MRKT 3240 – Marketing Information Management

According Kolter, marketing is the social process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others. But how do we measure the effectiveness of the marketing campaign?

As many have said, if you can’t measure it, it’s not worth doing it. Although creativity is important in the marketing field, it is also critical for marketers to understand and apply marketing metrics when planning, supporting, and analyzing any campaign. As a marketer, when you are planning a marketing campaign for your product or service, metrics can help you to forecast and estimate the result, and identify opportunities for your campaign. When you are pushing for budgets for your marketing campaign, metrics can back you up and convince your investors why they should give you a green light for your campaign. When you are analyzing your marketing campaign, metrics will help you get accurate answers and optimize your campaign.

During the three months in the Marketing Information Management class, I have learnt many different metrics which will help me to better measure and analyze the effectiveness of any marketing campaign. The following are some of my favorite metrics which I learnt in the class:

1: Price Elasticity of Demand
Price Elasticity (I) = Change in Quantity (%) / Change in Price (%)
Which is:
Elasticity (P1) = [(Q2-Q1)/Q1] / [(P2-P1)/P1]
= Slope (Linear Demand Function) * (P1/Q1)
Price Elasticity allows us to understand the responsiveness of demand to a small change in price. This is valuable tool because it enables marketers to set optimal price.
Example: When price rises from $9 to $10, quantity declines from 80 to 60.
Elasticity = [(80-60)/60] / [(10-9)/9] = -2.25
This shows that the product in the example is relatively elastic which means the percentage change in quantity demanded is greater than the percentage change in price.

2. Revenue Return on Incremental Marketing
Revenue Return on Incremental Marketing = (Y2-Y1) / (X2-X1),
where:
– Y1=Sales at Marketing spending level X1, and Y2=Sales at Marketing spending level X2, where the difference between X1 and X2 represents the cost of an incremental marketing budget item that is to be evaluated, such as an advertising campaign.
This is important for marketers because it allows marketers to calculate the effectiveness of the marketing campaign.

Example: A marketing campaign is expected to cost $1000 and to increase revenues from $45000 to $50000, where the current marketing activities cost $6000.
Revenue Return on Incremental Marketing = ($50000-$45000) / ($7000-$6000)
= $5000/$1000 = 500%
This means that such marketing campaign will provide the company 500%return on incremental marketing investment.

3. Break-Even Volume and Break-Even Revenue
– Break-Even Volume (#) = Fixed Cost ($) / Contribution per Unit ($)
– Break-Even Revenue ($) = Break-Even Volume (Units)(#) * Price per Unit ($)
Break-Even Analysis is useful in a variety of situations and is often used to evaluate the likely profitability of marketing actions that affect fixed costs, prices, or variable costs per unit.
Example: The product sells for $20. It costs $5 per unit to make. The company’s fixed costs are $30000.
– Break-Even Volume (#) = Fixed Cost ($) / Contribution per Unit ($)
– Contribution per Unit = Sale Price per Unit – Variable Cost per Unit
= $20 – $5 = $15
– Break-Even Volume (#) = $30000 / $15 = 2000 units
Break-Even Analysis can also help company to calculate the number of units sold in order to achieve the company’s revenue goal.

Reference:

Farris, P. W., Bendle, N. T., Pfeifer, P. E., & Reibstein, D. J. (2010). Marketing Metrics. New Jersey: Pearson Education, Inc.

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