Hard-Edged Marketing

Yet, in the majority of large companies the influence, status and reputation of marketing and marketers is limited. CIM research found that only 20 companies in the FTSE 100 have a marketer on the board of directors. Of the top 20 companies in the Fortune 500, only one, General Electric, has a Chief Marketing Officer.

This lack of representation has a negative impact on support for the marketing function. Figures from the Outsourcing Institute in the US show that 13 per cent of US companies are outsourcing aspects of their sales and marketing activities. A recent survey of companies from The Times 1000, found that fewer than 57 per cent of finance directors believed investment in marketing was necessary for long-term corporate growth; 27 per cent thought marketing investment to be only a short-term tactical measure; and 32 per cent said marketing was the first budget they would cut in hard times.

There has been much debate among leading marketing thinkers over the reasons for the low-standing of marketing. The late Professor Peter Doyle attributed marketing's low status to its association with cost; image problems; a perception of being customer rather than shareholder driven; and poor positioning in most organisations. Professor Robert Shaw of Cranfield School of Management has also identified a number shortcomings including the fact that marketing: doesn't drive strategic decisions; struggles to win business cases; and has blind faith in customer satisfaction.

One common theme is accountability. Ask the senior executives, the CEOs and finance directors, and the perception is that marketing isn't accountable. That marketing activities can't be related to the bottom line.
In recent years the situation has worsened. Business has shifted its focus from creating value for the customers to creating value for shareholders and other stakeholders. The value created by marketing spending is increasingly called in question.

Driving future success
Low status and limited strategic impact mean that marketers and marketing are now at a crossroads. "As a profession we still face the challenge to 'prove it' and like anything to do with future valuation it is difficult," noted Andrew Marsden, marketing director at Britvic Soft Drinks in a speech given to the Worshipful Company of Marketers earlier this year.

What is clear is that the future of marketing rests squarely on its ability to make a demonstrable contribution to the success of the business. This in turn depends on its ability to create value for stakeholders - and to demonstrate that ability to the entire business community.

So, how can marketing drive business success in the future? How can marketing shake off the legacy of the past to connect more directly and constructively with the CEO agenda?

The answer lies in something the CIM's Insights team has labeled hard-edged marketing.

Hard-edged marketing is the application of robust business metrics to marketing activities to create demonstrably superior value for all stakeholders. The result: optimal marketing-driven decisions, strategy and organisation.

Hard-edged marketing is not a panacea. Rather, it is a way of practising and thinking about marketing - a marketing philosophy. At its heart is the recognition that marketing does not exist in a creative or a commercial vacuum. Marketing activities must be directly linked to organisational goals. As such, the impact of marketing activities should be judged against the organisation's key performance indicators.

Hard-edged marketing is about understanding the marketing levers that operate on other parts of the business to create value over time. It may be defined in terms of creating value for a wide group of stakeholders - including employees, customers and shareholders. The key is identifying the drivers and linking them to corporate performance.

Hard-edged marketing does not mean donning the marketing equivalent of a straitjacket. Marketing performance measures need to be flexible enough to cope with changes in organisational priorities. The marketing agenda - and metrics - should mirror and support the evolving CEO agenda. Hard-edged marketing must also be flexible enough to adapt to shifts in business objectives. Understood and practised in this way, hard-edged marketing will enable marketers to shape and drive the emergent value agenda.

A hard-edged approach
There are three key elements to hard-edged marketing: a broad interpretation of value; the use of metrics to assess the contribution to value creation of marketing activities; and the alignment of the organisation behind how value is interpreted and the metrics used.

The concept of value is central. But value is an elusive concept. Its definition changes according to perspective. For customers it may be about the perceived value of the brand, of the benefits that it and related products and services deliver. For shareholders, value is about long-term return on their investment.

It is not the marketing function's role to determine which notion of value is the prevailing one. This is the subject of a wider debate. Marketers must, however, be able to measure the effectiveness of marketing activities in terms of delivering value to different stakeholders.

For example, in a company where the emphasis is on delivering value to shareholders, marketing activities might be assessed on how they impact on economic profit -- the net operating profit after taxes minus the cost of capital. In this scenario a company will add value over time when there is an operating profit in excess of the cost of capital.

It may be possible to create value for customers without creating an economic profit. A price promotion may, for example, be a loss making activity for the company yet create exceptional value for the customer. Over the long term this is not a sustainable position. The reality for most firms is the need to view value in a wider sense and strike a balance between the interests of all stakeholders.

Metrically speaking
The second key is the use of metrics. Tim Ambler of London Business School describes metrics as "a performance measure that top management should review.. a measure that matters to the whole business".

Hard-edged marketing is not about producing measures for their own sake - as has tended to happen in the past - or about feting one metric to the exception of all others. It is about measuring the few things that really matter. If we accept that marketers need to be accountable and create value, then marketers must measure the key drivers of value within the marketing function. The metrics used should be the most appropriate for that driver.

In recent years, a broad range of marketing measures has been developed. In their 2002 Working Paper Assessing Market Performance: The Current State of Metrics Tim Ambler, Flora Kokkinaki and Stefano Puntoni identified 19 key marketing metrics. One of the best known and most developed, for example, is that of brand equity. Attempts are being made by Ambler and others to establish the link between brand equity and future cashflow so that the contribution that brands make to value creation can be quantified in a way that is more easily understood in the boardroom.

Another approach is to use metrics that enable activities to be assessed in terms of the shareholder value they create. In this case marketing activities might be assessed using specific metrics devised to assess impact on shareholder value such as economic profit, and other proprietary measures like Economic Value Added, devised by consulting firm Stern Stewart.

If marketers do not take the initiative in selecting robust metrics they are likely to have metrics thrust upon them. Writing in On Brand and Branding Don Schultz, Professor of Integrated Marketing Communications, at Northwestern University observes: "We can hold onto the attitudinal measures we have developed but which can't be related to financial returns. In short, we can stay with marketing's version of the annual audit. Or we can rethink and rework our approaches and our measurement systems because, if we don't, the accountants and financial people will.

"They're headed forward, not looking backward as so many of our marketing metrics do. So if we're not going to be overtaken by the accountants, we'd better get started developing relevant marketing and branding metrics -- and soon."

In alignment
It is not enough simply to identify key drivers of value and measure them. If marketers wish to remain influential a hard-edged marketing approach must be embedded within the organisation.

For a start the company must act on the performance measures. If shareholder value creation is the desired outcome and metrics are introduced to measure the impact of marketing activities on shareholder value then it is essential that the company acts on data from those metrics. This may seem obvious but it is possible that the action require may be unpalatable or counter intuitive and initially encounter resistance within the organisation.

As CEO of Cadbury Schweppes John Sunderland negotiated the sale of a large proportion of the company's soft drinks portfolio outside the US to competitor Coca-Cola. At first sight it was not an obvious deal to make but when considered against Sunderland's avowed aim to create shareholder value it made good commercial sense. As he said at the time: "This deal with Coca-Cola will create immediate and substantial value for our shareowners."

His commitment to the creation of shareholder value through the reevaluation of the brand portfolio was clear from his further comment: "These brands are famous and profitable. However, we have recognised that outside the USA they can be more successfully grown within the broader international infrastructure which Coca-Cola has established over many years." A good example of how value creation may seem counter-intuitive.

Meeting the challenge
Implementing a hard-edged marketing strategy is not something that can be done overnight. For example, it requires marketers to learn new skills, skills such as financial literacy and statistical analysis. Marketers must be able to measure and communicate progress, in particular by connecting improved performance with business results and economic value-added by marketing activities.

The professional bodies, marketing consultancies and training companies are making strides toward equipping marketers with much needed measurement and evaluation skills. But there is still a gap between theory and practice, and more needs to be done to help marketers translate evaluation techniques into practical applicable tools.

Central to hard-edged marketing is the realisation that, if it is to drive business success, marketing must undergo a fundamental change in attitude and direction. It must overcome the long-standing obstacles to achieving influence at board level and persuade the business world at large of its strategic importance. It must embrace metrics in an attempt to connect with opinion formers and decision makers who often attach more importance to the language of finance than what they perceive as the ethereal world of creatives.

If, and it is a big if, it can do this then marketing may achieve a long desired shift in perceptions and cement itself firmly at the heart of the organisation. Failure to do so and what is currently a small trickle of outsourcing marketing activities may become a torrent.

Hard-Edged Training Courses

If you'd like to learn more about putting the best ideas into practice, CIM has a stretching collection of "Hard-Edged Marketing" training courses available that can help. This kicks off with Marketing Director Masterclasses laying down the challenge "Are you ready to step across marketing's new frontier?"

Other courses for everyone include Hard-Edged Decisions, Hard-Edged Measurement, Hard-Edged Brands and Hard-Edged Strategy. A range of new courses will also be introduced including "Vision and Values" and "How to Value Brands".

Click on the links below to view further course information.

Vision and Values; the core of the brand (a three-day master class delivered in two parts)
Beyond The Covers: Understanding Marketing Design (One Day Workshop)
Hard Edged Results: How Marketing Drives Shareholder Value (One Day Workshop)
Marketing Metrics and ROI
Hard Edged Measurement: Marketing Metrics - Measuring Marketing Performance
Hard Edged Decisions: Marketing Management and Decision Making
Selling Techniques, Advanced (One Day Workshop)
Hard Edged Strategy: The Marketing Strategy Programme
Hard Edged Brands: Brand Growth from Adding Value
Value Based Brand Management