CEOs often quote customer numbers, 'average satisfaction', 'average retention or churn' and cross-product holding ratios and cost savings. It is a positive step that CEOs and analysts are taking an interest in customer metrics, but these figures can be hugely misleading.

For example, a focus on customer numbers normally results in a strategy to 'acquire at any cost' and the acquisition of a large volume of unprofitable or even loss-making customers.

Customer satisfaction, as normally measured, gives misleading results, as the views of customers who rarely transact and spend little, dilute those of your heavy users and loyalists. In addition, customer satisfaction statistics are consistently poor predictors of loyalty and repeat purchase.

Customer churn is misleading because, most fundamentally, it is rarely measured properly. And even when it is, the really interesting figures are the churn rates of heavy users and loyalists. In every category and in every market, the health of the brand depends on the loyalty of a fairly small number of disproportionately valuable, bonded customers.

So in a marketing world where the Pareto rule abounds, beware averages – averages are the enemy of the insight and understanding needed to really drive marketing effectiveness.

Looking more strategically at marketing effectiveness, acquisition, retention, penetration (cross-selling) and efficiency metrics are interdependent, not independent variables. Influencing one may affect others. For example:

It is difficult to make investment decisions if you do not understand the relationship and linkage between the four variables of Efficiency (cost to serve), Retention, Acquisition and Penetration (REAP). Most companies optimise each silo separately and let the organisation find its own 'optimisation' through political tension and influence. The 'cost of acquisition' insurance example (see above) shows that it's easy to optimise short-term performance at the cost of this in the long-term.

Companies put the idea of balanced customer metrics in the 'too difficult' box, and continue to measure campaign results, product sales and margins, rather than use the customer management metrics (REAP) proposed here.

Though it is possible to make improvements in marketing efficiency and positively impact effectiveness, reliance on efficiency measures alone can easily drive wrong or dysfunctional behaviour, ultimately leading to sub-optimal long-term results. Process- or cost-cutting metrics, (often expressed as targets) may also be misleading.

An effective measurement system should be founded on desired outcomes which consider what matters to customers and how customers judge performance. Without this external perspective input and cost measures are meaningless.

The focus of most companies in the cautious environment in which we currently live, is cost, or more specifically cost reduction.

However, applied arbitrarily this will affect the number and quality of interactions with customers. Consequently this will influence their attitude and behaviour, and therefore the revenues that are generated from them. To spot the right changes to make, organisations need the right metrics in place that balance short-term efficiency with long-term overall effectiveness and drive their organisations behind the outcomes their customers want.

There are real opportunities for all companies to improve marketing effectiveness – all they have to do is look in the right place and arm themselves with the right information.