How to gain more productive insights into marketing’s impact on growth.
Attention, all finance executives seeking to understand how (or if) marketing investments drive growth:
Image you arrive home one evening to find something in the house broken or missing, if you ask your kids, “Who broke this?” or, “Who took my <whatever>?” you are likely to send them into damage-control mode and get lots of shrugs and denials. But if you reframe the question to something more like “Does anyone know anything about <fill in the blank>” you give them a bit more latitude to respond in a responsible way. They sense, somehow, that you are more interested in addressing the problem than finding someone to blame for it. Even the kids who know they never touched the object of my immediate interest are likely to learn from this approach and become more proactive in disclosing their borrowing or breaking events in the future.
There are similarities to the family dynamics in the interaction between finance and marketing departments. Finance often is perceived to have parental-like authority in its control of the budget and its audit/oversight responsibility. But, too often, the journey towards better insight into marketing payback gets derailed right at the start when finance asks what it believes to be a logical, simple questions—requests that marketing interprets as challenges:
- “Is our marketing generating any real growth?”
- “How do we know that marketing is working (at all)?”
These questions have the immediate, profound effect of putting marketers into “justification” modes and encouraging them to respond defensively. And, since marketers are pretty creative and articulate, they usually answer with a long stream of ad-hoc evidence, anecdotes, and metaphors that individually may not be so convincing, but, in the aggregate, create enough uncertainty within the executive committee to neutralize the question and deflect the discussion.
The result is a stalemate characterized by marketing using superior powers of presentation and persuasion to cast doubt on the wisdom of cutting marketing spend, and finance leveraging its power to keep any increases to a minimum.
The result: a perfect formula for improving the probability of a declining ROI.
But, even worse, this dance doesn’t help the organization grow any faster or get any smarter. In fact, it actually has a significant “insight-opportunity cost,” since all the resources that could have been directed toward the pursuit of true insight get diverted to justifying, proving, and defending. As “Star Trek” fans know, you can’t go forward at warp speed when your shields are up.
Successful marketing measurement, like many other challenging tasks within a company, is a function of effectively deploying constrained resources on a few key focal points rather than fracturing the effort into a broad search for the “preponderance of evidence.”
Imagine the insight you seek is trapped inside a large wooden log and that splitting the log open is the only way to extract that knowledge. You can split the log with a sharpened axe striking the right point in a single blow (okay… two at most). Or you can endlessly pound it with a sledgehammer until it (or you) slowly turns to dust.
Which approach would you prefer?
CFOs are much more likely to get sound answers to their questions by approaching the subject of marketing payback from an angle that generates productive engagement rather than defensive deflection. Doing so requires a few specific attitudinal changes. Specifically:
- Acknowledge that good marketing always creates shareholder value.
If necessary, suspend your disbelief and be willing to concede that if we did things better, we would see a beneficial result.
You might even help frame the possible arguments. Rajendra Srivastava, provost at Singapore Management University and expert on the marketing/finance dynamic, says, “The CFO often knows much more about how marketing can help the business than they tend to admit. They understand how marketing can stimulate growth and reduce the overall enterprise risk by smoothing cash flows, inducing greater customer loyalty, and creating options for companies to enter categories or sectors they weren’t in before—all of which can be very helpful in managing investor expectations.”
- Embrace uncertainty—especially in the early stages of measurement when the unknowns will outnumber the knowns.
Be patient with ambiguity and willing to accept, “I don’t know…” as an answer from marketing in the near term, provided it is followed in short order by, “…but here is what we can do to find out.”
Premature demands for precision will backfire in the form of higher weighting of the more immediately measurable marketing elements such as Web site traffic and direct-response rates – even if those aren’t the real drivers of your success in the marketplace.
- Exercise patience.
The answers to some CFO questions may take some time to answer. Expect to see some progress soon, then more in measured increments. But don’t assume that applying time pressure will speed discovery. More likely, impatience will be met with passive-aggressive resistance that will surface many more complex obstacles than anyone on a finance team will have the time (or ability) to address.
There are a few targeted questions you can ask of marketing to put the measurement effort on the right track, that tend to strip away all the strategic/conceptual talk:
- What are the specific goals for your company’s marketing spending and how should you expect to connect that spending to growth in revenue and/or margins?
- What would be the short- and long-term impacts on revenue and margins if your company were to spend 20 percent more/less on marketing in the next 12 months?
- Compared to relevant benchmarks (historical, competitive, and marketplace), how effective is your company at transforming marketing investments into profit growth?
- What are appropriate targets for improving your marketing leverage (dollars of profit per dollar of marketing spend) in the next one, three-, or five-year horizons? What key initiatives are is the marketing department counting on to get the company there?
- What are the priority questions you need to answer with respect to your knowledge of the payback on marketing investments. What are finance and marketing doing – together – to close those knowledge gaps?
You can use these questions to gauge the extent to which your company’s marketing is focused on the right growth outcomes. Is marketing strategically aligned with the rest of the organization? Is it sufficiently focused on measuring the shareholder value created by its efforts? Does it really know where to invest and where to cut losses and re-allocate?
Middle-management marketers who cannot clearly answer these questions not necessarily are uninformed. They may be brilliant at brand development. Or they may be able to generate dozens of creative ways to draw positive attention to the company every month. But, the CMO should have answers – or at least a plan to develop the answers – to performance questions.
The most important point is to properly tune the spirit of your inquiry so it is interpreted as a quest for insight rather than an attack on the marketing organization.
Do this, and you’ll get much closer to the answers you’re seeking.
And you’ll get there much faster