For far too long, marketing was not fiscally accountable. That earned the field a terrible reputation among chief executives and other corporate leaders, many of whom still see marketing as primarily tactical, not strategic and, therefore, not important.
Conversely, most marketers don’t understand corporate finance or shareholder value.
Two professional marketing associations, the Marketing Science Institute and the Association of National Advertisers, say this must change. They urge their members to wake up and pay for the coffee.
The way corporate bosses think doesn’t help marketing prove itself. Most CEOs and CFOs focus more on budgets than on revenues, which is what marketing produces. This is an odd problem because more than 80% of a company’s value is made up of its intangibles, such as brand awareness, which marketing creates and builds. Hard-number accounting captures only tangible assets, such as equipment. To get a glimpse of the relatively meager attention that corporate leaders pay to marketing, just notice that on most profit-and-loss statements, costs are line-itemed in detail, while revenues – which come from marketing-generated sales – are aggregated on one line.
As a result, strategy turns into financial forecasting. To reflect what marketing accomplishes, such reports should show detailed revenue sources as well as expenses. Marketing may also seem ephemeral to top executives because its expenditures take time to generate returns. Top officers need to understand strategic three-year marketing plans (not just one-year plans “extrapolated” over time) just as they already understand long-range budgeting plans. Marketing managers can solve their field’s image and accountability problems with one remedy: rigorous analysis of marketing’s expenses in light of its accomplishments.
This means demonstrating its pivotal role in achieving corporate objectives, profits and results. That goal calls for beginning with a “marketing planning process” that includes these components:
• A “mission statement” – Avoid meaningless generalities. In one page, define what your firm offers its constituents. Outline its “competences” and activities. Envision its future.
• “Corporate objectives” – Discuss the earnings you want your marketing to achieve; the shape of your business, products and facilities; and your fiscal and production goals. Describe the firm’s image-making objectives and its social responsibilities.
• “Marketing audit” – Clarify important marketing concerns, both external (market share, market standing and competitive situation) and internal (sales, profit margins, market research, marketing activities). Summarize your audit with a SWOT analysis covering “internal strengths and weaknesses” plus “external opportunities and threats.”
• “Assumptions” – Cautiously define expectations for your industry, firm and products.
• “Marketing objectives and strategies” – Don’t confuse the two. Objectives are goals; your strategy is how to attain your goals. Gather data for estimating feasible results.
• “Alternative plans and mixes” – Know what your fallback position entails.
• “Budget” – Craft a “dynamic,” realistic three-year financial prospectus, with a detailed zero-based budget for year one. Define and plan your marketing expenses with an “objective and task approach.” Many companies view these expenditures as costs they must control, when, in fact, a firm should see them as investments with real value.
• “First-year detailed implementation program” – Draft your tactical plan for the first year. Define a marketing strategy that carries out your objectives and sub objectives. Use market analysis to make sure your marketing efforts deliver both value and earnings.
Measure “marketing effectiveness” on three levels:
1. “Shareholder value added” – Because investors care primarily about generating returns and avoiding risk, understand the dangers in both your marketing strategy and your action plan. Marketing must provide a better return on its cost than the firm could generate from using the money some other way. The direct channel from marketing plans to shareholder value has four steps: Identify customers, appeal to them so they select your product, earn a greater market share and generate more earnings for investors.
2. “Linking activities and attitudes to outcomes” – Establish specific objectives in “market penetration, product development, diversification” and “market extension.” Your goals might include reaching deeper into current markets, selling your goods more widely, “developing new products for existing markets” and “developing new products for new markets.” For each area, define “critical success factors” and strategies. This analysis will help you select which marketing factors to measure.
3. “Micro measurement” – Numerous tools and techniques for calculating specific marketing expenses have become increasingly sophisticated over the past 50 years, so micro measurement is not a problem for most companies.