To have a seat at the big table, the CMO must speak the language of the CFO and COO. As it turns out, the language uses the vocabulary of accountability.
 At the 2003 Association of National Advertisers Annual Conference, a distinguished "Proof of Performance Panel" composed of John Costello, EVP Merchandising and Marketing for Home Depot, Kate Lynch, SVP Global Research Director for Starcom Mediavest, and Bret Sanford-Chung, Director of Advertising and Marketing Communications for Smith Barney, discussed the issues of measurability and accountability in marketing.
In the end they were pretty pessimistic.
Moderator Scott Donaton of Advertising Age resurrected the old adage of "50 percent of my budget is wasted, I just don't know which half," and asked the panel what they thought the number would be in five years' time. Mr. Costello thought it would be 64 percent, and Ms. Sanford-Chung didn't even think the question could be framed meaningfully for her business. Only Ms. Lynch was more optimistic (but not willing to be tied to a number).
We marketers feel as though we should receive greater acknowledgment in the world of business. We feel as though the CMO should have as its peer group the CFO, COO, CIO, CTO, and all the other members of the C-Class.
We lobby. We try harder. Sometimes we whine. But if we don't solve the problem that Mr. Costello thinks is going to get worse, then we will make no progress.
Executives reach the top of American corporations by using the shareholders' money wisely to create new value. They can cite the return on every penny; they know how much value they created per dollar spent, and which programs are more effective and more efficient than others. They are willing to compete with their peers for the allocation of dollars based on their initiative portfolio and their ROI track record.
To step up, CMOs must be able to converse and compete in this harsh, hard-nosed world of accountability -- not that they have an option. The CEO and the Board are now primed to make marketing their new focus. They've made all the cost cuts they can, streamlined the value chain, restructured and re-organized. Now they need growth, especially in the context of a growing economy in which their competitors are going to be going for growth, too. That's what marketing has been claiming to be able to deliver.
Now it's time to put up and be accountable.
There are two considerations here, and they are easy to resolve. First, what should marketing volunteer to be accountable for? Second, what are the metrics that determine whether marketing has met its goals?
To step up, CMOs must be able to converse and compete in this harsh, hard-nosed world of accountability.
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The answer to the first question is outcomes. One of marketing's biggest issues has been its focus on measuring inputs (such as research scores for customer satisfaction or brand perception), rather than outputs. In other words, the question is not, "Is my brand perception improving?" but rather, "What value is created by the improving perception of my brand?"
I suggest that the outcomes that marketing can affect are revenue growth and brand gross margin. We improve revenue growth by getting more consumers to buy our brand more often. And we improve brand gross margin by improving the value perception of our brands for those consumers, with the result that they pay higher prices, more of which we can take as profit.
The margin enhancement goal is usually realized through mix. If a brand puts new variants into the market each year at higher margins than the existing products (because they offer superior consumer benefits), then the margin mix improves over time. Several brandowners have deliberately codified this effect as the "virtuous circle."
Some brandowners attempt to capture Brand Value Added, or BVA. That's EVA reduced to the brand level via activity-based costing. It's feasible but hard to do (although it's getting easier according to a recent article in the Economist). Other brandowners attempt to place an asset value on their brands. So far, these calculations have been so opaque and non-standard that they are not useful for accountability, only for splashy publicity pieces in business magazines.
So, let's step up and be accountable for revenue growth and brand gross margin. If marketers accept accountability for these outcomes, there'll be a seat open at the top table.
If marketing is to be accountable for these outcomes, then we must know what causes them. Cause and effect has been an elusive concept for marketers in the past. Many preferred the "black box" approach, but this is no longer acceptable. All marketing departments now require a working model of what drives outcomes.
All marketing departments now require a working model of what drives outcomes.
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It is important not to confuse the macro and micro drivers. Usually, there are two macro drivers. The first is brand equity. Quant models from many sources demonstrate the direct positive correlation of brand equity with financial outcomes. You need to know how to measure brand equity for your brand and category, and how to build the correlation co-efficients between brand equity scores and financial outcomes.
The second macro driver is penetration and loyalty. This is true whether your business is doughnuts or DRAM chips. You need to know how your brand's penetration and loyalty profile creates profitable cash flows and what the value is of improving the profile. What's the trade-off value between one more point of penetration and one more point of loyalty? It's imperative to know the answer.
Once the macro model is in place, the marketing department can focus on the micro drivers. How do we allocate dollars at the margin among more innovation, more advertising, more sampling or more in-store presence? If you know that, you can demonstrate to management just how an incremental investment in marketing will provide a superior return, and stand up and be accountable for the results.
Are your models and measurements in place? Does your marketing department have a clear definition of what it's accountable for? Is there a framework in place that defines exactly how the marketing investment model creates high returns? Are there measurements in place for macro and micro drivers?
If not, you'll never solve the accountability problem.
If so, pull up your chair to the top table of global business.
Hunter Hastings is the managing partner of EMM Group, an enterprise marketing management company that transforms clients for growth through the application of best practice-based marketing processes and marketing technology. He can be reached at hunterhastings@emmgroup.net
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