What is important to our customers? is the key question organizations should keep asking themselves to stay relevant and to better allocate their resources. Traditionally, market researchers relied on interviews, focus groups and surveys to uncover the ABCs (attributes, benefits, and claims) of customer needs and wants, and their perception of brands on these ABCs. Based on such research, the advice is to close gaps between the current customer perception of brand ABCs and where brand managers want them to be. However, how do we know that improving the ABCs will induce customer behavior? We investigate this in our Journal of Advertising Research paper “Metrics That Matter – Identifying the Importance of Consumer Wants and Needs.”
“Fooled by association” is the standard risk in assuming ABCs are ‘metrics that matter’, in that they lead performance. Ideally, controlled experiments would establish such causality in the field i.e. changing product, price or communication for one, but not for a similar customer geographic, and then observing the difference. However, such experiments are costly and often seen as too risky by stakeholders. A more accessible tool is to show in past data that marketing changes lead, i.e. came before performance changes, controlling for everything else (eg seasonality, environment and competitor actions). Across product categories and countries, we quantify the importance of such leading KPIs through the vector autoregression (VAR) models that gained Christopher Sims the 2011 Nobel Prize in Economics.
What are metrics that matter (MTMs)? MTMs are KPIs that have been empirically demonstrated to drive sales and/share over an explicitly defined time period within a real world competitive landscape. Unlike short-term marketing mix modeling, VAR technology is able to quantify long-term effects between consumer opinions and the impact they have on demand.
The relationship among different MTMs, as depicted by VAR analysis, can be visualized through the Diamond Model. This is a base model of brand health with five key facets (awareness, attribution, attachment, accrual, and action). In the below figure, the arrows point from one attribute to another in the causal direction that brand health is created and/or diminished.
What does this all mean for my business? We analyzed five products belonging to four different product categories – health and beauty, food, snack, and over the counter (OTC) drugs. We were able to extract key MTMs, which the brands used to improve sales and market share.
Many decision-makers use KPI and MTM interchangeably for identifying “important” areas where a company intends to focus its business efforts. We, however, showed that all MTMs are KPIs, but not all KPIs are MTMs. Many so-called KPIs change only at the same time, or even lag performance. Examples range from brand love in marketing to donations in political elections. Of course, nothing is certain, and strategy and execution will always involve risk and uncertainty. However, we can distinguish metrics that lead vs lag by employing VAR modeling. The above insights were implemented by the brands in new initiative aimed at improving MTMs though both product innovation (taste), price (value for money) and marketing communication (family pleasing). These data-driven actions gave the brands a short-term competitive advantage and a long-term process for updating their insights on what matters most to their customers.