No marketing professionals at the table
April 10th, 2007 by john
The era of Private Equity is upon us. As Private Equity firms increase their influence the marketing discipline is loosing out. In the USA the average length of the CMO (Chief Marketing Officer) has declined to 18 months. What is strategic or long term when the leaders of the discipline survive less than 2 financial years? And where are the great marketing gurus today. It is as if the great marketing and advertising personalities are of a bygone generation. And with their passing the marketing has lost potency. In Australia who is replacing the likes of John Singleton, Mo and Jo, Hugh Mackay. Off shore is much the same. Philip Khotler is still the main author of marketing texts. The Saatchi brothers were the last great profile ad men.
Board rooms have always been dominated by the financial and legal professions and today they are stronger than ever.A colleague of mine, who worked for a global marketing services company, recently accounted the experience of being managed by a Private Equity company. He believed they (the PE owners) knew more about the marketing services business than its managers. Why? Because PE companies get really clear about where profit is being generated and where it is being eroded. They do this via intense and detailed analysis. They measure everything and measurements form part of analysis and analysis drives decision making. Like many I have wondered how is it that PE companies are able and prepared to pay above market rates to acquire companies. The answer is, they are able to manage the acquisitions to provide greater value.
So how well does marketing fit into this new thrust in business. The answer is not that well. It is often considered a “soft” discipline. Arguably developments in recent years have increased this perception. The advent of a far more fragmented media market has increased the difficulty in measuring of cause and effect. The head of the AFA (Advertising Federation of Australia) says it is not uncommon for a marketing campaign to deal with upward of 70 touch points. I was recently at a conference in Europe where the head of Innovation for P+G said they were “out of control” when it comes to handling new media. They have no way to adequately analyse ROI. P+G have always been among the world’s best when it comes to measurement and analysis. Its reputation is built as much around its processes as its results. It is a formula that found favour in financial circles. And while they are engaging the new media they still invest the bulk of their marketing funds in areas where their tried and proven measures and analyses direct decision making.
Part of the problem is that P+G are the exception. Far too much marketing money is spent without adequate accountability. Part of the problem is the lack of connection between finance and marketing. Many marketing finance teams are not much more than cost accountants. What appears to be missing is a real understanding of what is possible from the linking of these two skills. There are many analytical skills in both areas which are quite different and quite complementary. For example the evolution of market mix and choice modelling skills are not well understood in finance circles. The potential for these to be applied to financial decisions is significant. They can be applied to market forecasting, revenue and profit sensitivity analyses, allocation of limited marketing funds, determining the strength of a brand, formulating prices strategies, determining the ideal portfolio and so on. Yet they are used in almost exclusively by marketing teams and in a very limited way. It is extraordinary how many marketing plans are put together with superficial quantitative analysis. For example marketing executives will develop strategies around what are considered “market drivers” yet in most cases these have not substantiated or quantified and hardly ever has the potency of the “market driver” been calculated. Another analytically light section in marketing plans and strategy documents is demand forecasting. Numbers may be present but seldom are they based on future scenarios being quantified in a rigorous manner. New ideas may be “researched” but not often in a manner that allows any scientific assessment of how customers will behave when presented with the new offer alongside all the current offers. Often extensive profit forecasting and sensitivity analyses will be undertaken largely manipulating cost components…all on the back of rubbery demand forecasts.Boards often sign off large marketing budgets or even acquisition proposals without adequate understanding of the resilience of the revenue forecasts. So for most cases marketing initiatives are justified on “soft” numbers and results are hit and miss. It’s not surprising that the analytically driven PE companies are not inviting marketing professionals to the table. It’s a little ironic as demand/revenue issues are among the least controllable in business and one would think expertise in this area would be highly relevant.So the marketing industry has some thinking to do. There seems to be no stepping away from financial accountability in today’s business environment. Maybe the nature of gurus of past generations is no longer relevant and we will not see high profile marketing personalities again. But Marketing needs to be at the table more than ever before. The way it needs to earn its place is by finding links between it hard (numbers) and soft (human) side. This can be done and it allows the demand/revenue side of business to be interrogated with much greater rigour than often is the case today. It needs to embrace financial skills and financial analysts need to learn more about more advanced marketing analytics.
The role of a marketing finance needs to redefined as more than just controlling marketing expenditure to one of understanding the drivers of revenue and hence profit and ensuring the top lines in most marketing plans based on better analysis. Consumer Insights, Planning and Finance teams in Marketing organisations need to be looking at how to work more closely.
The marketing institutions should play a role as well and encourage cross fertilisation of skills. Marketing and Advertising conferences and courses are often inward looking affairs where there is not a great deal of focus on how Marketing integrates with other business disciplines, particularly finance.
There is a wonderful book called The Wisdom of Crowds written by James SurowieckiOne of its fundamental teachings is that decisions are likely to be better when made by a diverse group. Surely to have the customer seat vacant in the higher level business decision making forums is leading to poorer decisions. To become part of the decision making crowd marketers need to learn their language. �
� � ��
� �� ���
� �� ��� ����
�����
������
�
�
�
John, you should get this article published in B&T or similar marketing magazine & also in an accounting magazine, steve
Where are the grounds for cross fertilisation of ideas? Humanists were once valued for their well roundedness; we in the post modern world have become specialists gone amok. John, we need you on a board of advise for top universities here if our next generations are going to have some hope.
We in the market research world also have a turn-around of 18 months from AMSRS’s last count. What are we doing as an industry to nurture a sense of belonging, loyalty, growth amongst our people?
Georgi
This is a very interesting topic. As you may know the AMI is pushing the concept of Marketing Metrics which has taken a lot of development but is attracting lots of interest among the CMOs. Question is, who is going to champion marketing metrics. I am not convinced that the marketers will have the understanding and capabilities needed to do this. We researchers are very well placed to take this issue on and champion it, and of course we will need to both measure it and create the customised measures of relevance to each business. Opportunities for benchmarking and syndication work through TAG also lie here. We should consider sponsoring the AMI Marketing Metrics program. Also, we should be targeting the Private Equity funds as clients.
Ian - i am part of the marketing metrics group with AMI. My role is to ensure that the Research industry has a role to play once the marketer’s agree on the metrics - from what I can see it will open up a whole raft of opportunity for our industry