[Editors note - from time to time, we'll publish guest blog posts.  This one is from Kevin Hillstrom, President, MineThatData.  If you're interested in publishing a guest blog, or becoming a blogger, contact Josh Greene ]

A New KPI: The Net Google Score

I recently met with two executives, an EVP of Merchandising for a traditional catalog brand, and a CEO of an online pure-play. Both made interesting comments about traditional advertising and direct marketing.

The EVP of Merchandising lamented the fact that as he improved his ability to execute catalog advertising, his competitors benefitted from his efforts. In other words, his catalogs created demand, driving the customer to Google, where the customer discovered a dozen competitors with comparable items at comparable prices. This executive felt that his business was losing volume simply because of the dynamics of an online ecosystem fueled by his advertising strategy.

Conversely, the CEO of the online pureplay told me that improvements in natural and paid search performance were correlated with traditional advertising campaigns launched by larger and better funded competitors.

Each executive observed the same phenomenon from a different perspective. Customers turn to the internet, Google in particular, to learn as much as they can about products and services. Google re-distributes demand on the basis of the ability of a brand to create demand, to execute natural and paid search well, and to offer quality merchandise at a perceived fair price.

We need a new metric to measure this dynamic. I call the new metric the “Net Google Score”.

Simply put, the “Net Google Score” represents the net impact of Google on our business. We sum all of the demand generated by Google, then subtract all of the business that Google re-directs to our competitors, demand we would have otherwise generated. We do a great job of measuring the positives, quantifying ROI down to the penny. We don’t have a good methodology for measuring re-directed demand.

The EVP I mentioned earlier in this article surmises a Net Google Score that is negative. Maybe he manages a $25,000,000 product line, with $4,000,000 demand generated by Google. If his catalog marketing activities result in $6,000,000 demand being re-distributed by Google to competitors, he ends up with a Net Google Score of ($2,000,000). At a forty percent contribution level, the EVP is losing $800,000 of annual profit based on having a negative Net Google Score.

The CEO of a $5,000,000 online pure-play might generate $1,000,000 demand thanks to paid and natural search programs. If the CEO sees just $250,000 of demand re-distributed by Google to competitors, he ends up with a Net Google Score of $750,000. At a forty percent contribution level, he generates $300,000 profit, thanks to Google.

As business leaders, we need to carefully consider the impact of traditional advertising and direct marketing on the e-commerce ecosystem. Are our efforts working against us, fueling growth among competitors? Or do our efforts create online buzz, causing Google to send more business our way?

In 2009, we’ll collaborate with vendor partners to build tools that calculate the Net Google Score. We’ll better understand how our relationship with Google impacts growth and profitability. And if the Net Google Score is negative, we’ll need to evaluate our approach to traditional advertising and direct marketing. Clearly, the Net Google Score is an important metric for us to calculate in 2009.

Kevin Hillstrom, President, MineThatData.