The Chief Marketing Officer and Chief Financial Officer don’t always see eye-to-eye in terms of marketing investment. In this “letter to the CFO,” Analytic Partners’ Fleur Sohtz uses data to build a bridge toward more understanding and collaboration between the two parties.
This article is part of the March 2023 Spotlight US series, " It's time to talk about marketing effectiveness” Read more
We have fallen into that rut common to many relationships – we bicker constantly. Mostly about money and who brings more value to the greater whole. Like me, you must hear the talk about how finance and marketing can't get along. You see me as a draining cost center. And sometimes I feel like my creativity – and therefore my contributions – are stifled.
Yet, we both have the same goal: the financial success of the company, a happy team environment and a CEO, board and customers who trust our decisions and where we are going.
There’s a lot of data that supports how we can work together toward that goal. In this letter, let me share some of it with you. My main source is Analytic Partners ROI Genome, consisting of millions of marketing metrics and accumulated intelligence.
Why it’s important to keep marketing spend up
In Q3 2022, our research found that one-third of Fortune 500 CMOs shared that their CFOs had asked them to cut their budgets, but performance expectations remained unchanged. Like my peers, I’m unsure how to deliver the same, let alone do more with less. The pressure is mounting for both of us.
We can agree that the only certainty right now is uncertainty. But that’s precisely why it’s more important than ever to hold our nerve and not cut marketing spend. Sixty-three percent of brands saw ROI improvements during the last downturn when marketing investment increased. Further, the data shows that if Company A cuts its marketing budget during a recession, but its competitor, Company B, doesn't, Company A may lose 15% of its overall business. In other words, our competition may be ready to pounce.
Why we need to look beyond the short-term
There’s nothing unusual about seeing marketing through the lens of short-term sales figures, relating them to the most recent performance marketing activity, but they only show an instant hit, via more engagement or a boost in sales.
I understand why short-term performance marketing measurements like last-click attribution, and enhancements like optimization and quick turnarounds, appear important, but, since you’re a numbers person, you’ll understand the real story. While last-click analysis is useful when assessing the impact of channels targeting individuals who have previously browsed our products, and it helps identify channels for converting customers, what it doesn't do is take into account previous touchpoints like linear TV or digital display. Nor does it introduce our brand to new customers. The average brand would lose as much as $50 million for every $25 million spent by optimizing toward that last click.
Let’s look at the big picture
When we only consider short-term, instant hits, we’re missing the bigger financial forecasting picture – how the halo effect of brand marketing contributes to longer-term business success. This is huge. At least 30% of paid search is driven by brand messaging and upper funnel marketing (often more than 50%). Short-term measurements simply don’t expose this truth.
Brand-building is a committed, long-term activity, not a market play to be switched on and off in response to short-term variables. Increasing investment in brand-building amplifies lower funnel conversions.
In fact, the pool of insights I’ve been citing throughout this letter shows there is a 72% increase in spending on brand activities year-on-year, which led to a 76% increase in profit from that channel. But what was surprising was its disproportionate impact on performance ROI – with just a 35% increase in performance marketing spend, the brand saw a 48% increase in profit.
How targeting can help us hit the bullseye
We also will benefit from an increased focus on targeting. You may be surprised at how much the power of targeting has grown. Nearly 75% of sales generated by marketing come through media channels that enable some form of targeted approach. That's up from 55%, just five years ago. Retailers are taking advantage of the knowledge they have of their consumers to offer brands the opportunity to use their marketplaces as targeted and effective media channels via a full suite of digital, display and search tools.
Advertising on retail media impacts the path to purchase, via targeting, in a way that simply wasn’t possible before. A customer can be targeted at the end of their purchase decision-making journey, taking the research they’ve already done into account. It’s clearly working, since Amazon’s revenues from advertising are now higher than fees from Amazon Prime membership, audiobooks and digital music combined. Meanwhile, Walmart’s ad revenues have surged 30% due to its expanded media business. Targeting works, and brands are spending on these platforms because they know this. We should too.
Working together, now – and in the future
I hope I’ve demonstrated that I’m just as dedicated to leveraging analytics and delivering on results as you. We are both focused on achieving goals that benefit all of us and are responsible for making decisions that better prepare us for the future.
To that end, let me also offer to give us much more than a backward-looking ROI report card, by using data to give us the ability to make smarter, right-time future business decisions. We can analyze and predict what pulling different levers will do to genuinely drive growth and improve our business.
You need analytics to forecast revenue for the next year for the board. Forecasts must be accurate because this data trickles down to all departments and is used to build goals. Where I can help is to aid you in better understanding the impact of all growth drivers on our business: inflation across different currencies, level of investment in marketing and sales, category demand and seasonality.
Let’s go beyond the surface
We’re not so different. Marketing often looks like its focus is only on tag lines, advertisements and even parties, but we are also a discipline that loves real data. We use commercial intelligence to build better connections with customers that drive impactful decisions, to deliver measurable growth, along with real-time insights from multiple inputs. These are used to form long-term marketing strategies and not a program to stop when times are tough. The actions we take now will make or break our future growth. We can choose right now to build an enduring brand.
Especially, during tough economic times, it is tempting to focus on short-term goals and quick wins, but the data shows we mustn't do that.
Can we sit down and talk more about using a common language and goals to move our company and brand forward? I’m looking forward to it.
Read more in this Spotlight series
In the US, it’s time to talk about marketing effectiveness
Pernod Ricard North America’s Pam Forbus discusses how marketers can put the focus on effectiveness
Pernod Ricard North America
When measuring the effectiveness of media channels, one size does not fit all
Using attention metrics to drive effectiveness: Four dimensions brands need to know about
Why they won: WAFE North America jury chairs Pam Forbus and Cheryl Guerin discuss the Grand Prix winners
How measuring effectiveness combats ad fraud