Is your marketing cost-effective?by
By Nicholas Watkis, Contract Marketing Service
Is your marketing effort really cost-effective? If your answer is 'yes', then how do you know? Does your organisation actually measure the return it gets for all the money it invests in getting and retaining business? These are questions that everyone in business should ask, yet it would appear that few do so. And of those that do ask the question, it is probable that few would have a useful answer.
Of all the various integrated disciplines in business, marketing performance has historically been the least quantifiable. There are probably many marketers who would prefer marketing to remain more of an art than a science. Yet marketing is both an art and a science.
The science is reflected in the analytical, cognitive and behavioural tools employed to identify opportunities, and to measure the success in exploiting them. The art of marketing is the ability to apply creative imagination to engage customers together with leadership and management skills to achieve marketing objectives.
Marketing is not an activity in isolation. As the business getting and maintaining function of any business, marketing must be fully integrated with all the other operational activities of the business involved in satisfying customer demand profitably. Marketing also may not be wholly divorced from other supporting activities such as finance, personnel and supply, as they all provide the necessary resources for the marketing function’s activities.
If marketing is truly about satisfying customer demand profitably, then it is arguable that everyone in the business to a greater or lesser extent is in someway involved in it. Thus while the chief marketing officer (CMO) may not have responsibility for other management functions, he should have an interest in the performance of the other business areas, as their activities will directly or indirectly effect marketing’s performance in providing the profitable satisfaction of customers.
Many companies are starting to measure marketing performance, but there is little consistency in what they measure. Put marketing measurement into a search engine, and a lot of results will come up. But on examination, most of the results will be for customer relationship management (CRM), and return on marketing investment (ROMI) related to advertising and sales. While these measurements of performance have their importance, they are only some of the elements of marketing.
If marketing includes all those activities which anticipate and satisfy customer demand profitably, then the measurement of marketing performance must include a lot more that just CRM and advertising ROMI. Part of the problem lies in the definition of marketing. In many businesses, marketing is still seen as a separate discipline to sales. But if marketing 'includes all those activities which anticipate and satisfy customer demand profitably,' then it must include selling as the executive function of 'marketing'.
One can take the argument further, in that the product or service itself is part of the provision of customer satisfaction, and therefore the marketing function and the CMO should be interested in the performance of 'production' as being the provider of the product or service, it effects marketing’s performance, just as marketing’s performance effects that of production.
In 2005 Microsoft’s marketing performance could be regarded as exceptional, in that as a result of all the pre-launch advertising and publicity for its Xbox 360 games console, all 330,000 units available were sold within hours of the launch.
Whatever actual problems resulted for Microsoft, it is reasonable to suppose that such an immediate success was not planned and that it created problems and additional costs for production. For most companies without the enormous resources of Microsoft, such an unplanned marketing success could potentially be disastrous in terms of production capacity, costs and cash flow, to say nothing of potentially unfulfilled demand being exploited by competitors and the subsequent damage to the company image.
Marketers must be aware of the effect that their activities have on other parts of the business, principally production and finance. Exceeding the objectives of the marketing plan can be just as bad as failing to meet them. In failing to meet the sales objectives, the reduced revenue may directly reduce profits, but if the sales objectives are exceeded, additional production costs can be incurred as well as additional requirements for finance, which could reduce profit or even incur a trading loss.
The purpose of marketing is to generate and sustain a continuous stream of profitable revenue for the business. Establishing the cost effectiveness of the marketing activities that generate the revenue may only be done by measuring in detail the overall performance of the marketing function, and comparing the results with the rest of the business. In future, CMOs are likely to be judged not only on the profitable revenue generated, but also on the cost effectiveness of the marketing activities which they manage.
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Nicholas Watkis is the founder of Contract Marketing Service, established in 1981. He is a member of the Chartered Institute of Marketing and a Certified Management Consultant of the Institute of Management Consultancy.
© N.C. Watkis, Contract Marketing Service, specialists in measuring marketing performance and return on marketing investment.