Do you know what predicts your brand’s success? Most marketing metrics only measure what has happened, using what could be called “lagging indicators.” But imagine the effectiveness of your marketing program if you could identify the “leading indicators” for your brand—the activities, buyer behaviors, and measurements that actually lead to sales and proﬁts.
Progressive marketers and their agencies are exploring this brave new frontier. Instead of just looking in the rear view mirror at historical measurements like sales and market share, they are attempting to look ahead at predictive measures that are the actual precursors of business success. Most “leading indicators” never appear on a ﬁnancial statement, but they can—and should—be identified, tested, and tracked.
Lagging indicators are:
- A measurement
Leading indicators are:
- Attitudinal and behavioral
- A measurement tied to a hypothesis
- Is the customer service representative knowledgeable?
- Is the problem resolved on the ﬁrst call?
An important difference
Lagging indicators are simply a measurement. Leading indicators are a measurement tied to a hypothesis, which can be tested and reﬁned, in order to explain or predict behavior. Imagine six friends getting together every Friday night to play poker. Over the course of a year, one person wins 60 % of the time—the other players win much less often. These statistics are all lagging indicators; they tell us what has happened. But they don’t tell us why. You might be inclined to think the 60 % winner cheats, but in fact he wins so often because everybody else in the group has such a poor poker face. The point is that you learn nothing by observing the result—only by understanding the process that leads to the result.
For example, if you reverse engineer most successful marketing programs, you’ll ﬁnd that they center around a hypothesis based on a powerful insight into buyer behavior. That hypothesis can almost always be considered a leading indicator.
Two different kinds of indicators of B2B brand success are:
- Revenue growth
- Market share
- Market penetration
- Incremental profit
- Stock price
- Cost per lead
- Cost per click
- Marketing cost per unit
- Gross impressions
- Cost per impression
- Customer acquisition cost
- Customer retention cost
- Average transaction value
- Search engine rankings
- Online mentions
- Positive online reviews
- Customer satisfaction ratings
- Brand buzz
- Website page views
- Brand likability
- Brand fame
- Emotional attachment to brand
- Would recommend to friend
- Would pay premium price
- Custom compliments and complaints
All measures are not created equal
While predictive is better than historical, this isn’t to say there isn’t a place for lagging indicators in marketing measurement. Some lagging indicators—such as incremental proﬁts generated from a campaign—are important and relevant measures of marketing success. The same is true with lagging indicators like brand penetration and average price per unit.
But many traditional measures of success are the result of historical practices rather than a careful study of cause and effect. Correlation is not the same thing as causation.
For example, while sales is the most common “hard” metric of success, campaigns that focus on reducing price sensitivity are more effective than those that focus on building volume or market share. In other words, we’ve learned that value share is more important than volume share.
As Einstein said, “Not everything that counts can be counted, and not everything that can be counted counts.”
Brand health as human health
It’s critically important to measure B2B brand success using a combination of both leading and lagging indicators. You can think of the health of a brand in the same way we think about the health of a human body. A physician would never attempt to diagnose a serious problem merely based on a few outward symptoms. He or she would also likely measure temperature, blood pressure, organ functions, and other things that would give a more complete picture of health. Diagnosing and monitoring the health of a brand involves the same dynamics. Sales and market share alone only tell us the brand is healthy or sick, but don’t tell us why.
At a time when marketers are looking to prove the value of every marketing dollar spent, their brand agencies have an opportunity to provide an immensely important new dimension of value by helping their clients develop and test leading indicators of brand success. Far too many agency-client relationships begin only with a “scope of work” instead of an understanding of “scope of value”—a clear distillation of the desired outcomes that combines both lagging and leading success metrics.
Knowing the metrics that matter should be part of the intellectual capital an agency brings to the relationship it has with its clients. By measuring what matters, brands can make limited marketing dollars go much further in these economically challenging times.
[Previously written and posted on b2bbranddebate.com]