Monday, June 1, 2009

Restoring Marketing and Finance Balance: How Marketing Can Save the (Corporate) World

In my last blog post, "Welch, Drucker, CFOs, CMOs, and the Yin and Yang of Corporate Culture," I suggested that corporate culture was not in harmony--too much focus on quick returns, not enough on building brands; too much demand for the quantitative, not enough for the qualitative; and most importantly, too much finance and not enough marketing.

Corporate success may be measured in dollars and cents--the realm of the CFO--but that success is delivered by brands that connect emotionally and logically to consumers--the domain of the CMO. Shareholders, consumers, and other stakeholders benefit when finance and marketing are in balance and collaborative, but it is apparent these functions are more competitive than they are united. More importantly, in today's business culture, one has become the dominant force in the enterprise, setting the tone, establishing the rules, and defining the language.

Adweek, for example, offers the biting headline, "CFOs Aren't Big Fans of Marketing." You can read the article to find out what CFOs think of marketing budgets, but ask yourself if you can conceive of the shoe-on-the-other-foot headline, "CMOs Aren't Big Fans of Finance." It would be laughable if it weren't such an obvious reminder of the unequal stature between these two functions.

Want more evidence of the finance function's jurisdiction in the realm of marketing? If you search for the term "CFO" on Adweek, you'll get 589 results. Over on, the term "CMO" appears just six times.

If you're still not convinced, let's call to the stand CMOs themselves to testify as to their place in the corporate world. The CMO Club recently polled its own members about who has the most credibility to the CEO. The results? Of the CMOs surveyed, 31% said the CFO, 24% said Head of Sales, and just 13.8% felt the CMO was most credible.

If CMOs aren't credible, it should come as no surprise they don't retain their jobs for long. In 2007, a study found it "astonishing" that average CFO tenure had slipped under five years, but that kind of job stability would be welcome to CMOs, who currently average barely two years in their position.

And marketing's PR problems aren't limited to the executive offices and boardrooms. A recent study found that "66% of Americans believe advertising agencies bear at least some responsibility for the recession because they 'caused people to buy things they couldn’t afford.'" We are in the midst of a crisis caused by financial institutions, abusing complex financial derivatives, with poor financial standards, exacerbated by financial rating agencies with effects spread by investor actions in financial markets, and people blame marketing?!?

The discipline of marketing is ailing, and this should be a concern not just to marketing professionals but to anyone who cares about financial performance and stock prices. Strong marketing creates strong brands that yield strong results. Below is a comparison of the stock price performance of Interbrand's Top 10 Brands for 2008 compared to the Dow Jones and S&P 500. Both year to date and in the past 365 days, top brands were not immune to the problems plaguing the overall economy, but these strong brands have produced better value for stockholders.

Those of us in the marketing profession have our work cut out for us. We must change the conversation within our enterprises. But before we can restore balance to business, we must first restore balance to the discipline of marketing. Here's how:

Measure Quality Along with Quantity

Some marketing is Direct Response Marketing. It has an offer, a call to action, and an immediately measurable response. For brands that sell directly to consumers, Direct Response Marketing is a science that yields accurate calculations of ROI. Online retailers, for example, can calculate the financial impact of changing a Pay Per Click (PPC) ad headline or offer with great precision. In this case, the connection between a specific medium, offer, consumer, and purchase is tangible.

But what about brands that don't have such a direct relationship with consumers? The association between a CPG brand's marketing investment and sales lift is nowhere near as direct when consumers purchase products in the aisles of a supermarket or convenience store. This is not only because of the diffuse nature of the distribution but also the breadth of marketing messages to which consumers are exposed prior to purchase.

How can you know that billboard, that print ad in that magazine, that visit to a microsite, or that iPhone app contributed to a purchase? More to the point, when marketers envelope consumers in a fog of marketing media and messages, how can you tell the extent to which any specific medium or message contributed to sales lift? Data collection and mining offer some insight, but it is nowhere near perfect.

There are several ways to solve this problem, including better definition of data needs, more thorough data collection and improved analysis. But it is also vital marketers measure the qualitative along with the quantitative.

Data that demonstrates increased purchase intent, improved awareness, or enhanced influence (such as the Net Promoter Score) are not embarrassing stand-ins when hard sales data is difficult to collect; instead, these metrics are vital marketing KPIs that evaluate the long-term health of brands and the outcome of marketing investments. Marketing professionals must champion qualitative metrics as no less valuable than the quantitative ones.

Increase Marketing's Reach Within the Enterprise

It's time for marketers to start a turf war. In far too many organizations, the discipline of marketing has been narrowed to focus largely on advertising and media. We live in a much too complex and interconnected world to think that brands can be nurtured purely based on advertising.

For example, it might seem odd to suggest that the maintenance crew in a grocery store should be within the sphere of the marketing function, but in our increasingly social world, a dirty bathroom can be a brand and marketing issue. I'm not suggesting that those responsible for janitorial services report to the CMO, but if we agree a brand is a promise created by experiences across all touchpoints, then marketers must be aware of and influence the consumer experience at every touchpoint, even the bathroom.

Don't believe me? Perhaps you'd listen to Ray Kroc, who knew that "Having clean bathrooms was always... at the forefront of McDonald's image." The founder of the quick service restaurant chain--number eight on Interbrand's Best Global Brands list--"would often tell McDonald's insiders that kids can't tell the difference between the quality of one cheeseburger or another but mothers would always know and remember which bathrooms were clean and which weren't." That sort of wisdom could only come from a marketing mind that understands how consumers form bonds with brands and is capable of broadly defining and influencing the consumer's total brand experience.

Marketers should also care deeply about the hiring and training practices within their organization. We live in an age when employees throughout the enterprise have unprecedented power to affect brand perception, both positively and negatively. Today, two teen employees with a cell phone camera can create a PR crisis or a single employee can temporarily speak on behalf of (and harm) their employer's brand.

It wasn't that long ago that every brand message broadcast to consumers was vetted by lawyers and executives. Today respected and high-performing companies like Zappos and Dell have dozens of individuals speaking on their behalf to hundreds and thousands of consumers; these communications are monitored to be sure, but the conversations and messages are unfiltered and unapproved in real-time.

In our progressively more transparent world, how important is it to find employees who embody the brand and to train them how to represent the brand in their communications? Brian Kalma, the head of User Experience at Zappos, recently spoke at Fullhouse and was asked how much freedom employees should be given to speak on behalf of the brand in Social Media. He responded, "If you don't trust them to speak for you, why are they your employees?"

Advertising is still and will remain a valuable tool in the marketer's toolkit, but consumer opinions are formed by far more than just billboard and TV commercials. Experiences create (or destroy) brands, and these experiences occur every time a customer service rep answers the phone, a customer visits a bathroom, an employee tweets, an instruction manual is read, or a consumer visits a brand's Web site. All of these touchpoints must reflect the brand, and this means marketers must have awareness of and leverage over the consumer's experience in each channel.

Respect that Social Media is Innovative and Evolving, not Experimental

We are at a crossroads in the history of marketing. Much like in the mid- to late-90s when companies struggled to recognize the importance of the Internet, Social Media is challenging marketers. We should learn from the Internet adoption experience and not repeat the mistakes. The way in which brands adapted to the Internet age and the speed at which they did so created winners and losers. Social Media will do the same, so it is vital marketers move assertively to explore and embrace Social Media.

The shift in consumer behavior has been clear and undisputed. Three of the top five Internet destinations in the United States are now Social Media sites, Twitter grew at a rate of over 1,000% in the past year, and social networking among US broadband users has grown 93% since 2006.

These sorts of changes in consumer media consumption should be cause for action, yet marketers are treating Social Media more like an annoying diversion that a strategic imperative. Forrester found that 75 percent of marketers have budgeted less than $100,000 for social media efforts over the next year. (That would be less than the cost of a single 30-second spot in prime time last year.) The firm concluded that social media has not yet entered the marketing mainstream, but is largely relegated to "experimental budgets".

Since when did we marketers get to be such a conservative bunch? Marketing used to be a place for innovative and creative thinking! I'm not suggesting marketers shovel money at Social Media indiscriminately or that we rush into every Social Media tactic at once, but the time to call Social Media "experimental" passed around the time Facebook's traffic eclipsed CNN's (which is to say a year ago.) Today, even Twitter is drawing more traffic than!

The need for marketing to move from mass to small isn't a new realization. Four years ago in a brilliant essay on, Bob Garfield wrote, "Quit playing for the three-run homer and amass the singles and doubles." After envisioning the "slow collapse of the entire mass media advertising market," he said the Holy Grail will be "to reach -- and have a conversation with -- small clusters of consumers who are consuming not what is force-fed them, but exactly what they want." We've had years of forewarning and plenty of time for experimenting; now is the time to be swimming in the Social Media waters, not dipping our toes into them!

Of course, Social Media is a challenge for marketers because traditional display advertising doesn't work on social networks. And already there is growing evidence that consumers are growing tired of being asked to "friend" their brands on social networks like Facebook. But our response to these challenges shouldn't be to label Social Media experimental--that's the linguistic equivalent of hiding our heads in the sand.

Instead, marketers must embrace Social Media, discover what makes it tick for their brands, and dig deeper for marketing strategies that aren't about messages and campaigns but instead about dialog, connections, and transparency.

How important is Social Media to brands? The world of 2009 isn't like the world of just three years ago. No PR crisis will develop for consumer brands that won't occur, be detected, and combated in Social Media. No consumer survey will furnish insights into brand perception more accurately than can be found in the buzz of Social Media. And if not already then in the near future, consumers will learn more about brands from each other than from traditional advertising.

Different brands and different categories certainly have different opportunities in Social Media--some are immediate and huge, and some less so. But all brands have risks and benefits in the Social Media of today, and all brands will see these risks and benefits grow in the coming years.

The fact we experiment in a medium doesn't mean that medium is "experimental." Decades after television became the predominant ad vehicle for large brands, marketers continue to experiment with fewer ad breaks and shorter ads, but no one would label their TV budget as experimental. It is time to approach Social Media with the same maturity. Marketers should, by all means, experiment with different Social Media tactics and channels, but they must not consider Social Media experimental and relegate their attention or investment in this medium to the fringes.

Build Brands for the Long-Term

Finally, if marketers are to change the conversation in their organizations, the change must start from within. To paraphrase the King James Bible, "Marketer, heal thyself." If we want our CEOs and CFOs to recognize the long-term value of brands, then we must do so.

Today's stock price is important, but not more than tomorrow's. Certainly, consumers must buy our brands today if our enterprise is to exist tomorrow, but we must never forget that a brand's primary purpose is to furnish value in the future. Evaluating our marketing efforts based only on how it sells product today without considering whether we're building or diminishing the brand's future is detrimental to the financial interests of all stakeholders.

If recent economic news should teach us anything, it is that focusing only on quantitative short-term results is not in the best interest of shareholders or anyone else. If fixating on stock prices quarter to quarter was a successful strategy, then Enron, AIG, and GM would be today's Wall Street darlings. (Ironically, moments after typing that last sentence, my cell phone buzzed with a CNN News Alert indicating that GM will be declaring bankruptcy tomorrow.)

Despite the obvious need for long-term thinking, marketers are sounding more like financiers than stewards of their brands; we speak more of the immediate return on our marketing spend and how it is moving product off of shelves and less of brand equity and how our marketing investment is increasing awareness, consideration, purchase intent, loyalty and influence.

The short- and long-term are not mutually exclusive, but they become so if we willingly concentrate on one to the detriment of the other. And if marketers won't champion the importance of long-term brand vitality, then no one else within the business will.

If we need models for the importance of long-term brand thinking, we need look no further than those brands that have rested at the top of Interbrand's Best Brands report for years. Brands like McDonald's, Disney, and Coca-Cola didn't build brand value worth billions of dollars by focusing only on those tactics that delivered immediate sales lift. Companies like these were built by business leaders willing to treat their brands as assets to be fostered, not as expenses that generate instant results. In the Interbrand report, Stephanie Colton & Carolyn Ray note that "leaders look at the branding process as a long-term operational commitment or way of working, not a short-term initiative."

One way for CMOs to restore the balance between immediate and future brand needs is to change the way bonuses and compensation are calculated. James Lenskold, author of "Marketing ROI: How to Plan, Measure, and Optimize Strategies for Profits," recognizes compensation plans as one of the key challenges standing in the way for long-term brand success. He says, "Compensation, recognition, and career advancement tend to motivate short-term gains over long-term gains and individually driven gains over collective corporate gains."

Another way for marketers to balance the long- and short-term is to set reasonable and varied goals for their agencies. Much like altering compensation for marketing employees, agency fees should be based upon the agency's ability to improve not just today's sales but to equip the brand for future success. The right metrics will depend upon the brand's objectives, challenges, and maturity. Setting incremental sales increases as a metric is certainly important, but so is measured growth of awareness for a newer brand, association with particular brand attributes for a brand in flux, or improvements in a brand's net promoter score for a mature brand.

Finally, to balance the demands of the now with the needs of the future, marketing and finance must collaborate and work together as equals. In "Vulcans, Earthlings and Marketing ROI: Getting Finance, Marketing and Advertising Onto the Same Planet," Rutherford and Knowles note the importance of developing a Causal Model "to explain how marketing and advertising effort contribute to business success," and they assert that such a model "must account not only for short-term effects--but also increases or decreases in Brand Equity."

"Sooner or later," warn the authors, "someone wonders if there is an off-the-shelf answer. The short answer is no, because each business is different and therefore has to identify its own drivers." Although a Causal Model "is not easy to generate or defend," Rutherford and Knowles offer encouragement: "The very fact of getting Finance, Marketing, and Advertising (and other disciplines) together to decide a Causal Model is itself valuable in creating common ground. Marketing and Advertising can show their business mindset, and Finance can get a closer look at what creates the added value of brands."

So there you have it--right back to where we started at the beginning of my last post: Corporate culture is out of alignment because "the equilibrium that existed between the marketing and finance functions has been disrupted." And the answer is so simple: work together.

It is not enough for CFOs to demand more specific measures of Marketing ROI from the marketing function; they must collaborate to build the models, measures, and processes. And it is not enough for CMOs to bend to the will of those who demand short-term results at all costs; they must seek models and metrics that value brand equity for the long-term as well as the short.

In the end, Rutherford and Knowles leave us with a call to action so simple it's something we all should have learned back when we were watching Sesame Street:

"It's not easy to get successful collaboration between Finance, Marketing, and Advertising. But think of the competitive advantage when you do achieve it."


Dave Goodman said...

Wow, great insightful piece. Hear Hear! So many of the insights and connections you make have a significant resonance to the current preoccupations of those of us in the marketing and business communities.

Thanks for a great blog - really enjoying many of the posts. keep up the great work.

Augie Ray said...

Thanks Dave. I really appreciate the feedback. This blog post was a beast to write--it took my far longer than any other I've written. I have (as you can tell) a lot of passion (and, I hope readers will find, logic as well) about the situation, and striking the right tone and balance was a challenge--an interesting challenge, but a challenge nonetheless.

Sue Spaight said...

Augie -

Wow. It's not that often that I read a post or anything else that makes me feel like an idiot, but this is REALLY smart thinking and writing. Yes, too long for a blog post. And too good to not try to get published. Seriously - consider submitting it to AdAge for their CMO strategy column. It's a fantastic position on a monster issue.

Augie Ray said...

Thanks Sue. I feel like an idiot--had I separated that post into two or three parts, I would've had blog content for a week or more!

Thanks for the feedback. I've never submitted anything to AdAge before, but I just may give it a try. Thanks for the encouragement!