What is the difference between efficiency and effectiveness marketing measures?

Efficiency vs effectiveness definition & explanation

efficiency-vs-effectivenessI think many would think the meaning of efficiency and effectiveness are similar terms for describing the performance of a business process.

If so, think again, since whatever the type of process you really need both types of measures when identifying the most suitable goals and measures to assess your marketing or business effectiveness. It’s fine to say the difference doesn’t matter especially, but I think that understanding the difference helps you create a better set of measures!

I hope to show why the difference is important in this article where I’ll give a brief definition of each and show examples of efficiency and effectiveness measures applied to digital marketing.

Definition of efficiency

The simple, often used, definition of efficiency is (“doing the thing right“).

We need this measure for marketing activities and business processes since it helps us see when we are minimising resources or time needed to complete a process, i.e. we are keeping our costs low. In digital marketing, for example, efficiency involves increasing conversion rates and reducing costs of acquisition.

Within digital marketing, common efficiency measures across the areas of the the digital marketing activities of the RACE framework are:

Reach

  • Cost of acquisition (CPA)
  • Clickthrough rates on Ads or Adwords

Act

  • Bounce rate
  • Pages per visit

Convert

  • Conversion rate to lead or sale
  • Checkout conversion rate

Engage

  • Repeat conversion rate
  • Activity of customers on email lists or followers on social sites

Definition of Effectiveness

The simple definition of effectiveness is (“doing the right thing“).

In digital marketing, effectiveness involves supporting broader marketing objectives and often indicates the contribution of the online channel.

Across the digital marketing activities of the RACE framework, examples of effectiveness measures are:

Reach

  • Revenue or goal value per visit
  • Audience share compared to competitors
  • gap analysis of total search demand

Act

  • Average order value
  • Number of items per order

Convert

  • Margin
  • Customer satisfaction with site experience

Engage

  • Hurdle rate of percentage active online customers, subscribers or followers
  • Customer lifetime value
  • Customer satisfaction experience across whole site

You can see that sometimes it’s not possible to definitively state which is which, but for the main thing is to review that you have a good coverage of each.

An example of efficiency and effectiveness measures

I’ve create this example based on the balanced scorecard, popularised in a Harvard Business Review article by Kaplan and Norton (1993).

It is still used in many large organisations and can still be used to today to help translate vision and strategy into objectives and then, through measurement, assessing whether the strategy and its implementation are successful.

Balanced scorecard sector Efficiency Effectiveness
Financial results (Business value)?
  • Channel costs?
  • Channel profitability
  • Online contribution (direct)
  • Online contribution (indirect)?
  • Profit contributed
Customer value
  • Online reach (unique visitors as % of potential visitors)
  • Cost of acquisition or cost per sale (CPA/CPS)
  • Customer propensity
  • Sales and sales per customer
  • New customers
  • Online market share
  • Customer satisfaction ratings
  • Customer loyalty index
Operational processes
  • Conversion rates
  • Average order value
  • List size and quality
  • E-mail active %
  • Fulfilment times
  • Support response times
Operational processes
  • Conversion rates
  • Average order value
  • List size and quality
  • E-mail active %
  • Fulfilment times
  • Support response times

The balanced scorecard combines efficiency and effectiveness measures and was a response to over-reliance on financial metrics such as turnover and profitability and the tendency for these measures to be retrospective rather than looking at future potential, as indicated by innovation, customer satisfaction and employee development.

In addition to financial data, the balanced scorecard uses operational measures such as customer satisfaction, efficiency of internal processes and also the organisation’s innovation and improvement activities including staff development.

Summary

It is useful to identify efficiency and effectiveness measures separately, since online marketing and web analytics often tend to focus on efficiency. Hasan and Tibbits (2000) note that the internal process measures in particular are concerned with the efficiency and the customer and business value perspectives are indicated with effectiveness, but these measures can be applied across all four areas as we have shown.

References

Hasan, H. and Tibbits, H. (2000) Strategic management of electronic commerce: an adaptation of the balanced scorecard, Internet Research, 10(5), 439, 50.

Kaplan, R.S. and Norton, D.P. (1993) Putting the balanced scorecard to work, Harvard Business Review, September-October, 134, 42.

  • ankit rathi

    good evaluation

  • http://www.facebook.com/rabil.rathi Rabil Rathi

    nice views

  • Learner

    efficiency is (“doing the thing right“).
    effectiveness is (“doing the right thing“).
    this is simple and elegant, Thank you :D

    • Achal

      I guess this difference between validation and verification

    • Jomo74

      Hybrid car is efficient… Lamborghini is effective.. big similarities with a difference..

  • http://www.facebook.com/alik.kountry Alik Kountry

    Great observation for the comparisson fo the two terms

    • http://www.smartinsights.com/ Dave Chaffey

      Thanks for your comments folks, I’m glad this post is proving useful.

      Dave

  • Student101

    Thanks! Helped me alot in writing my school paper. In your scorecard you got Operational processes twice…by accident?

  • Pingback: Benny Andersson 2.2

  • aze

    thank you for posting with this terms its help my confusions about this 2 terms.very useful.keep it up:}

  • Jayson Loyola

    Thanks, i used to get so confused most times

  • Martin

    “Average Orde Value” is assigned to effectiveness (RACE) AND to efficiency (BSC). Does this make sense?

    • http://www.smartinsights.com/ Dave Chaffey

      Yes – it does since any of the RACE metrics can be either efficiency or effectiveness although the precise categorisation probably doesn’t matter.

  • omar

    any body with a little common sense can do the right thing ! while not everybody can do the thing right .

  • Pingback: What is the difference between efficiency and effectiveness marketing measures? | socialmediabizuk

  • Pingback: What is the difference between efficiency and effectiveness marketing measures? – Smart Insights Digital Marketing Advice | HE Marketing

  • George

    Thanks for this article. One of the striking differences is that while efficiency decreases cost of operations effectiveness maximizes output or profit margin without additional cost.

  • poran

    thanks for the comment – yes that’s the thing – everybody I’ve met “just gets it”.
    otomatik kapı Otomatik Kapılar

  • http://www.latestdatabase.com/ Latest Database

    There any person have email lists for sale . I have more clients who want to purchase mailing lists for their mail campaigns.

  • email database

    Need a plan about email marketing. I need someone who can give me any tips to buy email database.

Feedback Form
Feedback Form