UCLA Big Time Research

Dominique M. Hanssens & Koen H.
Pauwels
Demonstrating the Value of Marketing

Marketing departments are under increased pressure to demonstrate their economic value to the firm. This challenge is
exacerbated by the fact that marketing uses attitudinal (e.g., brand awareness), behavioral (e.g., brand loyalty), and
financial (e.g., sales revenue) performance metrics, which do not correlate highly with each other. Thus, one metric could
view marketing initiatives as successful, whereas another could interpret them as a waste of resources. The resulting
ambiguity has several consequences for marketing practice. Among these are that the scope and objectives of
marketing differ widely across organizations. There is confusion about the difference between marketing effectiveness
and efficiency. Hard and soft metrics and offline and online metrics are typically not integrated. The two dominant tools for
marketing impact assessment, response models and experiments, are rarely combined. Risk in marketing planning and
execution receives little consideration, and analytic insights are not communicated effectively to drive decisions. The
authors first examine how these factors affect both research and practice. They then discuss how the use of marketing
analytics can improve marketing decision making at different levels of the organization. The authors identify gaps in
marketing’s knowledge base that set the stage for further research and enhanced practice in demonstrating marketing’s
value.
Keywords: accountability, marketing effectiveness, efficiency, return on marketing investment, marketing value
assessment
The Difficulty of Marketing Value marketing investment (ROMI), remains an elusive goal for
Assessment most companies, which are struggling to integrate big and
small data and marketing analytics into their marketing
I want marketing to be viewed as a profit center, not a cost decision and operations.
center. Why is marketing value assessment so challenging? To
—A chief executive officer begin with, the term “marketing” refers to several things: a
I have more data than ever, less staff than ever, and more management philosophy (customer centricity), an organiza-
pressure to demonstrate marketing impact than ever. tional function (the marketing department), and a set of specific
—A chief marketing officer activities or programs (the marketing mix). However, regardless
arketing is at a crossroads. Managers are frustrated by of the intended use of the term, marketing aims to create and
M the gap between the promise and the practice of effect

measurement, big data, and online/offline integration.
Caught between financial accountability and creative flexibility,
stimulate favorable customer attitudes with the goal of ulti-
mately boosting customer demand. This demand, in turn,
generates sales and profits for the brand or firm, which can
enhance its market position and financial value. This sequence
most chief marketing officers (CMOs) do not last long at their
companies (Nath and Mahajan 2011). Top management has of influences has been termed the “chain of marketing pro-
woken up to the fact that their companies make multimillion- ductivity” (Rust et al. 2004), as depicted in Figure 1.
dollar marketing decisions on the basis of less data and analytics As a result, marketing has multiple facets, some attitu-
than they devote to thousand-dollar operational changes. Cus- dinal, some behavioral, and some financial. However, the
tomer and market data management, product innovation and relation between the metrics that assess these facets is com-
launch, international budget allocation, online search opti- plex and nonlinear (Gupta and Zeithaml 2006), and their
mization, and the integration of social and traditional media average correlations are below .5 (Katsikeas et al. 2016). For
are just some of the profitable growth drivers that greatly example, product differentiation tends to be associated with
benefit from analytical insights and data-driven action. Yet higher customer profitability but lower acquisition and re-
marketing value assessment, defined as the identification tention rates (Stahl et al. 2012). Similarly, online behavior
and measurement of how marketing influences business and offline surveys yield different information to explain and
performance as well as the accurate calculation of return on predict brand sales (Pauwels and Van Ewijk 2013). Likewise,
some attitudinal brand metrics (esteem, relevance, and knowl-
edge) are associated with higher sales but not with higher prices,
Dominique M. Hanssens is Distinguished Research Professor of Marketing, while others (energized differentiation) show the opposite
Anderson School of Management, University of California, Los Angeles pattern (Ailawadi and Van Heerde 2015).
(e-mail: dominique.hanssens@anderson.ucla.edu). Koen H. Pauwels is
Professor of Marketing, Özyeğin University (e-mail: koen.pauwels@ozyegin.
This makes it difficult for researchers to synthesize
edu.tr). findings across studies of marketing impact, and it makes it
difficult for organizations to choose which metrics to rely on
© 2016, American Marketing Association Journal of Marketing: AMA/MSI Special Issue

ISSN: 0022-2429 (print) Vol. 80 (November 2016), 173–190
1547-7185 (electronic) 173 DOI: 10.1509/jm.15.0417
FIGURE 1
The Chain of Marketing Productivity
Source: Rust et al. (2004).

Notes: EVA = economic value analysis; MVA = marketing value analysis.
when making resource allocation decisions. For example, and decisions exist in silos within the organization. However,
advertising is only deemed financially successful if its ability the consumer or customer is the target and recipient of all these
to increase awareness results in higher sales and/or profit actions, the combination of which will create the consumer’s
margins. attitude toward the brand and, eventually, his or her purchase
Current efforts in marketing measurement often do not go all behavior. In assessing marketing’s value, we therefore pay close
the way in connecting metrics to each other. For instance, many attention to the integration of marketing activities as they affect
balanced scoreboards and dashboards do not tell managers how consumer behavior. In this context, Court et al. (2009) argue that
their marketing inputs relate to customer insight metrics and to the critical task is to describe the process that generates sales for
product market performance metrics. Consistent with this notion, the firm and to identify the bottlenecks that impede profitable
in a personal communication, Lehmann uses the term “flow- business growth.
boards” for dashboards connecting metrics, while Pauwels (2014) In addition to relating performance metrics to each other (the
defines analytic dashboards as a concise set of interconnected metrics challenge), these metrics also need to be connected to
metrics. Indeed, reconciling multiple perspectives on marketing marketing activity. Indeed, assessing marketing value requires
value requires causality to be shown among marketing actions various demand functions that quantify how changes in mar-
and multiple performance outcomes (e.g., customer attitudes, keting activity influence changes in these dependent variables
product markets, financial markets; i.e., quantifying the arrows in (e.g., with response elasticities). Demand functions are often too
Figure 1). Connecting the metrics is especially challenging if data complex for senior managers to intuitively understand and
174 / Journal of Marketing: AMA/MSI Special Issue, November 2016

estimate. Consequently, marketing analytics expertise is needed, may be the imposition of inappropriate efficiency metrics that
either in-house or through specialized suppliers, which in turn make marketing less impactful. In some cases, marketing
creates an organizational challenge because those who practice may be treated as an expense rather than an investment.
marketing tend to be different from those who measure it. A final What is needed are guidelines for (1) reconciling different
necessity in marketing value assessment is effective communi- marketing objectives, (2) distinguishing between marketing
cation within the organization, including to decision makers who effectiveness and efficiency, (3) defining the scope of mar-
may not be fluent in the technical aspects of value measurement. keting, and (4) distinguishing between marketing budget set-
Despite the challenges, the benefits of “marketing smarter” ting and budget allocation.
are substantial, as both academic studies and business cases
demonstrate. Even a small improvement in using marketing
analytics creates, on average, 8% higher return on assets to the Reconciling Different Objectives for Marketing
companies, compared with their peers (Germann, Lilien, and Among the multitude of objectives marketing managers aim
Rangaswamy 2013). This benefit increases to 21% for firms to achieve are gains in sales volume and growth, market
in highly competitive industries. Organizations of any size and share, profits, market penetration, brand equity, stock price,
in any industry have had a sustainable competitive advantage and a variety of consumer mindset metrics, such as awareness
from using marketing analytics. However, even the large U.S. and consideration. Table 1 presents an overview of the focus
companies that participated in the CMO Survey (2016) report of different performance assessments, their benefits, and their
that marketing analytics are used in only 35% of all marketing drawbacks.
decisions. This percentage is expectedly even lower for small Marketing scholars can no longer assume that profit
and medium-sized firms across the world. maximization is the sole goal of marketing (see Keeney and
The causality implied by the chain of marketing productivity Raiffa 1993). When Natter et al. (2007) optimized dynamic
increases the pressure for good performance metrics, causal links pricing and promotion planning for a retailing company,
between metrics and marketing actions, and effective communi- having initially agreed to maximize profits, their recom-
cation to demonstrate the value of a firm’s marketing. This article mendation of higher prices met with substantial resistance
discusses the challenges of obtaining those three things. We first from the purchasing managers, whose supplier discounts
provide a general overview, critically examining the knowledge depend on sales volume, and from local branch managers,
base and practice of marketing value assessment in organizations. who insisted on keeping a market leadership position in
We then discuss marketing objectives and how they determine their city. After further discussion, they decided to combine
the choice of marketing metrics. Next, we turn our attention to the profits, total sales volume, and local market share objec-
research methods that drive marketing value assessment—namely, tives in an overall goal function for the model to optimize.
the use of models, surveys, and experiments. Those methods have The resulting model yielded recommendations that were more
generated several important findings about marketing value. Then, acceptable to the managers, who successfully implemented
because marketing analysts and marketing decision makers are them.
typically not the same people, we examine ways of improving Despite individual contributions such as Natter et al. (2007),
how marketing value is communicated within the organization. marketing academia and practice have not produced a set of
We conclude with a brief summary of current knowledge and generalizable weights for using different objectives under dif-
important areas for further research. ferent conditions. Instead, marketing practice tends to focus on
case studies of each company’s unique situation and, within the
firm, on individual executives’ siloed departments.
The Influence of Marketing Further research should attempt to bridge marketing ob-
jectives and metrics across functional, geographical, and life
Objectives on Marketing Value cycle boundaries. Bronnenberg, Mahajan, and Vanhonacker
Metrics (2000) provide a good example: they demonstrate that, in one
As organizations grow and marketing technologies evolve, mar- product category, consumer liking and distribution are dominant
keting tasks become increasingly specialized and complex. A success metrics for brands in the early phases of the category life
vice president for sales and marketing may be replaced by two cycle, with pricing and advertising becoming important only
vice presidents, one for sales and another for marketing. Within later. Similarly, Pauwels, Erguncu, and Yildirim (2013) show
marketing, separate departments may focus on advertising and that brand liking matters more in mature markets, but brand
customer service. Advertising itself may be divided into brand consideration is more important in emerging markets. Research
and direct, offline and online. Each of these people or depart- should also investigate the optimal weighting of objectives on the
ments is held accountable for increasingly focused business basis of hard performance measures, along the lines of research
objectives and performance metrics. In customer service, the that combines model-based and managerial judgment (Blattberg
performance measure may be the Net Promoter Score, while and Hoch 1990). Recently, the notion that models should not
brand recognition scores may be used to gauge the performance ignore human decision makers has reemerged within a big-data
of the brand advertising team, and CPM (cost per 1,000 pros- context as algorithmic accountability (Dwoskin 2014). The goal
pects touched) may be used for the direct advertising team. is to tweak social media classification algorithms not for max-
The result is an increasingly siloed marketing department imum efficiency but to avoid human-relations mistakes (Lohr
in which each specialized function has its own objectives, 2015). A widely shared example is that of Target, which sent out
with little consistency across functions. Another consequence pregnancy-related coupons to teenagers for whom its algorithm
Demonstrating the Value of Marketing / 175

TABLE 1
Types of Performance Outcomes
Aspect of
Performance Advantages Disadvantages Considerations
Customer • Causally close (often closest) to • Primary data may be difficult and costly • Sampling: current customers versus
mindset marketing actions to collect if direct from customers past customers versus all potential
• May be unique to marketing • Secondary data from research vendors customers in the marketplace
performance outcomes vs. other may not align well with theorized • Possible demographic effects on
business disciplines constructs or data from other vendors measures
• Commonly used to set marketing- • Noise in survey measures (primary
specific goals and assess marketing and secondary data)
performance in practice • Only allows for goal-based assessment
if collected with or supplemented by
primary data
• Transaction-specific versus overall
evaluations
Customer • Causally close to marketing actions • Primary data may be difficult and costly • Noise in survey measures (primary
behaviors • May be unique to marketing to collect if direct self-reports from data)
performance outcomes versus other customers • Only allows for goal-based assessment
business disciplines • Observed behavior data may require if collected or supplemented by primary
• Commonly used to set marketing- working with firms and can be difficult to data
specific goals and assess collect from multiple firms
performance in practice • Differences across firms in how
• Direct observation shows revealed observed behaviors are defined and
preferences calibrated
Customer- • Causally close to marketing actions • May require working directly with firms • Only allows for goal-based assessment
level • May be unique to marketing and may be difficult to work with multiple if collected or supplemented by primary
outcomes performance outcomes versus other firms data
business disciplines • Differences across firms in how • Noise in survey measures (primary
• Commonly used to set marketing- economic outcomes are determined data)
specific goals and assess and calculated
performance in practice
Product- • Causally close to marketing actions • Unit sales data are difficult to obtain • How to define the “market”
market- • May be unique to marketing from secondary sources for most • Only allows for goal-based assessment
level performance outcomes versus other industries if collected or supplemented by primary
outcomes business disciplines • Even firms in the same industry may data
• Commonly used to set marketing- differently define the markets in which • Noise in survey measures (primary
specific goals and assess they compete data)
performance in practice • Higher level of aggregation, so may be
less diagnostic
Accounting • Well-defined and standardized • Corporate level, so may be further away • Potential differences between firms and
measures from marketing actions and less industries in their accounting practices,
• Revenue-related items commonly diagnostic policies, and norms
used to set marketing-specific goals • Not forward looking • Differences in measures across
and assess marketing performance • May undervalue intangible assets countries
in practice • Mostly ignores risk • Only allows for goal-based assessment
• Secondary data availability • Treats most marketing expenditures as if collected or supplemented by primary
• For primary survey data, specific an expense data
items likely to have the same • Noise in survey measures (primary
meaning across firms data)
Financial • Investors (and analysts) are forward • Corporate level, so may be further away • Risk adjustment
market looking from marketing actions and less • Public/larger firm sample-selection bias
• May better value intangible assets diagnostic • Assumes primacy of shareholders
• Finance theory suggests that • Publicly traded firms only, which tend to among stakeholders, but this may not
investors may be more goal be larger be true in some countries
agnostic (but time frames and even • Difficulties in assessing firms across • Assumes the financial market is efficient
criteria may be goal related from the different countries (and financial and participants are well informed of the
firm’s perspective) markets) marketing phenomena being studied
• Secondary data availability • May be subject to short-term • Only allows for goal-based assessment
fluctuations unconnected with a firm’s if collected or supplemented with
underlying performance primary data
• Noise in survey measures (primary
data)
Source: Katsikeas et al. (2016).

predicted pregnancy (Hill 2012). Marketing is in a unique task. It is important to measure not only the percentage return
position to contribute to the debate on the use of such algo- of any spending amount but also its magnitude. Conceptual and
rithmic predictions by applying the rich existing literature on empirical models of marketing effectiveness show diminishing
quantifying the consequences of loss in customer goodwill and returns (e.g., Kireyev, Pauwels, and Gupta 2016; Little 1979),
estimating the probabilities of these loss scenarios. implying that ROI (efficiency) is maximized at levels of
marketing spending that are below profit maximizing (effec-
tiveness) (Pauwels and Reibstein 2010). We propose that the
Effectiveness and Efficiency goal should be to maximize the total effectiveness when a
When we understand the target objectives of decision makers, certain threshold is achieved, even if that reduces the overall
a key question is whether they give primacy to effectiveness or efficiency (Farris et al. 2015). However, our proposal may be
efficiency in reaching these goals. Effectiveness refers to the more applicable to large organizations, which have plenty of
ability to reach the goal; efficiency refers to the ability to do so resources and opportunities, than to small ones. Further re-
with the lowest resource usage. For instance, mass media ad- search is needed to determine the best mix of effectiveness
vertising may be effective in reaching the vast majority of pro- and efficiency for smaller organizations and in dire times.
spective customers, but it is not very efficient, whereas online
advertising may be very efficient but not as effective because
it reaches fewer prospective customers. The Scope of Marketing Within the Organization
The value of marketing can be expressed in terms of either The scope of marketing is one of the key determinants of its
effectiveness or efficiency. Return on marketing investment objectives and of the effectiveness/efficiency decisions that the
deals with efficiency. When efficiency is the goal, the result is marketing department makes (e.g., Webster, Malter, and
almost always a budget reduction through the elimination of Ganesan 2003). In some organizations, the marketing depart-
the least efficient marketing programs. However, the firm may ment is only responsible for a subset of the marketing mix, such
be more interested in the effectiveness of a marketing action, as executing advertising campaigns and running sales promo-
which may be better expressed as return minus investment, tions. Marketing decision makers are typically more junior in
without dividing by the investment as in the standard return such organizations. Pricing, distribution, and product decisions
on investment (ROI) formula from finance. As an illustration, are made elsewhere in the organization, by more senior decision
consider two mutually exclusive projects (e.g., alternative ad makers. In our experience, this situation is typical in emerging
messages aimed at the same segment), with returns of $100 countries, in engineering-dominated companies, and in
million and $10 million, respectively, and investment costs of business-to-business industries.
$80 million and $2 million at the same level of risk. The first At the other extreme, a few organizations consider the
project has the larger net return ($20 million is greater than $8 marketing department to be the true profitable growth driver
million), but the second project has the larger ROI (25% is less and both hold it accountable for profitable growth and
than 400%). Which project should a manager prefer? provide it with the necessary resources and authority to
The trade-off between effectiveness and efficiency is par- achieve it. Examples include Procter & Gamble and Diageo,
ticularly salient when there is a conflict between short-term and which are marketing-dominated companies in business-to-
longer-term goals. Price promotional tactics, for example, may consumer industries (Pauwels 2014). Most companies fall
be optimized for their short-term profitability, but the repeated somewhere between these extremes; they may hold mar-
use of such tactics is known to erode brand equity over a longer keting responsible for pricing, promotion, and branding, but
time span (Mela, Gupta, and Lehmann 1997). Efficiency-driven not for creating successful new products (which is often the
marketing decisions should be supported only when they do not domain of research and development or a new product de-
jeopardize the long-term viability of the brand. velopment group) or expanding distribution (which is often
Ultimately, firms want to strike a balance between effec- the domain of the sales organization).
tiveness and efficiency goals. To accomplish this, beverage The scope of marketing also has a major impact on the data
company Diageo displays marketing actions on a 2 · 2 matrix collection that underlies marketing value assessment. The
that juxtaposes their effectiveness (on defined objectives) with broader the scope, the more variables are included in marketing
their efficiency (ROMI). Actions without sufficient effective- databases and, generally, the lower the level of granularity of
ness are likely to be canceled, no matter how high their ROMI, these databases. For example, digital attribution models have
while effective but inefficient actions are reexamined to improve a very narrow scope (determining which combination and
efficiency in the future (Pauwels and Reibstein 2010). A sequencing of digital media impressions produces the highest
company may benefit from instituting a threshold return value consumer response) but can be executed daily or even hourly
that marketing programs must achieve to be supported. Ex- (see, e.g., Li and Kannan 2014). In contrast, complete marketing-
amples of such thresholds are the firm’s cost of capital and mix models that include product innovation and sales call metrics
its economic profit (Biesdorf, Court, and Willmott 2013). in addition to various marketing communication and sales pro-
Research is needed to establish what the thresholds for impact motion variables are typically executed monthly or weekly. The
and efficiency should be. latter, however, assign a much broader responsibility to marketing
Beyond defining and relating multiple objectives, we than do the former. At the same time, greater data granularity
also need to conceptually and empirically relate effective- necessitates more advanced econometrics. A detailed discussion
ness and efficiency in reaching these objectives. Measuring of econometric advances in market response modeling is beyond
the effectiveness or the efficiency of marketing is not an easy the scope of this article and may be found in Hanssens (2014).

How has academic research advanced the understanding creating (typical for more strategic marketing problems)
of the importance of marketing scope? Far too little, argue (Wierenga and Van Bruggen 2012).
Lee, Kozlenkova, and Palmatier (2015). In a recent review, Academic research in marketing has tended to focus
they call for structural marketing: explicit consideration of on tactical decisions rather than on strategy. For example,
organizational structure when assessing the value of mar- product line and distribution elasticities are at least seven
keting. They hypothesize that moving to a customer-facing times higher than advertising elasticities, which makes them
structure increases effectiveness but reduces efficiency in strategically more relevant (Ataman, Van Heerde, and Mela
obtaining data on how products perform. A few academic 2010; Shah, Kumar, and Zhao 2015), but the abundance
articles have investigated whether a more customer-focused of data on the latter has resulted in many more academic
organizational structure induces a market orientation, with publications on advertising effects than on distribution or
mixed findings. Likewise, the 2015 Marketing Science Institute product line effects on business performance. This tendency
conference on “Frontiers in Marketing” featured several man- is amplified by the increased availability of micro-level mar-
agement questions and comments on the cost–benefit trade-offs keting data, especially in digital marketing.
of customer-focused teams. Academic research specifically on strategy versus tactics
Our recommendation is twofold: we agree with Lee, has focused mainly on the relative merits of setting the budget
Kozlenkova, and Palmatier’s (2015) call for more research on size or allocating a given budget (e.g., Mantrala, Sinha, and
the impact of organizational structure on market-related out- Zoltners 1992). More recently, Holtrop et al. (2015) show that
comes, but we would also like to see more attention paid to the competitive reactions on a strategic level differ substantially
relationship between marketing performance and marketing from reactions at a tactical level. Interestingly, strategic
scope. To what extent does excellent performance help mar- actions (presumably by senior managers) follow marketing
keting increase its scope and get it a “seat at the table” (Webster, theory expectations, whereas tactical actions (presumably by
Malter, and Ganesan 2003)? Or is it the communication of such junior managers) often violate research recommendations
performance (i.e., “marketing the marketing department”) that by (1) retaliating when unwarranted and with an ineffective
matters most? Because the answer may depend on the industry marketing instrument and (2) accommodating with an effective
and company setting, we recommend further research on the marketing instrument. Manchanda, Rossi, and Chintagunta
boundary conditions of the interplay between organizational (2004) obtain similar findings. Both articles focus on the
structure, marketing actions, and performance outcomes. pharmaceuticals industry; their important results regarding
suboptimal marketing resource allocations are in need of
replication in different sectors.
Marketing Decisions: Budgets or Allocations? In marketing practice, the focus on marketing tactics
It is important to know whether marketing actions are con- benefits the organization’s accountability and profitability
sidered tactical or strategic in assessing their value. Broadly but rarely creates sustained business growth, which is a
speaking, managerial decisions are either budget (investment) more strategic objective. For business growth, product and
or allocation (execution) decisions (Mantrala, Sinha, and process innovation become more important, as evidenced
Zoltners 1992). For example, a CMO receives a $100 million by empirical work demonstrating the positive impact of inno-
budget from his or her CEO, for whom this $100 million vation on firm value (e.g., Sorescu and Spanjol 2008).
represents an investment. The CMO allocates this budget to Analytics in the product innovation area has focused
traditional media, digital media, and sponsorships. The owners mainly on measuring consumer response to new product
of these three marketing groups make subsequent allocation offerings—in particular, using conjoint analysis. The internal
decisions for their respective (smaller) budgets, and so on. customer of such work is typically the product development
Setting aside prevailing accounting standards that generally group, which is a separate entity from marketing, with a
force these allocations to be expensed in the spending period, separate budget. As a result, the insights from one function are
any marketing investment decision becomes an allocation rarely incorporated in the other; for example, the results from
decision one level down in the hierarchy. conjoint analyses (used by the product development group) are
The deeper in the organizational hierarchy one goes, the typically not included in marketing-mix models (used by the
more tactical the allocation decisions become, and the more marketing group). The critical element of product appeal (e.g.,
junior the decision makers are. For example, the decision conjoint utility) may therefore be missing from demand models,
to advertise on channel 4 rather than channel 7 is tactical resulting in lower-quality sales forecasts.
relative to the higher-order decision to allocate 40% of the A powerful illustration of the strategic importance of in-
marketing budget to television advertising. At the same novation is in investor reactions to new product launches, as
time, the deeper one goes in the hierarchy, the more detailed measured by stock returns. Not only is investor reaction
the available databases are and, therefore, the more opportu- typically positive, despite the costs and the risk involved, but
nity for analytics-enhanced decision making. Such tactical it occurs well ahead of the typical diffusion pattern of the new
decisions lend themselves to continuous data collection and product. As an example, when Honda introduced the “sunken
decision automation, which is a decentralizing force in the third-row seat” innovation in its minivan, the Odyssey, the
organization (Bloom et al. 2014). However, analytics and innovation effect was fully absorbed in its stock price in
decision support systems should support the different decision- approximately 12 weeks, whereas the sales diffusion of the
making modes of optimizing (typical for very structured, product is much longer. One can surmise that investors realize
tactical marketing problems), reasoning, analogizing, and the financial value of such an innovation after the first few

weeks of positive consumer feedback and then assume that rules in marketing that may bias the results of statistical response
the marketing of the innovation will be well executed, so estimation) continues to pose major challenges, which are dis-
that the new product can reach its full market potential (Pauwels cussed in Rossi (2014). However, as marketing databases be-
et al. 2004). come more granular (monthly data intervals become weekly,
We recommend a broad definition of marketing in the daily, hourly, or even real time), the endogeneity challenge is
organization and a commensurate broad inclusion of business easier to handle because the response models become more
functions in the generation of demand models for marketing recursive in nature. In these higher-frequency databases, atten-
resource allocation. This task can be complex because data tion shifts to long-term impact measurement, in particular the
from a variety of sources need to be combined in an integrated testing for persistent effects, for which modern time-series
data and analytics platform. Importantly, such a platform can techniques are readily available (see Hanssens, Parsons, and
become the much-needed integrator of intelligence for senior Schultz 2001; Leeflang et al. 2009).
management decisions and, as such, a centralizing force in the Field experiments, by contrast, require customers and/
modern enterprise (Bloom et al. 2014). This means that the or managers to react to an intervention at the time of data
same strategic asset—the data and analytics platform—serves collection and allow for a direct comparison of treatment and
as both a centralizing (of intelligence) and a decentralizing control conditions, thereby removing concerns about endo-
(of execution) force, whereby both directions offer tangible geneity. Unfortunately, field experiments are often costly to
advantages to the firm. conduct, limited to changing only one or a few decision vari-
ables at a time, and require trust in the organization that dis-
appointing outcomes will not be held against the manager.
Methods and Findings About For example, managers and salespeople often object to being
Assessing Marketing Value part of the control group for a potentially impactful marketing
action. Even online, where experiments are relatively easy to
Marketing value measurement has both a methodological
implement, companies often refuse to do so (Ariely 2010).
and a knowledge component. We focus on these two here,
Finally, marketing experiments are run for a limited amount of
leaving the third component, communication of marketing
time and therefore are typically unable to detect long-term
value, to the next section.
effects of a particular marketing action. Exceptions include
longitudinal single-source field experiments (e.g., Lodish
Methods: Models, Surveys, and Experiments et al. 1995) and digital-marketing experiments in which,
Marketing impact can be assessed empirically in two ways: under the right circumstances, subjects can be tracked dig-
by modeling historical data (secondary data) and by running itally after the experiment has concluded in order to infer
surveys and experiments (primary data). Both methods have long-term effects.
their proponents and advantages; however, neither is typically The best insights on marketing value will come from the
sufficient by itself to convince decision makers of the value of combined use of secondary and primary data. Indeed, taken
marketing and to induce change in marketing decision making. together, models, surveys, and experiments provide the ben-
The use of historical data sources has benefited tremen- efits of highest decision impact at a moderate cost and risk. Yet
dously from improvements in consumer and marketing what is the best sequence? In our experience, a field experi-
databases and from developments in statistics (mainly ment on a strategic decision is perceived as too risky without a
econometrics) and computer science. On the data side, recent model or survey to justify the treatment proposal. For instance,
history has seen the emergence of scanner databases; customer furniture company Inofec (Wiesel, Arts, and Pauwels 2011)
relationship management databases; and digital search, social first had analysts run a response model based on historical data.
media, and mobile-marketing databases. On the modeling side, a After simulating potential scenarios based on the model output,
steady stream of econometric and computer science advances management decided to double spending on one marketing
has delivered the improvements in estimation methodology channel (paid search) and to halve it on the other (direct mail).
necessary to deal with these novel data (Hanssens 2014; Ilhan, In the ensuing field experiment, the treatment condition earned
Pauwels, and Kübler 2016; Murphy 2012). 14 times the net profit earned by the control condition.
Criticism of models estimated on historical data stems Modeling the data of the field experiment revealed that paid
mainly from their limitations in capturing “reasons why” (as search continued to yield high returns but that the reduced
shown in surveys) or causal connections (as shown in exper- direct-mail budget began to break even. As a result, the
imental manipulations). A survey may show that one consumer company further experimented with increasing paid search
visited the brand’s website for reasons of purchase interest, but kept direct mail at its new level.
whereas another visited to rationalize his or her choice for a In situations in which both approaches are feasible,
competing brand—information not obtainable from models we recommend the sequence of model, experiment, model,
estimated on historical data. experiment (MEME) to obtain the maximum impact of
In particular, the “two geneities” (heterogeneity and endo- analytics-driven decision making. At the same time, sur-
geneity) are challenging for marketing modelers. Heterogeneity veys and other methods should be used to provide insight
(i.e., differences in response to marketing among consumers) into the “why” and “how” of customer behavior. Further
has been addressed successfully thanks to simulated Bayes es- research should analyze whether the MEME sequence is
timators (for a comprehensive review, see Rossi, Allenby, and the most productive across situations, consider other possible
McCulloch 2005). Endogeneity (i.e., the existence of decision sequences, and establish boundary conditions. Regardless of

TABLE 2
A Comparison of Allocating and Investing Marketing Resources
Allocating Investing
Resources Budget is received from senior management Budget is created for junior management
Objectives Efficiency, accountability of resource use Stimulating profitable growth for the brand or firm
Use of analytics Detailed analysis of (typically) one marketing-mix Integration across the marketing mix
element
Key challenges/risks Exaggerated belief in the strategic importance of Large financial consequences
one’s own silo
Examples Media-mix allocations Product portfolio decisions across international
Dynamic pricing markets
the method used, a critical question for management is whether In academic research, empirical generalizations on sales
market conditions will have changed by the time the actual response functions provide valuable guidance for marketing
decision is made. The beliefs that change outpaces analytic spending (Hanssens 2015). Table 3 provides a quantitative
insights and that past patterns do not apply to the future hinder overview, expressed as sales or market value elasticity esti-
the use of marketing analytics in many organizations. mates. These relate directly to marketing spending rules by
virtue of the fact that, at optimality, a firm should allocate re-
Findings on Marketing Investments and Allocations sources in proportion to its response elasticities (Dorfman and
Previously, we discussed investments and allocations in Steiner 1954). Table 3 also indicates the extent to which the
terms of their relationship to strategy and tactics. Next, marketing variable is an organic growth driver (i.e., its impact
we discuss findings more broadly. Table 2 shows dif- on sales is sustained rather than temporary). This is an im-
ferences between allocation and investment decisions on portant distinction because it identifies the strategic nature of
several fronts. Managers and academics are keenly interested marketing activities. Although price promotions and adver-
in decision rules for both, as is evident from the fact that this tising for existing brands (which often consume the majority of
topic appears frequently among the biennial research priori- marketing’s budget and effort) are not major organic growth
ties disseminated by the Marketing Science Institute. drivers of company performance, marketing assets (e.g., cus-
Notably, most applications in marketing analytics (includ- tomer satisfaction, brand equity) and actions (e.g., distribution,
ing analytics exploiting big data) focus on the deep dive for innovation) have a strong impact on long-term company value.
tactical allocations (see Table 2). Insofar as these contributions In an example from the French market, Ataman, Van Heerde,
overemphasize areas in which good data are readily available, and Mela (2010) demonstrated across 70 brands in 25 con-
they run the risk of being bogged down in details and failing sumer product categories that only breadth of distribution (.61)
to see the forest for the trees. In contrast, when complete and length of product line (1.29) had strong long-term sales
marketing-mix data are used along with econometric methods elasticities. By contrast, long-term elasticities of advertising
for inferring long-term impact, marketing analytics can also be (.12) and sales promotion (–.04) were small or negative.
very helpful for strategic investment decisions and for quan- At this point, generalizations—expressed as response
tifying risk in such decisions (e.g., Leeflang et al. 2009). elasticities—exist for many quantifiable marketing inputs,
TABLE 3
Response Elasticities Summaries
Typical Organic Growth
Elasticity Range Drivers (1) Driver?
Advertising .1 0 to .3 Product newness, durables Minor

Sales calls .35 .27 to .54 Early life cycle, European markets Major
Distribution >1 .6 to 1.7 Brand concentration, high-revenue categories, Major
bulky items
Price -2.6 -2.5 to –5.4 Stockkeeping unit level versus brand level, sales Minor
versus market share, early life cycle, durables
Price promotion -3.6 -2 to –12 Storables versus perishables No
E-word of mouth Positive .24 (volume) Low trialability, private consumption, independent Possibly
.42 (valence) review sites, less competitive categories
Innovationa Positive N.A. Radical versus incremental innovations Major
Brand and customer .33 (brand) Major
assetsa .72 (customer)
aOn firm value.
Source: Hanssens (2015).
Notes: N.A. = not applicable.

along with expected ranges and distinctions between short- think and feel. Recent literature has demonstrated that includ-
term and long-term effects on sales. It is also apparent that ing such attitude (or “purchase funnel”) metrics in market re-
firms generally deviate from optimal (profit-maximizing) sponse models increases their predictive and diagnostic power
spending in the marketing mix (i.e., they either over- or (Hanssens et al. 2014; Pauwels, Erguncu, and Yildirim 2013;
underspend). However, because the spending objectives of a Srinivasan, Vanhuele, and Pauwels 2010). Furthermore, the
firm or brand at any point in time are typically not known to digital age has provided even more metrics of (prospective)
the researcher, this conclusion about apparent suboptimality customer behavior in customers’ online decision journey (Court
in spending remains tentative. One important conclusion that et al. 2009; Lecinski 2011). A key question is how to integrate
can be drawn from Table 3 is that marketing communications soft (attitude) and hard (behavior) metrics, both conceptually
(i.e., advertising and sales calls) have the lowest elasticities. and in empirical models (Marketing Science Institute 2014).
Their relatively flat response curves imply that they are un- A recent study by Pauwels and Van Ewijk (2013) ad-
likely to be the sole drivers of major performance change. dresses this question both conceptually and empirically for
However, when combined with one or more of the other 36 brands in 15 categories, including services, durables, and
marketing-mix elements, their impact can be substantial. For fast-moving consumer goods. They observe that survey-based
example, a recent study of high-level digital cameras dem- attitude metrics typically move more slowly (i.e., have a lower
onstrated that when a camera brand receives highly positive variance) than weekly sales, while online behavior metrics
reviews, advertising can have positive trend-setting effects move faster than weekly sales. Thus, attitudes and online
on brand sales (Hanssens, Wang, and Zhang 2016). During actions represent, respectively, slow and fast lanes on the
these fleeting windows of opportunity, the combination of road to purchase. Dynamic system models reveal dual cau-
high perceived product quality and advertising produces sality among survey-based attitudes and online actions, leading
long-lasting impact that neither driver can achieve by itself. to the framework in Figure 2.
Such findings illustrate that the timing and sequencing of Although this road-to-purchase framework is inspired by
marketing initiatives can be determining factors of their the classical Think–Feel–Do distinction, it recognizes that the
impact. digital age provides many more metrics regarding customer
Recent research has identified conditions in which the behavior, including online search, clicks, website visits, and
most value is generated, such as distribution in emerging (social media) expressions of consumption and (dis)sat-
countries (e.g., Pauwels, Erguncu, and Yildirim 2013), new isfaction. Online behavior does not simply reflect underlying
product launch during recessions (e.g., Talay, Pauwels, and attitudes (e.g., a known brand obtains higher click-through on
Seggie 2012), and owned (vs. paid online) media for lesser- its ads), it also shapes them. For instance, consumers shop-
known products and for services (Demirci et al. 2014). We ping for their next smartphone may begin with a few brands in
call for further research on these and other influential market mind but then discover new ones online through reviews,
conditions. (price) comparison sites, and social media, which increase their
Researchers should not only help companies identify their thoughts and feelings about those new brands (Court et al.
response functions but also derive where on the function 2009). This “zero moment of truth” (Lecinski 2011) of online
companies’ current spending lies. This enables firms to deter-
mine whether to allocate more or less to various marketing
activities than in previous years. Mantrala et al. (2007) demon- FIGURE 2
strate this for the publishing industry. An alternative approach Integrative Model of Attitudes and Actions on the
is to run marketing experiments to assess alternative levels of Consumer Road to Purchase
expenditure and different programs and their resulting impact.
This was done, for example, by the U.S. Navy to determine
optimal levels of recruiters and advertising support to reach its
manpower goals (Morey and McCann 1980). More recently,
the advent of the digital marketing era has allowed for a more
extended use of experimental designs to make advertising more
effective. This is achieved principally through an improved
understanding of the consumer journey (i.e., What are pros-
pects’ individual propensities to buy and how can they be
increased through various targeted marketing efforts?; see, e.g.,
Li and Kannan 2014).
Connecting and Integrating Soft Metrics and

Hard Metrics
Whereas finance practice is the domain of hard, monetary
performance metrics, marketing practice has traditionally been
the domain of soft, attitudinal metrics. The marketing literature
has discussed attitude metrics at least since Colley’s (1961)
work on the effect of advertising on how targeted customers Source: Pauwels and Van Ewijk (2013).

discovery now precedes consumers’ observing the brand at uncertainty about consumer, retailer, and competitive reactions
retail in the “first moment of truth” and consuming it in the and the timing of these responses (Pauwels 2014). Most studies
“second moment of truth.” that have examined the consequences of risk for marketing
Only a few studies to date have quantified the connection planning, execution, and results monitoring have performed
between soft and hard metrics in ways that managers can use. scenario analyses that contrast best and worst cases on the basis
Srinivasan, Vanhuele, and Pauwels (2010) analyze a large of estimated standard errors of response coefficients. Only one
number of consumer products and report strong cumulative academic article to date, by Albers (1998), has formalized
sales elasticities for advertising awareness (.29), consumer this process. After specifying the response functions dis-
consideration (.37), and consumer liking (.59). A recent cussed in the previous section, Albers decomposes the devi-
meta-analysis in digital marketing reveals that the sales elastici- ation between actual and predicted performance as (1) incorrect
ty of electronic word of mouth averages .42 for valence market response assumptions (planning variance), (2) devia-
(sentiment) and .24 for volume (You, Vadakkepatt, and Joshi tions of actual marketing actions from planned ones (execu-
2015). These elasticity results compare favorably with those tion variance), and (3) misanticipation of competitive reactions
in Table 3. (reaction variance). Each of these variances can be decomposed
Although recent studies have provided some guidance on further into the separate effects of single marketing instruments.
integrating soft metrics and online behavior into marketing
analytics, more research is needed to learn the best ways to Planning variance. Incorrect market response assump-
model the consumer decision journey and shed light on tions can stem from faulty predictions of market size (driven
whether there are models that are more appropriate than the by business cycle or other consumption trends that affect
decision funnel (Marketing Science Institute 2014, p. 4). The the entire sector) or market share (driven by brand-specific
findings are likely to be nuanced and to vary depending on actions such as advertising messaging or relative price).
the category (high involvement or low involvement) and Understanding the extent of deviation that results from each
existing brand strength (Demirci et al. 2014). This is an factor helps companies adjust future predictions and also
important agenda because attitudinal and transactional met- assign accountability to the proper party (industry forecasters
rics are not highly correlated, and thus brands run the risk on or brand managers). Although benchmarks exist for mar-
focusing on the wrong performance metric in conducting their keting effect size (see Table 3), the timing of marketing wear-
marketing valuations. in and wear-out effects remains uncertain in practice and is
relatively underresearched.
While early research (Little 1970) has suggested the pos-
Dealing with Risk sibility of wear-in times for marketing campaigns, empirical
Risk considerations have had little systematic coverage in mar- evidence has mainly covered sales effects of advertising, new
keting academia or practice. Studies of the relationship product introductions, and point-of-purchase actions. The peak
between marketing and firm value (the bottom box in Figure 1) sales effect of advertising occurs relatively quickly, typically
have discussed risk factors because they are critical in investor within two months (Pauwels 2004; Tellis 2004), and the wear-
valuation of assets or future income streams. Whereas the fi- in times for mindset metrics (e.g., awareness, liking, consid-
nance literature has focused mainly on systemic risk (i.e., risk eration) are just over two months (Srinivasan, Vanhuele, and
faced by all companies in the market), the marketing literature Pauwels 2010). In contrast, new product introductions typically
offers insights into idiosyncratic risk (i.e., risk tied to unique take several months or years to take off (Golder and Tellis
circumstances of the specific company). For example, Rao 1997). As can be expected, point-of-purchase actions work
and Bharadwaj (2008, 2016) demonstrate that effective mar- either immediately or not at all (Pauwels 2004), with price
keting not only generates future cash flows but also lowers promotions standing out as the most studied marketing action
the working capital that is required to accommodate different (Srinivasan et al. 2004). The effect of distribution changes
scenarios in the economic environment. These authors argue seems to take longer (2.1 months on average in Srinivasan,
convincingly that demonstrating the connection between mar- Vanhuele, and Pauwels [2010]). Further investigation of dis-
keting and firm value is essential if marketing is to be a tribution is important because distribution stands out as the
part of strategic planning in the enterprise. An empowered most impactful marketing action (Ataman, Van Heerde, and
CMO—defined as a proficient demand forecaster and Mela 2010; Bronnenberg, Mahajan, and Vanhonacker 2000).
marketing decision maker—is uniquely able to do this Finally, we know very little about the timing of ROIs in new
because of his or her “outside-in view” and knowledge (digital) media such as paid search, banner ads, and word-of-
about likely consumer response to different business ini- mouth referrals. Notable exceptions include DeHaan, Wiesel,
tiatives. Drawing on that knowledge, the CMO can project and Pauwels’s (2015) study of 11 online and 3 offline adver-
cash flows and required working capital (both of which tising forms for an online retailer and Trusov, Bucklin, and
drive firm value) under different economic scenarios and Pauwels’s (2009) report that wear-out times are substan-
then advise top management on the best course of action for tially higher for word-of-mouth referrals than for traditional
the firm’s shareholders. As such, marketing’s ability to man- marketing actions for a social networking site.
age business risk is an integral part of its value creation for Similarly, we know little about the impact and temporal
the firm. effects of marketing spending on brand and customer value, as
In practical terms, an empowered CMO needs to show- opposed to sales response. In modeling terms, marketing brand
case his or her ability to manage marketing-induced risk, given value effects are generally captured by state-space models with

Kalman filters (e.g., Naik, Prasad, and Sethi 2008) or by shown that lack of reaction is the dominant response, at least
Bayesian dynamic linear models (e.g., Ataman, Van Heerde, for advertising and price promotions (Steenkamp et al. 2005).
and Mela 2010). The idea is that insofar as marketing induces Even when there is a retaliatory competitive reaction, it typ-
purchases that yield satisfactory consumer associations ically decreases the sales benefit from price promotions across
with the brand, future purchases may occur without marketing fast-moving consumer goods categories by only 10% (Pauwels
support, thus increasing baseline demand for the brand. Like- 2007). Competitive response has a similarly small impact on
wise, marketing actions may decrease price sensitivity and the sales benefits of new product introductions, advertising, and
thus increase the price premium (Ataman et al. 2016). Other distribution activity (Pauwels 2004). Further research is needed
researchers have tracked the connection between marketing to determine the boundary condition of reaction size and var-
spending, customer acquisition, and the value these actions iance. If competitive response variance is high, the firm may
bring to the firm (Rust et al. 2004). Despite these methodo- want to start a “competitive intelligence” initiative.
logical developments, we do not yet have a strong empirical Beyond competitors, other market players (e.g., retailers)
knowledge base on how marketing creates brand and customer also influence the ROMI, as does the marketing organiza-
value over time. tion itself—for example, through decision rules that favor
Empirical generalizations on wear-in and wear-out effects repeating past successes (Dekimpe and Hanssens 1999). The
are necessary for managerial advice in cases in which data are marketing literature has focused thus far on estimating cus-
missing (Lehmann 2006). We need studies analyzing return tomer and competitor response to marketing actions, but
timing for investments in new media and new (emerging) much less so on the sector ecosystem response that includes
markets. Moreover, the timing of returns may systematically other players and the company’s own decision rules and
vary by medium and target audience, a possibility that should heuristics (Dekimpe and Hanssens 1999). A few notable
be taken into consideration when deciding on campaigns. exceptions include studies on retailer pricing showing, for
Considerable research is still required to determine the con- example, that retailers tend to increase a promoted price back
tribution of marketing spending to a brand’s value as well as to its regular level slowly rather than abruptly (Pauwels 2004;
when the firm realizes this value. Conversely, more research is Srinivasan et al. 2004; Tsiros and Hardesty 2010). Company
needed on the impact of cessation or reduction of marketing, decision rules/heuristics include the managerial tendency to
especially its long-term consequences. On that topic, Sloot, weigh past prices when setting future prices (Krishna, Mela,
Fok, and Verhoef (2006) find that assortment reductions lower and Urbany 2000). Managers should be aware of such ten-
category sales in the short run, but less so in the long run. dencies in their company’s decision making and investigate
Although Li and Kannan (2014) find virtually no short-term whether it is appropriate to continue such habits in the current
sales loss from stopping paid search for a well-known brand, market environment.
Kireyev, Pauwels, and Gupta (2016) show substantial long- The reaction of market players in offline environments has
term sales loss from reducing display and search ads for a been assessed by dynamic system modeling in data-rich envi-
lesser-known brand. Finally, Ailawadi, Lehmann, and Neslin ronments (e.g., Pauwels 2004) and by role playing in data-scarce
(2001) report that Procter & Gamble’s strategic decision to environments, such as one-shot negotiations (Armstrong 2001).
reduce price-promotional spending across 24 product cate- Further research is needed on the role of market player reac-
gories resulted in a drop in long-term market shares but a gain tions in worldwide competition in online environments. As for
in profitability. More research of this type will help the CMO research on the marketing–finance interface, more insights are
project the impact of alternative marketing plans. needed to assess whether investors react appropriately to mar-
keting actions and, thus, how valuable information about
Execution variance and reaction variance. Execution investor reaction is for marketing decision making.
variance is very important in practice but has had virtually no A key research priority is to go beyond documenting
research in academia (Albers 1998). Marketing executions reactions toward understanding the impact of that reaction
often stray from their plan because of third-party factors (e.g., on the ROI of the initiating action. For marketing-mix actions,
the ad agency did not place billboards in time because local is it really the case that the majority of the net sales impact
regulations and insufficient temporary employees) or for in- derives not from customer reaction but from support from
ternal reasons, such as lower-level managers reacting more other marketing actions (Pauwels 2004)? For strategic mar-
strongly to competitive moves than necessary (Holtrop et al. keting actions, how does one assess likely competitive reac-
2015). Albers (1998) provides the illustrative example of a tion in deciding on location, product quality, and regular price
product manager decreasing the price more than planned and level?
switching the allocation away from distribution to adver- In conclusion, when marketing plans do not materialize
tising. Because such occurrences are widespread, execution as anticipated, the reasons can be various, as formalized by
variance and its consequences require further academic Albers (1998). Only when an organization can identify the
research. reasons that apply to its own history can it take the right
In contrast, academic research on competitive reaction is corrective actions. Risk analysis in marketing planning
plentiful, including research on its nature (aggressive, accom- is more important to organizations than the paucity of prior
modating, or neutral), its speed, and its absence as a result of research suggests and, as such, it is one of the most promis-
competitors’ unawareness or inability to react (Chen 1996). ing areas for further research. This is especially important
Notably, managers often overestimate the incidence of com- if marketing is to become an integral part of strategic and
petitive reaction (e.g., Holtrop et al. 2015) because research has financial planning.

Communicating Marketing Value analytics or dashboard input. Then, decision makers need to
judge the extent to which unique circumstances require some
Within the Organization of the model outputs to be adjusted. Cross-functional input
After defining and measuring marketing value, it is important is paramount in this exercise, and there needs to be a sense
to properly communicate this value within the organization. of internal ownership of the analytics platform across the
This creates closed-loop learning (see the feedback loops in business functions. Finally, business objectives need to be
Figure 1), which both justifies future marketing activities and tied to resource allocations. Corstjens and Merrihue (2003)
examines them for increased effectiveness and/or efficiency. give the example of global marketing resource allocation
Internally communicating the value of marketing requires at Samsung: when a model-inspired reduction in marketing
(1) communicating multiple objectives in marketing dash- budget for product category Z in country X was enacted, the
boards, (2) adapting communication to the style of the deci- sales quota for the manager in charge of ZX was lowered as
sion maker, and (3) adapting communication to the marketing well, and vice versa for marketing spending increases. Such
organization. coordinated actions help create a culture in which managers
view models and dashboards as their friends, not their nem-
Communicating Multiple Objectives in eses. Automation of marketing decisions is likely to in-
Marketing Dashboards crease for tactical decisions in stable markets, but less so
In addition to their stated objectives, decision makers also for strategic decisions, such as choosing new organic growth
have personal objectives such as retaining their jobs and options, setting the rules for automation, and reacting to
growing their career prospects. The use of marketing ana- unexpected changes in turbulent markets (Bucklin, Lehmann,
lytics is often impeded by a perception that analytics compete and Little 1998).
with people in the organization. Some managers may be To combine the best of model-based and human-based
fearful that the spread of analytics in decision making will strengths, researchers have proposed the use of an analytic
eventually make them redundant in the organization. This marketing dashboard (Pauwels et al. 2009). Like the dash-
need not be the case, as people and data (including models) board of a car, a marketing analytics dashboard brings the
have distinct competencies and weaknesses (e.g., Blattberg main multiple objectives and their metrics into a single display.
and Hoch 1990), which we summarize in Table 4. It provides “a concise set of interconnected performance
Managers tend to excel at diagnosing new situations on drivers to be viewed in common throughout the organization”
the basis of their experience and integrating a variety of cues, (Pauwels 2014, p. 7). Figure 3 shows the dashboard that Inofec
especially so-called “broken-leg cues” (unusual situations managers used to project the expected profits expected from
that may not have prior history but are intuitively known changes to price discounts and to offline and online mar-
to be important). However, human decision makers are also keting communication, which created the organizational
subjective in their judgment and tend to rush to a decision buy-in to run experiments demonstrating actual profit hikes
overconfidently, without properly accounting for uncertainty (Wiesel, Arts, and Pauwels 2011).
and risk. These weaknesses are well addressed by models, Such communication tools make it possible to integrate
which account for uncertainty and weigh different cues on the diverse business activities (some of them qualitative) with
basis of past data and “optimal” rules. However, the rules performance outcomes. This helps managers in at least five
may be too rigid for a new situation, and the output of a model ways (Pauwels 2014). First, a dashboard enforces con-
inevitably depends on human inputs, which the model is not sistency in measures and measurement procedures across
designed to question. departments and business units. For example, Avaya pro-
Given those strengths and weaknesses, organizations vides business communication solutions in over 50 coun-
should design decision support systems that take advantage tries and diverse markets, with varying marketing tactics.
of the distinctive competencies of managers while using tech- Before the dashboard project, the company had no com-
nology to compensate for managers’ inherent weaknesses. monality of systems around the globe, it used different
For example, after a firm’s business goals for the next definitions of what constituted a “qualified lead” (a key
quarter or year are set, marketing planning should start with performance metric in the handoff from marketing to sales
for business-to-business companies), and there was a lack of
regional interest in gathering metrics.
TABLE 4 Second, a dashboard helps monitor performance. Mon-
Advice for Communication in Analytic and itoring may be both evaluative (who or what performed
Intuitive Companies well?) and developmental (what have we learned?). Google
Analytic Decision Intuitive Decision
provides a good example: dashboard metrics are early indi-
Making Making cators of performance, and if a dip occurs in, for example,
the trust-and-privacy metric, the company takes corrective
Present estimates Visualize effectiveness action.
Discuss assumptions Focus on main insights Third, a dashboard may be used to plan goals and strat-
Optimize allocation Adjust allocation egies. For example, TD Ameritrade’s corporate scorecards,
Optimize budget Adjust budget developed by the strategic planning department, led to a
Examples: Procter & Examples: Campbell’s,
Gamble, Allstate Inofec dashboard that plugs into the planning cycle and is tied to
quarterly compensation.

FIGURE 3
Marketing Analytic Dashboard for Inofec
Source: Pauwels (2014).
Fourth, a dashboard may be used to communicate to language as influential executives. Marketing analytics
important stakeholders. The dashboard communicates not customers strongly differ in their decision-making lan-
only performance but also, through the choice of metrics, the guage, with some companies favoring a more analytic style
things an organization values. Vanguard’s dashboard, for ex- and others using a more intuitive style. We recommend
ample, enabled it to share with its corporate board its focus communicating marketing analytics according to the com-
on customer loyalty, feedback, and word of mouth. pany’s style.
Finally, a dashboard offers a good starting point for im- When decision makers have a more analytical style,
portant discussions, such as when management sets stretch presenting estimates and elasticities straight from the ana-
targets without providing additional resources. For instance, lytics helps them understand exactly what is going on and
the U.S. division of an automotive company was instructed how decision optimality is affected—for example, when
to increase profits despite longer innovation cycles and lower deciding how to allocate marketing budgets by drawing on
advertising budgets. Analytics and dashboard tools helped their relative elasticities. Even in such cases, though, it is best
the division present what-if scenarios and make its case to to provide the proper context—for example, by comparing
headquarters that trade-offs were necessary by quantifying the effects that television advertising elasticities and online
the relation between marketing actions and profits. advertising elasticities have on online performance metrics,
Dashboards also allow for more effective communication as Figure 4 shows.
with marketing partners, especially as companies move to Decision makers with a more analytical style require more
performance-based compensation of agency work. As the information on the analytics assumptions and the uncertainty
sales impact of performance metrics may differ across countries, around the performance projections. Academic researchers are
managers should use dashboard insights to set specific typically well versed in such explanations. In contrast, decision
metric targets (Pauwels, Erguncu, and Yildirim 2013). In makers with a more intuitive decision style may be averse to
the case of the U.S. division of the aforementioned auto- discussions on confidence intervals, functional form, and error
motive company, brand consideration was a more important distribution assumptions. Communicating analytics insights
performance metric in an emerging market, while brand liking in such environments requires more visualization, such as the
was more important in a mature market. Further research is heat map of the projected profit consequences of changes to
needed to generate empirical generalizations and boundary marketing actions shown in Figure 5.
conditions in this regard. Figure 5 shows the highest profit (8.51; units disguised)
as a specific combination of price ($45) and advertising
budget ($3.25 million) but also communicates how close
Adapting Communication to the Style of the other combinations are to this maximum projected profit. For
Decision Maker instance, at a current price level of $35, the decision maker
In their review of ISMS-MSI Practice Prize finalists, Lilien, may feel uncomfortable with prices over $40, perhaps fear-
Roberts, and Shankar (2013) detail the characteristics of success- ing a customer backlash not included as a model variable.
ful marketing science applications. They advocate estimat- The decision maker can look up the highest possible profit
ing simple, easy-to-use models and obtaining organizational and associated marketing actions for prices below $40. After
buy-in through, among other things, speaking the same adjusting the price in this model-suggested direction, more

FIGURE 4
Comparison of Television and Online Marketing Elasticities on Online Performance Metrics
Source: Pauwels and Van Ewijk (2013).
data and insights will then be available for recalibration profit of 7.79) but also a quantitative argument for why profits
of analytics and intuition. Alternatively, the decision maker can be increased (up to) 9% if the advertising budget is increased
might decide to allocate only the $2 million communica- toward its optimal level. As such, the heat map enables deci-
tion budget provided by his or her superior, the investor (see sion makers to tweak model-derived optimal allocations, which
Table 1). The heat map provides the decision maker with not provides a level of decision comfort. Decision comfort has been
only the best outcome under the given budget (a projected shown to be an important contributor to managers’ willingness
FIGURE 5
Profit Heat Map of the Interaction of Price and Advertising
Source: Pauwels (2014).

to adopt analytics in decision making (Parker, Lehmann, and and significantly enhance the communication of analytical
Xie 2016). results to an audience of decision makers who are not ana-
As for the danger of analytics users misunderstanding lytically oriented. Marketing educators can help bridge
the model’s assumptions, note that the heat map in Figure 5 this gap by integrating the assessment and the communication
restricts the decision maker’s range of potential price and of marketing value in their teaching. The current growth in
advertising levels. Contacts at the company preferred this marketing and business analytics programs offers a clear op-
restriction on the range of the past data rather than show in- portunity in this regard.
creasing confidence intervals as users consider options far- We offer a brief review of what is currently known about
ther away from the mean(s) of past marketing level(s). The metrics, models, and communication, along with suggestions
contacts felt that although the latter might be appropriate for for specific avenues for further research. First, we know that
decisions makers with an analytical style and background, it market orientation and the use of marketing metrics improve
would confuse other decision makers to the point that they marketing performance, but we do not yet know how this
might not trust or use the model. marketing performance (as opposed to marketing commu-
Empirical studies have shown that intuition may be better nication) drives the scope of marketing in the organization.
than analysis in certain conditions—for example, for novices Second, we have rules for optimizing profits and sales, but
under time pressure to make complex decisions (Wierenga not for weighting different marketing objectives. Third, we
2011). Further research is needed to specify such conditions know how to measure effectiveness and efficiency, but not the
for marketing decisions and to show how intuition and conditions under which each is most appropriately pursued,
analysis interact. nor do we know when it is best to use automated marketing
programs (which focus on efficiency). Fourth, empirical gene-
Adapting Communication to the Marketing ralizations regarding response elasticities enable us to optimize
Organization marketing allocations in the short run, but not yet to quantify
Beyond decision-making styles, the structure and organ- marketing synergies for organic growth, nor to identify
ization of the marketing team matters in communication which conditions favor top-down allocations and which favor
about marketing analytics. At least one analyst should be bottom-up allocations.
included in a decision-making team. During discussions Fifth, we know a lot about marketing elasticities on hard
about, for example, increasing spending on a marketing performance metrics but know little about how marketing
action, the analyst could remind others that it has a small affects soft performance metrics and how these relate to hard
sales elasticity. Such early inclusion of analytics insights performance under different conditions. Still unknown is
may reduce decision makers’ resistance to model-based whether the complicated relation between soft performance
objections to proposals in which they are emotionally invested; metrics and sales is better characterized by strong average
moreover, it may help companies guard against the tendency effects with large confidence intervals (high elasticity with
of decision makers to cherry-pick the data and models high noise) or by small average effects with tight confidence
that generate results supporting a priori beliefs (Soyer and intervals (low, precise elasticity). Furthermore, we need
Hogarth 2015). An example at a high strategic level is the to detect and explain outlier brands that buck the average
appointment of an algorithm to the board of directors of a relationship among metrics (Ailawadi and Van Heerde 2015).
venture capital company (Wile 2014). In this way, analytics Sixth, risk has been decomposed in terms of performance
has an independent vote in deciding which new venture variance but is not yet quantified in the timing of these
proposals to fund and can break the tie when the human performance returns. Moreover, we are limited in the advice
voters are split. we can provide on the risk of stopping marketing activities
and optimal competitive reaction. Finally, we know several
generalities about communicating marketing value (e.g., visu-
Conclusions alizations), but we have little insight into success factors
The multidimensional nature of marketing is expressed in for different communication methods and for intuitive and
a variety of performance metrics—attitudinal, behavioral, analytical decision making.
and financial—that turn out to be weakly interrelated. This Our overall conclusions are as follows. First, marketing
makes it difficult to assess marketing’s value and often re- value assessment is essential if marketing as a discipline wants
sults in skepticism about marketing’s contributions and a to exert an influence at the highest levels of the organization.
reduction in the role of marketing at senior levels of decision Its influence will also determine the scope of its role in the
making. As the digital age marches on, new marketing ap- organization, which could range from tactical execution of
plications are created (e.g., mobile targeting), which may advertising and promotion policies to being a fundamental
enable marketing to occupy an increasingly tactical function driver of organic growth.
in organizations. Second, significant advances in data quality and quantity,
This has led us to study marketing value assessment from along with new analytical methods, have served marketing
three perspectives: metrics, models, and communication. Fol- value assessment well both in academia and in industry. Most
lowing the chain of marketing productivity (Figure 1), we of these advances have occurred at the tactical level. In
postulate that successful marketing value assessment needs to particular, digitization allows for a much improved under-
reconcile the different performance metrics that are available, standing of the connection between soft (attitudinal) and hard
combine historical data analysis with marketing experiments, (transactional) metrics.

Third, marketing analytics technology has been used mainly Finally, to better serve the strategic aspect of marketing,
for resource allocation decisions, not investment decisions. which is the key interest of senior management in the orga-
Media mix and digital attribution models, for example, are nization, databases will need to be better integrated across
widely accepted and used. This evolution pushes market- the elements of the marketing mix, broadly defined. This
ing practice in an automated, programmatic direction, not presents an opportunity for providers of enterprise resource-
unlike the automated trading of securities on Wall Street. It planning solutions: by including customer and marketing data
also necessitates the use of visualization methods to suc- in their systems, they can provide a unified data platform that
cessfully communicate the complexities of marketing value will allow for a cross-functional view of marketing and the
creation. value of marketing in the organization.
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Dominique M. Hanssens & Koen H.

Demonstrating the Value of Marketing

M the gap between the promise and the practice of effect

© 2016, American Marketing Association Journal of Marketing: AMA/MSI Special Issue

Source: Rust et al. (2004).

174 / Journal of Marketing: AMA/MSI Special Issue, November 2016

Demonstrating the Value of Marketing / 175

Source: Katsikeas et al. (2016).

176 / Journal of Marketing: AMA/MSI Special Issue, November 2016

Demonstrating the Value of Marketing / 177

178 / Journal of Marketing: AMA/MSI Special Issue, November 2016

Demonstrating the Value of Marketing / 179

Advertising .1 0 to .3 Product newness, durables Minor

180 / Journal of Marketing: AMA/MSI Special Issue, November 2016

Connecting and Integrating Soft Metrics and

Demonstrating the Value of Marketing / 181

182 / Journal of Marketing: AMA/MSI Special Issue, November 2016

Demonstrating the Value of Marketing / 183

184 / Journal of Marketing: AMA/MSI Special Issue, November 2016

Source: Pauwels (2014).

Demonstrating the Value of Marketing / 185

Source: Pauwels and Van Ewijk (2013).

Source: Pauwels (2014).

186 / Journal of Marketing: AMA/MSI Special Issue, November 2016

Demonstrating the Value of Marketing / 187

188 / Journal of Marketing: AMA/MSI Special Issue, November 2016

Demonstrating the Value of Marketing / 189

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