The vast majority of finance directors feel they are unable to quantify the return on investment (ROI) that their organisation receives from its marketing spend, according to research carried out by Marketing Week and sister brand Econsultancy. While the relationship between finance and marketing has long been a difficult one, the study lays bare the scale of the problem and highlights the adversity facing marketers who wish to play a more influential role in their companies.
The Value of Marketing study, which will be launched at the Festival of Marketing this week, includes a survey of 171 senior UK finance executives, revealing that 76% cannot put a figure on the financial return generated by their company’s marketing. Although 61% of finance execs believe marketing is a critical function within their business, only 39% have confidence in marketers to make good commercial decisions.
The findings demonstrate the difficulty of proving ROI today, when marketing investments are spread across a huge array of channels. Marketers’ budgets were revised up for the eighth consecutive quarter in the latest IPA Bellwether Report, but this increased spend is accompanied by heightened levels of scrutiny from board level executives.
Econsultancy research director Linus Gregoriadis says: “Most finance directors surveyed have a clear idea of what they are spending on marketing but are generally unable to quantify the return on investment, even approximately.
“Notwithstanding the difficulties of measuring some areas of marketing activity, marketers will struggle to gain influence in companies where there isn’t a clear understanding of its commercial value.”
An additional survey of 100 UK marketers, carried out for the same study, reveals a similar level of distrust towards the finance department, with only 33% of marketers stating that they have confidence in the finance team to make good decisions relating to marketing budgets. It also shows that marketers would most like finance directors to better understand the difficulty of measuring marketing and to share financial data more readily.
Andrew Warner, vice-president of marketing at recruitment group Monster Worldwide, agrees that both marketers and finance executives are guilty of making strategic errors that complicate their relationship. On the marketing side, he suggests that many brand marketers still rely on metrics “from the pre-digital age of marketing”, such as brand tracking studies, market research and customer satisfaction measures.
“None of these are unimportant but each comes with its own jargon,” he says. “That jargon is a language which is spoken by other marketers and agency partners but it’s not the language of the modern boardroom.”
This is a view shared by Stephen Brown, chief financial officer of rugby governing body the RFU, who suggests that some marketers rely on inappropriate data to justify their role or budget allocation. “If there’s a reasonable understanding of the implicit value that marketing brings then analytics just help you understand the effectiveness of certain campaigns along the way,” he says. The danger is that “implicit value” may not be sufficient for finance directors seeking to prove a hard financial return, he adds.
The ability to heal potential rifts between marketing and finance depends on a company’s internal structure, including whether marketing is assigned a place on the company board. According to the research, just 42% of finance directors say that the head of marketing sits on the board. Only 43% believe that the ‘head of marketing has a strategic influence on the business’, and one-third of them disagree with the statement. The figure contrasts with the 63% of marketers who believe they have an important strategic influence in their organisation.
The ‘triple-A’ effect
Chris Clark, head of marketing at HSBC, argues that marketers must display a high level of “emotional intelligence” by understanding the priorities of different department heads and the overall direction of the business. He calls this the ‘triple-A’ effect, which involves understanding the business’s strategic agenda, what it can afford to spend and the need for accountability. This approach can help to engender trust between departments, says Clark, resulting in more confidence in the marketing function.
“Marketers may be very different animals but however you approach the discipline, you have to be able to promote your ideas without feeling under siege,” he explains. “A large part of it is a confidence issue but that can be bolstered by ‘agenda, affordability and accountability’ as a way to engage with your management team.”
Clark has sought to apply these principles at HSBC by focusing on cost-efficiency. This includes rationalising the bank’s marketing vendors, cutting down on its direct mail print costs and sharing more creative assets such as a UK TV advert about mortgages that translated across to Brazil and Australia. “Take a moment of reflection to identify what finance’s issue is – do you really understand it and what they are asking of your team and your function?” he says.
Ian Proctor, finance director at gambling brand Sky Bet, believes that today’s marketers generally have strong commercial acumen and empathy with the finance department. He claims that “marketers are much more financially literate than not” and that the rigours of the job market in today’s tough economy mean “you naturally end up with the smart people”. Sky Bet is able to track ROI at a granular level thanks to the direct response nature of most of its marketing campaigns.
“We can pull apart a £100m annual marketing spend into 30 different lines, where we can track response rates and see where we would expect an incremental lift”
Ian Proctor, Sky Bet
Despite this positive view, the survey suggests that finance directors remain unconvinced about the impact of their investments in digital marketing. Only 36% agree with the statement ‘our organisation is reinventing itself due to digital disruption’ versus 38% who disagree. When finance executives are asked for their biggest priorities from the marketing department, ‘understanding commercial objectives’ comes top (52%), followed by ‘realistic forecasts and projections’ (48%).
Literary magazine the London Review of Books (LRB) seeks to boost the accuracy of its forecasts and drive incremental improvements in marketing performance by using a lifetime value (LTV) model. Developed by publishing consultant Alan Weaver, this is essentially an Excel-based system into which the marketing team enters all the measurable parameters of a campaign such as spend and conversion or retention rates. The LTV model then informs the marketer when each piece of marketing breaks even and how much profit or loss it makes over a period of five years.
This enables head of marketing Renee Doegar to tinker with campaigns with a high level of flexibility and quickly measure the result. The majority of the magazine’s marketing activity is direct response campaigns aimed at selling subscriptions, so Doegar uses unique codes for each promotion, either printed or online, to track conversion rates. She also regularly runs A/B tests to monitor the performance of website or email campaigns.
“Even something as seemingly untrackable as social media has special links, so when we send subscription offers through Twitter or Facebook they are linked to that particular message and medium,” she explains. “For example, our Christmas 2014 subscriptions campaign is being set up with 61 individual trackable source codes to determine the effectiveness, not just of Christmas as a whole, but of each specific piece of communication we are sending.”
The LRB reports that as a result of these methods, subscription revenue has grown by 5% per annum over the past three years despite its marketing budget remaining flat during the period. “This success reassures me that our investment in marketing is efficient and effective,” says finance manager Taj Singh. However Doegar acknowledges that as the LRB seeks to extend its brand reach in future years, including through potential sponsorship opportunities, it will become more difficult to track ROI.
“Growing our brand image through channels like sponsorship and PR might not be as measurable but it’s incredibly important as more people learn about our brand and who we are,” she says. “One result is that we see an upturn in people googling our name, so that is where they start to enter the sales funnel and where we can begin to measure the impact.”
Quantifying brand-led campaigns
Dean Morris, marketing director of homeware retailer Robert Dyas, says one of the most difficult results to measure is the long-term impact of brand campaigns. Having previously focused on price or product-centric promotions, Robert Dyas this month unveiled its first brand-led advert for TV. The £1m campaign, which positions the brand as a convenient and family-friendly retailer for Christmas, represents a significant increase in Morris’s marketing budget.
In addition to standard commercial measures like the impact on sales, footfall and website traffic, Morris has commissioned a major research project to track the effect on brand awareness, perception and willingness to recommend. He argues that other executives within an organisation must buy into the importance of these brand measures and the long-term strategy behind campaigns if they are to be successful.
“Marketers have to be accountable for the money they spend,” he adds. “It’s a big outlay for a business so marketers must make sure that there’s visibility across the rest of the organisation in terms of the objectives you’re setting and what success looks like.”
Marketing Week and Econsultancy’s research shows that from the perspective of marketers, the most sought-after attributes in finance colleagues are ‘understanding the difficulties in measuring marketing’ (45%), ‘sharing of financial data’ (39%) and ‘working more closely with marketing’ (35%).
Warner at Monster Worldwide says that achieving this can be as simple as the two sides engaging with one another more regularly. Within his company, the strategic marketing and finance functions for Europe physically sit together, work together and socialise together, he claims.
“Work together to find the right ways to measure marketing effects. Agree metrics that both of you feel comfortable with,” advises Warner. “If you do that, then your freedom to experiment, to be bold and creative will grow exponentially in line with the trust and credibility that you build.”
The RFU’s Brown, meanwhile, believes that chief executives play a vital role in bringing marketing and finance teams together. In addition to understanding the value of the company’s brand and the need for long-term marketing investments, CEOs can create the structures necessary for the two sides to work in greater harmony. At the RFU, there is a ‘financial partner’ role dedicated to liaising between the finance and marketing teams and articulating the concerns of both sides.
As a finance director, Brown acknowledges that the onus is also on his profession to improve its understanding of the marketing function, particularly as digital media channels become increasingly complex and proving ROI becomes ever harder. Market conditions demand a change in mindset from marketers and finance executives alike, he suggests.
“I would find it difficult to be in an organisation that has trouble investing in marketing. The market is dynamic and the channels are changing, so it’s important that we have an expert function that is capable of anticipating the position of the organisation within it.”
Marketing and finance dilemmas
“Finance [professionals] want their marketing teams to be successful. If companies did not believe marketing added value to their bottom lines they would not invest in marketing. So as a marketer you need to set aside functional differences and work together with finance to set some KPIs that you can all buy into.”
Andrew Warner, VP of marketing, Monster Worldwide
“In many respects, marketing shouldn’t need to justify its existence. It’s there for a well understood reason and good finance departments will understand that it is the custodian of the brand, which in many ways can be more valuable to the company than individual products.”
Stephen Brown, chief financial officer, RFU
“Finance wants to see simplified reporting, but clearly that’s easier in some areas than others. A credit card campaign promising better rewards can show customer acquisition easily but working to increase premium customer acquisition is a task we share with sales. It is much more difficult to attribute and quantify results purely from marketing.”
Chris Clark, head of marketing, HSBC
“There are a lot of financial directors with the single skill-set of playing devil’s advocate and pushing back with the alternative argument of the bottom line against creating revenue growth. Partly that is a role they have to play but they do need to have an understanding that marketing is a big part of the growth driver.”
Ian Proctor, finance director, Sky Bet
“Our growth has been achieved with a constant – occasionally even reduced – budget, and confirms that our marketing and publishing model is robust. Using the model, our marketing department can accurately forecast the value of campaigns without the need for increased spending.”
Taj Singh, finance manager, London Review of Books