Cash, Lies, And ROI: Are Your Marketing Budgets A Flight Risk?

If your company's marketing leader relies too heavily on analytics, business use cases, and spreadsheets, they could be grounding business.

On a sunny July 6, 2013, morning, Asiana Airlines flight 214 entered its final approach at San Francisco Airport. With four pilots in the cockpit, the jet was cleared to land with visual approach on runway 28L. At the time, the Instrument Landing System (glide slope) on 28L was out of service.

Sadly, things went terribly wrong, terribly fast. Asiana’s pilots approached the runway 40 knots slower than the recommended landing speed, resulting in the tail falling off, a cabin fire, and the loss of three lives.

In the days that followed, some experts and authorities speculated that Asiana’s pilots have a reputation of being overly reliant on instrument-guided landings and inferred that the faulty ILS may have caused the calamity.

How many marketing leaders rely heavily on analytics, business use cases, and spreadsheets to guide their organization’s customer and demand generation initiatives? In my experience, over-reliance on these analytical instruments is a recipe for too many go arounds—some of which can be extremely costly.

First, it’s important to understand why budgets are growing. In my CMO peer groups, I’m seeing four main reasons:

  • Explosive growth in reliable marketing technology solutions. The advent of marketing analytics and big data to make informed strategic decisions, profile customers more accurately, and track campaign results now provides marketing leaders with powerful decision-making ammunition. Companies such as HubSpot, Oracle/Eloqua, and Marketo are industry darlings. Boards of directors love these products. So do CEOs and CFOs.
  • Increased receptivity to fuel integrated marketing efforts that blend online and offline elements. While digital budgets are growing, marketing department leaders also continue to invest a healthy portion of their budgets in offline events. These may include exclusive breakfast seminars, customer appreciation events, and awards programs.
  • Reduced reliance on IT for day-to-day direction and support. Most of today’s marketing operations, lead generation, and data analytics tools are cloud based, so IT is not needed to install and support them. Marc Benioff, CEO and Founder of Salesforce.com, is known for coining the company mission “The End of Software.” This moniker resonates within his company as well as within Salesforce’s monolithic partner ecosystem. According to Penny Herscher, CEO of big data solutions provider FirstRain, “We are seeing increasingly where Marketing is in the (budget) lead. They have to be the arbiters of the decision. Many IT departments are feeling left out, and less influential.”
  • A mind-set shift from managing costs to driving top-line growth. Companies are emerging from a cautious investment spell fueled by the Great Recession. While this is a refreshing transition, it requires marketing leaders to choose from a broader spectrum of investments. Many, such as predictive analytics, are not yet proven and require a “big bet” mind-set. Not all leaders are accustomed to embracing this level of risk. But those who are willing to create a “marketing innovation slush fund” are reaping rewards.

Marketing leaders face many opportunities to grow their budgets and support an increasing number of strategic programs. Yet expanded authority does not give marketing leaders license to fly at unsafe speeds or altitudes. In fact, the biggest obstacle on the runway is their organization’s resistance to change and turf battles.

My next post will address the greatest causes of CMO budgeting resistance. In the meantime, don’t let these high-speed trends run your marketing organization aground.

Related Posts:

"How To Keep Your CMO Out Of The CEO Shark Tank"
"CMOs Are From Mars; CEOs Are From Venus. What Planet Are You From?"
"Why Today's Marketing Planning Models Fail To Deliver In The C-Suite"

[Image: Flickr user Angelo DeSantis]

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11 Comments

  • Davidjoblin

     

    Data driven versus intuition driven. ‘’Intuition’’
    being a synonym for one of the following:

    1)     
    1) The industry (smartphones) is evolving
    too quickly for current data to be available or relevant. We have to go with a
    certain amount of guesswork as to what the customer may want.

    2)     
    The decision makers are
    industry leaders and have an enviable reputation for telling customers what
    they want (Apple) before they want it.

    3)     
    2) The company does not have the
    means by which to gather or effectively assess market data or the decision
    makers conscious or subconscious subjectivity or egos influence their decisions
    (companies paying top dollar for share buy backs when markets are overvalued or
    the loss of shareholder value caused by many large M&As).

    3) I would argue that a large percentage of
    corporate (and government) decisions fall into the third example above and
    would benefit from an objective review of supportive and non supportive data...

  • Lisa Nirell

    David,
    What do you mean by supportive vs. non supportive data?

    I am inferring that you see an ongoing need for intuition as part of any planning process. Am I correct?

    Through my
    research and interviews I learned that many companies consider big data as a
    top priority, yet the number of successful projects is not yet significant.
    Infochimps, an Austin, Texas based technology consulting firm joined forces
    with SSWUG.ORG, an IT professional member organization, to learn more about the
    market trends. While
    they reveal that eighty-one percent of the respondents consider big data
    initiatives one of their top five priorities, fifty-five percent of big data
    initiatives are never completed, and many others are falling short of their
    objectives.

    Here is one more reason to be wary of analytics companies who promise too much. Big data
    server farms could be missing more than half of the information about
    your customers. Alexis Madrigal, a contributor to The Atlantic, revealed in October 2012 that, in The Atlantic’s case, 56.5% of social
    traffic sources remained invisible to data analytics programs. She named this
    the “dark social” phenomenon:

    We have miles to go with today's analytics tools, They will never completely replace the need for intuition, face to face customer engagement, setting a vision for the future, and critical thinking.
    Thank you for contributing.

  • George

    So essentially the authors is speculating based on her experience that decision makers should embrace the idea of marketing being unaccountable simply because marketers can't justify their budgets in terms of critical KPIs (e.g. revenue, EBITDA, net income, FCF). I'm not buying it. The bottom line is marketing accountability is still essentially in the
    stone age accept for product development (which is relatively easy to measure -- products either succeed or fail) and a few areas of digital (particularly online and
    mobile direct response campaigns). TV, Radio, OOH, PR, Social Media, etc are still essentially black holes for marketing dollars in terms of financial metrics. That's not to say that "likes" and "retweets" don't have value and should not be invested in; however, the marketing  establishment should be seeking to find ways to connect such activities to increasing the value of the firm -- not making a case for relying less on metrics that can help us understand the relationship between budgets and brand value, customer value, firm value, etc. Peter Fader, Avinash Kaushik, and David Reibstein are all using existing data to measure and forecast this kind of stuff. If CMOs want to influence they should stop with the hyped up vanity metrics and start engaging people outside their worlds (i.e. scientist, financial economist, mathematicians) to try and understand the link between their resource allocation decisions and asset valuations (i.e. customers, brands, firms). Even if the models cannot prove direct connections but can help us hypothesize them, it's better than measuring stuff that means nothing.
     

  • Lisa Nirell

     George, Stay tuned. Part 2 of my post may help explain my position further, and where I see the merits of marketing value metrics.

    Much like Gartner Group--a HIGHLY analytical research company--I see pitfalls with over-dependency on metrics, particularly with big data projects. Gartner thinks big data is in a "hype cycle" right now.

    I am not advocating that we provide marketing with a "get out of jail free" card here.

    What is your role in the marketing world? It will help me understand your frame of reference.

    Cheers, Lisa

  • George

     Hi Lisa,

    Thanks for the response. I'm a former finance manager (FP&A) that moved into marketing post-MBA. Right now, I'm responsible for implementing mobile strategies.

    I also agree that big data is in a "hype cycle." Regarding the use of data, and big data in particular, there is so much bad information out there, it's insane. I believe most managers have little concept of what's possible and what's hogwash with respect to Big Data, data analysis, and predictive analytics. I'm no math wonk, but just referring back to the data analysis portion of the CFA curriculum I could smell a giant rat within the Big Data marketing machine. For more on this topic, you might find this interview with Peter Fader interesting where he discusses the Big Data facade http://www.technologyreview.co...

    As a marketer with an finance background, I'm heavily focused on accountability because I've sat in on many discussions where CFOs and finance managers discussed how they feel about their marketing budgets/accountability candidly -- it's not pretty (it's more like a necessary evil). As a front-line marketer, I've had to accept that there are missing links between marketing budgets, revenues, and EV/EBITDA multiples that I close (at least not completely). That said, I'm constantly searching for ways to close the gaps and think about my marketing allocation decisions in terms of performance metrics that drive valuation, even if I don't have an elegant model to quantify it for me. When justifying my existence, I frame my arguments accordingly. I think the rest of the establishment should embrace this type of thinking, too. Once we throw up our hands and say "sorry, it's too hard to quantify so we're just going to go with our guts" we jeopardize our credibility.

    Looking forward to your follow up article and the metrics that you think matter. I don't think you're advocating for a marketing "get out of jail free card" either.

    Best,

    George

  • Rick Noel, eBiz ROI, Inc.

    Nice piece Lisa. It's amazing with the wealth of data available the relatively low % of decision makers using that data to drive the business forward. According to research cited by Econsultancy earlier this year (Data Driven Culture Survey Report) only 27% of businesses believe that data is crucial when it comes to decision-making.

    You are right that relying too heavily on direct correlation between marketing investments and ROI can be limiting and over analysis can lead to lost opportunities. That said, often lack of data and insights available from analytics can have a negative impact on ROI and can be equally dangerous, as per your analogy.
    The beauty of analytics, especially in online display and PPC advertising, is that budget can be (re)allocated near real-time based on fresh data, enabling marketers to better optimize online campaigns to increase conversions while driving down cost per acquisition. . Analyzing website data, customer service data, surveys, social media and other sources, if analyzed, provide a wealth of business insights to drive product and marketing investments and returns.Thanks for sharing.

  • Lisa Nirell

     Rick, thank you for your comment. I am in the throes of writing my next book, The Mindful Marketer. You are touching on a key point: analytics can help with SOME initiatives--not all. The best "big data" and analytics tools are not substitutes for human discernment, critical thinking, and a WOW customer experience.

    I am going to stop using the term "Marketing ROI." It's just too limiting.

    -- Lisa

  • Anthony Reardon

    Very good Lisa!

    I have been observing the same kinds of things. Industry wide, analytics is hitting home with a lot of decision makers, and digital marketing solution providers are repositioning around data because of the receptivity. However, in my view these reactions are fraught with trend and hype. Of course there is something to it, data capabilities do provide a more confident framework for managing marketing budgets, but they do not necessarily translate to the "end all/ be all" impacts they are often sold as. Too many companies are diving headfirst into the Kool-Aid.

    A little perspective on how and why analytics amount to better educated guessing. You've got to appreciate the market forces driving this. Whether it be platform companies, SEO solutions, online advertising, or device makers, there is a lot of incentive to put forward a convincing argument these are the key to modern business marketing. More businesses have put a lot more money into them than they have gotten out of them. Some pull it off, but usually more because of their integrated perspective with broader marketing resources and strategies. So if you've got something that is not really working, and decision-makers are concerned they are taking shots in the dark, you put forward analytics and it's easier to suggest "it will work this time".  

    I do believe "social" and "media" are essential to modern marketing, but "data" not so much. If you want significant impacts from your marketing strategy, then you need corresponding measures to evaluate it by- such as phones ringing off the hook, inventory flying off shelves, people showing up, etc. Social media can complement the differentiation and facilitation needed to make such outcomes happen, but is a means and not an end in itself.

    It would be so much easier to just tell decision-makers what they want to hear though, anything with a graph, lol!

    Best, Anthony

  • Lisa Nirell

     Hi Anthony,
    Great to hear from you.
    I take a very pragmatic view on the value of analytics. Here is what I am learning so far:
    In
    the October 2012 issue of the Harvard
    Business Review, Andrew McAfee and Erik Brynjolfsson delineated the
    distinctions between data-driven companies and intuition-driven companies, and
    the business results that each can generate. In 2012, they interviewed 330
    public North American companies to learn how they applied data-driven decision
    making to improve corporate performance. Here is what they learned:

    “The more companies characterized
    themselves as data-driven, the better they performed on objective measures of
    financial and operational results…companies in the top third of their industry
    in the use of data-driven decision making were, on average, 5% more productive
    and 6% more profitable than their competitors..."

    With
    results like these, how could anyone possibly argue against the merits of big data? Right now, two rival analyst firms--IDC and Gartner Group--are debating its merits. And so am I.
    In my upcoming post, I will share why these tools have limitations, and what CMOs can do about it. Keep sharing your ideas!--Lisa

  • Anthony Reardon

    Absolutely Lisa, fun discussion here.

    Well, metrics have traditionally been internal anchors within organizations far before the web. The problem is that often the main areas of leverage, and consequently the greatest opportunities for differentiation and competition defy quantitative standards of measurement.

    Case in point, process improvement on production systems is a good one. A lot of decision-makers have had a hard time coming to grips with ideas like Lean (as in the Toyota Production System). They just were simply not set up to measure systems for incremental continuous improvements. In fact, the data basis for decision-making would cause them to shut down programs prematurely when they didn't see the immediate proverbial ROI for the time, money, and other resources they put in. Many were done before they started when they looked at such initiatives as purely a streamlining activity to cut costs- which consequently was a natural selling point relied on by consulting agencies in that field.

    Yet, when properly implemented, the results speak for themselves in the bottom line- usually a balance between overhead savings, capacity increases, and better deliverability to consumers. Even then, navigating change from mental models like supply-push to demand pull require a new vocabulary to qualify just what a company is doing. For instance, general Lean principles might work well in Low Mix/ High Volume production systems, but perhaps not so great for HM/LV.

    I see the same kind of thing extended through social media marketing and big data. If you use data driven decision-making, then surely you impact data driven metrics. You might be perpetuating an illusion because you are asking the wrong questions and getting false positive feedback reflecting back at you. Not always, of course, because if you ask the right questions and have the right system of measurement, then fine. Such activities stand out against the purely intuitive decision-making that is easy to criticize when things go wrong. Especially the higher you go up in executive ranks, the more fear there is about looking like a fool who is not looking where they are stepping, and walks off a cliff. With data, you get at least a shot at justifying a move, getting buy-in up front by stakeholders, shared accountability for decisions, and the benefit of the doubt when things go wrong.

    However, from a customer-centric view, intuition is a closer match to customer perspective or insight. Just ask yourself if the customer cares about your data driven movements. Probably not. In fact, the shifts you make responding to superficial popularity might defy common sense and tick off the far smaller group of real prospects you had a legitimate shot at converting. All this talk about data, and how much of that adds value to those people, helps you give them what they want better, and makes you stand out as a brand, product, or service provider of choice? An intuitive-driven decision process is just as likely to hit one out of the park on these measures- even though their performance on contemporary metrics standards might not reflect success. You get one company that's qualitatively engaging people and another that's in a dark room trying to tweak their graphs, and the fool might be the one focused on the data instead of the customer.  

    Best, Anthony

  • Lisa Nirell

     Anthony, With your permission, I may quote you in my next book. Great insights and observations. Please send your contact information to lisa@energizegrowth.com so that we may exchange permissions.

    I view everything I can from a humanistic perspective. In marketing, as in life, when have our thought patterns crossed that line from omniscience to omnipotence? Spreadsheets and big data project hype land dangerously close to the latter.

    Cheers, Lisa