Jonathan Knowles has a background in Finance, Business Strategy, Brand Strategy and Brand Valuation. His articles have appeared in Harvard Business Review, MIT Sloan Management Review, The Wall Street Journal, Marketing Management, Professional Investor and Intellectual Asset Management.

What Finance wants from Marketing (Hint: it is not ROI)

by Jonathan Knowles on May 1, 2009

Marketers have a poor record of responding effectively to requests from their business colleagues (especially those in Finance) for evidence of the effectiveness of marketing.

Too often our response is to look for a “silver bullet” – a single financial metric that provides definitive proof of the value that marketing is adding to the organization. Our obsession with ROI and with brand valuation are classic symptoms of this “silver bullet syndrome.”

The problem is that we have misunderstood the nature of the request being made by Finance. We are NOT being asked to provide a single financial number. We ARE being asked to provide a compelling argument for how marketing is adding value to the business and why we are effective investors of the company’s money.

There is a tragic irony about marketers’ embrace of ROI. Finance types view ROI as a short-term efficiency metric, not a gauge of strategic effectiveness. Marketers’ embrace of ROI is, tragically, serving to reinforce Finance’s view of Marketing as a tactical, short-term discipline.

I have found that the demonstration of marketing accountability involves three elements:

  • Evidence of the extent to which the customer purchase decision is driven by factors other than simply functionality and price (this establishes the strategic role of marketing in generating customer value);
  • Development of a comprehensive “go to market” strategy for delivering customer value across the full range of possible sources (including product functionality, purchase convenience, service quality, perceived value – not just communications);
  • Identification of the business metrics on which the impact of this “go to market” strategy will be most powerfully observed.

When Marketers recognize the true nature of the accountability request (the business case for marketing, not just a defense of the efficiency of certain forms of communications spending), a much more productive collaboration with Finance can be achieved.

[BTW this post is an adaptation of a somewhat longer piece I wrote for the ANA's Marketing Accountability blog last month]

Tagged as: Creating Value, Marketing Finance, Marketing Performance

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