Chapter 5 (Partial):
Business Strategy: Strategic Metrics
Disclaimer:
• All logos, photos, etc. used in this presentation are the property of their respective
copyright owners and are used here for educational purposes only
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.1
Outline/ Learning Objectives
Topic
Description
Scenarios
Review strategic scenarios facing most companies
Metrics
Discuss metrics to measure strategic-level performance
Brand
Review metrics to measure brand-related performance
Customer
Review metrics to measure customer-related performance
Product
Review metrics to measure product-related performance
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.2
Analytics Approach to Strategy
Identify 3 typical strategic scenarios
Marketing Mix: 4Ps: Product
Price
Place
Promotion
Marketing Mix
Results
Strategy
Business Operations
Strategic Metrics
Business Operations: Supporting Functions
Strategic Metrics: “Big Picture”
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.3
Strategic Scenarios
Market
Entry
Market
Approach
Market
Growth
Typical Major Strategic Decisions for Most Companies:
-Market Entry:
-Market Approach:
-Market Growth:
Should I enter this market?
How should I engage with this market?
How can I grow within the market?
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.4
Strategic Scenario: Market Entry
Market Entry
Example: Diaspora
in social networking
Market Exit
Example: Siemens
in radiation therapy
Market Entry
Market Entry: Apply competitive advantages to characteristics of market
Market Exit: Leave flat or shrinking markets, or those suffering from intense competition
Organic growth: Entering markets by growing internal process and product/service line
Acquisition-driven growth: Entering markets by acquiring companies already in the market
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.5
Strategic Scenario: Market Approach
Generic Strategy
Cost Leadership
Southwest Airlines
in airlines
Differentiation
New York Times
in newspapers
Focus
Sunglass Hut
in niche retailing
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.6
Strategic Scenario: Growth
Market Penetration
Expedia
in travel booking
Existing offerings; Existing markets
Market Development
Growth
Dunkin Donuts
in international expansion
Existing offerings; New markets
Product/Service Development
L’Oreal
in haircare
New offerings; Existing markets
Diversification
GE
in multiple markets
New offerings; New markets
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.7
Strategic Metrics: Strategic Scenarios
Strategic Scenario
Relevant Strategic Metrics
Market Entry/ Exit
Market size
Market growth rate
Market Approach
Revenue
Profit
Market Growth
Year on year growth
CAGR
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.8
Strategic Metrics: Market Entry and Exit
Metric
Description and Example
Market Size
Calculation of potential revenue available in market
Example: Smartphone apps:
Market size of $15B +
Execution: See chapter 2 for market sizing
Market Growth Rate
Periodic evaluation of market to monitor growth
Wang Laboratories:
Failed to notice shrinking market for word processors
Execution: See growth rates slides later in this module
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.9
Strategic Metrics: Market Approach
Metric
Description and Example
Revenue
Sales of goods and services into market
Example Reports
Total Revenue
Revenue by Business Unit
Revenue by Product/ Service
Revenue by Geographic Region
Revenue by Segment
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.10
Strategic Metrics: Market Approach
Metric
Description and Example
Profit
Revenue, less costs of doing business
Example Reports
Profit by Business Unit
Profit by Product/ Service
Profit by Geographic Region
Profit by Segment
Contribution Margin
(Selling Price per Unit – Variable Cost per Unit)
(Selling Price per Unit)
ROMI
Return on marketing investment
(Revenue from Marketing) * (Contribution Margin) – 1
Marketing Spending
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.11
Strategic Metrics: Market Growth
Metric
Description and Example
Year on Year Growth
Increase (or decrease) in revenue, profit, etc.
from one year to the next; also called Y.OY. Growth
Y.O.Y Calculations
Example: Apple Annual Report, 2011
Revenue (2010)=$65.2B; Revenue (2011) = $108.2B
Y.O.Y. Growth = [$108.2B - $65.2B] / $65.2B = 66%
CAGR
Compound Annual Growth Rate
Increase (or decrease) in revenue, profit, etc.
over a period of years (more than 2 years)
Microsoft Excel: XIRR function to calculate CAGR
CAGR Calculations
(Ending Value) ^ (1 / Number of Periods) – 1
(Starting Value)
Revenue grows from $100K to $150K over 3 years:
$150,000/$100,000 ^ 1/3 - 1 = 14.5%
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.12
Strategic Metrics: Brand Development
Metric
Description and Example
Brand Recognition
Ability to confirm prior exposure to the brand
Kellogg’s: Recognize cereal box in supermarket aisle
Brand Recall
Ability to retrieve brand from memory
Roto-Rooter: First name people remember
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.13
Strategic Metrics: Brand Development
Metric
Description and Example
Brand Depth
Ease with which brand comes to mind
GE: Associated with appliances
Brand Breadth
Range of usage scenarios for brand
Greyhound: Limited use by professionals
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.14
Strategic Metrics: Brand Development
Metric
Description and Example
Brand Equity Index
Measures relative strength of brands
Equation
(Effective market share) * (Relative Price) * Durability
Effective Market Share Weighted average of brand’s market share in all
segments, weighted by each segment’s proportion
of sales
Relative Price
(Price of our brand ) / (Price of other brands)
Durability
% of Customers who continue to purchase brand
in the following year
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.15
Strategic Metrics: Customer Development
Metric
Description and Example
CLV
Customer Lifetime Value
Example:
Netflix: Long-term retention important to high CLV
Equation
Margin * (Retention Rate) / (1 + Discount Rate–Retention Rate)
Margin
Revenue generated by the customer, less costs to service
Discount Rate Cost of capital; Similar to interest rate on loan
Retention Rate % of Customers who remain loyal over time
Calculation
If margin = $72/year; Retention = 99.5%/year; Discount = 5%/yr
CLV = ($72) * (0.995) / (1 + 0.05 – 0.995) = $1302.55
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.16
Strategic Metrics: Customer Development
Metric
Description and Example
Customer Profit Profit made per customers
(Customer revenues) – (Customer costs)
Example:
American Airlines AAdvantage customer loyalty program
Tier 1: Executive Platinum
Tier 2: Gold, Platinum
Tier 3: No loyalty status
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.17
Product/Service Development: Metrics Categories
Product/Service Development
Metrics
Development Process Metrics
Measure competitive advantage in
product or service development
Development Innovation Metrics
Measure ability to innovate
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.18
Product/Service Development: Process Metrics
Customization Capabilities
Dell: Configure PC to your liking
Quality-Oriented Capabilities
Development
Process
Metrics
Oneida Healthcare: Ongoing training
Low Cost Capabilities
Responsiveness Capabilities
Boeing: DFM and DFA on F-18
Zynga: Daily software builds
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.19
Product/Service Development: Innovation Metrics
Breakthrough Products
Changes industry
Example: Original Apple iPhone
Major Enhancement
Development
Innovation
Metrics
Next Generation Products
Significant advancement
Example: iPhone 3  4
Noticeable improvement
Example: iPhone 4S Siri
Minor Enhancement
Correction/ “Bug Fix”
Extend product to new users
Example: 8GB  16GB
Fix mistake
Example: iPhone 4 antenna
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.20
Product/Service Development: Innovation Metrics
Innovation Category
Quarter 2
Quarter 3
Q4
5%
10%
10%
10%
Next Generation
10%
20%
20%
20%
Major Enhancement
15%
30%
30%
30%
Minor Enhancement
40%
30%
30%
30%
Correction/ Bug Fix
30%
10%
10%
10%
Total
100%
100%
100%
100%
Breakthrough
Quarter 1
Track % of each type of project over time
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.21
Check for Understanding
Topic
Description
Terminology
Know terms relating to basic strategic scenarios
Strategic Metrics
Review metrics for market entry, approach, and growth
Brand and Customer
Review metrics for brand and customer performance
Products and Services Review metrics to measure product performance
© Stephan Sorger 2015 www.StephanSorger.com;Marketing Analytics:Bus.Strategy-Metrics Ch.5.22