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Data building blocks: Understanding marketing efficiency and effectiveness

What’s the difference?

Understanding marketing efficiency and effectiveness is key to having successful conversations about marketing measurement. Marketers often talk about efficiency and effectiveness but confuse the two. In this article we look at the difference – and how we should measure marketing efficiency and marketing effectiveness very differently. 

Efficiency is all about the rate of return

Efficiency is built around rates of return. What does that mean? For every dollar you spend, how much are you getting back or how little do you have to spend. Efficiency as a concept focuses on spending less for the same result. 

What that means is most efficiency metrics focus on comparisons. Marketers when looking at efficiency love to compare — whether that be ROI by channel, CPM by channel or any number of other elements.

Effectiveness is the job to be done

Effectiveness refers to the ability to achieve a desired result. In marketing, we measure effectiveness in terms of the impact of a campaign on consumer behavior, such as increased brand awareness, increased sales, or improved customer loyalty. For example, if a company’s goal is to increase brand awareness, an effective marketing campaign would result in more people recognizing and remembering the brand.

So, efficiency is about minimizing the cost of achieving a goal, while effectiveness is about achieving the goal itself. It’s  important to strike the right balance between efficiency and effectiveness, as a campaign that is very efficient but not effective won’t generate the desired results, while a campaign that is very effective but not efficient may be too costly to sustain. 

Let’s take a slightly more complicated example that many companies struggle with. A company wants to increase their market share and wants to do it in the most efficient manner possible. So they spend a lot of money on advertising at the bottom of the funnel to drive sales. At first glance this is very efficient – because the cost per sale at the bottom of the funnel (targeting buyers with intent), is low. But the company looks closer and they find that the sales are not incremental to their existing baseline. In other words the campaign is not effective – it hasn’t moved the needle on market share.

On the other hand, if the company shifts spend to brand advertising, they will probably find that – at least initially, it is hard to measure the impact of the campaign- it won’t appear very efficient as it may not immediately lower the cost of acquiring a customer at point of purchase. But over time, their market share goes up, the campaign becomes effective. Over a longer period of time these actions may also decrease the cost of acquiring a customer at the bottom of the funnel – rendering the campaign both efficient and effective.

Make better investment decisions. Faster.