How the CEO sees marketing

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Struck by the seemingly sharp differences between what CEOs and their top marketing professionals were saying, McKinsey & Co. analyzed the disconnects between these two client constituencies. Three themes emerged from our survey of leading CEOs and chief marketing officers. The first, not surprisingly, has to do with money.

Nearly every CEO aspires to spend less-but still hit revenue targets. But 64% of the chief marketing officers we surveyed expect their budgets to grow over the next two to three years. Their optimistic outlook is a bit surprising since only 42% of marketing budgets increased in the past two to three years.

The truth is that most chief marketing officers are being asked to do more with less.

The next theme involves taking a more active role in driving new-business development broadly across the organization. CEOs see this as a critical role for marketing. Chief marketing officers tend to focus more narrowly on product development and communication. Clearly, CEOs expect marketing to step up its game.

Finally, CEOs tell us their marketing colleagues should be "full" business partners, more aggressively helping to drive profits. The problem is many chief marketing officers believe their departments lack the requisite skills to accept this challenge.

HOW TO BRIDGE GAPS

Bridging these gaps will require changes in spending, organization skills and culture for many marketers.

To meet profit targets in today's slower-growth markets, businesses are increasingly focused on managing costs. However, both revenue and share must ultimately grow if CEOs are to achieve the profit growth they seek.

While some marketers successfully use spend-effectiveness measures to help drive profit growth, not everyone is doing it well and most CEOs remain troubled by the overall level of marketing spending. This means there will be greater, simultaneous pressure to grow revenue and reduce marketing costs as a percentage of sales. To be more effective, marketers cannot simply capture the low-hanging fruit (e.g., renegotiating with suppliers) or rely on black-box solutions. They need to use more judgment. We have identified three ways for marketers to get started:

* Link spending priorities to profit potential, not historical performance. By using the size and anticipated growth rate of current customers, marketing groups can determine how much of a company's growth is likely to come from each customer. This "projected share growth" will help align spending allocations with growth opportunities and rebalance distribution of funds across brands and media.

* Focus spending on brand drivers, not antes. Currently, too much spending is focused on "antes"(the features and benefits that a brand needs to stay in the game) even though spending on antes offers diminishing returns. To succeed, marketers must shift as much spending as possible to "drivers," the features important to consumers, and understand how specific drivers affect upside potential.

* Deepen insights on how customers get product information and make buying decisions. To reach a customer segment through a specific medium, marketers must combine demographics with survey data on customer value and media habits. In our experience, this only works when a company develops a robust database, analyzes data appropriately and creates an effective marketing plan.

CEOs may be providing smaller budgets, but most still want marketers to provide big ideas for new business development. McKinsey research has shown a company's total return to shareholders relative to its industry generally deteriorates as a business matures. In early years, however, new businesses outperform their industries, so companies must continually create new businesses if they hope to deliver superior shareholder value.

NEW-BUSINESS DEVELOPMENT

Marketers clearly have an opportunity to do more new-business development. Just over half of the surveyed chief marketing officers say they are involved in corporate-strategy development; less than half report leading new-business development. Marketers must be quicker to identify unmet customer needs, the impetus for most new businesses, and translate them into product or service specifications that can lead to new-business development.

In our research on companies that successfully develop big ideas, we identified three characteristics that position marketers as business development leaders. These companies:

* Force the widest view when defining their business, assets and competencies;

* Combine multiple perspectives-for example, using attitudinal and need profiles as well as behavior-based segments-to identify market opportunities or sweet spots; and

* Focus idea generation through a combination of marketing insight and business analysis-but identify profitable unmet needs before they brainstorm creative solutions.

The CEO perspectives we heard (that marketers don't work fast enough, don't link ideas to core business needs and don't act like partners in business strategy) are not simple to reverse, but we see at least two opportunities to do so.

First, marketers must test and develop programs more quickly as they enhance planning processes and research approaches. Decision speed is the key factor separating marketing winners from losers, said 90 marketers who participated in a McKinsey-Harvard Business School study. The tricky part is figuring out how to address the need for speed without becoming "shoot-from-the-hip" managers.

EVALUATING INVESTMENTS

The second opportunity involves evaluating the performance and profit impact of investments in the expanded marketing arena, which now includes CRM technology, sponsorships, Internet marketing and word of mouth.

The marketing environment will certainly become more complex, but that only strengthens the need for careful quantitative measurement of newer marketing vehicles. We must understand how different investments affect a brand's strength, whether the impact is greater in one customer segment or another, and which customer groups are most likely to yield the greatest value over time.

By improving their focus on speed, performance and impact, marketers can earn a secure seat at the executive table. However, to contribute effectively as a full business partner, some marketers may first need to sharpen their skills in such areas as developing business plans, measuring ROI, assessing the financial impact of new marketing vehicles, leading cross-functional implementation and negotiating performance partnerships with vendors.

Ignored, the perspective gaps between CEOs and chief marketing officers threaten to make today's tough economic environment even more difficult. We are confident, however, that these gaps can be effectively bridged when marketers take the right concrete steps to do more with less, drive new business development and become "full" business partners.

David Court, Tom French and Gary Singer are partners in the marketing and sales practice of McKinsey & Co., New York.

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