Suppose that in 2008 you invested in a barrel of crude oil.
And why wouldn’t you? Every year from 2002 to 2008 the annual average price per barrel has gone up, from $23 to $91. As an investment, it’s a no-brainer.
Unfortunately, today your investment is worth $66 (date of post), down 27%. Obviously, a poor ROI.
What caused the drop? Supply and demand. OPEC. War in the Middle East. Hurricane Katrina. The recession. Staycations. In other words, variables outside of your control.
Investments in marketing are no different. Consider the retailer who places advertising to promote a weekend sale. He is at the mercy of an infinite number of variables, such as competitive sales, football games, and Mother Nature.
Marketing budgets are no more risky than financial investments, which is to say CFOs are right to question them. The accountability of marketing for producing measurable results has always been a sensitive topic.
Many CFOs attempt to hold marketing to the highest of ROI standards. Some perceive it as a soft cost, one that is inept at proving its own value. They view excuses, such as “Sales were hurt by the blizzard,” as, well, excuses.
CMOs, on the other hand, accept that by definition, the marketplace is chaotic. Question their strategies, however, and you hit raw nerve. Deep in their hearts, marketers are troubled by their own inability to guarantee results.
Both sides agree: Marketing is an inexact science. CFOs use this knowledge as a bludgeon. They expect every campaign to be “Where’s the beef?” CMOs avoid the conversation, knowing that you don’t hit a gusher without a lot of dry wells and expense.
Ideally, marketing investments should be reviewed like financial ones. Managers should consider customer trends, competitive activity, market influences, pricing strategies, and the organization’s ability to deliver, as well as recommended marketing messages and channels.
Smart investors are not gamblers. Instead, they make informed decisions, based on calculations of risk and opportunity.
Do your CMO and CFO work together to make wise marketing investments?
Not generally in my experience. Like you stated Kirk, CFOs typically see it as an expense, not a necessary investment in the brand. It’s a tough perception to change. It’s a much a mindset and approach to business as anything. The new book by Al and Laura Ries “War in the Boardroom” hits it pretty well.
I don’t think it’s a coincidence that organizations where the CMO and the board seem aligned are the most successful AND marketing greatly responsible for the success. The frustrating thing as marketer is that you can show them examples of successful companies and how they operate. They agree, nod, and then cut the budget anyway.
Apparently we’ve been in some of the same budget meetings.
What is the thing that suddenly made CMOs talking to its CFOs? It’s the troubled economy, the over spending and the lack of effective marketing investments. What it requires is a more combined & calculated effort to increase revenue generation in order to benefit the organization.
Marketing is often first in line for cuts as corporate leaders attempt to identify immediate cost reductions that may take longer to achieve in other areas. But despite a 75 percent decrease in marketing budgets this year, as well as 65 percent who said they were expected to drive more sales with the same or lower budget, marketing accountability programs have taken on a greater significance. In order to increase the effectiveness and the efficiency, both sides of the equation, i.e., the ROI and the cost of using the lever, should be factored into investment decisions.
I read this interesting post, “Talking to your CFO makes Marketing smarter!” http://tinyurl.com/yg6fkkm
Great comment, Chandan. The accountability of marketing is the sore spot for both sides. Thanks for the link to a post with some actionable recommendations.