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Quantifying marketing analytics

News, 09 November 2015

NEW YORK: Marketers can quantify the effects of their marketing analytics activity on profits and ROI, according to a new report from experts at consulting firm McKinsey.

Its research involved the creation of a metric to reflect ways in which those businesses taking part in The CMO Survey use marketing analytics across eleven areas – including customer acquisition, marketing mix, customer retention, social media, segmentation, promotion strategy, branding, pricing strategy, product/service strategy, new product development and multichannel marketing.

Writing on the Harvard Business Review site, Christine Moorman (director of McKinsey's The CMO Survey) and McKinsey personnel Matt Ariker (COO/ Consumer Marketing Analytics Center), Alejandro Diaz (lead/Sales and Marketing Advanced Analytics) and Mike Westover (practice manager), reported that, across all companies, the "use metric" had a mean of 2.9.

They were then able to calculate the impact of marketing analytics by relating that use metric to the firm's reported change in profits and marketing ROI over the previous year.

"Our results show that a one-unit change in the use of marketing analytics (i.e., the application of marketing analytics to one more area) yields a 0.39% increase in profits," they wrote.

"This means that using three 'units' of marketing analytics improves profits by over 1%. For marketing ROI, the figure is 0.61%."

Further, they said that their use metric had "a positive and significant effect on both outcomes even after controlling for marketing analytics spending, product vs. service, and B2C vs. B2B".

Of the eleven areas they considered customer acquisition was the highest use activity at 36.6%, followed by marketing mix (31.5%) and customer retention and social media (both 30.7%).

"While marketing analytics can have significant bottom line and ROI impact, their use is surprisingly limited," the authors said.

They recommended companies invest some time and energy in ensuring that not only are insights generated but they are also acted upon.

Too often, they noted, insights don't actually get to the people who can use them and they suggested that recruitment of "analytics translators" could help in this regard.

Another common problem is what they referred to as a "peanut butter" approach – where marketing analytics gets spread around everywhere leading to a lack of focus.

"We recommend using analytics for just 1-2 new marketing activities at first," they said. "Creating a heat map of current capabilities across marketing activities and comparing with industry leaders can help to determine which ones to prioritise."

Data sourced from Harvard Business Review; additional content by Warc staff