The Australian Marketing Institute’s newly published “Marketing’s Role in The Boardroom” is a great little guide that should serve to get the C-suite and their boards asking a crucial question – Why isn’t marketing here?
The report nicely states “for many organizations marketing is the fuel that powers business strategy”. Peter Drucker said it this way “Business has only two functions — marketing and innovation”.
So, if its that important, why doesn’t it have a seat at the table?
A brief call-down to fifteen CMO’s here in Australia revealed an interesting fact, albeit off a small sample. The majority do not work for a CEO directly and none have an formalized role in engaging with their board. Marketing is one of, if not the only, major business function sitting on the periphery of the senior leadership teams of some of Australia’s largest brands.
There are two potential causes. First, does the board and leadership value the brand – and fully comprehend the role of marketing leaders in protecting and growing that value?
Second, is there an appreciation for the role of marketing as a direct and indirect element of the P&L?
In short, how do they understand the value of marketing? AMI’s report put it this way, “It is time to revisit the potential for marketing activities to prove their value… and to understand the means by which potential might be realized”.
We as marketers need to take a fair amount of the responsibility for the lack of answers.
Today marketers seek to earn that seat at the table through a raft of return on investment metrics. Most painfully analyze every campaign using ROI to demonstrate their, and the program’s worth.
There is no question correlating financial performance to marketing activity is crucial. But ROI in most cases will be the wrong metric. Its roots are in measuring one-time capital investments – not the continuous and tightly interwoven web of activities that constitute marketing.
Dominique Hanssens, professor of marketing at UCLA Anderson School of Management also argues that marketing is an expense rather than an investment and that marketing costs appear on a company’s profit and loss account rather than the balance sheet. Expense to most of us is a dirty word though – investment sounds so much more grand. But if we want a seat at a table we need to be less concerned with the light in which marketing might be seen, and instead concern ourselves with how the business actually sees it. It’s an expense in the P&L.
More than often, when we say ROI, that isn’t what we mean. We are in fact talking about a ratio and not a metric that has anything to do with crucial performance indicators like cash-flow. It’s a necessarily narrow metric and fails to demonstrate the contribution of marketing to the overall business. If we want to drive marketing effectiveness we need to build measures that provide a more holistic view of marketing’s contribution. And, ROI is a particularly bad indicator of what future spending should look like.
For CMO’s and their teams to earn a seat at the table a more rigorous conversation needs to be had around the role of marketing in driving the performance of the business. Throwing about abstract brand valuation metrics and point-in-time ROI data will do little to get us there.
One good metric that more marketers need to embrace is ROMI. And that doesn’t stand for Return on Marketing Investment as so many think.
Return on Marginal Investment simply put measures the marginal return vs. the average return and it this that makes all the difference in comprehending results and determining the right level of future spend.
Companies like MarketShare are bringing true science to understanding how much investment is required and where the next dollar should go. Smart brands are investing substantial amounts in systems for understanding marketing performance – and these systems are replacing the ROI dashboards hacked-together by marketers over the years with real science.
My money is on those with the science getting the seats at the table first.
Congrats to the Sumbo Feather team. App looks brilliant and is going well in the store. Was even featured on the Apple Store landing page.
To my comments today at the Adobe Marketing Symposium, ROI is a useful metric for incremental and one-off investments.
But as digital becomes ingrained in the fabric of our channels, we need business cases that better reflect the place digital has as an element of the P&L. In this respect, return on marginal investment (ROMI) might be a better starting point. Here is a good summary, in the context of marketing:
And it’s also critical to know that maximum ROI does not necessarily produce maximum profit. Oops! Blame the Law of Diminishing Returns. Many marketers might think that the highest ROI corresponds to the best spending level. Unfortunately, that’s not so. For example, should you stop spending when ROI drops, even if you continue to produce bigger profits? Most likely not. The point at which you’d stop or make a change depends on the return of the last incremental amount spent, not the overall ROI.
This is also what’s known as “return on marginal investment” – or ROMI. And “marginal” return vs. an average is what makes all the difference for accurately interpreting results and making decisions on future spending. So if you must use a return measure to gauge marketing effectiveness, use ROMI.
Trading off digital investments against investments in other channels is also limiting. Digital needs to permeate every channel and customer touch-point.
Same is true of marketing, making this read even more important. Marketshare, of which Dominique Hanssens is a founder, is rewriting the marketing playbooks by focus on this crucial issue. Here he is chatting about the issues – I like his comments on touchpoints:
The pictures say it all really. A real shame. Could have been something special. Team NZ have done an amazing job of being ready for the start. They’ve only got one competitor to race so far. Nuts. It’s a mess.
From the America’s Cup Site, this was what it was meant to look like today:
And here is what it looked like from over at Sailing Anarchy. The AC Village at 12.40.
A great overview of the power of Linkedin.