As a student at University of Texas, my marketing professor always said "Best friend of a marketing manager should work in Accounting department (of the same company)".
Knowing how much importance Wall Street gives to quarterly numbers, it is not surprising that all public companies focus of short term Return on Investment (ROI). This maniacal focus on ROI is seen in marketing activities also. Marketing chiefs are now looking at immediate increase in sales for every dollar spent by marketing. Though this exercise is doomed from the start - as it is impossible to tie each dollar of marketing expense to sales.
While ROI in sales promotion and advertising can be measured. But in marketing big ticket items - the marketing ROI cannot be measured on a quarterly to quarterly basis. For example in high technology products, like semiconductors or industrial furnaces, marketing money is spent to educate potential customers, generate market awareness and to build brand recognition. These activities cannot really show an immediate sales shift. Similarly, customer relationship expansion and retention initiatives take time to achieve and to be observed having their intended effects.
So now I understand why my professor said "Best friend of a marketing manager should work in Accounting department (of the same company)."
By having a friend in accounting/Finance department, it will be easy to exclude certain expenses towards ROI calculation (for internal purposes only ) also one can get the expense report for a longer periods of time to measure the overall improvement in sales performance. Thus make it possible to redefine the business performance of marketing effectiveness and accountability more broadly, so that they take into account the full span of marketing investments and long time horizons.
Observations on Marketing mix effectiveness
Many companies develop predictive models to guide future planning and investment decisions. Using historical data on marketing mix spending, Sales revenue is split into parts that can be attributed to advertising, promotion, distribution, product, and pricing. The elasticities of each of these components of marketing mix is then used to simulate what would happen to future sales if each of these marketing levers were changed. These results are analyzed and graphed over time. This analysis often reveal that the effects of the marketing levers account for a relatively small changes in the overall sales of the brand.
The largest component of total sales is found in the brand level. The sales of a particular brand are not influenced by immediate changes in marketing lever (such as promotion spending and price changes). In other words, it represents the endurance of the brand reputation that is independent of the marginal changes made in brand marketing tactics on a daily basis.
This clearly illustrates the value and consequence of the building and managing of the brand that has taken place over the years. Brand value or Brand reputation results from activities of the marketing organization along with other parts of the company, such as manufacturing, supply chain, etc.
Brand value or Brand Reputation is an extremely important asset and should be well understood in order to sustain it, increase it, and apply the learning to other parts of the business.
Brand, price, and product features:
Marketing Mangers often seek to understand the drivers of customer choice to support product design, development, and positioning decisions. In the process, they look at the tradeoffs customers make between brand, price, and functional attributes of the product. Attributes include structural features such as the processor, memory, and screen options for a personal computer and other electronic devices.
Sophisticated analyses, such as conjoint or discrete choice experimentation and try to isolate the value of individual features and price from the pure brand value. But quite often in high tech products the benefit to consumers of the features far outweighs the pure brand preference. In other words, the largest shift (increase/decrease) in sales comes from changes in product features.
There are exceptions to this general observation (e.g., consumer products with strong brand preferences such as soaps, toothpaste etc.)
To fully assess the sales impact of feature changes in product or service, A detailed analysis must be conducted. Such analysis should include the cost of creating and delivering the additional features. This should also be a part of the marketing effectiveness discussion along with the discussions of brand value and marketing communication effectiveness.
Customer Experience
The customer’s experience with a product or service and its provider is often an important driver of customer relationship expansion and loyalty. Customer experience begins in the information search and shopping phase. It becomes more intense through available channels during the actual purchase process, leading to a transaction. It continues as the customer uses the product, receives continuing service and support, and decides when the time comes whether to remain a customer and repeat purchaser.
The magnitude of the effects of these experience variables is often hard to detect because they occur over time and are the result of the company’s overall business model for delivering value to customers, not necessarily the result of particular initiatives (from marketing, operations, or elsewhere). Many service companies have high levels of retention and repeat purchases (e.g., 90% or more).
Presumably they are doing a lot things right to achieve those levels continuously. While specific things can be done to "save" defectors and incrementally improve satisfaction scores, the generally high base level of these measures is relatively stable over time, unless there is a major service delivery or quality problem. This is another example of the great value in brand delivery system structure that creates the base level of retention. Marketing expenses for incremental improvements in service/product delivery should be thought of differently like strategic actions taken to preserve and grow the base business.
Closing Thoughts
Discussion on Marketing effectiveness should therefore focus on long term factors such as brand value, brand reputation, customer retention, product features. Long-term value creation requires an understanding of what constitutes the features of a brand, what creates that value, and what can be done to build on it. Use the tools of finance to focus the discussion of marketing productivity to the long term results.
NOTE: I wrote this with high tech marketing in mind. Marketing high tech products are usually not advertised and do not involve sales promotion. Here sales is mostly connected to product features, brand value and customer experiences. The above argument has little significance in consumer products.
