Introduction
It’s clear to anyone in the marketing industry that a serious disconnect has developed between CEOs/CFOs and CMOs, triggered by the C-suite’s insistence on using static, and isolated metrics to measure marketing performance.
Snapshot metrics, such as current margin, cost per acquisition (CPA) and staff retention, might make sense without any context in other areas of the business because they deal with tangibles. For example, your revenue minus the cost of your product gives you a gross margin.
In marketing, however, where attribution plays a crucial role, performance measurement is far more challenging because you can’t account for factors such as brand, time or the influence of third parties. The process of attribution is therefore limited to a series of assumptions based on available trackable data.
When a CEO or CFO tries to measure marketing performance using snapshot metrics they lose both context and the enriched insights context makes possible. For example, you can end up judging your revenue against how effectively Google assists a click to your website, without any context around why prospects wanted to visit your website and what that means for your business health. The very act of setting a benchmark CPA exacerbates this problem.
This form of snapshot marketing measurement is fuelling the problematic relationship between marketing and finance, it is acting as a barrier to long-term growth and it is also contributing to the lowest average CMO tenure in more than a decade. CMO’s are definitely having a tough time, but don’t worry Epsilon has your back, and we can help you fight back against short-termism.
What’s the alternative?
Epsilon realises that there is no one-size-fits-all alternative to snapshot metrics. Instead, how you measure performance should be closely linked to your business goals.
For example, growth businesses might target a reduction in their acquisition costs. An established business with a healthy number of transactions, might aim to increase profitability or grow lifetime value in conjunction with market share. Meanwhile, a founder with an exit strategy, may want to grow the business over the next five years, acquiring as many customers as possible with less of a focus on profitability.
Regardless of the kind of business, you need a clear understanding of what your goals are, and a clear plan for how the CMO is going to help the business get there.
Broadening the conversation and the range of performance metrics
Whether you’re investing in the value of your brand, or your customer base’s profitability (for example by increasing average order value, frequency, or your most valuable customers’ long-term value through a loyalty program) marketing should always be considered a long-term investment.
As with any long-term investment the C-suite should have faith in the marketing plan and be prepared for ups and downs. Marketing done correctly is an investment that takes time, not a gamble with the hope of a quick return. The CEO, CFO and CMO need to have a full and frank conversation and then agree:
- How they are going to measure performance
- The timeframe in which to meet their goal
- The need to be flexible when the unexpected happens
- To fight the urge to revert back to last-click attribution when times get difficult.
The business needs to agree the above points as part of a long-term strategy and keep faith in the CMO. This agreement should also be thoroughly socialised throughout the business, so the CMO doesn’t find themselves at a board meeting being ambushed by an exec who wants to know CPA.
Epsilon, for example, has helped international B2B components distributor Premier Farnell hold an on-going conversation with their prospects and customers. This personalised conversation has differentiated the business, increased trust and contributed to a ten-times increase in monthly customer spend over five years across North America, UK, Germany and France.
Epsilon was also able to use the data generated to measure incremental business impact across Premier Farnell’s channels and pass on these benefits in the form of partner marketing campaigns.
It pays to advertise during a downturn
Rather than cutting marketing spend, there is strong evidence that continued investment pays dividends in the long run. Consider these examples from previous recessions:
- In 1981, companies that advertised heavily during the recession had 256% higher sales than those that stopped advertising.
- In 1991, McDonalds cut budget while Pizza Hut and Taco Bell increased theirs. Pizza Hut and Taco Bell grew sales 61% and 40%, respectively, while McDonalds declined 28%.
- In 2008, Reckit Benckiser increased advertising while competitors reduced theirs. RB grew profits 14% while rivals declined 10+%. And after those losses, it takes 3-5 years of brand building to recover from going dark.
So don’t cut costs just because your consumers are cutting theirs. Identify your strategic growth areas and get smarter with your marketing instead. As the legendary Wall Street investor once said: “Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time.”
Conclusion
It’s impossible to measure marketing success based on a single isolated metric and any attempt to do so perpetuates the snap-shot mindset which has already widened the cultural chasm between marketing and the CEO/CFO.
It’s only through multiple KPIs providing a multifaceted picture that you get a comprehensive view of performance, and then socialising and validating that approach with senior stakeholders and leadership.
Short-termism, driven by a snapshot approach, ultimately harms the business’s ability to deliver long-term goals and serves to undermine the valuable work of the CMO and their team.
To find out how you can wean the C-suite off metrics devoid of context, gain richer insights and promote a long-term growth strategy, please contact Dave Allen or visit https://www.epsilon.com/emea
