BrainTrust Query: Beating the Fallacy of ‘Cheap’ Marketing
Through a special arrangement, presented here for discussion is a summary of a current article from Cultivating Your Customers, the M Squared Group blog.
Your CEO just rejected another proposal that could increase revenue on the grounds that the marketing investment was too great. What are you to do?
I was speaking with a prospective client the other day and he shared stories of how marketing spending was reduced annually for the past five years. As a result, the brand was in decline and the products more like commodities than before. Each time he brought a recommendation to drive revenue by increasing marketing investment — social media, content-based marketing, long-term lead nurturing, improved web analytics — he was told to estimate the absolute minimum amount to get started. Then management delayed for several months, and eventually agreed to even less spending, so that the marketer couldn’t even get a good read from a test, much less roll out a new initiative. When asked, his CEO bragged about the fact that the company never spent money frivolously, that they were always "cheap."
And this behavior is not uncommon. I’ve seen other companies steadfastly refuse to make investments that can have a direct payoff because those investments would be greater than in the past.
Can you wonder why marketers feel more stress and burnout on the job now than ever before?
To be fair, since 2008 the "new economy" has brought challenges to businesses. The market is tougher than ever and consumers more price conscious. But those are the exact reasons that companies must invest or find themselves in a "race to the bottom," trying to outdo each other in spending cuts until there is nothing left to cut.
To break through and successfully engage your senior management, you have to play on three leverage points:
- Peer Group (other executives): There is no better way to move a CEO to action than to show him that his friends and peers are moving ahead without him.
- The Competition: Executives tend to have an obsession with the actions of their immediate competitive group. Pull up examples of work that the competition is doing, listen to their analyst calls and read articles about them to demonstrate the advantage that they are gaining by taking up your strategies.
- The Board: Identify the companies board members are affiliated with and show how they have taken the lead in these key strategies. The risk of being caught unprepared at a board meeting or by a board member offline is enough to motivate a CEO to action.
You can trim mass media and get away from it, but you cannot trim customer contact and relationship building without seeing both immediate and longer-term effects.
Discussion Questions
What are some strategies marketing professionals can use to get the green light from senior management on marketing investments?
It’s easy to blame senior management for this problem, but some of it has been self-created. The three most dangerous letters in marketing are C-P-A. No, I’m not referring to our bean-counting friends, but rather to Cost Per Acquisition.
By taking a “cheaper is better” approach to the way we bring in our most valued assets, we put costs (and cost-cutting) front and center instead of long-term value (and value creation).
If we could get ourselves to focus on (and truly understand/measure) long-run investments in customers, it would be easier to make the argument to senior management that we can’t keep operating with less and less. This might not solve the problem entirely, but it would be a useful step in the right direction.
This is especially true in the online space, where CPA is so tangible, but long-run value isn’t. All the more reason why we need to develop better models and mindsets so we can stop being so distracted by short-term cost-oriented metrics.
Mr. Price’s assertions are all very insightful. I would add to his list of actions to create a “test lab” of stores or markets that new marketing and communication investments can prove their efficacy and ROI. I realize that this approach lengthens the timeline of launching programs across the enterprise, but CEOs are often heavily influenced by boards and CFOs that want empirical evidence, before approving the expense.
If senior management really believes the ROI will be there, they will act. The problem is that many marketing execs haven’t been able to make the case that their spend really does drive profitable sales. Marketing has long been fraught with bogus metrics — or at least metrics that don’t tie to actual business value.
The online world has actually made this worse, precisely because it is easier to quantify non-meaningful measures. We hear things like “a Facebook fan spends 3x what a non-fan customer spends” or “this online coupon had 15% redemption versus 5% for a paper coupon.” So what? Neither of those numbers say a thing about ROI (if you think they do, you should check your premises).
The right answer is to do the analytics the right way. Make a clear, convincing case for statistically significant tests. Get agreement in advance on the hypotheses you want to test, on the methodology for measurement (you had better have a real control — not some biased group of non-fans or non-redeemers), and action standard for the next step (rollout of new budget and/or expanded testing). Be prepared to test more ideas — many good-sounding marketing ideas don’t actually work, and no one can tell you in advance which ones will work for you.
Then use great analysis to hold senior management’s feet to the fire. You might even find your results are finally as compelling (or more compelling!) than the folks analyzing capital and merchandising programs.
Great piece Mark. Its all about mindset. By far, the majority of “leaders” are stuck in old Newtonian fear-driven thinking. We don’t get anywhere because we continually put our old experiences on the table. We took a risk when we were 15, ended up disappointed and it’s “never again” for the rest of our life. “If only she had danced with me back then I’d be a success today.” One study found that 43% of CEO executives make decisions driven by fear. What this has to do with real leadership escapes me.
In my experience the “Peer Group” point is the most powerful. If “everyone” is doing it you don’t need much courage to go along. In other words it’s up to the marketer to market marketing. Oh what I’d give for a list of CEO early adopters!
All good ideas, worth using. I’d only add that especially when it comes to alternate media and consumer insights, vendor pricing is erratic and you don’t always get what you pay for. The Big Names out there often charge outrageous prices for Mickey Mouse work, and some small vendors with a low price can be absolute wizards. Requires more research than ever, because many execs don’t fully understand the process and can be hoodwinked. Seen it happen beaucoup times.
It sounds like the article, which is well presented, is referring to larger corporations. It also appears that the marketing team is not presenting the ROI well and possibly the available funds are being diverted in another specific area. What needs to happen is, prior to the presentation, discover what those areas are and focus the presentation to how this marketing program will assist it.
Smaller, entrepreneur-managed companies are quicker to act positively or negatively when they see how the numbers will add to the bottom line.
For a lot of marketers, the key is to tie the expenditure to a measurable outcome. If we spend this much on advertising, a trade show, PR, etc., we’ll get this many leads and that translates into this much new revenue. Easier said (or written) than done, I know, but it’s what CEOs are demanding. While the three strategies mentioned can work, they are all subjective in nature. Hard facts will usually push resources to the marketing team faster than anecdotes.
Marketing executives and their workforce continue to feel the results of hatchet management simply because of the lack of supporting relevant information incorporated in the proposals they are sending in. This is perhaps from being fooled into thinking this is a stalled recovery or even a new economy. There is in fact a lot of information about an economy just like the one we have now. It was the nation’s and the world’s economic conditions from 1929 until the end of 1941 most commonly called the depression. For a more current look at a milder depression we need to go back to 1971 through 1982. A fourth depression was averted when commercial banks were dragged to the table to buy out the savings and loan banks just in time.
In all three of these periods survival was the fundamental concern and focus within the typical ownership business plans. These concerns intensified as the numbers of business failures remained steadily higher than an accepted norm due in large part to the low amounts of borrowing capitol and the difficulties of acquiring it.
Present day marketing executives need to be aware that all three depressions were caused by high risk investment practices made by the financial industry. This in turn caused money supply shortages and new laws governing loan acquisition and use. Expanding marketing plans to include information that would demonstrate the means to gather funding at the lowest possible rates might make the plans harder to argue against. Comparing the plan to ones used by growth industries in similar economic conditions, both present and past, would most definitely quiet many of the executive committee’s board of directors’ concerns. Sending invitations to the Board Chairperson and company Treasurer to observe and provide comment instead of governance may be another good idea that is less threatening to the executive committee. Allowing for and making radical changes to something that is not working should be a must, and not a consideration.
Great brands view marketing as an investment, not an expense. I have never been able to figure out how CEOs think that by cutting back on marketing, advertising, and public relations, that somehow their brand’s business will grow? How so?
This sounds like a classic sales situation to me. You need to identify the need and make sure the CEO buys into the need. Then create the plan, present the plan in a way that the CEO/customer buys into it, handle the objections, close the sale.
Sounds like we may have a good marketing person, but a poor salesperson.
Link the investment to real numbers. This is a difficult task for most marketers, but it is also the reason they are not successful in their pursuit of more monies to increase their marketing budget. If they could just demonstrate how each incremental dollar spent will increase revenues, create more jobs, etc. they would be more successful. Marketing needs to have a direct link to the “bottom line” in order to be successful. Show this, and you will also be successful.
This global IBM study of more than 1,700 CMOs shows that marketing investments are on the rise, and also by 2015 the typical CMO will have more influence on IT spend than the CIO.
These facts should not be ignored. The most valuable brands in the world do not go “cheap” on their marketing strategies. One way to help business leaders understand business value of marketing is to leverage marketing ROI tools available to take the emotion out of the decision making process. Tangible metrics are being developed so that these conversations can be minimized in the future.
With all due respect, “we should do it because all the cool kids (in this case peers and competitors) are doing it” is no way to run a business and not a sustainable way to justify marketing investment.
I’m going to agree with most of the panelists commenting here that doing the hard work up front to create a culture of measurement is the key. Understand the key metrics that marketing can move the dial on, get a handle on your data and then show the connection between your proposed initiative and those metrics.
Just as important as the measurement itself is the presentation and accessibility of the analysis. Create marketing dashboards that give your executives a “cockpit” view of marketing performance and when you are presenting the case for a new initiative make sure that the data is presented in a compelling way that makes it easy for the C-Suite to grasp the potential impact.
Advised actions here make sense. Case Studies.
Left unsaid here — though not so in the comments — is the premise that the marketing “investments” are really that (i.e. that they aren’t, in fact, a waste of money). Yet how many times here on RW have we seen strategies promoted with the caveat that ROI on them can’t be measured? Sure it can be difficult, particularly for people who aren’t “numbers people” — which probably describes most marketing staff — but that’s why execs make the big bucks. And if you can’t even sell an idea to your fellow employees — who presumably have a pro-company bias — why should the CEO have faith you can sell the company to customers?
That having been said, there are of course many worthwhile ideas that are snuffed-out by incompetent CEOs, and I don’t think there’s really any solution to stupidity: every strategy outlined would simply reinforce the mentality of a know-it-all who prides him(her)self on being “cheap.”
A strategy not mentioned is testing. See if you can run a proto and measure it — once you have hard facts, it’s a much harder proposition to turn down. Think small first. But if that doesn’t work, you can then proceed to throw a classic “marketing tantrum” … throw your cocktail across the room, swear profusely, etc., until you get what you want (Mad Men thought).