One of the major challenges for a marketing services provider is to prove to a financial audience that they can have a material impact on the performance and valuation of a business. Or, as academics and finance folk like to say, that it is “value relevant.”
Value relevance requires demonstrating that whatever you do has a material impact on one of the three drivers of corporate value – profit, growth or risk. Influence any one of these for the better (higher profit or growth, or lower risk), and you have the attention of the finance folk and the whole management team.
This is easy to say, and remarkably hard to do. There are two principal challenges. The first is conceptual – the finance/business folk typically believe that customer purchase behavior is highly rational and so the impact of marketing is marginal and tactical. The second concerns measurement – it is challenging to isolate the exact degree to which the customer decision was influenced by a wider set of human considerations rather than a narrowly functional view (what T2 calls the “Vulcan” versus “Earthling” perspective).
Much of the energy in marketing analytics is focused on measuring transactional efficiency – not because that is necessarily where the greatest value is being created, but because that is where it is easiest to demonstrate that some degree of incremental value is being contributed by marketing.
The tragic irony of this is that it is reinforcing the finance/business belief that marketing is a short term, tactical discipline whose full impact is captured in a simple ROI formula that considers investment and return in the current period.
The bigger contribution of marketing – the development and management of profitable customer relationships – is ignored. It may be harder to measure, but this represents the larger component of the “value relevance” of marketing and branding.