Budget expenditures for marketing should be subject to the same intense examination by the COO and CFO as any other spending programme. ROI on marketing must be better projected - not with fuzzy mathematics, but by using modern analytical techniques, fact-based logic and financial data.
Says Gary Cokins, strategist for performance management solutions at SAS, leader in business and analytical intelligence software: "Estimating the ROI on purchasing equipment is near science. In contrast, determining the ROI on marketing programmes is considered more of an art than science by some.
"Thus, a large part of the marketing budget is typically based on faith that it will somehow grow the business."
There is an old rumoured quote from a company president that goes: "I am certain that half the money I am spending in advertising is wasted. The trouble is I do not know which half."
"This expresses a concern - and it applies to the many marketing programmes in addition to general advertising," says Cokins.
Senior management has had the unquestioned view that money must be spent on marketing and advertising - but how much money? How much is too much? And on which type of customers?
The only way of answering these questions is by using modern analytical techniques.
"Many marketing functions rely on imperfect metrics, anecdotes and history that may have resulted from unusual occurrences unlikely to be repeated. Marketing spend is critical - but it should be treated as a scarce resource to be aimed at generating the highest, long-term profits," Cokins points out.
This means there is a need to answer questions such as: Which type of customer is attractive to newly acquire, grow, retain or win back? And which types are not? How much should we spend attracting, retaining or recovering them?
Although the marketing and sales functions clearly see the links between increasing customer satisfaction and generating higher revenues, accountants have traditionally focused on encouraging cost reduction in operations as a road to higher profits.
One way for investors, shareholders and a management team to think about measuring a company's promise for long-term economic value growth performance is to measure its customers. Although today the CFO's managerial accounting planning and control systems typically focus on operations management, CFOs are now shifting their assistance to the chief marketing officer (CMO) and the benefits can be substantial.
"It is inevitable that the answers to questions about marketing spend will require a contribution from the business analysts using managerial accounting techniques. To offer customers differentiated service levels or deals requires knowing how much to offer and what the profit payback will be. The day is coming that the CFO function must turn its attention from operations and cost control to the CMO, as well as customer and cost planning and shaping," concludes Cokins.
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