- How did Starbucks revolutionise their marketing efforts by creating a gold-star rewards programme?
- What are the 11 marketing metrics that you can use to get your “Starting XI” playing as a team?
- And why bother with all of them when ROI is A-OK for plenty of ordinary businesses?
This is Zonal Marketing – a series which explores how innovative brands have shaken up their industries with extraordinary marketing.
I’m Simon Vincent – the X-CMO – and in this episode I’m examining marketing KPIs, or Key Performance Indicators. These are the metrics that successful companies use to ensure the marketing work they’re doing is effective and efficient.
I’ll look at how Starbucks’ Rewards programme helps them track their numbers at every part of the customer journey, giving them a competitive advantage.
And finally, I’ll be outlining the 11 marketing metrics that are worth every single company monitoring, and helping you apply them to your business.
IS ROI A-OK?
In my 20-year career, I’ve had a lot of clients tell me that what they want me to do as their External Chief Marketing Officer is to drive more sales. And that’s not a ridiculous thing to ask. After all, making sales is like scoring goals for a football team; if you don’t do it, you’re not going to win very many matches.
But looking at the number of sales alone can be problematic. After all, one way I might increase sales is by putting out a promo that heavily discounts the price and that might not generate the money your company needs to survive. And so we track Revenue too. But while you might think it sounds good if I say I’ve made you £100, if we have no idea of your company outgoings, we’re still pretty much in the dark.
As such, the next step is to look at ROI. This is the amount of revenue generated, divided by the amount invested. So, using my above example, if I now tell you, you spent £50 on your marketing to make that £100, you have an ROI of 2:1. That’s a bit better. If you spent £200 to make that £100… not so much.
OK, so we’ve established the simplest metrics you need to cover. But what happens if you stop spending any money on your marketing and the next day 20% of your customers decide to buy again? Now what’s the ROI on the marketing you did? How many sales do I, as your marketing resource, take credit for? Do you allocate this additional 20% to the efforts I put in – raising awareness, building trust and creating an intuitive, enjoyable sales experience – or to the quality of your product? Or to simply being the only provider your customer has access to when trying to fix a particular problem they have?
What if that same 20% of customers buy again the next day? And again? And again? What if they tell their friends and their friends become customers. At what point do we stop attributing sales, revenue and ROI to the original marketing efforts?
And what about the 80% of the initial customers that HAVEN’T bought from you again? Do we know why they haven’t returned? Was it your product or was it something about the initial sales and marketing process? Maybe they liked the initial purchase experience but simply forgot about you afterwards.
If we continue attributing credit to the original marketing campaign for the 20% of your customers and their friends that are making multiple purchases, the ROI on that initial marketing campaign for each of those customers is now incredible. You’re probably on a 5, 10 or 15-to-one Return on Investment for those high-quality, loyal, brand advocate customers.
In comparison, the 2:1 ROI you got on the 80% of low-quality, single-purchase customers is actually now starting to feel pretty expensive.
You see, the problem is that this one, simple selection of sales metrics doesn’t tell half the story. Maybe it doesn’t even tell a fraction of the story. This is why the typical sales funnel model is broken; because it places too much of an emphasis on one part of the funnel – the sale – and places almost no value on the rest of the customer journey.
Extraordinary marketers, however, understand that their profession is a mixture of attacking (securing transactions) and defending – building a tribe of loyal customers and custodians (some of whom may not have the means or inclination to buy from you right now, but who nevertheless add value to your business).
Like a football team, you can adjust your tactical approach to be more attacking or more defensive depending on the situation you find yourself in but the only way you will be successful long term is to have a plan for both sides of the game and to be able to measure the success of both even when the numbers aren’t as clear as goals scored and sales made.
GOLD STAR METRICS
In the early 2000s, Starbucks had a relatively successful marketing model. Lots of people bought coffee in Starbucks shops – they reached the bottom of the sales funnel – and that meant the company had lots of spare cash to grow.
However, the company didn’t really know their customers or their purchasing habits. They knew the top-level sales, revenue and ROI numbers but not how many of those customers came back time after time. Let alone what each individual customer specifically liked or which ones introduced the brand to their friends. And that’s not unusual; most shops don’t know these things. And nor do many of them care. As long as the top-level figures are fine, the marketing must be working. That’s how things ordinarily work, right?
Well, Starbucks didn’t want to be ordinary. They wanted to be extraordinary and, in 2008, they launched their rewards programme. Initially, it was a simple punch card – the type I still have for three or four of their rivals. And that was a good way of incentivising and tracking multiple purchases.
But the company realised there were opportunities to take this loyalty card mechanism further and, in 2009, the mobile app was launched. This allowed the company to go further. Now, not only was Starbucks able to build transactional loyalty (through multiple purchases) but also tribal loyalty through REWARDS such as giving away free coffees on customer’s birthdays. Think about it. Sure, I’m happy to be given a free coffee once I’ve earned it – transactional – but imagine the loyalty I would feel – how much a part of their tribe I would be – if they gifted me one out of the blue.
Even better, the app allowed customers to gift “stars” to friends, increasing advocacy and building awareness of the product. In fact, in 2016, one member saved seventeen thousand stars and gave away more than 100 drinks to military personnel in the Washington area.
But the company goes one step further; Starbucks has used data taken from the app to pioneer digital menu boards in their physical locations. This allows them to show a dynamic menu based on customer demand, varying with regional preferences and times of day. This is not only a great user experience but it also helps sales.
In summary, the rewards scheme has helped Starbucks in a number of ways.
Since April 2019, American members have redeemed one-hundred-and-seventy-five million free rewards. That drives awareness and consideration.
But it hasn’t impacted the bottom line negatively. As of October 2020, the Starbucks rewards programme has 19.3 million members and generates nearly 50% of their revenue.
More than that, personalised offers have meant the company has seen a 3X increase in revenue and now sends out fifteen million personalised offers per week. That drives real, tribal loyalty.
And that loyalty paid off when the Covid-19 pandemic hit in March 2020 and stores were forced to shut. The company was able to pivot to in-store pick up (partly supported by use of the app). And the loyalty felt by customers to the brand ensured that, although they reported a 25% reduction in transactions during the fourth quarter of 2020, they increased the average revenue from each sale by 21%.
Long story short – the Starbucks rewards mobile app supports their marketing at every single level of the customer journey and is almost definitely the main reason they’ve continued their incredible growth and solid market position in the last decade.
11 KPIS FOR YOUR STARTING XI
How can we apply the lessons taken from this Starbucks example to our own marketing?
The first thing to make clear is that there are five stages to the customer journey – not the three that the sales funnel outlines: Awareness, Consideration, Purchase, Loyalty and Advocacy. And while advocacy may serve a similar function to awareness, it’s important to separate them out as Awareness can be bought – Advocacy must be earned. Thus, our approach to building them has to be different.
Not all of the above have a direct impact on the bottom line and, as such, it’s important that we find other ways of analysing their performance. It’s like a football team. If you only assess its success by who scores goals and how many of them, you’ll put disproportionate amount of focus on the strikers.
To truly understand how well a team is playing you need to know how many goals they concede and a myriad of other metrics that contribute to the attacking and defending effort.
Well, in marketing, I’ve broken it down to 11 metrics that I use to measure effectiveness across the whole customer journey. I measure these on a channel-by-channel basis, with each channel given one-to-three primary responsibilities.
Let’s break it down by stages.
Awareness-building channels are like defensive midfielders, principally tasked with intercepting, tackling and harrying – essentially just being disruptive – in a quest to win the ball back. These channels’ efforts should be measured with two metrics – Impressions and Reach. These are, how many times your message was seen (impressions) and by how many people (reach). Note, the two won’t be the same if one person sees a message twice.
OK, your defensive midfield channel has won your customers’ attention. Now he needs to hand off to an attacking midfielder who will progress the ball forward, essentially trying to create a chance for a striker.
These channels should be measured by the quantity and quality of the chances they provide to your sales channels and, as such, I measure transactional engagement metrics i.e. those which guide the customer closer to the goal of the sale.
From a quantity point of view I look at things like number of clicks to a website or footfall to a shop generated by a piece of marketing. From a quality point of view, I measure the conversion rate at the sales channel. After all, it’s all well and good measuring how many crosses a player puts into the box, but we can usually know something about how good the crosses are by assessing how many of them are put away.
From a sales point of view, I look at number of conversions, revenue and return on investment, which were covered pretty comprehensively at the top. However, I should draw your attention to the fact that I talk about conversions rather than sales. Sometimes the aim of a campaign is to create sign-ups to a database or build followers on a social channel. These are a legitimate end point in and of themselves.
Looking at conversions allows me to measure success across all my channels, not just the strikers. After all, I would typically associate social media with being an Audience channel but building followers or subscribers on those channels helps build tribe and ultimately support company growth.
From a loyalty perspective, I look at churn rate first and foremost. After all, an Audience channel’s first job is to stop you losing customers, much as a defender’s primary job is to stop the team conceding goals. This works particularly well if you have a subscription or retainer-based product or service.
For companies that don’t, for whom their customers expect to buy without any longer-term commitment, I use Average Lifetime Value. This measures how many times customers keep coming back and helps assess a more realistic return on investment for many companies.
I should mention that these are not perfect metrics. After all, loyalty is a feeling – something tribal – and not a transactional metric. However, we can get clues about how loyal a customer is through the third metric that I use for Loyalty – but also for Advocacy – and that is Customer Satisfaction.
In his book ‘Data Driven Marketing’, Mark Jeffery calls this the ‘golden metric’. Essentially the way you track it is through surveying your customer after a purchase or customer service interaction and asking them ‘how would they rate their level of satisfaction with their experience’ and ‘how likely would they be to recommend to a friend’. It’s calculated as a percentage of positive marks out of total number of people asked and an average of 75-80% is considered good.
Author Don Peppers sums up the importance of this metric in business terms when he says; “If you have a valuable customer who calls you with a complaint and you don’t do a good job of handling that complaint – [perhaps] the customer slams down the phone angrier than he was at the beginning of the call – your company just lost some of its value.”
He continues, “[This is] because the value of your company is a function of your expected future cash flow. And your expected future cash flow has just declined.”
Finally, to measure advocacy, I look at tribal engagements, i.e. ones that provide signals to fellow customers or potential customers, rather than those that lead the initial audience member to another brand-owned channel. So, metrics like social ‘likes’, comments, shares and reviews are all relevant here. And setting up a campaign that empowers your customers to advocate on your behalf such a referral programme is a great way of doing this. Think of this like playing the ball to an attacking full back, widening your reach and increasing sales intention at the same time.
I should mention that the inspiration for these core metrics came from the book ‘Data Driven Marketing’ by Mark Jeffery; the book Jeff Bezos gives all of his C-Suite to read before taking a job at Amazon.
In Summary: All of my metrics – along with their part in the Customer Journey – are below:
– For Awareness: Impressions + Reach
– For Consideration: Transactional Engagements + Assisted Conversion Rate
– For Sales: Revenue + Conversions + ROI
– For Loyalty: Average Lifetime Value + Churn + Customer Satisfaction
– For Advocacy: Tribal Engagements + Customer Satisfaction (again!)
