Companies are becoming impatient with marketing. This is reflected in articles by leading marketing gurus such as Schultz (2003) and Kotler (2004). It is often easier to establish measures and returns for their investments in finance, production, information technology, even purchasing, but much harder to understand what their marketing spending is achieving. As a result, there is a feeling that the marketing function is being pushed lower and lower in the corporate hierarchy.
To investigate these issues, the Association of National Advertisers (ANA), a leading US marketing trade organization, undertook a study in cooperation with consulting firm Booz Allen Hamilton (Hyde, Landry and Tipping, 2004) to discover whether marketing has become disconnected from companies’ leadership agendas, to determine the causes of any dysfunction and to uncover the best prac-tices of superior marketing organizations. Their research was based on an online survey of 370 marketing and other executives at more than 100 companies in nine industries. The industries represented were automotive, consumer packaged goods, financial services, health, manufacturing, professional services, retail, technology and telecommunications. This was supported by in-depth interviews with marketers across a range of industries.
Their conclusion was a surprise. The general belief was that the marketing function is more important now than ever before, but that marketers are having a hard time keeping up. Good marketing is regarded as being key to corporate success by 77 per cent of marketing executives and 78 per cent of non-marketing executives
overall, with some variation by industry. In healthcare, for example, 86 per cent of executives regarded marketing as important, whereas in the automotive industry this fell to 59 per cent. The study iden-tified three dichotomies which hinder the effectiveness of marketing organizations:
1. More than 75 per cent of marketers and other managers say that whilst marketing has become more important to their companies during the past five years at more than half of all companies, the agendas of marketing and the CEO agenda are not aligned. This is illustrated in Figure 2.1.
2. Higher expectations for marketing have driven nearly 70 per cent of all companies to reorganize their marketing departments during the same period. Despite such activities, the position of chief marketing officer (CMO) remains ill-defined in relation to other functions within the company.
3. Measurable outcomes are now expected for marketing programmes. Sixty-six per cent of executives in the study noted that a reliable return on investment (ROI) analysis is one of the
5% 5%
7%
16% 17%
42% 41%
37%
35%
Less Important About the Same More Important Significantly More Important 10%
15%
20%
25%
30%
35%
40%
45%
Marketers Non-marketers
Figure 2.1 The rising importance of marketing
Source: ANA/Booz Allen Hamilton Marketing Organization Survey (2004).
marketing function’s greatest needs. However, most companies are still using surrogate metrics, such as awareness, instead of ROI measurements.
To investigate further the reasons for the apparent mismatch, Booz Allen Hamilton sought to compare marketers’ own evaluation of their focus and their contributions against those of company leaders.
They compared the key priorities of CEOs, as identified in the US Conference Board’s comprehensive annual survey in 2004, with the priorities of leading marketers in their study. Their findings, summa-rized in Figure 2.2, make interesting reading. According to the Conference Board, the top four chief executive priorities are:
• top-line growth (52 per cent);
• speed, flexibility, adaptability to change (42 per cent);
• customer loyalty and retention (41 per cent);
• stimulating innovation (31 per cent).
This is supported by a recent IBM Global CEO survey that pointed to
‘profitable growth’ and ‘customer intimacy’ as very high on the CEO agenda.
In the US study marketers seem to be giving some of these priorities short shrift. The marketing agenda seemed to be quite disconnected from that of the CEOs in some areas. Marketing’s focus is still tactical.
However, the pressure to measure marketing effectiveness is plainly on. In a UK IBM chief marketing officer survey, measuring marketing effectiveness came top of the list. The need for accountability and a feedback loop to support continuous improvement is essential, as marketing spend is typically about 6 per cent of company turnover and more than $250 billion is spent to produce and manage marketing output by the top 1,000 companies according to a Gartner study.2UK enterprise spends at least £40 billion per annum on marketing and communications. This expenditure is far from optimized. Our estimate is that the potential for improvement is in the range of £4 billion to £10 billion per annum.
In the IBM survey, senior marketing executives were asked to grade challenges as strong, medium or weak, with strong being a challenge of near-term significance to their organization. Over 70 per cent of respondents saw developing the capability to measure marketing effectiveness as a strong challenge. Only 3 per cent of the senior marketing executives interviewed felt that marketing effectiveness had little relevance to their brief. When asked to give their top three
near-term marketing challenges, respondents again viewed meas-uring marketing effectiveness as the most significant challenge. Close to two-thirds of all respondents cited measuring marketing effec-tiveness in their top three, with over half of those respondents rating it as the most important focus area for their marketing department.
More evidence of this interest is found in the number of studies and professional workshops on this topic in professional and industry marketing for associations.
Part of the underlying drive towards marketing effectiveness is based on the fact that many companies are realizing that they need to win the battle for high value customers. In other words, you have to focus on those 10–20 per cent of customers that make all the difference.
The difference between a market leader, the number two and number three is often down to a company’s share of a very small group of high-value customers. A brand leader always finds better ways to bond more closely with them. Building and managing those relationships is critical to maintaining or acquiring market leadership. This is where marketers need databases, data-mining customer analytics and campaign management. This also means beating the competition. It is not good enough to be effective. A company must aspire to excellence and to winning against its competitors throughout the customer management cycle. This requires close alignment of investments to business strategy and growth opportunities.
Measuring marketing effectiveness has not proved easy. The problem is, how can marketing show an ROI, based on some sort of acceptable cost–benefit calculation in the same way as some other corporate functions? The impact of marketing is difficult to track, especially its longer-term effects. The costs are usually clear, but benefits can be more difficult to articulate. To compound the problem, the definitions of measurement and what to measure can make this even more challenging. Does one measure all marketing? Does this include all customer touch points? Measuring effectiveness goes beyond executional efficiency. Limited progress seems to have been made in the last 10 years on revamping marketing metrics. In the finance area both the ‘R’ and the ‘I’ are uniformly measured in monetary terms. In marketing, various quantitative factors – such as cost per incremental volume – have to be balanced against qualitative factors such as product awareness over both the long and the short term. High-touch, relationship-based industries with differentiated products (such as financial services and automotive) tend to use awareness and image-related forms of measurement. Low-touch industries (such as food and most retailing), in which marketing
creates differentiation among commodity products, rely more on market share, growth and profit metrics. Although these forms of measurement are valid, they are harder to explain and sell to other senior executives, who typically come from backgrounds with different disciplines.
Having said this, some companies have actually managed to define a lead metric, such as churn rate in mobile telephony, and use this as a published marketing metric on their annual report.
Measuring effectiveness also involves understanding how well a company is executing against its business strategy.
IBM and OgilvyOne have designed a joint framework for effective marketing, the ‘Marketing Effectiveness Matrix’. In this model, marketing effectiveness is assessed against three fundamental building blocks:
• direction;
• train;
• track.
Direction is about ensuring that marketing strategy aligns to the business model, for example through alignment of expenditure to
Figure 2.2 Concerns with the marketing function
Source: ANA/Booz Allen Hamilton Marketing Organization Survey (2004).
Measuring marketing performance
is difficult 51%
Other 8%
Marketing not appreciated by business units
19%
Marketing not appreciated
by senior leadership
22%
opportunities, channel strategy, communications strategy and brand building or maintenance. It is amazing how often most of the ineffec-tiveness of a marketing strategy or marketing mix has been built in at the stage when direction is being set. The strategy says we are going over there, but spend implies we are going over here (in the opposite direction). This strategic road map is the fundamental starting point of the market planning process.
Trainis about ensuring that everything that has been put in place is running smoothly, relevantly, consistently and efficiently. These are your operational and activity metrics. An example of this is the IBM Business Consultancy Services marketing scorecard, where various criteria are being measured at activity and business unit level across operational units.
Trackis about ensuring that we have recognized and are applying best practices in all marketing activities, through processes, infor-mation, technology, organizational structure and measures. This means not only benchmarking internally and against competition, but also against best in class.
Various tools are available to marketers to help manage these areas.
These would include assessment methodologies in CRM and inte-grated marketing, such as the Customer Management Assessment Tool (CMAT) offered by IBM and OgilvyOne’s subsidiary, QCi Ltd