Chief marketing officers report increased pressure to show the effectiveness of marketing spending. Too often, this leads to a shift in focus from long-term goals like brand building and sales revenue to short-term metrics. CMOs need to work with their CFOs, and their peers, to build the business case in order for them to achieve long-term strategic goals. These 10 steps will help marketing leaders build trust, patience, and confidence to ensure long-term growth is possible.
CMOs often have to scrutinize marketing budgets. According to the August 2021 CMO Survey report, marketing leaders are under increasing pressure to prove marketing's impact. 59% reported increased pressure from CEOs, while 45% felt pressured by CFOs.
This dynamic presents a common problem: proving marketing spend's impact. What will marketing dollars do to improve business performance? What is the return on my marketing dollars?
This question is often answered by CFOs who focus on the short-term financial effects of marketing spending, especially sales revenue. We surveyed more than 50% of CMOs to find out if they are under pressure from non-marketing leaders. They "tend not to be patient for the long-term effects of marketing spend"
Although we believe it is important, the focus on the short-term impact on sales is too limited. Marketers must help the CFO, and the rest of the C-suite, think beyond the immediate. How can CMOs work with their CFO and other financial driven peers to build a business case that encourages trust, confidence, and long-term growth?
Based on the August 2021 CMO Survey and a series of interviews conducted with CXOs from Deloitte's Global Marketing Trends (2021) as well as the forthcoming Google/Kantar “Org of the Future Study-40 CXO interviews,” U.S (2021), we have identified 10 key actions that marketing leaders can take to help them achieve these results.
1. Create a business case that aligns with business priorities and strategic goals.
CFOs want to know "actually what marketing dollars will do for the company," according to one CMO at a financial institution.
Marketers need to be able answer the following questions: How does marketing spend relate to what is most important for the company's future? What are our strategic goals? How can marketing help us achieve them? Your answers should be clear (see point 3), supported with evidence and supported by metrics. If a company seeks to be market leader, branding will be a key strategy. It is important that brand awareness and stature are tracked. It is crucial to maintain customer relationships with your existing competitors in order to resist their intrusions. Customer retention metrics should also be monitored.
2. Establish a partnership with the CFO.
One telling statistic from the CMO Survey is this: Only 35% marketers report using "an integrated marketing team" in which finance and marketing experts work together. This is stark contrast to 77% who claim they use an integrated approach in which digital and nondigital marketing work together. It allows for better planning, informed decisions on both sides, and faster responses as required.
This gap is being addressed by several companies. MillerCoors, for example, created the role of senior director, Marketing Finance. This report reports directly to the CFO, and also has a line to the CMO. This role, which sits on both the leadership teams, allows for more visibility and collaboration between the two departments. Energizer also works to ensure that finance is included in any marketing initiative. This includes having the two teams sit together to foster greater collaboration.
3. Describe hypotheses.
Based on data and experience, the best marketing leaders have a clear understanding of how marketing spend affects various business activities and results. The logic should be clear and easily explained to all decision-makers, including the CFO. This will make it a shared logic that is accepted by the entire senior management team. It is important to make finance an advisor and stakeholder in this effort so that it is ingrained from the start.
4. Measuring brand and customer impact.
Marketing spending cannot be justified by a black box. Marketing leaders must demonstrate their impact on KPIs related to brand and customer relations -- and they must track these measures regularly.
This is not true for many companies. Only 3% of marketers said they measure brand equity consistently, while 35% reported measuring brand equity almost never and 30% reporting using "ad-hoc/when necessary" measures. The survey also revealed that only 8% of marketers measured customer retention/lifetime value consistently or at all. 22% reported measuring brand equity almost every day, while 28% used "ad-hoc/when necessary" measures. These metrics should be collected more frequently by most companies.
5. A full funnel view can be created.
When pitching investments in brand building for CMOs, many marketers recognize that it is often difficult to measure. This is because the funnel activities are more closely related to revenue and sales.
One global CMO of financial services stated that "it's not about spending at the top or bottom of the funnel. It's yes and." There is a common misconception among executives that you can take from Peter to pay Paul... it doesn't work. Differentiation is key for brands. They must knock on the doors and say hello (to customers). If we do not do this better, I don’t think customers will care if we offer an offer.
Marketers must make balanced bets to generate short-term wins as well as long-term value. To understand the preferences of CFOs for financial data, CMOs can create a funnel-wide view showing how marketing is delivering value at each stage of the funnel. They will also be able to demonstrate how this measurement will be tied back to business strategy.
Berkshire Hathaway's Geico, for example, has examined the role of marketing in each stage of the funnel to help customers looking for auto insurance. It is crucial to be on the customers' radar in order to win market share in this business. You see the Geico Gecko everywhere, from billboards and TV commercials. Geico Gecko is a great tool for awareness-building and the call to actions of "15 minutes could help you save 15% or more" gets Geico in customers' heads early so they can make purchase decisions. Geico has spent a lot of marketing dollars at the top end of the funnel for decades. The full-funnel analysis shows that it is worth it.
6. Establish collaborative relationships with C-suite colleagues.
Only 17% of C-suite executives surveyed by Deloitte said that they had collaborated with the CMO over the past 12 months. Monthly meetings with the senior management team may not be the most conducive environment for making the case to spend on marketing. Marketing leaders don't set the agenda and they are unlikely have the time to give a comprehensive and nuanced view of marketing's impact.
We recommend that this work be done one-on-one, with the CMO providing evidence and logic to justify spending while also answering important questions. This approach has the side benefit that it will make marketing more attractive to non-marketing leaders. Marketing is not a cost, but an investment. Regular meetings with senior managers will be more likely to result in a greater understanding and appreciation of the contribution marketing makes.
7. Run experiments.
A control group that doesn't get marketing spending is the best way to build a business case. This is the gold standard. It is important to develop a solid understanding of the counterfactual. What if there had been no marketing spending? This could be accomplished in small-scale field experiments or in the laboratory. Many companies are anxious about conducting experiments. Which customers should they spend the money? rely on them for tactical decisions (red, blue?) We believe it's high time to be more serious about experimentation. To use it strategically to guide marketing investments, and build confidence in the C-suite, we think.
MGM Resorts International conducted a large scale experiment with 1.5 million customers in order to test a new behavioral target approach. This involved shifting marketing dollars to reach consumers and convert them. Comparative to other approaches, the new targeting strategy produced an incremental profit of 20 cents per dollar. This amounts to between $10 and $15 million annually in incremental profits.
8. Marketing has a significant impact on your costs.
Research published in the Journal of Marketing has shown that customers who are satisfied are more responsive to marketing and sales efforts, more open for future offers from companies, and more likely share positive word of mouth. This results in an average of 3% savings on future expenses. This is something that a CFO should be able to take to the bank.
9. Recognize the relationship between metrics and budget.
The CMO Survey found that 41% of marketing budgets were based on previous year's expenses, and can be adjusted during the year, while 10% of marketing budgets must be reviewed every quarter or month to achieve company goals.
We believe that budgets aren't scrutinized as often because metrics aren't collected regularly. CMO Survey results show that the majority of respondents measure their sales and digital/web/mobile performance consistently, but they drop dramatically when it comes to other metrics. How can marketers request budget changes given this gap in metrics? Market leaders must have up-to-date information to lead budget conversations.
10. Change to an investment mindset
According to the CMO Survey, more than half of marketers rated their colleagues below average when they viewed marketing as an investment. Marketing leaders must share this view with their colleagues to help them understand the long-term benefits of marketing spending. This case requires better data, more experiments and the CMO's ability connect strong brands with customer relationships, as well as the CMO's ability and willingness to invest in the long-term health and sustainability of the company.
This is good news because large-scale studies that correlate stock returns with customer satisfaction have already shown evidence of the value. Data shows that a portfolio that scores high in customer satisfaction has a higher return than the market. It achieved a 518% return from 2000 to 2014, compared with 31% for the S&P 500.
To achieve measurable results, CMOs must manage a diverse portfolio of marketing investments. With their CFOs, they can begin to build a win-win partnership that focuses on growth and can help drive long-term business performance. This will require customer and brand metrics to tell the long-term story. A funnel-view of marketing spend that points out what is driving the business and experimentation that allows for agile actions that allow you to translate the short-term into long-term.
