1. Business Strategy: Chapter 5. Metrics
Disclaimer:
All images such as logos, photos, etc. used in this presentation are the property of their respective copyright owners and are used here for educational purposes only
Some material adapted from: Sorger, Stephan. “Marketing Analytics: Strategic Models and Metrics. Admiral Press
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

2. Outline/ Learning Objectives
Topic Description
Scenarios Review strategic scenarios facing most companies
Metrics Discuss metrics to measure strategic-level performance
Brand Review metrics to measure brand-related performance
Customer Review metrics to measure customer-related performance
Product Review metrics to measure product-related performance
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

3. Analytics Approach to Strategy
Marketing Mix: 4Ps: Product
Price
Place
Promotion
Identify 3 typical strategic scenarios
Marketing Mix
Results
Strategy
Business Operations
Strategic Metrics
Business Operations: Supporting Functions
Strategic Metrics: “Big Picture”
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

4. Strategic Scenarios Market Entry Market Approach Market Growth
Typical Major Strategic Decisions for Most Companies:
Market Entry: Should I enter this market?
Market Approach: How should I engage with this market?
Market Growth: How can I grow within the market?
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

5. Strategic Scenario: Market Entry
Example: Diaspora
in social networking
Market Entry
Market Entry
Example: Siemens
in radiation therapy
Market Exit
Market Entry: Apply competitive advantages to characteristics of market
Market Exit: Leave flat or shrinking markets, or those suffering from intense competition
Organic growth: Entering markets by growing internal process and product/service line
Acquisition-driven growth: Entering markets by acquiring companies already in the market
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

6. Strategic Scenario: Market Approach
Southwest Airlines
in airlines
Cost Leadership
Generic Strategy
New York Times
in newspapers
Differentiation
Sunglass Hut
in niche retailing
Focus
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

7. Product/Service Development
Strategic Scenario: Growth
Expedia
in travel booking
Market Penetration
Existing offerings; Existing markets
Dunkin Donuts
in international expansion
Market Development
Growth
Existing offerings; New markets
L’Oreal
in haircare
Product/Service Development
New offerings; Existing markets GE
in multiple markets
Diversification
New offerings; New markets
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

8. Strategic Metrics: Strategic Scenarios
Strategic Scenario Relevant Strategic Metrics
Market Entry/ Exit Market size
Market growth rate
Market Approach Revenue
Profit
Market Growth Year on year growth
CAGR
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

9. Strategic Metrics: Market Entry and Exit
Metric Description and Example
Market Size Calculation of potential revenue available in market
Example: Smartphone apps:
Market size of $15B +
Execution: See chapter 2 for market sizing
Market Growth Rate Periodic evaluation of market to monitor growth
Wang Laboratories:
Failed to notice shrinking market for word processors
Execution: See growth rates slides later in this module
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

10. Strategic Metrics: Market Approach
Metric Description and Example
Revenue Sales of goods and services into market
Example Reports Total Revenue
Revenue by Business Unit
Revenue by Product/ Service
Revenue by Geographic Region
Revenue by Segment
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

11. Strategic Metrics: Market Approach
Metric Description and Example
Profit Revenue, less costs of doing business
Example Reports Profit by Business Unit
Profit by Product/ Service
Profit by Geographic Region
Profit by Segment
Contribution Margin (Selling Price per Unit – Variable Cost per Unit)
(Selling Price per Unit)
ROMI Return on marketing investment
(Revenue from Marketing) * (Contribution Margin) – 1
Marketing Spending
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

12. Strategic Metrics: Market Growth
Metric Description and Example
Year on Year Growth Increase (or decrease) in revenue, profit, etc.
from one year to the next; also called Y.OY. Growth
Y.O.Y Calculations Example: Apple Annual Report, 2011
Revenue (2010)=$65.2B; Revenue (2011) = $108.2B
Y.O.Y. Growth = [$108.2B - $65.2B] / $65.2B = 66%
CAGR Compound Annual Growth Rate
Increase over a period of years (more than 2 years)
Microsoft Excel: XIRR function to calculate CAGR
CAGR Calculations (Ending Value) ^ (1 / Number of Periods) – 1
(Starting Value)
Revenue grows from $100K to $150K over 3 years:
$150,000/$100,000 ^ 1/ = 14.5%
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

13. Strategic Metrics: Brand Development
Metric Description and Example
Brand Recognition Ability to confirm prior exposure to the brand
Kellogg’s: Recognize cereal box in supermarket aisle
Brand Recall Ability to retrieve brand from memory
Roto-Rooter: First name people remember
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

14. Strategic Metrics: Brand Development
Metric Description and Example
Brand Depth Ease with which brand comes to mind
GE: Associated with appliances
Brand Breadth Range of usage scenarios for brand
Greyhound: Limited use by professionals
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

15. Strategic Metrics: Brand Development
Metric Description and Example
Brand Equity Index Measures relative strength of brands
Equation (Effective market share) * (Relative Price) * Durability
Effective Market Share Weighted average of brand’s market share in all
segments, weighted by each segment’s proportion
of sales
Relative Price (Price of our brand ) / (Price of other brands)
Durability % of Customers who continue to purchase brand
in the following year
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

16. Strategic Metrics: Customer Development
Metric Description and Example
CLV Customer Lifetime Value
Example: Netflix: Long-term retention important to high CLV
Equation Margin * (Retention Rate) / (1 + Discount Rate–Retention Rate)
Margin Revenue generated by the customer, less costs to service
Discount Rate Cost of capital; Similar to interest rate on loan
Retention Rate % of Customers who remain loyal over time
Calculation If margin = $72/year; Retention = 99.5%/year; Discount = 5%/yr
CLV = ($72) * (0.995) / ( – 0.995) = $
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

17. Strategic Metrics: Customer Development
Metric Description and Example
Customer Profit Profit made per customers
(Customer revenues) – (Customer costs)
Example: American Airlines AAdvantage customer loyalty program
Tier 1: Executive Platinum
Tier 2: Gold, Platinum
Tier 3: No loyalty status
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

18. Product/Service Development: Metrics Categories
Development Process Metrics
Development Innovation Metrics
Measure competitive advantage in
product or service development
Measure ability to innovate
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

19. Product/Service Development: Process Metrics
Customization Capabilities
Quality-Oriented Capabilities
Dell: Configure PC to your liking
Development
Process
Metrics
Oneida Healthcare: Ongoing training
Low Cost Capabilities
Responsiveness Capabilities
Boeing: DFM and DFA on F-18
Zynga: Daily software builds
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

20. Product/Service Development: Innovation Metrics
Breakthrough Products
Major Enhancement
Changes industry
Example: Original Apple iPhone
Development
Innovation
Metrics
Noticeable improvement
Example: iPhone 4S Siri
Next Generation Products
Minor Enhancement
Significant advancement
Example: iPhone 3  4
Extend product to new users
Example: 8GB  16GB
Correction/ “Bug Fix”
Fix mistake
Example: iPhone 4 antenna
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

21. Product/Service Development: Innovation Metrics
Innovation Category Quarter 1 Quarter 2 Quarter 3 Q4
Breakthrough 5% 10% 10% 10%
Next Generation 10% 20% 20% 20%
Major Enhancement 15% 30% 30% 30%
Minor Enhancement 40% 30% 30% 30%
Correction/ Bug Fix 30% 10% 10% 10%
Total 100% 100% 100% 100%
Track % of each type of project over time
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1

22. Check for Understanding
Topic Description
Terminology Know terms relating to basic strategic scenarios
Strategic Metrics Review metrics for market entry, approach, and growth
Brand and Customer Review metrics for brand and customer performance
Products and Services Review metrics to measure product performance
© Stephan Sorger 2015; Ch 5. Business Strategy (Metrics) 1