Do you remember the following quote?
“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”
This revealing statement comes from early department store merchant (and former US Postmaster General) John Wanamaker. His troubling words were true for over 100 years, but today digital marketing is quantified, analyzed, and evaluated daily to determine campaign performance. The days of wasting advertising dollars on a hunch are over! This has brought us to an era where marketing leaders are held accountable—and that is not a bad thing for CMOs who drive brand exposure and product loyalty.
We are in a period where, for many enterprises, the CMO role is mature. In addition, the role of marketing organizations has shifted from a cost center to a profit center. As some predict CMOs will spend more on IT by 2017, CEOs will be looking for performance that translates directly to the bottom line. The good news is that CMOs can, and should, connect their organizations’ results to financial performance (specifically, stock prices).
So, why do CMOs have difficulty being more vocal about their impact on stock prices? The image below shows us a lot.
CEOs Think Marketers Are “Too Distracted”
In 2012, the Fournaise Marketing Group revealed the findings from its annual Global Marketing Effectiveness Program study. The research showed that CEOs feel marketers are “too distracted, and sucked into the technological flurry … related to system integration, funnels, processes and scores.” In the CEO’s mind, marketers are not being held accountable for shareholder value.
It is interesting to note that nearly 70 percent of business-to-consumer (B2C) CEOs polled in the study believe B2C marketers are too focused on metrics such as likes, followers, feeds, and tweets—parameters that are not judged as critical (nor business-quantifiable) by CEOs. On top of that, 78 percent of all CEOs indicated they believe marketers lose sight of what their real job is: to generate demand that translates to revenue.
On the other hand, CEOs almost completely trust CIOs and CFOs. Why? Because their roles are more closely tied to revenue generation outcomes.
It is no wonder, then, that 80 percent of CEOs do not trust CMOs to deliver tangible results. Well, I am here to say that they should.
ROI Pressure Contributes to Higher Returns
An August 2013 report called the CMO Survey, conducted by the Fuqua School of Business at Duke University, indicated that 36 percent of marketers are able to prove the value of their practices in the short run and 31 percent over a longer period. While those figures are low, they do show that CMOs have the ability, and more importantly the motivation, to show a correlation between their teams’ productivity and their companies’ financial success.
What is interesting to consider is that the survey led to the following question: does pressure on CMOs to prove the value of marketing practices help or hinder an enterprise’s financial performance? What do you think the surveyors found? In fact, results showed that “CMOs that reported pressure experienced a 3.5% improvement in marketing return on investment (MROI) in the past 12 months compared to 1.72% improvement by CMOs that report no pressure to prove the value of marketing. This 100% difference in MROI is mirrored by a 50% improvement in company profits among CMOs that report more pressure to prove the value of marketing (+3.66% in profits) compared to a 2.42% increase in profits for CMOs that do not experience pressure.”
Marketing Strategies Lead to Higher Stock Prices
More evidence exists that connects marketing productivity to higher stock prices. In 2009, the prestigious Journal of Marketing published an article that discussed a study completed by two Georgia State University professors on the correlation between marketing practices of two companies (one B2B, one B2C) and their stock prices. In these cases, stock prices rose 58 and 33 percent respectively during the study!
Marketers Can Overcome Mistrust
So we have some data that supports how CMOs contribute to shareholder value. I believe it is important for marketers to become more assertive about how our practices contribute to business goals. Without hard numbers, we have a difficult time explaining our direct impact. We must connect our campaigns to monthly, quarterly, or annual results in a manner that fairly correlates to financial success.
It will take a collaborative effort between finance and marketing departments to define marketing risks, establish customer lifetime value (CLV), and correlate CLV with share price. When these steps are taken, CMOs will have hard numbers to back up their claims of contributing to enterprise value. In this way, marketers can overcome the mistrust that CEOs feel toward this vital executive role.