The Growing Importance of Developing Financially Credible Measures of the Contribution of Marketing to Enterprise Value, Profits and Growth
the return on marketing investment has long been an inexact science. The CEOs and CFOs who approve marketing investment budgets and capital outlays often compare quantifying marketing performance to “stapling Jell-O to a tree.”
This challenge has spawned an entire industry of modeling, measurement, and analytics businesses hoping to provide marketers the facts they need to measure and optimize the performance of their marketing budgets.
But despite years of vetting and advances in media measurement, analytics, models, and attribution – CMOs still struggle to quantify and communicate the value marketing creates to their leadership, peers, and partners.
“The role of the CMO has evolved into an orchestrator of an increasingly complex marketing ecosystem as marketers struggle to keep up with an ever-changing customer journey. Marketers are investing more, yet most are unable to connect their investments to enterprise value, leaving CEOs and Boards uncertain on the true value of marketing,” says Bruce Rogers, Chief Insights Officer and Head of the CMO Practice for Forbes Media.
While big data, analytics and technology offer the potential to increase transparency, attribution, and accountability for business results – so far, they have failed to deliver that promise. Most CMOs are still making the critical trade-off, reallocation, and risk investment decisions required to adapt to a dynamic and rapidly changing marketplace based on “gut feel” or historical investment.
The result is a marketing performance credibility gap between boards, CEOs, CMOs and the supply chain of agency, media and solution providers that support them. The consequences of this gap are getting bigger over time. Millions of dollars of investment will be wasted with sub-optimal marketing allocation or outright fraud due to lack of transparency. Strategic marketing investments will not be able to compete effectively for resources. CEOs risk leaving the door open to disruption by more digitally savvy competitors on their watch. And CMOs will continue to have no voice in the board room to inform critical digital transformation and customer experience investments and strategies.
The first step to closing the communications and credibility gap so that organizations can adapt to a rapidly changing customer, technology, and competitive landscape is to understand the underlying reasons why it has grown so large. Four fundamental issues need to be addressed:
The definition of marketing performance is not clear or broadly understood. A primary reason technology partners have failed to better quantify the contribution of marketing to enterprise value is that CMOs have not defined the strategic problem they are trying to solve clearly enough. The lack of common standards for measuring how marketing investments contribute to financial outcomes limits the ability of organizations to make the big investment trade-off and allocation decisions required to remain competitive. These decisions are now critical in world where half of CEOs don’t know what their industry will look like in two years and 97% of have initiated a digital transformation initiative of some form. “Marketing does not have the industry-wide, “generally accepted” or legally mandated standard for reporting results that sales, legal, operations, finance, and almost every other business function does. This hurts our ability to justify and compete for investment on an “apples to apples” basis, according to John W. Chandler the former CMO of MassMutual. “On top of that, gauging the ROI of our work using only marketing-specific measures too often fails, because attributing business results solely using current marketing measures is too imprecise. This is why we must develop solid ROI linkages between marketing spend and core business results using a deeper analysis, and ideally, develop a common standard that makes this attribution resonate across firms and industries.”
The pace of innovation has accelerated to the point that that CEOs no longer have the luxury of time to manage secular decline of their core business or pursue late adopter strategies
• The composition and complexity of the marketing investment mix is changing. Managing marketing investment has evolved to become much harder than balancing television ads and sales promotions. Today, the CMO is under growing pressure to show returns on rising investments in marketing assets, new media, data, analytics and technology needed to compete for digitally enabled customers. This has added many more investments to the marketing portfolio and changed the economics of marketing. The CMO of the average Global 5000 company must now allocate resources across at least 20 primary investment types in their annual budget. A bigger issue according to Connie Weaver, the former CMO of TIAA, is “the CMO is being asked to raise funds for a multi-year technology roadmap to support the customer experience and multi- channel execution, while at the same time balancing short term demand generation tactics with long term brand investment. Each objective has a unique set of economics, investments, and time frames. Without a long-term commitment to strategic brand and technology platform development – CMOs will not build the critical business advocacy and are being set up to fail”.
• Executives lack the vocabulary, economics, and financial models needed to manage intangible assets in the current economy. In today’s economy – where over 80% of shareholder value is attributable to intangible assets – marketing directly and indirectly impacts a significant portion of shareholder value in terms of brand equity but also margin, customer experience and organic growth at low cost. “Our empirical analysis shows the brand name by itself is worth nearly 20% of corporate value, and brand indirectly impacts over half of purchase drivers. Yet most businesses don’t measure it, report it. Leadership tends to collapse the notion of brand equity with the notion of the ‘brand’ as the ability to put a stamp on a common good that is only differentiable due to its logo” according to Edgar Baum, the Chief Brand Economist & CEO of Strata Insights. Karen Walker the CMO of Cisco suggests that the impact of brand on shareholder value is even higher. Organizations will fail to make optimal investment allocation decisions until they can agree upon the size and nature of the contribution marketing makes to a company’s growth, profits and value.
• The role of marketing and its contribution to growth has expanded dramatically. Marketers are being mandated to manage and measure a broader investment portfolio, deeper in the sales funnel, with more touch points and higher degrees of business unit integration. In the last decade, the role of the CMO has expanded to include e-commerce, marketing technology, the customer experience, and greater accountability for sales outcomes. Gartner reports that most (62%) of CMOs have ownership of E-commerce and will buy more technology than the Chief Technology Officer. And a survey by Forbes found that almost half (49%) of senior marketing leaders are individually accountable for supporting sales channels and driving more measurable sales outcomes deeper into the sales funnel. If marketers are going to successfully take on a bigger role in the growth equation, they will need commensurate funding and support from their peers in finance, sales and IT.
To help marketers address these issues, the Forbes is working with a network of CMOs and subject matter experts to establish objective benchmarks, methods, and standards to change this dynamic and better connect marketing investment to business outcomes. We invite CMOs to participate in our research and advisory council to help us develop, validate, and share common sense solutions to the top measurement challenges facing marketers. Our goal is to provide a practical set of tools to help executives answer four practical questions:
1. What is the financial and strategic contribution marketing makes to enterprise value in terms of brand equity, margin, growth and acquisition costs?
2. What investments are required to create that enterprise value in the short and long term?
3. How effectively are those investments achieving the desired financial and strategic outcomes?
4. Where are they biggest points of failure, leverage and opportunity to improve performance?
Participants will get full access to the research findings and a CMO blueprint quantifying the value of marketing investment to enterprise value and growth strategy – with actionable recommendations and benchmarks and research from over 500 CMOs and Board Members from Global 2000 organizations.
I am an Analyst in the Forbes CMO Practice and VP of Digital Transformation at Digital Surgeons, I help CMOs use digital technologies to grow faster at lower costs @dioriostephen