by Tony Wenzel
Disruption is a response to market inefficiency. Here are a few examples of disruption to make the point: Email took hold because posted letters are less efficient than electronic messages. Uber addressed inefficiency because waiting for a cab to find you is less efficient than requesting that one visit you on-demand. Netflix is great because it’s more efficient to stream media immediately than to visit a video store.
In Marketing, there are several areas of inefficiency ripe for disruption. Three of them are:
- The idiosyncratic definitions of brand and marketing allocations
- The lack of brand performance measurement and forecasting
- The way the Marketing is funded for the short term (short-term-ism)
BRAND INVESTMENT MODEL
Currently, marketing investment is considered expense. However, it is much easier to measure performance when allocations are considered investment. That’s because the performance of expenses cannot be improved, but the performance of investments can. Marketing has more metrics than it knows what to do with, but almost none link its performance to financial contribution. Financial metrics are the language of business. Providing financial accountability and certainty provides credibility. The ability to compare alternative investments financially is critical to business management and program management. Marketing understands this and wants trace the performance of its allocations. Indeed, according to the ANA CMO Survey, “accountability and having the right metrics” sits near the top of the list of CMO priorities and is at the top of the list for CMO investment for the next three years.
Why marketing is funded discretionarily – Historically, marketing was considered an expense for two reasons. First, because the sort of analytics required to measure the immediate and aggregate benefits of marketing allocations did not exist in the 19th Century. Second, Financial Accounting Standards Board (FASB), a notoriously deliberate and conservative group from that era, tells us that marketing is an expense. Today, the idea that brand and Marketing allocations are expenses seems silly because brand and marketing value is delivered incrementally over time and not all marketing wins occur in the year funds are allocated. The FASB continues to speak frankly with the Marketing Accountability Standards Board (the MASB) and a policy change is possible. If so, both sides will have to determine whether returns on brand investment are taxable. Until then, one need not sacrifice one’s self at the altar of policy.
MEASUREMENT AND FORECASTING
In the middle of the last century, the production quality improvement was all the rage. Addressing production quality required developing standards and metrics and linking investments in quality improvement to profit and growth increases and reductions in risk. Measuring production quality allowed Operations teams to prove that improvements in quality lead to better profit and growth, and risk reduction. Similarly, measuring the performance of Marketing investments will prove and predict how Marketing investments affect profit, growth, and risk. It will also consider the impact of temporality, as Marketing value is contributed incrementally via short, medium, and long term cash flow from its programs, the brand, and its brand leverage (future opportunities the brand makes possible). Understanding the timing of returns is important because it considers the incremental effects of the long tail.
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