As the voice of the customer rises and the ensuing power shift accelerates, the financial risk of marketing chasing proverbial rabbits down holes has increased correspondingly. Technology has become critical in driving marketing effectiveness, resulting in increased collaboration between CMOs and CIOs.
Marketing as a science–not just an art–and as an investment–not just an expense–is a paradigm taking firm root. At the same time, collaboration between CMOs and CFOs is tightening, and the emerging role of the CFO in marketing is critical for both.
Many companies are prioritizing the integration and orchestration of marketing activities across channels and customer touch points. The shift to digital and mobile continues. Marketing hasn’t grown up as a traditional left-to-right process oriented discipline. Marketing is an outside-in discipline that begins with the customer, continues with engagement, and never ends.
Yet with real-time contextual data, next-best-action insights, social-listening response, and mobile and channel-less engagement, there is a level of complexity and sophistication in marketing that is driving closer collaboration with both IT and finance. Of the key challenges centered around understanding the customer journey, orchestrating channel mix and measurement, it’s in the area of measurement that the CFO has recently, for good cause, become more actively engaged in marketing.
While procurement, distribution, and IT functions track expense savings (hard dollars), and sales and merchandising functions track incremental sales wins (hard dollars), marketing has often been tracked by softer measures, such as households reached, clicks, number of ad awards, and customer perception. The challenge to create “harder” marketing metrics is not new, and it exists for very natural reasons: A company’s top-line performance depends on successful execution across sales, service, product, procurement, logistics, and marketing.
It’s more difficult than ever in our digital, omnichannel age to identify the portion of this collaborative success attributable to marketing alone. However, as the need for harder metrics has increased, data and the technologies available to measure, draw insight, and profitably act on it have dramatically improved. The emerging role of the CFO in marketing is a reflection of both the improvement in our understanding of customer journeys across all touch points and our ability to intervene and curate those journeys using real-time, contextual data to drive lift and improve margin.
If marketing is being done correctly, increasing expenditures grows sales while cutting intensifies the spiral of decline. But when prior metrics have been a bit soft–for example, number of impressions or awareness/preference–it’s harder to make this financial argument. What has traditionally been one of the first budgets to cut when sales are down or below forecast? The marketing budget. Why? Because a high percentage of the budget is nonlabor (no severance packages or labor hardship) and the cuts can take effect immediately.
However, the convergence of channels, the expansion of nontraditional competitors, and the tightening link between marketing and commerce has reframed CMO decisions toward having a more direct impact on profitability and EBITDA. With one critical objective of marketing being to influence increasingly heterogeneous customer journeys, therefore accelerating the need for smarter spend, this presents an opportunity for the CFO to serve as both marketing’s “financial arbiter” and “investment adviser.”
Even before omnichannel and digital convergence began disrupting our industries, many companies developed sophisticated modeling techniques to measure return on marketing investment (ROMI) for various programs, promotions, and channels. Even if your business doesn’t use or need sophisticated ROMI capabilities, the CFO may be able serve up reasonable proxies, measurements, and disciplines to help marketing navigate through various investment options and measurement techniques. Also, as GAAP attempts to match expenditure and benefit time horizons, most marketing spend has been treated as an expense rather than a capital investment. This has often led to an efficiency mentality more than an ROI mentality.
The question CMOs and CFOs are jointly starting to answer is, “If I spend more on marketing, what kind of top-line growth and EBITDA impact can I expect?” versus, “How much discretionary spend can be cut from this year’s budget?” Metrics like GMROAE (gross-margin-return-on-advertising-expense), “sales influenced by,” Net Promoter Score, and others build the foundation for precision marketing and are being vetted more actively today as marketing and finance conjoin to deliver profitable omnichannel customer experiences.
As the digital divide grows wider between companies and customers, those who can bridge this gap with marketing prowess, financial discipline, and concise, contextual metrics are most likely to move from survive to thrive, from defensive marketing spend to growth-oriented investment. The emerging role of the CFO in marketing is instrumental in profitably building those bridges.