In addition, the scores do not translate to a quantifiable financial impact--how much growth marketers can expect from optimizing customer referrals.

Smart companies will treat their "net promoter" scores as one input in a larger measurement process, analyzed alongside other insights about customer motivations, metrics about customer experience touchpoints, and operational programs, Overby says.