RSS feedsFinance directors tend to fall into three camps when it comes to their views on marketing. Some still view the function as the unaccountable purveyor of expensive advertising; others are intimidated by the fancy language and claims of creativity; and a third group is seduced by marketing hype.
But if FDs were to shrug off such stereotypical notions of their marketing colleagues and address them as equals, they would be more likely to encourage the kind of strong and effective marketing orientation that is an essential component of long-term, sustainable growth.
Financial Director has come up with a series of questions that FDs may ask of their marketing directors in order to obtain a better understanding of their boardroom credentials. Words Jane Simms
Remind me again, what is it exactly you do?
No profession is given to quite as much navel-gazing as marketing, and one of the first questions the finance director could be forgiven for asking his marketing colleagues is, 'Why not stop agonising about what you should be doing and just get on with it?'
Over the past decade, there have been reports on, for example, marketing's midlife crisis and marketing at the crossroads, and, most recently, The Coming of Age of Marketing, which was launched last autumn by industry body the Marketing Society and McKinsey & Co. However, despite its optimistic title, the subtitle, What is the role of marketing and for marketers in solving business challenges? suggests that marketing still lacks the confidence to stand up and be counted.
Which is more important, the marketing department or marketing?
A marketing orientation and a marketing department are not necessarily synonymous, and the marketing director from the Trust Me School of Marketing, who uses his superior knowledge of the dark arts to justify an army of staff and an inexorably rising budget, should be treated with the utmost suspicion - if not summarily dismissed.
Satisfying customer needs profitably remains the overriding purpose of marketing. But as businesses have become more service-oriented, the role of marketing has changed from being principally the creator of advertising to stimulate demand (now a tiny subset of its responsibilities), to ensuring the entire organisation meets the customer expectations marketing has created.
Mike Moran, former marketing director and commercial director of Toyota, and now managing partner of the Orchard Consultancy, points out: "One bad experience on the phone trying to get BT Broadband connected could wipe out the desire, let alone the goodwill, created by millions of pounds of advertising." As such, he says, the marketing department has to work with all the customer-facing functions within the company to deliver a well-aligned brand experience to the customer.
Are you doing the right things, or just doing things right?
Despite the flight to measurement by marketers under pressure for accountability, the finance director shouldn't be deceived by marketers' claims of efficiency, warns marketing consultant Mike Sommers. "Doing the wrong things efficiently doesn't make them right. It's not just about 'doing things right' but about doing the right things in the first place."
Indeed, efficiency and effectiveness can be mutually exclusive. For instance, Tom Lloyd, consumer insights manager at Kraft, regaled a recent CIMA conference on profitable marketing with lessons on how his organisation is using 'world-class brand modelling capabilities' to improve business performance.
Surely, then, this can't be the same Kraft that is cutting the guts out of Chocolate Orange and All Gold manufacturer Terry's (formerly of York). That brand was once every bit as potent as the relative upstart Green & Black's, whose growth potential was recently acknowledged by Cadbury Schweppes with its purchase (for an undisclosed amount) of the company.
Are you staying?
Marketers are right to argue the need for a long-term view of brand building and to resist the pressure for short-term results from their activities. But they don't practise what they preach. With the average tenure of a marketing director now just 18 months, and the propensity of incumbents to change everything, they should clearly be encouraged to look to their own laurels.
Hamish Pringle, director general of the Institute of Practitioners in Advertising (IPA), warns that the brand 'zigs and zags' that accompany changes in marketing director and advertising damage hard-won customer rapport. "About 30% of shareholder value is estimated to reside in intangible brand assets, and it amazes me how readily companies tinker with such valuable assets," he says.
Where are you spending your marketing communications money? Is it giving you a return? If not, how are you going to deploy it differently?
Having spent years analysing the relationship between brand advertising and sales promotion, professor John Philip Jones of Syracuse University, NY, concludes that while strong advertising builds brands in the long term, sales promotion serves as little more than a short-term fix and can damage profit and brand value by 'training' customers to shop around for discounts. This serves to bring forward purchases rather than increase them.
If too much marketing money is heading towards trade stocking and display discounts, and non-value added sales promotions such as BOGOFs (buy one get one free), alarm bells should start ringing in the FDs' head.
How many agencies are you working with and how much time are you spending co-ordinating them to make sure there is an integrated brand strategy?
Agency fragmentation - the proliferation of agencies to look after different aspects of marketing communications - means the marketing director may now be running a creative agency, a media agency, an online agency, a customer magazine agency, a PR agency, a sponsorship agency, a direct marketing agency and an events management agency. They may even be running more than one of each. Even in the days when they dealt with just an advertising agency or a media agency, it was estimated they used to take up to 15% of the marketing director's time. What must it take today? Not only is acting as ringmaster these days far more time-consuming, says Pringle, but there is also masses of waste in the system. The IPA estimates that about £14bn of the £42bn spent annually on marketing communications is the result of agencies being unprofessionally briefed.
Bob Shaw, director of the Value-Based Marketing Forum and author of Marketing Payback, suggests that using procurement departments to help select and pay agencies injects a valuable discipline into the process.
How are we paying agencies?
Though advertising remains a tiny subset of marketing today, it is the most expensive bit. While the return on direct marketing, PR and media buying is relatively easy to measure, and the agencies therefore relatively easy to reward, the payback on creative advertising work is notoriously difficult to quantify. Little progress has been made since soap powder baron Lord Lever famously declared: "I know that half of my advertising is wasted. The trouble is, I don't know which half."
The Incorporated Society of British Advertisers (ISBA) predicts that by next year about 50% of companies will use some form of 'payment by results' (PBR) in their creative agency agreements. But though the majority of clients already operating such schemes say PBR has increased the level of fees they pay agencies, only 56% believe the agencies' performance has improved accordingly, with some claiming it has actually deteriorated.
ISBA recommends using three criteria to assess an agency's performance: a measure of the relationship, such as service; a measure of advertising success; and an overall business measure, such as market share, profit or sales. But successful PBR depends on quantifying the elements of success with the agency at the outset, and specifying both the scope of the work and the potential rewards it could earn.
Do you think you get the message across effectively?
"The marketing industry has not served itself well in terms of the way it communicates to the non-marketing community," says Pringle. "We arrogantly assume that, because we are experts, we don't need to explain ourselves."
Moran has a less charitable explanation. He attributes the development of " impenetrable marketing jargon designed to bamboozle the outsider" to marketing's insecurity.
Pringle believes that even the word brand is used by marketers as shorthand for a complex set of things, and that marketers should talk about customers instead.
Who are our customers?
Marketers are prone to embracing fads as a proxy for true customer focus. Customer relationship management (CRM), for example, manifested most visibly in the 'courtesy' phone calls we're subjected to often when it's most inconvenient, was supposed to improve customer service. In reality, most customers define good service as being able to speak to a real person where and when they wish.
If they do nothing else, marketers should know who the company's customers are, how they can be segmented, how much they spend, whether the company is winning more than it is losing, what needs to be done to retain more of them, whether they can be encouraged to buy more or pay more, and so on.
Unfortunately, too many marketers focus on acquisition rather than retention, which is the wrong way round. Frederick Reichheld, loyalty expert and director emeritus of Bain & Co, showed it costs between five and nine times more to win a new customer than it does to keep an existing one. A small increase in retention - 5% - could yield a profit increase of between 20% and 125%.
Don't be fooled by marketers' arguments that it is difficult to prise the data they need from the finance department. The success of Tesco, First Direct, John Lewis and others depends not on nuggets of insight winkled from a web of complex customer data but from delighting their customers with fantastic products and service. A supplementary question here should be, 'How closely do you work with HR and/or internal communications to ensure that staff understand the brand?'
What are you doing to develop new products, services and channels to sustain success?
Most 'innovation' amounts to line extensions which, while they may sustain customer interest in the brand, do little to boost top-line growth. Recent MIT research found that line extensions amount to 86% of new product development, 62% of total revenues and just 39% of profits. More dramatic innovations, which represent 14% of new launches, represent 38% of revenues and 61% of profits.
James Woudhuysen, professor of forecasting and innovation at De Montfort University, says companies have abdicated responsibility for innovation to customers. "They've switched their focus and investment from R&D, developing patents and risk-taking to getting customers to tell them what they want."
Do you understand the company's business strategy?
Few marketers do, says David Haigh, chief executive of Brand Finance. "But it isn't necessarily their fault. Strategy changes so fast, and the marketing director is rarely kept informed." In other words, it's not a one-way street. Marketers can't be accused of failing to align the marketing strategy with the business strategy if they don't know what the business strategy is. The best thing the finance director can do to improve the health of marketing - the function and the practice - in his or her company, is not simply to question the marketing director but to foster a proper dialogue in which the role and purpose of this critical activity is both understood and exploited.
