We're five or so 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 these questions are not what we'd expect, considering 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 return on investment (ROI).
Two studies released at the Association of National Advertiser's (ANA's) Marketing Accountability Conference found that the majority of financial executives don't believe the ROI numbers or forecasts coming from Marketing:
- Nine out of 10 said they don't use ROI metrics to set marketing budgets in the annual budgeting cycle.
- Seven out of 10 said their companies don't use marketing inputs and forecasts in financial guidance to Wall Street or public disclosures.
- Six out of 10 said their companies' marketing departments have an inadequate understanding of financial controls.
- A surprising four out of 10 said marketing forecasts made inside their company can't pass the muster of a standard corporate audit. Finance isn't the only department that is 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 said 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."
Adding more fuel to the fire, the ANA's studies mentioned earlier found as follows:
- Only one out of 10 marketing executives said they could forecast the effect of a 10% cut in spending.
- Fewer than two out of 10 said senior management had confidence in their firm's marketing forecasts.
Here we are, more than five years in, and nary a quarter of marketers say they use ROI or similar financial measures to assess marketing effectiveness. Why is it taking so long!
One gigantic drag on marketing accountability efforts has got to be that Finance and Marketing remain estranged—only 33% of marketers 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 Marketing's accountability efforts. Should we really be all that surprised (or incensed) then, that Finance thinks the numbers are bubkes?
A recession is no time for messing with Finance. Marketers need to immediately cease taking the business-as-usual approach of measuring marketing effectiveness in a vacuum. Here's a short list of ideas for both jump-starting our own marketing-accountability efforts and engaging finance folks in those 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?" ask Larry Selden and Geoffrey Colvin in a recent Harvard Business Review piece.
They admit, however, that they can find few who 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 that there's nothing particularly mysterious or proprietary about measuring customer profitability. 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 as well.
You probably have a good handle on the costs to reach and influence different customers via the sales force and media, in addition to how much it costs to deliver to and serve customers. Ask Finance for its 2 cents on costs—remember, Finance thinks we don't understand financial controls, so we need to demonstrate otherwise.
Also ask Finance for input on which financial measures would work well with its reporting, which could be shared with investors or in public disclosures, and which they'd like to see in general.
Whether Finance wants to see how Marketing affected loyalty, satisfaction, sales, spending, or 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 it to take the ROI information seriously.
2. Explain how you'll get your story straight
ROI and other financial measures are nice numbers if you can get them—and there's no reason you can't. Absolute numbers, however, are just one part of the accountability story.
If the 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 did or didn't work and how those in a particular functional area will address what didn't work. If nothing else, that information bolsters Finance's confidence in the functional areas and their ability to fix problems and stick to profit and growth objectives. Marketing, therefore, needs to get its story straight.
The first step is to think about customer profitability and financial measures of success, and the second step is to figure out what is and isn't working, the reasons why, and what to do about it. Those do not need to be entirely separate exercises. While you're running an 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 that term, think of the chain of events that occur after buyers are exposed to marketing programs. In a perfect world, buyers become aware of a program (e.g., via a TV ad, a sponsorship, a direct-mail piece), they remember the brand message communicated, and the message positively affects buyers' perceptions and attitudes. Their preferences for the brand, and their intentions for the brand and for making a purchase, improve. But it's not a perfect world, and most of the time there are missing links in the chain.
Say you find that customer awareness of your campaign is off the charts, but sales are going nowhere. By pinpointing where the breakdowns in communication are (e.g., is it that the message itself wasn't compelling?), 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. Show Finance that just as Operations monitors productivity in a way that quickly diagnoses and fixes bottlenecks to keep itself in line with goals and objectives, Marketing can, too. Get Finance's buy-in to the process early, and it will save you headaches later.
3. Ground the marketing budget in reality
When it comes to the marketing budget, the ANA research confirmed what we already knew. Finance doesn't pay much attention to information from Marketing, when it comes to setting the marketing budget. 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 an answer.
They lack any hard and fast numbers 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 that Finance hands down isn't grounded in reality.
Let's face it, Finance 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 into it (gross rating points) will produce what marketing believes will come out (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 or an audit scrutiny; or, at the very least, give Finance more confidence in the predictive abilities of our forecasts.
Educate yourself. Talk to Finance about the modeling tools that 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—positive or negative—and 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 that we can deliver the goods.
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New products fail all the time because marketers get customer input and feedback after the products are out in the market. Why should we expect accountability efforts to succeed in delivering information that Finance can use and believe in if we don't talk to Finance until after we've put that information together?
Marketers have got to stop guessing at what will satisfy the finance folks. We've got to get in their faces and prove that 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."
