For many, it’s tough out there right now: record unemployment, whole industries shut down, business plans turned upside down. It’s not hard to find examples in the marketing industry, with Airbnb, Coca-Cola, Kohl’s, Zillow Group and Marriott stopping or cutting their advertising. Even companies that are doing well are looking at ways to trim costs to weather this economic storm and its aftermath.
Despite CMOs’ best efforts to drive marketing credibility and accountability, marketing remains viewed as a cost center, and its budgets are being challenged during current economic conditions. While CFOs may want to keep marketing as a percentage of (potentially falling) revenue, CMOs and CFOs both have one big-picture goal in common: to drive shareholder value. This creates an opportunity now for marketing leaders to collaborate with finance—CMO with CFO—to demonstrate and prove the value marketing creates. When marketing and finance work together, the combined input has proven to drive significantly better results versus working in silos.
We have plenty of real-world examples of marketing’s business impact. Most recently we have seen it with companies that continued to run advertising during the current crisis while their competitors did not, such as Lowe’s, which outperformed Home Depot over the last quarter. We see this in our own studies, with ROI Genome intelligence showing the financial implications of media cuts and that marketing efforts can drive up to 40 percent to 50 percent of sales.
Marketing is an investment—one that creates value—but it needs continuous focus to maintain brand awareness and pricing power and to stimulate demand. Given the clear impact marketing has on sales, investing in marketing can significantly impact balance sheets. This is made even more clear by the profitable margin ROI we see across most industries, particularly after spend is optimized.
Marketing is also aimed at growing shareholder value through new customer acquisition and sales growth. This drives cash flow in the short term and branding and loyalty for asset growth in the long term. Measurement provides insight and data to support decisions to ensure marketing achieves both short- and long-term goals. CMOs need to adopt an independent measurement program to champion the value of marketing with credible analytics and demonstrate business impact through improved marketing effectiveness, efficiency and ROI.
The most successful measurement programs are aligned with the finance department and focus on the right blend of metrics, research, analytics and experiments. At Analytic Partners, for example, we monitor and track the value creation for clients from their measurement programs. In 2019, we delivered $1.8 billion in impact across our clients, which translated into a 40-times ROI.
The following measurement program best practices ensure strong analytic adoption and drive the greatest value:
- Make your measurement holistic. The most successful programs holistically capture all business drivers—controllable and noncontrollable, including marketing impact. When you have a clear understanding of all key business drivers, it’s possible to see the full picture, understand synergies and more accurately forecast total business performance. This enables greater business impact from actions and optimization across key investment areas, such as marketing, operations, customer/CRM, new product launches, etc. At the same time, leverage experimentation to quickly test recommendations, prove results and enable faster reactions and decision-making. Experimentation, such as A/B testing and beyond, complements your holistic measurement program to better position you to face market challenges and improve performance.
- Ensure cross-functional agreement on KPIs/success metrics. Cross-functional alignment on metrics will drive clarity and consistency of vision about the explicit role of marketing, the corresponding success metrics and therefore what is most important to measure. Successful and impactful measurement programs are connected to business goals whether KPIs are new customer acquisition, sales, profit, market share, brand-building or a combination. Every metric should appear in the context of performance versus a target or goal, not just versus history.
- Align financial/ROI calculations with finance. Align your metrics and ROI calculation with the Finance department to ensure the calculations and assumptions are consistent with the business so there will be clarity on what success looks like. For example, gross, net revenue, profit and customer lifetime value are all considerations that will impact ROI. In addition, alignment on where to leverage fully loaded costs (incorporating fixed and variable spend) or just working costs (variable spend) is important.
- Look forward to optimize, track and monitor. Many measurement programs stop at a report card-like measurement of performance that validates past decisions or highlights opportunities for the future. Successful measurement programs leverage the understanding of performance drivers in real-time to simulate, forecast and iteratively plan for the future. Optimizations should incorporate the latest performance measurement, competitive and landscape business assumptions, forward-looking cost assumptions and real-world business constraints. Multiple scenarios should be reviewed to best understand the risk and opportunities of decisions.
- Successful measurement is a journey not a deliverable. Successful measurement is not achieved through a PowerPoint deliverable or software installation—it’s the result of a discipline of continuous learning, actions and validation. It is anchored toward goals that may evolve as the business landscape and customer needs change. Measurement, in turn, must adapt so you track what you should, not just what you can.
Challenging environments force all leaders to scrutinize spending, and there is an opportunity now for marketers to demonstrate and quantify how marketing creates value for brands. Adopting an independent measurement program is the most effective way to hold everyone accountable and prove value. By using a data-driven approach to assess performance, businesses can drive growth objectives and improve marketing effectiveness, efficiency and ROI. CMOs who collaborate with finance and show accountability can prove marketing is an investment that delivers value.