Marketing Myth of September

MYTH: Marketing and Finance collaborate on a regular basis to ensure marketing accountability efforts satisfy the needs of the finance folks.

TRUTH: Marketing and Finance are as far apart as they ever were. The only thing they agree on is that marketing metrics aren't giving them what they need.

We’re five years into the “Era of Accountability” and what do we have to show for it? Is marketing any closer to demonstrating to CEOs and CFOs what they’re getting for their money? Are we marketers more comfortable in our own skins, confident of our ability to measure and improve the effectiveness of our strategies and programs? Unfortunately, the answers to all of these questions are not what we’d expect given that accountability has been at the top of the vast majority of marketers’ to-do lists for as long as it has.

According to a recent study from Marketing Management Analytics and Financial Executives International, barely 7% of financial execs feel satisfied with their company’s ability to measure marketing ROI. According to two studies released at the recent Association of National Advertiser’s (ANA) Marketing Accountability Conference, the majority of financial executives just don’t believe the ROI numbers or forecasts coming from marketing:

Nine of 10 said they don’t use ROI metrics to set marketing budgets in the annual budgeting cycle
Seven in 10 said their companies don’t use marketing inputs and forecasts in financial guidance to Wall Street or public disclosures
Six in 10 believe their companies’ marketing departments have an inadequate understanding of financial controls
A surprising four in 10 believe that marketing forecasts made inside their company can't pass the muster of a standard corporate audit

Finance isn’t the only department skeptical of marketing’s accountability efforts. According to the 2008 Marketing ROI & Measurement Study from the Lenskold Group and MarketingProfs, we don’t believe our numbers either! A scant 17% of marketers believe their company’s ability to measure the financial return generated from marketing investments is “a source of real leadership” and “as good as it needs to be.” More fuel to the fire, the ANA studies mentioned earlier found:

Only one in 10 marketing executives said they could forecast the effect of a 10% cut in spending
Fewer than two in 10 said senior management had confidence in their firm’s marketing forecasts

Here we are five years in and nary a quarter of marketers saying they use ROI or similar financial measures to assess marketing effectiveness. What is taking so long?!

One gigantic drag on marketing accountability efforts has got to be the fact that finance and marketing remain estranged—only 33% reported “full cooperation and an open dialogue” with finance. In most firms, marketing is developing metrics, investing in tracking systems, and ultimately delivering information to finance without ever once asking finance for input into the process or an endorsement of their accountability efforts. Should we really be all that surprised [or incensed] then that finance thinks the numbers are bubkus?

A recession is not a time to mess with finance. Marketers need to immediately cease and desist the business-as-usual approach of measuring marketing effectiveness in a vacuum. Here’s a short-list of ideas for engaging finance folks in and, at the same time, jump-starting your own marketing accountability efforts.

#1. Offer a penny for their thoughts.
“How many CMOs are partnering with their CFOs to create comprehensive and regular reporting on customer profitability?” writes Larry Selden and Geoffrey Colvin in a recent Harvard Business Review piece. They admit, however, that try as they may, they can find few that calculate profitability for each customer based on total revenue and expenses, including capital costs. Talk about an opportunity! Can you imagine being able to demonstrate each quarter marketing’s contribution to improved and enhanced customer profitability? Now that’s a number finance could believe in.

Bear in mind there’s nothing particularly mysterious or proprietary about measuring customer profitability. Copernicus does it in many of our strategic studies and ROI evaluations. Marketers could start by calculating, for example, the lifetime value of current customers. There are revenue measures such as current spending in the category and current share for your brand today as well. You probably have a good handle on the costs to reach and influence different customers with the sales force and/or media, in addition to how much it costs to deliver and serve them. Ask finance for its two cents on costs—remember they think we don’t understand financial controls so we need to demonstrate otherwise.

Also ask finance for input on what financial measures would work well with their reporting, that could be shared with investors or in public disclosures, or that they’d like to see generally. Whether they’d like to see how marketing impacted loyalty, satisfaction, sales, spending, share of wallet among the most profitable customer groups, marketers need to build metrics around what’s going to make finance happy if we want them to take the ROI information we give them seriously.

#2. Explain How You’ll Get Your Story Straight.
ROI and other financial measures are nice numbers if you can get them—and really there’s no reason you can’t. Absolute numbers, however, are just one part of the accountability story. If operations folks came to finance and said here’s our productivity level, here’s our yield, it was up or it was down, end of discussion, they’d be laughed out of the room [or worse]. Finance needs to know why something worked or didn’t and what a functional area plans to do about it. If nothing else, it gives them confidence that the people running said functional area know what they’re going to do to fix problems and stick to profit and growth objectives. Marketing needs to get its story straight.

The first step is to think about customer profitability and financial measures of success, the second step is to figure out what is working, why, why not, and what to do about it. These do not need to be entirely separate exercises. While you’re running econometric analysis to ferret out the ROI or regular tracking efforts to gauge performance, consider some hierarchy of effects analysis. If you’re not familiar with the term, think of the chain of events that occurs after buyers are exposed to marketing programs. In a perfect world, buyers become aware of a program (e.g., a TV ad, a sponsorship, a direct mail piece); buyers remember the brand message communicated; and the message positively affects buyers’ perceptions and attitudes. Their preferences for the brand and intentions to purchase improve. But it’s not a perfect world and most of the time there are missing links in the chain.

Say you find the awareness of the campaign is off the charts, but sales are going nowhere. By pinpointing where the breakdowns in communication are—was it awareness of the message, the message itself wasn’t compelling, or what—marketers can make adjustments mid-campaign and get a better understanding of what they may need to do with other marketing programs to improve performance.

The means you are using to build your story for finance needs to be completely transparent to them. Show finance that just as operations monitors productivity in a way that quickly diagnoses and fixes bottlenecks to keep in line with goals and objectives, marketing can do it too. Get their buy-in to the process early and it will save you further headaches later.

#3. Ground the Marketing Budget in Reality.
When it comes to the marketing budget, the ANA research pretty much confirmed what we already know. Finance doesn’t pay much attention to information that marketing hands them as far as setting the marketing budget is concerned. At the same time, if finance asks marketing a question such as, “we need to cut spending, what would happen if we cut the marketing budget by 15%?” most marketers don’t have a answer. They lack any hard and fast numbers they can present that demonstrate the ramifications for sales, profits, brand equity, and more in defense of their budget. To say this is a major impediment to marketing accountability efforts is an understatement. No matter how great the metrics are, marketing ends up more or less chasing windmills if the budget finance hands down isn’t grounded in reality.

Let’s face it, finance pretty much ignores anything that goes into or supposedly will come out of the marketing plan. It’s a nice document, to be sure, but in most cases there’s nothing to fill anyone—finance folks AND marketers included—with great optimism that what goes in to it (i.e., GRPs) will produce what marketing believes will come out (i.e., sales increases, profit rises, etc.). Do a little reconnaissance with finance about what a marketing plan or forecast might need to look like or do to withstand Wall Street and/or audit scrutiny, or at the very least give them more confidence in the predictive abilities of our forecasts.

Also do some education. Talk to finance about the modeling tools marketers can use to scientifically connect different inputs and desirable outputs. Demonstrate how, with modeling tools, you can experiment with different budget levels to show the anticipated impact—be it positive or negative—and/or what outputs to expect given a particular budget amount with which to work. If finance folks know our plans aren’t held together by hopes and prayers then they are much more likely to feel inspired to use our guidance in setting (or signing off on) a marketing budget rather than pulling it from thin air. Remember, CFOs and financial executives everywhere are on edge. They’re looking for ways to save money and they need evidence that whatever budget they’re authorizing is going to produce a good return for the firm. We’ve got to show them we can deliver the goods.

New products fail all the time because marketers got customer input and feedback AFTER it’s out in the market. Why should we expect accountability efforts to succeed in delivering information finance can use and believe in if we don’t talk to them until AFTER we’ve put them together? Marketers have got to stop guessing at what will satisfy finance. We’ve got to get in their face and prove we want them to hold our feet to the fire with hard measures, fact-based stories, and rigorously designed plans. It’s the only way to win them over and convert accountability from a “to-do” to a “done.”

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