The Value Of Any Metric

There are any number of marketing metrics which can be used. An obvious question is therefore, which metrics should we bother to calculate? This is a tough question. One popular approach which we describe in our new, 3rd, edition of Marketing Metrics involves assessing the value of perfect information. This is a hypothetical benchmark, you estimate what you would achieve if you were perfectly informed. For example, if you knew everything about what your customers want then what level of sales could you achieve and how much profit would this create?

Once you have this estimate of the profits with perfect information you can compare this amount to what you are currently gaining. What does this tell you? It tells you the maximum amount you should be willing to pay to gain perfect information. Of course no metric is ever perfect so the difference between perfect information and now isn’t what you in reality will be willing to spend on developing metrics but is “… an upper bound on the value of any information that the firm can collect. In the real world the value of any imperfect information the firm can collect must be less than this upper bound.” (Bendle, Farris, Pfeifer and Reibstein, 2015, page 394).

Obviously managers may have problems accurately estimating what they could gain with perfect information. As such we provide a quick guide to situations when information will have more value (page 395) .

A key point is that the value of information, and thus any metric that provides information, depends upon the precise situation at hand. Don’t just seek information, i.e., calculate metrics, for the sake of it. How much effort and expense you should put into metrics depends upon the value of the information that can be gained.

Read: Marketing Metrics: The Manager’s Guide to Measuring Marketing Performance, Third Edition,  (2015) Neil T. Bendle, Paul W. Farris, Phillip E. Pfeifer, and David J. Reibstein, Pearson.