“Marketing is only about selling more people, more stuff, more often
in order to make more money.”
--Sergio Zyman
“It takes money to make money.”
--Old Saying
Recently, we had a conversation over lunch with a client who was questioning our conviction that marketers and their marketing spending ought to be held accountable for a return. If you’re a regular reader of DISPATCHES, you know that we firmly believe marketers must be held accountable for the company resources they expend, that they consistently report on the impact of these resources against the Big 3 business objectives of volume, profit, and market share. Or, said another way, that the Marketing Function—to warrant its deserved place at the “boardroom table” as an equal member with Finance, Operations, HR, and so on—must operate as a volume and profit center, rather than as a “Sales support” cost center.
In that luncheon discussion, the client said he agreed that major investments, such as in a new product launch, demanded that marketing account for the ROI of said investments. But, he added, “surely you do not expect that each and every single spending initiative that marketing makes—such as a product demonstration brochure—should be measured for its impact on sales and market share.” After all, there are some initiatives that either do not contribute to business growth or that simply defy even “ballpark” business impact measurement, which would be folly to expend energy against measuring. Call them “cost of doing business” initiatives.
We were initially reluctant to agree with our client on his “fine point” about assessing the business impact of small potato initiatives like product info brochures—for one simple reason: too many marketing organizations use the excuse that measuring most resource expenditures is not feasible…that the metric data required or test-control set-up is too problematic. So they end up measuring virtually no marketing initiatives at all; they end up with virtually no ROI accountability. And our considered opinion is that if you allow a pass on any one initiative being measured, you invite a pass on all. But, upon further reflection, we would admit that not all resources that marketers expend in building their brands are equally important—not all impact the business directly. In fact, it’s likely the case that some expenditures offer no return on spending at all. BUT, we would argue that such expenditures do have an inherent accountability: call it Revenue Loss Prevention, or RLP.
A few years ago, thinking along these same lines, we wrote some DISPATCHES articles about the approach that Frito-Lay used in the 1990’s to assess the relative impact of all marketing resources applied against a given brand. At that time Mike Jordan, who was the Frito-Lay CEO, outlined two kinds of “marketplace spending” that would cover all spending: maintenance spending and investment spending. The former, as its name implies, included all marketing spend that was intended to sustain the base of business that each brand had developed over time. The thinking was obvious—every FL brand with an on-going lifecycle had built up a base of consumers with a sustaining cycle of purchase and consumption. And it required a certain amount of annual spending to maintain that consumer base and consumption frequency. The latter, also as its name implies, included all marketing spending that was intended to either launch a new brand or line extension (and thereby bring in new users and usage) or to grow an existing brand’s base to a new, higher level.
Importantly, Mike also believed that while all investment spend must be measured and reported on for its ROI, all maintenance spend must also be measured and reported on for its effectiveness in sustaining a brand’s base. One other thing: a fair amount of time and analysis was spent in identifying those kinds of spending that typically qualified as maintenance and those that qualified as investment. You could say that the Mike Jordan/Frito-Lay approach of the 1990’s was nothing more than a mix of assessing RLP (maintenance spending) and ROI (investment spending). On an even more basic level, though, the approach was this: Senior Management demanding the same effectiveness accountability from Marketing that it demanded from Operations, HR, Finance and so on.
So, going back to our recent client conversation, it can be said that not every single dollar or euro that gets spent by a brand is necessarily one that requires a return on investment analysis; but it can also be said that every expenditure should require an effectiveness analysis…and accountability. Even that product information brochure or digital space can and should be assessed for its effectiveness—if nothing else, how well did it deliver the objectives it was designed to meet? Citing the old “cost of doing business” mantra becomes a lame excuse for not knowing whether a marketing initiative works or doesn’t work. And we would say that, rather than getting caught up in a semantic argument about qualifying every initiative on an ROI basis, it’s simply better to operate with an insistence upon knowing the effectiveness of every marketing initiative.
We love the notion about the role of Marketing expressed in Sergio Zyman’s quote: keep creating more and more customers and incenting them to keep buying more of our brand’s stuff more often…so the Company can make more and more money. If that’s not a call for Marketing Fiscal Accountability, we don’t what is. Finally, it remains true that it takes money to make money; but what really matters is knowing exactlyhow that money makes money.
Richard Czerniawski & Mike Maloney
Richard D. Czerniawski
430 Abbotsford Road
Kenilworth, IL 60043
847-256-8820
Fax: 847-256-8847 richardcz@bdn-intl.com
Michael W. Maloney
1506 West 13th Street, #17
Austin, TX 78703
512-236-0971
