Monday, March 09, 2015

Marketing Measurement: Lessons from Physics

How should we measure our efforts?

There is nothing new about the idea of measuring marketing. What is changing however is out ability to do so. Yet, we're not there yet.

Metrology, or the science of measurement, requires three things:
  1. An internationally accepted unit of measure.
  2. How to realize those units in practice, i.e just what is a meter?
  3. Chains of traceability between a measurement and a standard
In the series "The Science of Measurement" Marcus du Sautoy describes the history and approach taken to nail down the seven fundamental things to be measured. (And I paraphrase the physics.)
  • Time - the second used to be a fragment of a celestial cycle and now is 9B+ spins of an atom; we've moved from personal time zones (there were thousands in the US before the transcontinental train) to highly precise coordination. What good would Snapchat be without a common sense of expiry?
  • Distance - starting out as the length of the pharaoh's arm and moving to 1 ten-millionth of the distance between the North Pole and the Equator it is now how far light travels is a very short period of time. Imagine an inaccurate GPS. 
  • Mass - the weight of pure water, at sea level and at freezing point has been the reference point, this is the last measurement to based on an artifact of something else rather than a fundamental law of physics. Media impressions have been often described in "tonnage" to reflect reach and frequency. 
  • Moles - measures how much stuff is involved without worrying about mass or weight. It makes conversions easier to understand and handle. For instance, two parts hydrogen + one part oxygen equals one part water. Gross/Target Rating Points are one way we try to standardize across channels. 
  • Light - possibly the easiest to grasp and yet most peculiar, light is responsible for what we see and is defined in waves. The challenge is that our eye adapts to light creating two types of measurements - energy and "in the eye of beholder." What we observe in marketing is altered by both our observations and our biases. 
  • Heat - is defined by how fast something moves with absolute zero being the absence of movement. Temperature is simply a measure of activity.  Word of mouth and influence would be analogous to positive heat. Poor customer service would be negative due to the friction it creates.
  • Electricity - is all about the flow of stuff from one place to another thru time and space (lightning strikes for example). As evidence of the use of fundamentals, heat can be measured by electricity - the oven probe does it with a thermocouple. The customer journey and path-to-purchase deal with the flow of people with lots of insulators, leaky funnels and conductors.
A key point of the series is that with every increase in the precision of measurement comes a leap in technical disruption with new capabilities emerging.

In marketing, Ashu Garg of Foundation Capital recently wrote a nice white paper on the "Decade of the CMO" in which he articulated the seven most important metrics in marketing.
  1. Marketing ROI
  2. Customer Experience
  3. Conversion Rate/New Customers
  4. Overall Sales
  5. Marketing-influenced Sales
  6. Revenue-per Customer
  7. Social Media Metrics
While all good, it would seem we are still in the middle ages of marketing measurement. There are no precise or accepted ways to define many of those metrics on unassailable reference points. Just what is an "experience" or an "influence"?   Even concepts like "sales" can be fuzzy concepts to nail down within one company let alone across companies.

Another takeaway from the series is: figuring this out isn't easy or quick. It often takes standing on the shoulders of giants to make progress so expect this to evolve over time. In the short term, we run the risk of measuring what we can, not what we need. It will take dedication from those who think differently to crack this nut.

Which leaves us with a fundamental question:

What are the building blocks of consumer choice?

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