It's hard to find a company where the CMO and CFO share a table at lunchtime. They tend to have divergent agendas, and they may also have completely different ideas about how to measure success.
For the CFO it's all about the bottom line, which the CEO tends to agree with. As a result, marketers are trying to curry favor with the finance department by becoming increasingly analytical. They'll measure just about anything they can to prove a campaign or strategy's success. But oft en finance and marketing still end up speaking different languages.
The situation reflects more than just lunchroom behavior. According to a new study from analytics firm Marketing Measurement Analytics (MMA), only 7 percent of 150 financial executives surveyed are satisfied with their marketing department's ability to measure marketing ROI. Now let's split that number on both sides of the aisle. Nearly 60 percent of financial execs and 50 percent of marketing execs are dissatisfied with their ability to gain agreement on the definition of "marketing ROI" across their company.
"There is a clear disconnect between marketing and finance within an organization," says Doug Brooks, vice president of MMA. Costs and revenues, the atomic particles that make up a company's financial reporting, are hard numbers. It may be a rearview mirror approach, but the simple fact is that costs and revenues can be tabulated exactly, and this is what makes a CFO happy.
Marketing measurements, on the other hand, are metrics like open rates, ad clicks, ad awareness levels, and brand preference figures. It's difficult to directly tie them to actual revenue numbers because customer actions are not linked to these measurements in a closed-loop fashion. That is, when a customer buys a product, generating a revenue event, we can tabulate the revenue exactly, but we usually don't know whether that customer actually prefers the brand or not, or whether he even saw the ad promoting it.
Even metrics like campaign ROI and return on marketing investment (ROMI), while they have a suitably "financial" appearance, suffer at some point from the lack of a clear link between the interim measurements of spending and the actual sales lift or incremental revenues produced. So one disconnect between finance and marketing is this lack of precision, this "leap of faith" required to believe that a marketing investment of X dollars has actually created value in the amount of Y dollars.
But there is an even deeper disconnect between finance and marketing, because marketing is an inherently future-oriented function, while finance spends most of its time documenting the past. Marketing measurements have gone from day-after-recall to more useful, future-oriented metrics like Net Promoter Score and customer lifetime value, but even these measurements are still just meaningless talk to the CFO. CFOs have learned to be wary of marketing metrics because, in the words of one, "if you measure enough stuff, eventually something looks good." When a marketer shows off a positive number, so what? Sad to say, but there are trust issues at work when it comes to evaluating marketing's numbers.
Breaking the cycle
So what can be done? Embrace those differences, learn the same language, and work together, Brooks says. "A collaborative approach right from the start is important," he says. "Multiple groups (marketing, finance, human resources, operations) should work together to define ROI and offer input into how it will be used. One of the key indicators of success is that a company has a cross-functional team involved." Expectations can be set and managed right out of the gate.
In addition, these groups need to work to balance short-term and long-term goals. Campaign ROI and customer value growth should carry equal weight. "That's the Holy Grail," Brooks says. "How can you balance the short-term and long-term to understand activities on a strategic level?" For example, some initiatives actually destroy company value in the long run even though they show a positive short-term ROI. Brooks says that the balance is different for every company. A cross-functional approach is a good start to understand what's at stake for each individual organization.
Also, consider traditional marketing metrics as a baseline to start a conversation about Return on CustomerSM, a future-oriented metric incorporating both current-period and long-term customer value created. ROC doesn't necessarily close the loop between marketing actions and value created, but at least it closes the gap between customer behavior and genuine financial value. Measurements like engagement metrics, attrition and retention, and other aggregate-type numbers can help to model ROC, enabling a CMO to communicate in terms the CFO will understand, but which still reflect the true, future-oriented issues that all marketers deal with.
Brooks is quick to point out that ROI, ROC, or any metric is not the decision itself. All these metrics are merely input into the decision-making process. "There's still room for art in this process," he says. "If I were a CFO, I'd want to measure how we acquire, treat, respond to, keep, grow, and act toward customers. I'd want to know whether these activities are creating or destroying value for the firm, both in the current period and in future periods. I'd expect my CMO to measure, manage, and report that. And maybe then we could discuss it over lunch."
Recognized for the past decade as one of the world's leading experts on customer-based business strategies and growing customer value, Dr. Rogers is a founding partner of Peppers & Rogers Group, the world's leading customer-focused management consulting firm. Along with Don Peppers, Dr. Rogers has co-authored a total of seven best-selling books on the topic of customer strategy and one-to-one marketing.
Reprinted with permission of 1 to 1 Media. Please visit www.1to1media.com. (c) 2007 Carlson Marketing Group.