— July 14, 2018
What are CMOs held accountable for at the end of the year? Let’s say we invest 5 percent of revenues in a given year in marketing, what do the CEO and the board of directors expect in return?
- Incremental sales to the tune of 20x their investment?
- Incremental market share or new market penetration?
- Incremental profits?
- Incremental customer loyalty, customer satisfaction and customer value?
- Increasing shareholder value?
- All of the above?
Whereas sales representatives may have a one quarter horizon, can the CMO afford to invest in marketing functions with such a short time horizon in mind? In our post last month, we discussed these six major functions for which marketing is responsible, presumably so that they can deliver on the list above:
- Gather customer requirements, defining markets and the product/service sets
- Help create and retain customers with demand generation programs, content marketing, events, social, etc.
- Increase brand equity
- Channel marketing and technology partner management
- Empower the sales channels with market data, prospect data, competitive data and sales tools & collateral
- Participate in the support and delivery of the “whole product” to customers
Reconciling the investments in each of the latter six functions with the results described in the former list of six outcomes is a herculean task. So, let’s focus on just one aspect: Which marketing functions require the CMO to have a longer time horizon than one year?
- Defining the markets, and defining the products/services required to successfully penetrate those markets are tasks usually associated with product management (PMM). But the final decision-making requires participation from representatives in nearly every function in the company. The ROI period for these efforts could be three to five years or more. What share of the marketing budget should go to PMM knowing that it is a long-term investment? Most firms tie this to market share changes and revenue/profits that the PMM forecasts over a multi-year period
- If the sales cycle is six months or less, it is conceivable that the ROI for demand generation could be viewed as a near-term investment. As a result, many marketing organizations focus their ROI reporting solely on their promotion and content budgets and ignore ROI calculations on many of the other marketing investments.
- Increases in brand equity can be measured, but it is definitely a long-term investment. The benefits are obvious to most: increased brand awareness, brand loyalty, perceived quality, and clearly defined brand attributes improve lead acquisition, increased loyalty, and lower cost of acquiring new business.
- In many cases, the management and nurturing of channel partners, resellers and VARs lean on marketing to support these players with educational materials, training, and product information. Ie the Partner Managers are in marketing. Additionally, if products or services from an OEM are an integral part of the product or solution sold, those relationships are also managed in marketing by product marketing managers. The ROI for investments in these relationships is near term and can be measured.
- Sales enablement with tools, content, templates, training, competitive data target, customer and prospect data and market data is a requirement, and in most cases, the ROI is both near and long-term. The return is an increase in productivity in the sales teams and sales channels. It is easy to measure, but difficult to allocate how much credit falls to marketing initiatives. Also, much of the tools and content (but not all) will be accounted for in No. 2 above
- How do you do an ROI on marketing’s role as part of the product or service delivery? If marketing is doing follow-up communications with new customers to ensure adoption and satisfaction how are the benefits measured? If marketing owns the e-commerce platform an ROI is easy. How about marketing communications around support contract renewals?
The long-term investments for marketing, at a minimum, are product marketing/management, brand equity and of course any infrastructure investments (technology, data and process). Brand equity investments are usually rolled up under promotion and demand generation efforts as if they were near-term investments. Investing in infrastructure is usually accounted for by tying it to increasing marketing productivity, enabling marketing to be more competitive, or improving customer experience (leading to greater acquisition and loyalty presumably).
The conclusion here is that the CMO is accountable for a portfolio of investments, related to different functions and with both near and long-term return horizons. The methods for measuring these returns vary, and the outcomes for the business from these investments also vary. The CMO has to rebalance the portfolio quarterly and they must adopt an “agile” approach without taking their eyes off the goals. Although for sales, this may be the most important quarter in the company’s history, the CMO has too many long-term investments to have a short time horizon.