The chief financial officer says: "Before I spend any money in this environment, I need to know the impact of this investment. I need to see an ROI."
The CMO responds with: "It's not about ROI; it's about creating awareness. Having people understand our brand will create engagement, which will lead to revenue."
The two are in the same boat. Everyone sees the news: The global economy continues to contract. Pipelines are thin, and prospects are taking longer than usual to buy. Times are tough, but both the CFO and CMO are still expected to do their jobs. Prospects still have problems they must solve, and it's become more important than ever for companies to communicate and demonstrate their differentiators and value. These executives agree on that point.
The task for the CMO is to prove that the "return" in ROI does not need to be about revenue. It could be an increase in engagement, interaction, click-through -- the key is to make sure it is measurable and tied to business objectives. When this is accomplished, the discussion becomes less about money and more about the value that the marketing initiative is creating.
The issue the CFO and CMO are battling is one of available money. In the past, many CFOs were at fault for being too willing to award budget dollars for projects that lacked clear direction and analytical rigor. When times were better, they often failed to hold marketers accountable for the return-on-investment claim made back at the program's start. Most marketers, for their part, jumped too eagerly into digital in an effort to stay current, and their first, second, maybe even third attempts proved less than effective.
Now that every investment must count, the CFO's confidence is shaken when it comes to decisions around new marketing expenditures, and the CMO has lost credibility. While new digital tools such as social media seem interesting and worth investigating, the end results are still too ethereal and risky.
As a result, the two executives find themselves at an impasse created by a crisis of trust and confidence, two aspects of their relationship that desperately need rebuilding if their organization is going to succeed in the marketplace.
Need for honest marketing
Most CFOs understand instinctively that there is some undefined, magic equation that states an increase in awareness yields an increase in purchases. They also are aware that technology can serve to uncover the magic a bit, but they need more education. How do new technology and social media relate to the business, how do they influence customers, and how can they help the business grow?
It's the CFO's job to be skeptical, but skeptical doesn't mean adversarial. What CFOs need is for marketers to be honest and to let them know when marketing is taking an educated guess. They are used to working with assumptions. They just need those assumptions to amount to something with a dollar sign in front of it. For example, if marketing can show the results of its calculation that illustrates the spending differences between loyal and non-loyal customers, the CFO will be comfortable making the leap that loyalty equals revenue equals investment, even if the numbers are not precise.
The irony is that many organizations today possess some analytics capabilities for measuring interactive's business impact, but their analytics engines just aren't being leveraged to the fullest extent. Sometimes this is through no fault of the marketer's; rather, it's the result of information-technology spending cuts. Marketing executives need to fight tooth and nail for the data-and-analytics aspect of the program, because only by tying marketing initiatives to specific outcomes will CMOs and their teams have a leg to stand on when the budget discussion circles back around.
The outcomes may be the result of analyzing the customer life cycle of "acquisition, conversion, retention" and breaking it down into minute processes where marketing can then ask, "Does improving this task correlate to higher revenue or profits?" If the answer is no, then they ignore it. If the answer is yes, they identify the metrics, or outcomes, that can improve the process.
For instance, a key goal of "acquisition" is awareness -- which is where many marketers are focusing their social-media initiatives. Employing tools such as Facebook, MySpace and Twitter, many organizations struggle to logically correlate more Facebook "friends" with driving higher awareness and, consequently, higher revenue.
However, even if the numbers aren't hard, it is still possible to track brand perception. By using Facebook's sophisticated toolkit, one can see who is engaging and what they are doing there. By tracking this information, meaningful insights into the resonance and value of material on the site can be gauged and tweaked. Therefore, as marketers build out their social-media budgets, they should focus on optimizing the relationships among social-media activity, the number of people engaged in that activity, and click-throughs to their sites and online purchases.
To help the CFO properly evaluate the value of any marketing initiative, consider the measurement concept of bought vs. owned vs. earned.
Bought refers to any type of media that are purchased, from TV spots to radio to digital-marketing campaigns such as banner ads. Bought media are where most organizations have spent money in the past and have little capability to track its specific value other than to assume a "magic formula."
Owned media are the assets and intellectual property that are specifically owned and controlled by the company, such as advertising creative, collateral and websites. Once analytics capabilities are in place, organizations can measure the efficacy and fine-tune the assets to reach their desired goals.
Earned media is the concept that others will talk about a brand as a result of either good or bad experiences. Old as time, of course, word-of-mouth is now becoming measurable. Twitter, for example, is allowing marketers to measure this type of communication.
This type of thinking highlights that recommendations from trusted individuals are hallmark. This is the very essence of marketing in a social-media world. Campaigns start and stop, but successful organizations look for long-term, loyal, repeat customers that speak their names like the gospel.
This is a place both CFOs and CMOs need to strive toward. By examining the relationships among spending on bought, owned and earned media, companies can fine-tune their marketing to ensure their investment is driving the maximum results. And that's a business case the entire C-suite can support.
|ABOUT THE AUTHOR|
Eric Karofsky is a principal consultant in the strategy group at interactive agency Molecular, where he works with leading companies across diverse industries to define customer-centric online experiences that drive customer adoption, foster brand and create new lines of revenue. Eric has helped large organizations create, quantify and optimize digital solutions. Before joining Molecular, Eric was at AMR Research, where he wrote and consulted for hundreds of companies on topics such as process improvement and new-product development.