Edition 49, Marketing

Marketing Metrics

Métricas de MercadotecniaBy: Phillipe Bisson

If you cannot measure it, you cannot manage it… A metric is a system of measurement that quantifies trends, characteristics, and dynamics in the markets.

    I. Overview

  1. Let’s begin by defining what a metric is.

    A metric is a system of measurement that quantifies trends, characteristics, and dynamics in the markets.

  2. It has two important features:

    • It represents objectivity and rigor
    • It makes it possible to compare factors over time and between regions, companies or divisions; therefore, it must be relative.

  3. What can be measured?

    • Margins and profitability
    • Relationship with the market and the competition
    • Customers and consumers
    • Distribution channels
    • Price
    • Investment marketing
    • Products and brands

  4. Measures include the following:

    • Currency (pesos)
    • Unit or quantity (kilos, boxes, bottles, liters, space)
    • Percentage
    • Classification (ordering or scales)
    • Index

    II. Metrics

  1. Perhaps the most important metric of marketing is market share. Although it seems clear and understandable, it is full of pitfalls. For example:

    1. A company notes a drop in sales in one of its product categories, but an increase in market share. How is this possible? There are two answers:
      • The market fell more than the sales of the company.

      • The category was redefined to make it smaller, so that market share increased despite lower sales.

        This last point highlights the importance of correctly defining the category or market in which we compete so that comparisons with the competition are more relevant. For example, if I ask what is the share of my brand of soda crackers in the Mexican market, the quick answer would be, say, 7.5%. But by further analyzing the information, I realize that all kinds of crackers and cookies are included, both salty and sweet. If I eliminate cookies (sweet) from my report, my market share is 13%, which is more relevant. The reason why I remove cookies is that they are not similar products. Target markets are different and the time of consumption as well.

        It is also important to know the competition of the substitutes. For example, a category of non-alcoholic beverages is cola soft drinks. We can expand the category to include all soft drinks. Other substitutes are water, juices and ready-to-drink products (tea and coffee). Somehow, all these categories of goods are substitutes, i.e., competition.

      1. When measuring market share, compared with the competition with the metric called relative market share, it can show the size of the difference between the company and the nearest competitor. If our brand is a leader, it should be compared to the second brand by dividing our share between that of the second (result greater than 1). If we are not leaders, our share is divided between that of the leader (result under 1).

      2. Another point to consider is market share in value, i.e., sales in pesos. Another is market share of units, which vary with the pricing strategy that businesses follow. For example, a company that has 10% market share in units and 15% in value follows a strategy of high prices, while another with the same market share in units but 6% of value shows a low-price strategy. Similar shares in both measures denote average or competitive prices.

      3. Finally, it is important to consider regional shares, since it is likely that there are areas of greater or lesser participation requiring different marketing strategies.

    1. A metric that is applied most often is called share of wallet. It is calculated as the percentage of the buyers of my brand in relation to their purchases of other products in the category.

      For example, last month, 500,000 bottles of my brand of shampoo “Mía” were sold. In households that bought “Mía”, they acquired a total of 1,250,000 bottles of shampoo.

      Therefore, share of wallet is 500,000/1,250,000=40%. The question that we can raise is, what can be done so that those households buy more “Mía”; i.e., that they replace the other shampoos they buy. Knowing which are the other shampoos, you may detect that the company does not have specific products to compete. If share of wallet is more than 90%, it is best to continue with similar strategies, but if it is 10% it must be a priority to understand why in that household only 10% of my brand and 90% of the other brands are bought, and develop strategies to increase share of wallet.

    2. Another important metric is the classification of customers. This metric is not new, but the common panorama has an important angle: Generally the classification is based on sales representing the company’s customers or consumers. The problem is that often the customers who buy the most are the least profitable because they require more attention, more discounts, more promotions, more time for payment, etc.

      It would be necessary to subtract the cost of the products from the reported revenue of these customers as well as expenses for their care, such as promotions, commissions from salespersons, exhibitors and other materials, tastings, samples, catalogues, events, guarantees, payment deadlines, gifts (loyalty cards) and any other expenses attributable to these customers or consumers. So, then, customers are classified by their profitability, a more important concept when developing strategies that promote more profitable customers, not just those who buy more.

      A metric that takes into account the concept of profitability is the lifelong value of a customer, which also allows you to calculate the potential future of the consumer.

    3. Another metric that the market contemplates is penetration, in which two factors are measured:

      1. Penetration of the category, the number of households or people who buy the category is divided between the total number of households or total population. The difficulty of this metric lies in the definition of total population, namely, the entire population of Mexico, only the potential (who might purchase the category) or the real (those who actually buy the category). It is said that the penetration of television in Mexico is 90%, i.e., that 90% of the households have at least one television. But 100% or 95% of the households could possibly acquire the appliance because there are communities without electricity or where the signal does not reach.
      2. Penetration of the brand, the number of people or households that have purchased my brand during a period in relation to the total population (potential or actual).

      1. The per capita metric is related to the concept of the total population – potential or real.

        1. First, marketers must use units of consumption rather than production when speaking about market size. Consumers do not buy tons of bread or hectoliters of beer. For example, in relation to beer, you can talk about the standard measure of 335 ml or a loaf of bread with 24 slices with a certain weight for each one. That is, you have to think about the measurement.
        2. Second, you must define the population that consumes this category of goods. For example, in the case of beer, you would subtract from the total population of Mexico everyone under the age of 18 who by law cannot drink alcoholic beverages. After that, consider that perhaps 15% of women drink beer and the rest do not and that 80% of the men do drink beer, albeit sporadically. In this way, we would have a more relevant per capita consumption. A disadvantage of this measurement is that it refers to an average. In this sense, you might make a classification of customers or consumers (see point 3).

      2. To complete the first part of this study of metrics, in which we have presented some common and relatively simple ones, we must take into account three elements:

        1. Not all companies should apply the same metrics or in the same magnitude. This will be seen when we analyze specific metrics of certain industries.
        2. Generally we talk of consumers or users, but what happens when there is a significant number of non-users or non-consumers?
        3. The first step to having relevant marketing metrics is to correctly define the category, as well as define the population with which a brand is compared.

      In the next issue, we will look at other metrics relating to consumers, the growth of markets, the concepts of distribution, and more.?

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