When you read the business pages of your daily newspaper or watch the business news on television, news of company performance is dominated by financial statistics be they increased turnover, growth in profits or an increase in share value. This is to be expected as the primary role of a company’s board of directors is to maximise the returns to stakeholders.
Financial data, particularly in the UK where the vast majority of company directors come from banking or accountancy, is familiar, comfortable ground.
This creates a problem for marketers where many metrics do not easily fit with the concept of shareholder value. You do not see company’s reporting that they dominate media share of voice; or that they have increased customer retention rates.
And so the focus of company boards is often skewed towards the minimisation of costs and the maximisation of financial returns to ensure the shareholder value target is met.
In some companies, this financial focus is so dominant it leads to incorrect marketing objectives being set or defined. For example, many firms will set the increase of sales volumes as a marketing objective. This relates strongly with the concept of the ‘Sales and Marketing Department’; a silo approach where marketing is a function of sales rather than sales being a function of marketing. Some organisations even set the increasing of profits as a marketing objective ignoring the effect of cost minimisation on that target. All too often objectives are set for an organisation’s marketing team which focus on the short-term ignoring longer-term aims.
That said, marketing objectives do need to be set within the financial resources and expectations of a business.
Marketing objectives need:
- Financial Rigour,
- A Strategic Focus (but not limited by annual targets),
- Resource allocation aligned to business growth (digital marketing projects and internet-based customer service should not be seen as cost-cutting exercise
- Segmentation to be driven by customer needs and wants. This should be in line with marketing best practice. You should not simply rely on easily obtained demographic data but look to psychographic data on customer attitudes.
- Profitability should be assessed by the examination of individual accounts
- Customer retention analysis. There is a lot of research available on customer retention but it is rarely used by businesses. This ignores the fact that the longer you retain a customer, the more you will earn from them.
In the UK it is a fact that company boards are dominated by directors with a background in finance. In Germany, boards are often dominated by engineers (Germany also has a large number of family-owned firms). Across the EU, around 700 million euros is spent annually on market research. That sounds a lot but compare that figure to engineering research where upwards of 70 billion euros is spent. One large oil firm recently spent 700 million euros on a single financial IT system.
No company would make a major purchase without carrying out detailed and serious financial due diligence. Often this will involve the introduction of external expertise, auditors and consultants. Yet often firms will create marketing campaigns and targets based on poorly reviewed research and strategies.
There are two levels to marketing due diligence:
- The strategic zone where metrics are defined. This is where the target market is described and the value proposition created.
- A measurement zone where value is calculated and the value proposition delivered.
When creating marketing objectives you align them with shareholder value over three levels:
- Level One: Marketing Due Diligence: define your strategy, segment you market, define target customers and create your value proposition. Does your marketing strategy create or destroy stakeholder value? How can your existing strategies be improved?
- Level Two: Marketing Effectiveness: What tactics do you employ in each of your target market segments? Do those tactics create a differential advantage compared to those of your competitors?
- Level Three: Promotional Effectiveness: Are marketing communications meeting targets such as share of voice, consumer recall and product awareness?
You must remember that measuring marketing output is not like measuring factory output. In factory output you measure the difference between what goes into the production line (e.g. effort and raw materials), compared with what comes out (finished products, wastage). The effect of marketing activities can only be assessed long after products have left the factory floor.
To properly consider marketing; doing marketing due diligence properly; you must measure the risk associated with a chosen marketing strategy and therefore its potential to affect stakeholder value.