Question time, finance versus marketing

Finance 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.