Ruchi Gunewardene, Managing Director of STING Consultants and Brand Finance Lanka, explores a common dilemma, as to why marketing heads finds it so difficult to get a seat on the Board, and points a way forward
In today’s digital world where social media can be used to reach wide audiences and engage with them, reaching customers may not be such a challenge. Whilst awareness can be achieved through “boosting techniques” rather than through a brand strategy, questions abound on the actual usage and sustainability of marketing investments by ensuring there is an actual increase in purchase by customers, followed by repeat purchases.
Yet, today’s Chief Marketing Officer(CMO) is solely reliant on what used to be historically important tracking tools, such as awareness, consideration, brand equity and Net Promoter Scores (NPS) to justify how well the brand is doing.
This frustrates Directors of Boards, as such measures have little or no relevance to their discussions. They usually focus on monitoring and tracking financial performance, with the shareholder’s interests right at the very centre.
The CMO’s over reliance on perceptual tracking systems is why they are not being invited to a seat at the Board, and it is why the head of finance has a distinct edge. The evolved CMO however, knows better. The solution is not to blindly embrace disciplines that are unfamiliar, but to adapt marketing to the modern world, by combining strategic brand building inputs, market research, financial analytics all linked to business outcomes for more effective decision making in the boardroom.
Step 1 : Greater marketing accountability
The evolved CMO has sharpened her mind to providing greater accountability into what she is doing. Whilst she is driving strategic implementation, her real focus is on testing and refining these whilst measuring outcomes. Quantitative measures are put into place, prior to and following the roll out of annual brand plans.
How many Boards have heard the constant refrain following a large marketing investment, about the level of customer engagement that has been achieved and how awareness levels have spiked? They are left in the dark on the tangible impact it has made to the business, through for example the number of first time users that have been captured or how many existing users have bought more frequently thereby providing a quantifiable outcome with a direct link to business impact.
Such an analysis will lead to greater exploration of other options or the possibility of modifying planned initiatives, whilst striving for incremental impact which will lead to revenue generation. Also, a simple brand P&L will establish better performance analysis.
This approach provides greater confidence through more financial accountability, whilst moving marketing away from the common perception of being a cost centre.
Step 2 : Establishing the link between brand power and value
It has long been acknowledged that powerful brands drive consumer or customer choice, improving business performance and ultimately increasing shareholder value. This is supported by research carried out by Brand Finance Lanka using the Most Valuable Sri Lanka brands league table. This established that the strongest branded businesses (those which have AAA and AA+ brand rating) outperformed the weaker brands (BBB brand rating) as well as the companies listed on the All Share Price Index (ASPI). Between the years 2013 and 2017, the average return across the ASPI was 12%. However by using Brand Finance’s data, an active investor would have generated a return of up to 70% by using a portfolio of the strongest brands from our table, whilst an investment in the weakest brands would have generated a negative return of -30%.
This link between brand strength and financial outcome is what should be at the forefront of the CMO’s mind. Her priority should be two fold: strengthening brand power on the one hand and tracking financial out put on the other.
Strengthening the brand involves building customer equity, achieving price premiumization, building employee loyalty and improving distribution amongst many other initiatives. Whilst tracking financial out-put relates to revenue growth, brand profitability, return on capital employed due to marketing investments and changes in brand value.
In a dynamic system, continuous tracking and analysis should be considered with these marketing inputs and financial outputs integrated together. A robust discussion around these factors is what leads to sustainable business strategies with the customer at the very core of it.
When viewed like this, the enormous marketing budgets (often, multiples of capital expenditure) which are at the disposal of the marketing department can be finely dissected. This “sacred” budget is largely untouched – as it is considered to be the cost of doing business – but which can now be systematically analyzed and justified by line item, with a financial output alongside.
A seat on the board
By bridging the gap between marketing and finance through such a framework, the evolved CMO is on the same page as the Board of Directors. This approach ensures that whilst the consumer is at the center of the business, the impact on shareholder value creation is also firmly in view.
Through a combination of market research and financial analytics, there is greater accountability and a mind set shift to shareholder value creation in marketing.
A seat at the Board is awaiting this evolved CMO.