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Journal of Marketing Management

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Marketing Performance Measures: History and Interrelationships

Bruce H. Clark Available online: 01 Feb 2010

To cite this article: Bruce H. Clark (1999): Marketing Performance Measures: History and Interrelationships, Journal of Marketing Management, 15:8, 711-732 To link to this article: http://dx.doi.org/10.1362/026725799784772594

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Journal of Marketing Management 1999, 15, 711-732

Bruce H. ClarkI

Marketing Performance Measures: History and Interrelationships

This article reviews the history of measuring the peifonnance of marketing in the fimJ, organised around three themes: the movement from financial to nonfinancial output measures, the expansion from measuring only marketing outputs to measuring marketing inputs as well, and the evolution from unidimensional to multidimensional measures of peifonnance. Evaluation of this history suggests a need for the marketing community to develop a set of measures small enough to be manageable but large enough to be comprehensive. The paper examines the interrelationships among four important measures and suggests research issues and approaches to aid in UJistask.

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Northeastern University

Introduction Measuring marketing perfom1ance is attracting academic and managerial attention with an urgency and scope previously unprecedented in the field's history. This represents the convergence of four trends. First after a decade of downsizing, major corporations are reaching the point of diminishing retums on increasing profits by reducing headcount and increasing operational efficiency. This has led to a refocusing on marketing as a driver of future sales, and therefore profit growth (Sheth and Sisodia 1995). Second, there has been increasing demand from investors for infonnation related to the quality of the marketing effort which traditionally has been both under- and poorly reported in finn financial statements (Mavrinac and Siesfeld 1997; Haigh 1998). Third, popular new overall conceptions of business perfonnance measurement such as the Balanced Scorecard (Kaplan and Norton 1992) have attracted attention to the issue of which marketing measures should be included in overall assessments of business perfonnance. Finally, senior marketing managers themselves have become fmstrated with traditional perfom1ance measures that they believe, undervalue what they do, leading to calls for research from a variety of quarters (e.g.Marketing Science Institute 1998). The purpose of this paper is to layout the history of marketing perfom1ance measurement at a very broad level, and to suggest that what marketing as a field
1 Correspondence: Bruce Clark, Assistant Professor, Marketing Group, 202 Hayden Hall, Northeastern University, Boston, MA 02115 USA, Phone: 1-617-373-4783, FAX: 1-617373-8366, e-mail: bclark@cba.neu.edu

ISSN0267-257X/99/080711 +21 $12.00/0

Westbum Publishers Ltd.

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needs is fewer measures and more understanding of the interrelationships among those measures. I identify three discernible historical trends and their consequences, explore the interrelationships among four key marketing perfonnance measures, and discuss the search for a few good leading indicators of marketing perfom1ance, with implications for research and practice. A History Marketing perfom1ance measurement has, of course, been practiced and studied for decades. A review of this history suggests marketing performance measures have moved in three consistent directions over the years: first from financial to non-financial output measures; second, from output to input measures; and third, from unidimensional to multidimensional measures (see Figure 1 and Table 1 for summary views). Table 1. Literature Review Summary Single Financial Output Measures

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Profit Sales Revenue

Cash Flow

Goodman (1970, 1972), Sevin (1965) Feder (1965) Buzzell and Chussil (1985), Day and Fahey (1988) Buzzell and Gale (1987), Jacobson (1988), Szymanski, Bharadwaj, and Varadarajan (1993) Bucklin (1978) Bhargava, Dubelaar, and Ramaswami (1994), Walker and Ruekert (1987) Anderson and Sullivan (1993), Anderson, Farnell, and Rust (1997), Danaher and Matson (1994), Farnell (1992), Farnell, Johnson, Anderson, Cha, and Bryant (1996), Halstead, Harbnan, and Schmidt (1994), Hauser, Simester, and Wernerfelt (1994), Oliva, Oliver, and MacMillan (1992), Peterson and Wilson (1992), Piercy and Morgan (1995), Seines (1993), Spreng, MacKenzie, and Olshavsky (1996), Teas (1993), Teas and PalanI997), Voss, Parasuraman, and Grewal (1998), Yi (1990) Anderson and Sullivan (1993), Dick and Basu (1994), Farnell, Johnson, Anderson, Cha, and Bryant (1996), Jones and Sasser (1995), Oliva, Oliver, and MacMillan (1992), Reichheld (1994), SeInes (1993)

Non-financial Measures

Market Share Quality of Services Adaptability Customer Satisfaction

Customer Loyalty

Confd/ ...

Marketing Performance Measures Non-fmancial Measures Cont'd/ ...

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Brand Equity

Aaker and Jacobson (1994), Ambler and Barwise (1998), Barwise (1993), Keller (1993, 1998), Haigh (1998), Lassar, Mittal, and Shanna (1995), SeInes (1993), Simon and Sullivan (1993) Piercy (1986), Srivastava, Shervani, and Fahey (1998) Brownlie (1993, 1996), Kotler, Gregor, and Rodgers (1977), Rothe, Harvey, and Jackson (1997) Bonoma (1985, 1986), Bonoma and Crittenden (1988) Day and Nedungadi (1994), Deshpande and Farley (1998a, 1998b), Han, Kim, and Srivastava (1998), Kohli and Jaworski (1990), Kohli, Jaworski, and Kumar (1993), Jaworski and Kohli (1996), Narver and Slater (1990, 1998), Slater and Narver (1994), Wrenn (1997) Bonoma and Clark (1988), Dunn, Norbum, and Birley (1994), Kotler (1977), Sheth and Sisodia (1995), Walker and Ruekert (1987) Bhargava, Dubelaar, and Ramaswami (1994), Spriggs (1994)

Input Measures

Marketing Assets Marketing Audit

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Marketing Implementation Market Orientation

Multiple Measures

Efficiency Effectiveness Multivariate ~Q!ysis

Moving from Financial to Non-Financial

Output Measures

Early work in the finn-level measurement of marketing perfonnance was largely directed at examining the productivity of a finn's marketing efforts at producing positive financial outputs. These studies typically were designed to provide guidance to managers regarding how to best allocate their marketing resources, drawing on both marketing knowledge and perspectives from finance and accounting. One branch of this literature developed extensive profitability analyses of marketing efforts. Sevin (1965) and Goodman (1970, 1972) are classics in this field, laying out in great detail how to relate financial outputs to marketing inputs. Feder (1965) borrowed from the marginal revenues-marginal costs concept in microeconomics to suggest how to allocate marketing resources most efficiently.Later work expanded from using profitability as an output to use more sophisticated measures from the finance literature, examining cash flows and the net present value of different marketing strategies (Buzzell and Chussil, 1985; Day and Fahey, 1988). In their review of finn-level marketing productivity studies, Bonoma and Clark (1988) found that the most frequent measures of output were, in order, profit, sales (unit and value), market share, and cash flow.

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Figure 1. The Expanding Domain of Marketing Performance Measures Non-Financial Measures

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Customer Satisfaction Customer Loyalty Brand Equity

Single Financial Output Measures

Profit Sales Cash Flow

Input Measures

Multiple Measures

Marketing Audit Marketing Implementation Market Orientation

Marketing Audit Efficiency/ Effectiveness Multivariate Analysis

The 1980s brought an expanded conception of output that included nonfinancial measures. This was partly driven by the realization that what has sometimes been called "the black box" (e.g. Piercy, 1997) of mediating factors between marketing inputs and financial outputs is itself worthy of study. Bonoma and Clark (1988) uncovered many moderating factors in the marketing productivity literature, suggesting that the process of transformation between marketing inputs and outputs is highly contingent on other variables. Market share attracted tremendous attention as an output variable in this period. Work by consultants at the Boston Consulting Group (Henderson, 1973) and academics working on the Profit Impact of Market Strategies (PIMS) project (Buzzell and Gale, 1987) concluded that market share was a strong predictor of

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cash flow and profitability. This, combined with the spectacular success at the time of Japanese finns that emphasized market share as a perfonnance measure, drove much examination of market share as the best measure of marketing perfonnance. Unfortunately, in retrospect the market share-profitability relationship has proven both controversial and complicated Qacobson, 1988; Szymanski, Bharadwaj, and Varadarajan, 1993). Aside from market share, other non-financial measures advocated as outputs included services and level of new product development/innovation. Bucklin (1978) is particularly adamant in his claim that the quality of services provided must be included in any marketing productivity measure. Rather than consider only the benefit to a customer of using a product, Bucklin attempts to account for the services that add to simple foml utility, discussing logistical services (e.g. delivery),infonnational services (e.g. product infonnation), and product functional services (e.g.warranties, packaging). Adaptability or innovativeness of a finn's marketing has received continuous attention as a perfonnance measure (Bhargava, Dubelaar, and Ramaswami, 1994; Walker and Ruekert, 1987). Typically cast in tenns of the finn's new product or marketing innovations, the idea behind measuring adaptability as an output of marketing is that in the face of a changing environment, finns that are unable to adapt will fail (Walker and Ruekert, 1987). In the last 10 years, three new non-financial output measures have attracted extensive research attention: customer satisfaction, customer loyalty, and brand equity. I will briefly review each measure in tum.

Customer Satisfaction.
Perhaps no recent measure of business perfonnance has attracted as much attention as customer satisfaction. With a large and continuing academic research stream (see Halstead, Hartman and Schmidt, 1994 and Vi, 1990 for reviews) and substantial adoption by industry (the 1997 Marketing News Customer Satisfaction Research Directory listed over 200 research fimls with satisfaction practices), customer satisfaction measures have become important benchmarks in many industries. . The traditional disconfimlation paradigm of customer satisfaction proposes that customers have prepurchase expectations about the products they buy, and are more satisfied depending on how well the consumption experience exceeds (disconfin11S) those expectations. Having a satisfied customer base is considered an important marketing asset because it should lead to increased loyalty,with its consequent revenue implications and lower marketing costs. While straightforward in theory, customer satisfaction measurement in practice has proven more complex. First, at least in North America, most customers are satisfied. Peterson and Wilson (1992) review a large number of studies where the distribution of customer satisfaction responses is highly skewed towards the positive. This finding presents two problems. Managerially, a high satisfaction rating may have little' consequence if customers are equally satisfied with competing products; if everyone gets an 85% score, then no finn

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has a competitive advantage. Methodologically, Peterson and Wilson (1992) observe that the highly skewed distribution reduces the likelihood that a significant correlation between satisfaction and other perfonnance variables will be observed; low variance in the satisfaction measure makes it unlikely that any clear relationship with other variables will be revealed. Empirical research evidence regarding the disconfinnation paradigm has also been quite mixed, leading to a proliferation of satisfaction frameworks (e.g. Anderson and Sullivan, 1993; Teas, 1993; Voss, Parasuraman and Grewal, 1998). The expectations constmct has proven particularly problematic, in that different studies appear to define it differently (Teas and Palan, 1997), leading one to wonder exactly what managers should be measuring. Recent research also suggests that there may be multiple satisfaction processes (Spreng, MacKenzie and Olshavsky, 1996) and that one should consider measuring satisfaction on an attribute-by-attribute basis (Donaher and Mattson, 1994; Halstead, Hartman and Schmidt, 1994). Further, satisfaction measurement programs appear particularly difficult to implement. Piercy and Morgan (1995) note substantial internal barriers to the measurement process. Measures also appear more subject to manipulation than objective items such as unit sales. Once customer contact personnel (e.g. salespeople) or organizations (e.g. retailers) know they will be graded on satisfaction ratings, there is a tremendous incentive to manipulate the findings (Hauser, Simester, and Wernerfelt, 1994).

Customer Loyalty.
Partly in response to problems with customer satisfaction as a measure, customer loyalty measures have attracted increasing attention as a measure of good marketing. Behavioural measures of brand purchase and repurchase have existed for years in the marketing literature (e.g. Uncles, Ehrenberg and Hammond, 1995), but there has been a recent emphasis on expanding beyond purely behavioural conceptions of loyalty (Dick and Basu, 1994). Advocates of loyalty note that financial perfonnance ultimately reflects whether customers repurchase from a firnl over time, regardless of satisfaction. One of the most prominent spokespersons for this position, Frederick Reichheld (I994), suggests that good marketing attracts the right customers: ones whose loyalty the finn is able to earn and keep. A loyal customer base, it is argued, should increase revenue per customer as satisfied customers buy more volume, a broader range of products, and/or pay a premium for the company's products. It also should lower marketing costs; current customers are cheaper to retain, and word-ofmouth from current customers should make new customers easier to acquire. A common financially-based measure of the worth of a loyal customer base is to calculate the "lifetime value" of the customers in this base (Wyner, 1996).

Brand Equity.
Many researchers and managers believe that a powerful brand (one with high "equity") is among the greatest marketing assets a finn can have (see Barwise,

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1993; Keller, 1998 for reviews). Strong brands, it is argued, (1) allow finns to charge price premiums over unbranded or poorly branded products; (2) can be used to extend the company's business into other product categories; and (3) reduce perceived risk to customers (and, perhaps, investors). There have been two approaches to measuring brand equity. The behavioural approach looks at customer response to the brand, either in tenns of perceptions or purchase. One definition of behaviourally-based brand equity is the differential effect of brand knowledge on customer response to marketing of the brand (Keller, 1993). Customers in these studies typically respond more favourably to strong brands than to unbranded or poorly branded products. The financial approach to brand equity attempts to divine the financial value of the brand to finns and their investors. A widely cited approach in this area was developed by Simon and Sullivan (1993), who define brand equity as the incremental cash flows that accme to branded products over and above the cash flows that would result from the sale of unbranded products. There is little question that brands can make a powerful difference in how customers respond to brands and brand extensions (Barwise, 1993; Keller, 1998). There is growing evidence that brand equity has an influence on investors as well (Aaker and Jacobson, 1994; Simon and Sullivan, 1993), which has led to changes in financial reporting ntles in the UK (see Ambler and Barwise, 1998 for a discussion of brand valuation and brand equity). Barwise (1993) notes, however, that we actually know relatively little about the impact of a brand on the branded product's long-tenn profitability. Further, the relationship between the behavioural and financial approaches to brand equity are at present not wellintegrated (see Ambler and Barwise, 1998 for a discussion of definitions). Finally, while brand equity appears a powerful measure of perfonnance, it also is one that is hard to use as a short-tenn perfonnance measure for managers. It can take years and huge marketing expenses to create a powerful brand; conversely, this asset can take substantial time to dissipate even in the face of reduced marketing support Moving from Output to Input Measures Recent emphasis on measures such as customer satisfaction, customer loyalty and brand equity is part of a general move away from ultimate financial output measures such as profit and sales and toward measures earlier in the input-tooutput sequence. In particular, one can look at initial marketing activities (inputs) that lead to intennediate outcomes such as the three measures above that in tum lead to financial outputs. The intenllediate outcomes can be thought of as the marketing assets (Piercy, 1986; Srivastava, Shervani and Fahey, 1998) that are leveraged to produce superior financial perfonnance. One of the earliest attempts to assess the underlying marketing inputs that lead to superior perfOnllanCe was the marketing audit concept (see Brownlie, 1993; Rothe, Harvey, and Jackson, 1997 for reviews). The goal of a marketing audit is to systematically evaluate the appropriateness of the actjvities and assets a finn uses in its marketing, given the finll'S situation. While initially conceived in

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the 1950s, the audit was strongly popularized by Kotler and his colleagues (Kotler, Gregor, and Rodgers, 1977). They advocate an evaluation of the environment, to understand the situation the finn is in, and then examination of strategy, organization, systems, and productivity of marketing. Further work can then be focused on specific marketing functions. While an area of much research and successful case studies, it is unclear how widespread audits are in practice. They also typically do not result in exact perfon11 ance measures so much as diagnoses for organizational improvement (Brownlie, 1996). Bonoma (1985, 1986) also weighs in on the question of what constitutes good marketing practices. He focuses on the finn's marketing skills and marketing structures (e.g. systems and procedural support), and argues that good marketing is the product of the interaction between the two. The most recent systematic evaluation of the quality of marketing inputs has resulted from the market orientation concept This perspective - also variously described as marketing-oriented and market-driven (see Jaworski and Kohli, 1996; Wrenn, 1997 for reviews) - measures activities that develop and use intelligence about the market While definitions across studies vary (e.g. Day and Nedungadi, 1994; Kohli and Jaworski, 1990; Narver and Slater, 1990), common components of being market oriented include systematic gathering, analysis, dissemination and use of market infonnation within the organization. Day and Nedungadi (1994) in particular note the importance of maintaining a balanced perspective between customers and competitors. Empirical evidence suggests that being good at generation. dissemination and application of market infom1ation within the organization can be a significant advantage (e.g. Day and Nedungadi, 1994; Jaworski and Kohli, 1993; Narver and Slater, 1990), but overall findings on the relationship between market orientation and perfonnance have been mixed (Han, Kim and Srivastava, 1998). This has led to a search for moderators or new explanatory factors in the relationship (e.g. Han et aI., 1998; Slater and Narver, 1994). Aside from affecting business perfom1ance, Wrenn (1997) reviews studies suggesting marketing orientation also positively affects both customer and employee perceptions of the finn. As with brand equity, the variety of operationalizations of market orientation make it difficult to use as a perfonnance measure in practice. As many of the measures of orientation list specific organizational activities (e.g. 'We have interdepartmental meetings at least once a quarter to discuss market trends and developments," Kohli, Jaworski, and Kumar, 1993), one may wonder if a focus on measuring market orientation as a perfonnance measure might lead to ritual activities that allow fin11S "tick the box" without realizing the true benefits. This to relates to the issue of whether market orientation represents a behaviour or a culture (Deshpande and Farley, 1998a; Narver and Slater, 1998). Moving to Multidimensional Measures Early in the history of measuring marketing perfom1ance, it was common to use one or a handful of financial or volume measures to track the output of marketing. This changed in the, 1970s, beginning with the multidimensional

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marketing audit (e.g. Kotler, Gregor and Rodgers, 1977). In the 1980s, Bonoma and Clark (1988) and Walker and Ruekert (1987) independently suggested schemes of marketing perfonnance measurement tl1at assessed marketing efficiency and effectiveness. Bonoma and Clark (1988) described tl1e fonner as a productivity measure, comparing outputs to inputs, and tl1e latter as a comparison of outputs to goals, drawing on Dmcker's (1974) distinction between efficiency as "doing tl1ings right" and effectiveness as "doing the right tl1ing." Walker and Ruekert (1987) added a measure of adaptability to changes in tl1e environment, while Bonoma and Clark (1988) included a measure of tl1e hostility of tl1e external environment. Paradigms from tl1e management literature have influenced tl1e move to multidimensional measures as well. Kumar, Stem and Achrol (1992) draw on four perspectives from tl1e organizational effectiveness literature to research reseller perfonnance. Kotler's dimensions of marketing effectiveness (Kotler, 1977) have been incorporated into rigorous empirical studies (e.g. Dunn, Norburn and Birley, 1994). Multivariate data analysis techniques such as factor analysis and Data Envelopment Analysis have been adopted to identify tl1e underlying dimensions of perfonnance (e.g. Bhargava, Dubelaar and Ramaswami, 1994; Spnggs, 1994). While multiple measures are clearly psychometrically desirable to obtain tl1e most complete picture possible of marketing perfom1ance, tl1eyraise difficult issues for managers, a point to which I will return below. Evaluating the Trends Having seen evidence regarding tl1e historical trends in marketing perfonnance measures, one can ask if tl1ese trends are good for scholars, managers or botl1. The answer appears to be a qualified yes for both audiences. That we have moved as a field to examine non-financial measures as well as financial is clearly an improvement. The asset-based marketing perspective in particular (e.g. Piercy, 1986) demonstrates tl1e inadequacy of financial outputs as tl1e sole measure of marketing perforn1ance. Indeed, tl1e reason non-financial measures were adopted in tl1e first place was tl1e instinct of managers and academics tl1at some important elements of marketing perfonnance (e.g. brand strengtl1) were left uncaptured by traditional financial measures. Areas such as customer satisfaction and brand equity have been unusual in tl1at scholarly research and practitioner interest have coincided far more powerfully tl1an is usual in our discipline. This is all to the good. Deeper understanding of tl1e quality of marketing inputs in the fonn of marketing processes has had less clear impact. Inherently difficult to study because of tl1e complexity of processes and tl1e large number of external and internal constituencies involved, defining "good marketing activities" has more often been tl1e subject of conceptual or qualitative treatments (e.g. Bonoma, 1985; Bonoma and Crittenden, 1988) tl1an rigorous statistical research. Concepts such as tl1e marketing audit and market orientation, while powerful in tl1eory,

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appear difficult to transfer to the managerial realm. Both ideas have empirical studies backing up a link to overall business perfonnance, but, as noted above, this link is by no means a simple linear relationship, depending rather on a variety of potential moderating factors. Further, it is difficult to tell how widespread either practice is because some finns may adopt elements of either approach without ever using the words "marketing audit" or "market orientation." In sum, this trend has led to richer, deeper understanding of marketing process, but compared to objective financial measures its complexity makes it relatively intractable for managers and more statistically-inclined researchers. The trend toward multidimensional measures has arguably been wonderful for researchers and horrible for practitioners. Psychometrically and theoretically, researchers know that a multidimensional model of marketing perfonnance is likely to be more "true" in that it will capture more facets of perfonnance than any single dimension can. Unfortunately, successively more complicated schemes dramatically increase the burden on managers attempting to measure perfomlance in the world. Given bounded rationality, any individual manager can only juggle so many concepts in his or her mind at once. Yet organizations are finding themselves overwhelmed with measures. Meyer (1998) notes that it is common for corporations to have fifty to sixty "top-level" perfomlance measures (p. xvi). In the marketing context, .Ambler and Kokkinaki (1998) conclude that "marketing is already assessed against plenty of measures," (p. 35) but that the weighting of measures is incorrect Figuring out which of many measures are "really important" may drive the conscientious manager to despair. While one might be able to reduce these measures to a more manageable set by means of multivariate statistical techniques, these techniques seem unlikely to be part of everyday management More generally, it is not clear that management is interested in elegant multidimensional schemes. Ambler and Kokkinaki (1998) find that financial measures dominate UK executives' assessment of marketing perfonnance; Clark (1999) finds sales the most frequent measure used among US executives. Even in our own field, researchers who use perfonnance as a dependent variable most frequently rely on sales and market share (Ambler and Kokkinaki, 1997). One of the original appeals of the balanced scorecard approach to total business perfonnance measurement was that it organized measures under a small set of dimensions of business perfonnance with which any manager can work (Kaplan and Norton, 1992). Marketing scholars must similarly present management with a handful of measures that are simple enough to be usable but comprehensive enough to give an accurate perfonnance assessment Understanding Interrelationships among Measures Much work in recent years on non-financial measures has been to understand their relationship to financial measures (e.g. Han et a!., 1998; Anderson, Fomell and Rust, 1997). The presumption behind many of these non-financial measures is that they are leading indicators of long-nm shareholder value (e.g.Srivastava et

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aL, 1998). A powerful brand, for example, should not only generate profits on the current accounting statements, but will help generate future profits. A question one may ask in this context is whether we need all the nonfinancial measures proposed. For example, if a fim1 has good customer satisfaction measures, does it also need loyalty measures? The key to developing a comprehensive but usable set of measures must be to understand the interrelationships among the various marketing perfonnance measures proposed. To the extent different measures are all correlated with profit or sales, that they are uncorrelated with one another seems unlikely. If, on the other hand, measures are highly correlated, they then can be collapsed into multiple indicators of a single constmct (Churchill, 1979). Perhaps most likely is the situation where various measures are independent but correlated, with causal relationships among them. At a relatively simple level, consider the interrelationships among four concepts that have drawn research attention in the last 10 years: market orientation, customer satisfaction, customer loyalty and brand equity. Each has been proposed as an important indicator of marketing perfonnance that should in tum affect overall business perfonnance. Following is a brief summary of what we as a field know about the interrelationships among these four, with an eye toward future research that might indicate which measures are most valuable to particular finns. Market Orientation and Customer Satisfaction Jaworski and Kohli (1996) observe that market orientation should be positively related to customer satisfaction. Gathering and responding to good market intelligence should lead to products that do a better job of meeting customer needs. Unfortunately, they note, there is little empirical study to support this proposition. If market orientation does improve overall business perfonnance, customer satisfaction would be a logical mediating variable through which such a relationship would occur. Indeed, such a mediating relationship might explain why the direct effect of market orientation on business perfonnance has been difficult to document consistentJy. In the long nm, one might see negative feedback from customer satisfaction to market orientation through perfonnance: a company with a satisfied customer base might have success, which in tum might lead to complacency and a dulling of the fim1's market orientation (see Miller, 1994 on the perils of success). Market Orientation and Customer Loyalty Fundamentally, the same logic as under the market orientation-satisfaction link should apply here. The question is whether the link would be direct or indirect through satisfaction. As loyalty in the absence of satisfaction may occur only in the absence of competitive alternatives (see below), the indirect link seems more likely. Market Orientation and Brand Equity No one, to my knowledge, has proposed a causal link between market

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orientation and brand equity, but speculation suggests that some positive relationship might exist A market oriented finn, with good knowledge of customers, presumably can design and support a stronger brand than an internally-focused, ignorant firn1. While this effect may be indirect through satisfaction, one can argue that a direct link might exist before purchase as the well-designed brand is attractive and affects customer behaviour even prior to any satisfaction experience. Once again, a disconnection may occur between brand equity and market orientation if high brand equity leads to complacency and a lower market-orientation. Brand Equity and Customer Satisfaction Looking at brand equity from a psychological perspective, a brand name evokes a particular set of knowledge about the brand from memory (Keller, 1993). This knowledge structure (e.g. image, associations, attitudes) will differ among brands and between branded and non-branded products, with consequences for customer behaviour. It seems straightforward that customer satisfaction in one period should affect brand equity in the next A satisfying experience with a brand should increase the favourability of the associations a customer has to the brand. Interestingly, SeInes (1993) finds this relationship in only one of the four industries he examines. Another intriguing possibility is that brand equity in one period may affect customer satisfaction in the next period, both through its impact on expectations and on perceived experience with the brand. Regarding expectations, brand knowledge should affect the expectations aspect of customer satisfaction in two dimensions: certainty and level. First, a strong brand will probably produce welldefined expectations, because the knowledge structure about the brand will be elaborate. By comparison, a product with a weak brand or no brand will evoke little knowledge and thus more uncertain expectations. Measures of satisfaction with strong brands should be more reliable than with weak brands, because the expectations construct will be more clearly defined. Second, a brand, however strong, will produce some level of expectations about the product Keller (1993) defines positive brand equity as that evoking more favourable responses than a corresponding unbranded product A strong brand might influence expectations in a higher direction, making satisfaction more difficult to achieve. Regarding experience, favourable brand equity may have an influence on perceived experience with using the brand; one might rate more highly an experience with a well-liked brand than one would with a corresponding unbranded product, simply because the accumulated (positive) experience with the brand outweighs any single experience. A positive expectation created by a strong brand may also influence the perceived experience through an assimilation effect, such that perceived quality adjusts slightly in the direction of expectations (cf.Anderson and Sullivan, 1993). Brand Equity and Customer Loyalty Favourable brand equity should affect customer loyalty. Customers are
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presumably more loyal to well-regarded brands than to poorly-regarded ones; whether this link is direct or mediated by customer satisfaction is open to question (see below). Seines (1993) found a direct positive link across four industries (see also Lassar, Mittal and Shanna, 1995). Behaviourally, Fader and Schmittlein (1993), found that brands with high market shares exhibited much greater brand loyalty than did brands with low market shares. It seems less likely that simple loyalty in the fonn of consistent repurchase has an effect on the favourability of brand equity. Rather, loyalty should reinforce whatever level of brand equity already exists. Every purchase incident should reinforce (and possibly elaborate) the current knowledge structure the customer holds regarding the brand, making it more accessible in memory. The only influence on the level might occur through an exposure effect, such that familiarity increases liking (Bomstein, 1989). Customer Satisfaction and Customer Loyalty Unlike some of the other links, this link has received extensive research attention, the conclusion of which is that customer satisfaction has a positive direct impact on customer loyalty (Fornell, 1992; Seines, 1993; Anderson and Sullivan, 1993; Jones and Sasser, 1995; Fornell, Johnson, Anderson, Cha and Bryant, 1996). There is evidence, however, that the fonn and strength of this link varies across industries. Some analysts suggest that the strength of this relationship may vary by the degree of competitiveness within the industry, such that the relationship is stronger in more competitive industries (Fornell, 1992; Jones and Sasser, 1995). Seines (1993) suggests the ambiguity of the product may moderate this relationship. In products where evidence about the quality of a product experience is ambiguous, brand may matter more and satisfaction less in detemlining loyalty because the satisfaction j~ldgments will be poor. This relationship has also been posited to be nonlinear, both overall and varying by industry (Oliva, Oliver and MacMillan, 1992; Anderson and Sullivan, 1993). Less well-documented is the idea that loyalty may affect satisfaction through familiarity with the product Halstead et al. (1994) observe that some level of familiarity is necessary before a customer can fonn expectations about a product Looking for a few Good Leading Indicators When measuring marketing perfonnance began, financial output measures dominated the field. As marketing perfonnance measures evolved, we added a host of non-financial and input measures to the measurement mix. Financial outputs will probably always be used as indicators of marketing perfonnance, but they are snapshots of the present and say little about the marketing health of the company in the future. Unfortunately, the proliferation of potential leading indicators is managerially problematic; for example, the American Marketing Association's, 1999 Customer Satisfaction and Quality Measurement Conference is entitled "Making Sense of Multiple Measurements." Looking for a few good leading indicators suggests two research agendas. On

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a micro level, one should attempt to reduce the number of items used to measure particular constnlCts, while still retaining enough for reliability. Psychometrically, there are a variety of standard data reduction techniques available for this endeavor, such as factor analysis. In a structural equation modeling context, Baumgartner and Homburg (1996, p. 144) suggest that three items per latent constnlct is a minimum standard for reliable measurement. Regarding the number of constructs managers should attempt to track, simple psychological limits on the number of items people can juggle in memory suggests seven is a plausible maximum (Miller, 1956; Lynch and Srull, 1982) below I will suggest four specific measures. Beyond this, the academic community sometimes encourages proliferation of measurement schemes, as each scholar suggests his or her own items for a particular constnlct. For some constructs, we have enough of a history that we should be moving in the opposite direction: using a standard set of measures rather than inventing new measures for each study. Research developing parsimonious syntheses of larger sets of measures would be particularly useful, both for managers and for academics who might be measuring multiple constructs in a single study. Deshpande and Farley (1998b), for example, examine three different sets of measures of the market orientation construct and develop a short synthesized inventory that incorporates the core infonnation researchers and managers need to capture. More of this kind of research is needed. On a more macro level, the challenge for marketing scholars is to understand the nature of causality among multiple constructs, both for advancement of theory and to advise managers regarding which measures will be most useful for their businesses. Regarding the four constructs discussed in the previous section, Figure 2 summarizes the hypothesized relationships. These, and other constnlcts, should be examined jointly to detennine their relationship and mutual influence (see SeInes, 1993, for example). The challenges in this endeavor are fourfold. First one must establish the direction of causal relationships. Second, one must identify the fonn of the relationship Oinear, nonlinear, etc,), Third, one must establish the strength of the relationships in practical tenns. Finally, one must understand the temporal relationships among these measures to truly use them as predictors of overall business health. In tenns of research approaches, to tndy demonstrate these causal links, researchers will need to model systems of equations using longitudinal data. Stnlctural equations modeling is a technique that may be useful in this context (Diamantopoulos, 1994). One likely source of data would be customer databases in transaction-intensive industries such as finance, telecommunications, or air travel. Companies could be assessed on market orientation scales, and customers could be interviewed or surveyed regarding customer satisfaction and brand equity. Customer loyalty would be available through the database records. Using this kind of data, scholars can examine the direction, shape, and dynamics of the relationships.

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Marketing Perfonnance Measures Figure 2. Hypothesized Interrelationships among Key Measures

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Market Orientation

Brand Equity

----

~ ~

causal relationships

..- - - - - - - - feedback relationships

Regarding shape, in several cases nonlinear or contingent relationships have been identified, with consequences for both academic modelling and managerial measurement Economics certainly suggests the general principle that any effect eventually suffers diminishing returns (i.e. a concave function), but research in customer satisfaction suggests that in certain competitive situations one may see increasing returns to satisfaction (e.g.Jones and Sasser, 1995). Another possible nonlinear fom1 would be an s-shaped relationship. Regarding dynamics, to identify leading indicators one is interested in the speed with which an effect occurs in the presence of a causal agent, and the speed with which an effect diminishes when the causal agent is removed. For example, how quickly does customer satisfaction affect customer loyalty? If

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customer satisfaction subsequently declines, how long will it be before customer loyalty diminishes as well? Speed here may depend on interpurchase times. Someone who has just purchased a car is not likely to be in the market again for a few years, while a customer's relationship with a financial institution may involve multiple transactions in the course of a year. In the fonner case, the effect of satisfaction on loyalty will not be seen for years, while in the latter it may appear within months. Cross-industry studies will be important both to identify contingent factors and to better infonn managers in particular industries which measures may be most useful. Industry competitiveness appears a particularly likely moderating variable in relationships among measures (e.g. Fornell, 1992; Slater and Narver, 1994). Because of the importance of temporal relationships, research should look for feedback loops among the measures, as shown in Figure 2; it is likely that A may cause B in one period, but B may influence A in the next. Finally, aside from the econometric approach, experimental studies may also be useful in examining some relationships. The relationship between satisfaction and brand equity could probably be approached in this fashion. One might also incorporate repurchase intention as a measure of loyalty in experimental approaches, but market orientation will be harder to approach in this fashion. What Do I Do While I'm Waiting? The previous sections suggest a substantial research agenda that will eventually bear fruit for managers. The question naturally arises, what should managers do while they are waiting for this research? Allowing that we still have much to learn, it seems clear that managers should continue to track financial measures such as sales and profits. Publicly-traded finns are required to report these measures, and internally, one is more likely to receive budgets from financially-oriented managers if one can show previous financial success. Beyond this, I believe satisfaction and loyalty measurement are the areas in which most managers should concentrate in the near tenn. Satisfaction assesses customer perceptions of the finn's offerings, while loyalty tracks actual customer purchasing behaviour. Between these two measures, finns should get at least a rough indication of competitive strengths and weaknesses and future financial return on marketing efforts. Satisfaction should be assessed relative to customers' satisfaction with competing products. Rather than overall satisfaction, finns should measure satisfaction with each of the different attributes/benefits customers value. A weighted sum of these items, based on the importance customers place on attributes, will produce a more reliable composite than simple overall items, and should also identify competitive strengths and weaknesses in the finn's offerings. One fiml I have worked with grades customer satisfaction (A, B, C, etc.) depending on how its customer satisfaction scores compare to the scores of competitors. Piercy (1997) has a number of helpful suggestions on how to

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measure and use customer satisfaction within the organization. Regarding loyalty, surveys of repurchase intention can be beneficial, but, where possible, finns should assess loyalty through a database of transactions. For companies with many customers, a good summary measure of loyalty is the percentage of customers lost in a time period. For companies with fewer accounts, salespeople often have good infonnation on loyalty. This can sometimes be quantified in terms of number of rebids lost Other transactionbased elements of a loyalty constmct might include frequency, recency, and amount of purchase, and breadth of purchase in a finn's line. For both of these measures it is critical to compare the summary measures to two referents. First, what are the trends over time in customer satisfaction and loyalty? As Dickson (1997, p. 12) observes, the change or "delta" in measures is often far more infonnative in tenns of managing marketing than looking at measures on a stand-alone basis. Second, each of these measures should be broken out by market segment Averages taken across segments can mask significant differences in the threats and opportunities facing managers. For a given market segment, then, one would hope to see a chart or table with four numbers measured over time: sales, profit, relative customer satisfaction, and customer loyalty. These, in tum, can identify areas for further research or marketing efforts. Conclusion This paper has attempted to layout what we know about the history and interrelationships among key marketing measures. The three historical trends identified - toward non-financial output measures, marketing input measures, and multiple measures - have improved our understanding of marketing perfomlance. The challenge left for further research is to identify the few good leading indicators that managers can track for the future. Acknowledgments The history portion of this paper benefited from comments on a paper presented at the, 1998 Conference on Business Perfonnance Measurement at Cambridge University. This paper has also benefited from the comments of two anonymous reviewers. References Aaker, David A and Jacobson, Robert (1994), 'The Financial Information Content of Perceived Quality", ]oumal of Marketing Research, 31, May, 191201. Ambler, Tim and Barwise, Patrick (1998), "The trouble with brand valuation", The ]oumal of Brand Management 5, 5, 367-377. Ambler, Tim and Kokkinaki, Flora (1997), "Measures of Marketing Success",

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