of thinking we used when we created them." – Albert Einstein
As marketing has become increasingly sophisticated, not to mention expensive, CEO’s have found themselves in the dark when it comes to understanding what works and what doesn’t. In every other part of their company they can measure a Return-On-Investment, usually in the form of charts or graphs that reflect the correlation between a dollar spent and the value it has, or has not, brought to the company.
But when it comes to marketing there appear to be no substantive metrics for ROI, at least none that directly matches the expenditure. When CEO’s ask their marketing managers for figures, what they get in return is more often than not standards of performance based on industry best practices. In other words, we’re doing what the other guy is doing so it must be right.
There is more than one reason for this response. When the CEO asks any function of the company for metrics he or she is asking that they first be measured in what they do, then that they measure up, then that they increase performance. Because of the psychology surrounding measurement, as well as the existing business structure and culture, managers at all levels find themselves in the position of justifying their existence. In the case of marketing they typically fall back on so-called best practices.
The quandary for the CEO is understandable. In every other department of the company he or she can determine productivity down to the individual employee, if that’s what’s required. The CEO can count how many widgets the company produces each hour, the cost per unit, know the payroll, not just for the company in general but for every facet of the operation.
But when it comes to marketing, all this precision collapses. The CEO cannot determine which part of the marketing budget has produced what result. Something there is working [or not] but what? Instead the CEO takes away sales numbers, which are important, but do not help in determining the relationship between the money she or he has spent on marketing and the end result in terms of sales. It is a conundrum.
Typically, when CEO’s call on marketing managers to account for their activities in the same way as every other business unit within the company, the result is a failure to produce a universally accepted measurement. Instead of getting meaningful figures the CEO finds himself playing corporate dodge ball. This is when marketing managers serve up industry best practices to justify how they are spending their budget. The result is not simply an elusive situation for the CEO but an utter inability for him or her to genuinely measure marketing ROI. The consequence is that marketing today is no less the shotgun approach than it has ever been and most CEO’s still don’t know which half works.
This reflects, in part, the reality of life that no one likes to be measured. To be measured means to be held to account and when we are held to account our behavior is examined. This is a situation marketing seeks to avoid because until now they’ve been able to. When a CEO goes to the marketing manager for answers she or he should understand that the manager has a vested interest in the status quo. The last thing the manager wants is to be meaningfully measured in performance. The manager will point to industry best practices and offer the comforting assurance that what they are doing is the industry standard so everything is just fine. This is, of course, ludicrous. Consider the common industry practice of branding. everybody brands so by this logic every company should brand the same why. The reality, however, is that companies measure different efforts, even branding, in different ways. For example, there are Donald Trump type organizations with a very large marketing department that judges success by where his image and message are placed and by how big the story about him is. He is the company brand and his exposure is all important.
This very likely has nothing directly to do with sales or anything for that matter that remotely resembles what the rest of corporate America would measure success by, but in the Trump corporate empire this is the standard of success, and who can argue with it? For many, for most, companies the marketing effort would be intended to produce something very different, though in every case it is still marketing, but for Donald Trump branding and marketing are about him.
This is why industry bests practices is such a red herring. It ignores the reality that each company is it’s own issues and needs unique to itself. What works for Donald Trump will not work for most companies. In my experience best practices is simply an excuse to impose standards of behavior that have never been determined to actually fit the companies to which they are applied. One size does not fit all.
There is good reason for marketing managers to want to convince the CEO that best practices should be the standard of performance. There is, for one, comfort and safety in doing what everybody else does. If other companies are doing it, then it must be better, a corporate version of "the grass is greener" somewhere else.
There is as well safety in numbers. If the marketing manager can persuade the CEO to apply industry best practices, when they fail to produce results the manager can point out that’s what everybody else was doing so its not his or her fault. This is why it is a great error to ask your marketing director to bring you meaningful metrics. You will only receive measurements that put him or her in the best light and often these are equivalents that don’t match your company structure or business plan. What you will not get is what you actually need for effective ROI.
In part this is because almost universally marketing managers hold the belief that even if they do the best job possible they don’t have control over the outcome of what they’ve created. They can design and implement the finest marketing plan every conceived but most of what it takes for that plan to succeed, once they have done their part, is beyond their control. So it is they do what they can to avoid measurement.
This places the CEO in an awkward position because pressing for meaningful answers creates conflict and that goes against the grain. CEO’s generally hate confrontation, especially as their company gets bigger. All the courses and books also say delegate, create a team, ask their advice, collaborate to create the best solution. When it comes to marketing, however, this is typically self defeating. In most companies the idea of measuring marketing activities on any level is non-existent. And if it does exist the company is not willing to spend the money necessary. The result is that less than 20% of all companies have anyone responsible for developing, monitoring and measuring marketing ROI.
Consider for a moment how ludicrous this is. Say you spend $200 million a year on every function of your company but are unwilling to spend another $50,000 to measure whether or not that $200 million is well spent. If you’re in the automobile industry you are spending billions every year. Why should you be spending money to build your brand and create a climate to attract customers through marketing if you have no idea which half is getting the job done? The answer is that you shouldn’t, but it happens all the time. Consider for a moment the person responsible for trade shows. It’s generally accepted that a company must have a presence at its industry’s trade shows. What is difficult is to apply meaningful metrics to that trade show presence. A typical response I receive when I ask about the outcome of a trade show is for the CEO to say that he met someone new or "got an article out of it." There could have been any number of successes as a result of their participation at the trade show but he’s unaware of them except the man he met and the article, and it has come at a great cost. But they had "great presence", whatever that means.
Consider another traditional marketing effort, direct mail. A commonly accepted benchmark for success is a response of one to three percent. But the reality might be that that number could have no correlation at all to what is being sold. The marketing manager for a Rolls Royce distributor, for example, might have an annual quota of 100 cars. If he receives just a single response to 1,000 pieces of direct mail that is considered a very poor response rate. By traditional measurements the direct mail campaign was a failure. But what if that one respondent bought a car? Or two? What happens when five people buy a car as a result of the campaign but never respond to the direct mail?
This failure of marketing to subscribe to meaningful metrics is ultimately self-defeating. Because marketing is so expensive but at the same time remains ephemeral, the marketing department is the first to be cut when sales have failed to produce. This is the great challenge. The concern of every CEO must be the bottom line and there are times when of necessity he must cut. When it comes to operations that is a less difficult decision but to cut marketing with no understanding of what works and what doesn’t is absurd. Yet it happens every day. What the CEO should have is a dashboard of marketing metrics he can trust and which will allow him to invest in the right places. This would allow him to take an investment risk management approach towards marketing rather than a post spend mortem.
The inherent mechanisms that have been perpetuated in corporations have resulted in standards that aren’t really standards, hence the best practices fiasco. But one of these inherent mechanisms is also the CEO. Many are simply afraid to learn what they don’t know when it comes to marketing, while just as many refuse to admit they don’t know. Others are concerned that by asking the right questions they’ll have to make tough decisions they’d really rather not unless forced to by the market or their board.
When I ask CEO’s if they want more accountability in marketing so they will really know their ROI the answer is always ‘Yes’. And when I ask marketing directors if they’d like better ROI on their program so they can be more successful they will also say ‘Yes’. On the surface they all want to see ROI, or so they say. But they have instead perpetuated, even created, cultural barriers that stand in the way of meaningful ROI. Their business culture encourages the use of meaningless pseudo measurements. Or they don’t measure at all as a way of conflict avoidance. The result is that mediocrity has become the norm in management.
It all depends on real metrics and the unspoken reality is that measurements for marketing do in fact exist. In leading a CEO through all this it is to Albert Einstein I often turn for inspiration. It was Albert Einstein who said, to paraphrase, that no problem can be solved with the same mind set that created the problem. This very much applies to the single most important issue facing CEO’s. They’ve got where they are by not imposing accountability on marketing and avoiding the issues it creates. Accountability isn’t easy but avoidance won’t solve the problem or create growth. The point I make to every CEO is that he or she must change how they think in terms of marketing.
When it comes to these issues I detect a lot of fear. There is no reason for that. Marketing need not be an enigma. The same management methods that succeed elsewhere in a company can be just as successful when applied to marketing. I’ve come to believe that at heart the CEO does know what he needs to do. He may not have the map before him but he knows.
Times have changed and no CEO should be confused about which half of his marketing works, and which doesn’t. New technologies exist that allow for that answer. When the right questions are asked they can lead to metrics that are both quantitative and qualitative, and can bring accountability to areas where it has never previously existed.
It’s passed time to end the game of corporate dodge ball.