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17 May 2014

Show me the ROI

Tag(s): Marketing
I recently attended a seminar organised by the Worshipful Company of Marketors to continue the discourse on Measuring Marketing Effectiveness begun last year.

Stan Maclan, is the Reader in Strategic Marketing at Cranfield University, but passes my test of an effective marketing academic in that he practised first in senior roles at Unilever. He believes that marketing has let itself down by allowing the terms of the discourse to concentrate on ROI but thinks that will now change. The prolonged recession has demonstrated the failure of conventional financial thinking with its focus on short term financial metrics. Marketing uses more metrics than most other functions but needs to remember its core purpose is to create products and find markets. In other words Stan was arguing against the hypothesis implied by the title of the seminar, that is that Marketing needs to show the Board the ROI.

The language of the Board has become ‘short-term financial metrics.’ Years of business process reengineering with emphasis on sweating the assets has led businesses to move away from market growth to optimisation. Marketers should measure how customer needs are met, how well are markets segmented. Instead of just focusing on advertising and social media they need to focus on more important strategic issues. They should seek sustainable profitable positions, identify risks and integrate efforts across the company. The results will come. “We’re not going to cost-cut ourselves out of this problem” Stan warned.

Stan warned further of the self-destructive nature of marketing people who don’t link their activities to the delivery of the bottom line, a different way of looking at ROI.  He also fears the way in which British shareholders sell their companies to foreign entities for short term gains.  Once owned by an overseas acquirer these companies become mere branch plants. The marketing people just know their local markets, not the global markets managed from a distant HQ. Over time we will lose the skills of good marketing with disastrous consequences for the nation.

Dominic Grounsell also started his marketing career at Unilever but has since moved into the more challenging area of financial services responsible for RSA’s major brands such as More Than. He now sees that in FMCG marketers had become complacent doing the same stuff, making the same measurements but in reality relying on gut instinct. Much qualitative research did not measure how people really consume. Such analysis was linear and as black box econometrics modelling is very expensive marketers became consumers of answers not producers and so lacked credibility. Many marketers were arts graduates with strong creative ability but often hopeless at maths! This despite the fact that marketing is the most commercial function.

In contrast he now sees an exciting if scary range of techniques which require left brain skills. He uses neuroscience to measure brain waves reaction to advertising. He uses real time brand experience tracking e.g. text diaries, online, mobile uploads. Econometrics have been brought in house. He also advocates the use of pretotyping which requires that you make sure you are building the right 'it’ before you build 'it' right. Dominic recommends four lessons:
  1. The Right Data
  2. The Right Tools
  3. The Right People, with STEM qualifications
  4. The Right Mindset.
Mandy Merron is a Partner in Kingston Smith, an accounting firm with a specialist media practice. Their target is to be the preeminent accounting adviser to the UK creative industry. They want to build relations of trust with their clients and use a range of marketing techniques to achieve that. These include thought leadership, events, PR through trade bodies and various prospecting tools. Mandy was refreshingly candid about which of these could be measured and which were somewhat hit or miss. She was confident that they had a good handle on their pipeline and their events programme worked well. She was more sceptical about the role of sponsorship and social media.

This long-running debate about Return On Marketing Investment does focus on too narrow a definition of marketing. Two years ago the Marketing Society, of which I am a Fellow,  decided to present one of its Annual Awards to a finance director, thus signalling that return on investment in marketing is worthy of recognition. But the criterion for this shiny new trophy was ‘effective use of marketing expenditure’, thus falling into the same trap. The winner was indeed a communications campaign, which, while no doubt worthy, is just a limited facet of what marketing is.

One of the godfathers of marketing, Theodore Levitt in his classic definition said that marketing ‘must work back from consumer needs’. Do consumers really ‘need ‘communications? Or do they need better products, improved service, value for money, easier lives, a safer and cleaner world, and more health and happiness for themselves, their families and friends. What marketers must do is anticipate, or at least, identify these needs and find ways to meet them at a profit to their business. That is much more difficult, and riskier, than shooting an ad with a funny pay-off line. Marketers should take the lead with their boards in proposing disruptions to their business that will generate long term profitable growth. They need to study the landscape, set the strategy, plan to execute well, and take all their colleagues with them.

If you asked a hundred marketers for a definition of marketing you would probably get a hundred different answers. You might even get more as some would perhaps offer more than one. This is because marketing is both wide in its coverage and because marketing professionals work across a wide range of activities. But let me quote some of the more established definitions most of which put marketing firmly at the strategic and operational heart of the business.

Modern marketing as we understand it today was largely pioneered in America and the American Marketing Association defines marketing as: ‘The activity, set of institutions, and processes for creating, communication, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.’

Harvard Business School, probably still the leading business school in the world, says that marketing is ‘critical for organic growth of a business and its central role is in creating, communicating, capturing and sustaining value for an organisation. Marketing helps a firm in creating value by better understanding the needs of its customers and providing them with innovative products and services.’

The Chartered Institute of Marketing, of which I am also a Fellow, defines marketing as: ‘The strategic business function that creates value by stimulating, facilitating and fulfilling customer demand.’

Another godfather of marketing, the great management thinker Peter Drucker said ‘because the purpose of business is to create a customer, the business enterprise has two –and only two – basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.’ He also said ‘The aim of marketing is to know and understand the customer so well, the product or service fits him and sells itself.’

According to the brilliant author Jack Trout, ‘Today, when top management is surveyed, their priorities in order are: finance, sales, production, management, legal and people.  Missing from the list: marketing and innovation. When one considers the trouble that many of our icons have run into in recent years, it is not hard to surmise that Drucker’s advice would have perhaps helped management to avoid the problems they face today.’ He wrote that in 2006 two years before the Lehman crash.

And what do I think? Marketing can be a confusing term. On the one hand it is isolating the customer need and organising the business to meet this need. In this sense everything the enterprise does is marketing. However, it is also convenient to isolate marketing as a functional activity and to consider it as an activity separate from production and finance. I am firmly in the first camp with Messrs Drucker, Levitt and Trout. At a very simple level marketing can be defined as ‘winning customer preference.’

Copyright David C Pearson 2014 All rights reserved

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