How you measure marketing is important, but some of the most critical conversations happen before any analytics. I shared some time with the CMO of a large retailer some time ago whose performance (and a rather sizable bonus) was contingent upon his ability to drive bottom line profits at the company.
This particular company was experiencing some significant operational challenges- there were systems issues and significant customer service problems that were hurting sales. He half-jokingly said that he should drop all this marketing stuff he was doing and start learning how to debug IT systems to get his bonus.
So before we started any math, we asked a simple question: What is marketing accountable for? I’m the last guy to argue against profits, but different parts of an organization are responsible for different parts of the process. Failing to go through the exercise of figuring out which function is responsible for what can lead to some strategic errors.
In insurance, for instance, we’ve seen measurement of profit generated by new policies written due to marketing. But what happens in a firm that, for whatever reason, the profitability of its book of business falls? Even if the CMO was doing his job just as well as it had before, it’s ROI will fall. And if marketing ROI falls, the first gut reaction is to reduce spend- when it’s more likely a better idea to increase spend to try to offset the disadvantage!
In the case of the CMO with the bonus on the line, we minimized the role of ROI in the results, and focused more on traffic and topline impacts. And though he didn’t hit that bonus, he kept his head held high as he adjusted his marketing spend to maximize his impact.