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Chief Marketing Officers and Chief Financial Officers generally have different ideas about what success looks like and how you measure it.
For CFOs, it's often about the bottom line. Marketers, as a result, have sought to build credibility with finance functions by adopting increasingly analytical approaches. But Finance and Marketing still end up speaking fundamentally different languages.
According to a 2007 study by analytics company, Marketing Measurement Analytics, just 7% of the 150 financial executives participating in its survey were satisfied with their marketing department's ability to measure marketing ROI.
Moreover, nearly 60% of financial executives and 50% of marketing executives were dissatisfied with the definition of "marketing ROI" used in their organisations.
While, costs and revenue constitute the core components of financial reporting, marketing metrics typically include brand awareness, brand preference, advertising awareness, click-through rates and customer satisfaction.
It's challenging (indeed very difficult) to link such measures directly to actual revenue, because customer actions / behaviours don't always follow a clean linear pattern.
For example, when a customer purchases a product or service, you can account for the revenue exactly, but you can't always know with precision whether the customer consistently prefers your brand or not, or whether the advertising promoting the product had major/minor/ no influence on the final purchase decision.
Thus, a key disconnect between Finance and Marketing is the lack of precision between a marketing investment of X dollars and the value created in the amount of Y dollars.
But there is even a more telling disconnect between Finance and Marketing.
Marketing is inherently future-oriented (e.g. customer lifetime value, brand value), while finance functions essentially
review and document historical financial data.
And CFOs are wary of marketing metrics because, in the words of one:
"If you measure enough stuff, eventually something looks good."
So what can be done to get Finance and Marketing on the same page.
Based on their research, Marketing Measurement Analytics suggest:
"A collaborative approach right from the start is important".
More specifically:
- Multiple functions(marketing, finance, human resources, operations) working together to define ROI and agree on how it will be used
- Such functions balancing short & longer-term goals (e.g. campaign ROI & customer value should carry equal weight)
- Using traditional marketing measures as a basis for a dialogue around Return on Customer - ROC (a future-focused metric incorporating both current & longer-term customer value).
ROC doesn't entirely bridge the gap between marketing actions and value generated, but it helps close the gap between customer behaviour and financial value. Measurements like customer acquisition, churn & retention, contribute to meaningful ROC - enabling marketing executives to communicate in terms CFOs will understand, but which still reflect future issues marketers deal with.
As noted by Marketing Measurement Analytics:
"If I were a CFO, I'd want to measure how we acquire, treat, respond to, keep, grow and act toward customers. I'd want to know whether these activities are creating or destroying value, both in the current period and in future periods".
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