‘How do we make marketing accountable?’
Q: Our company’s top management from CEO to COO and all VPs are all finance types. They include our VP for Marketing who used to be the company’s Chief Accountant.
I’m a new hire as marketing and sales director in my second year here. I came from another local but a little larger FMCG company where I was its national sales director although I started there as a brand manager. When I was hired, management agreed to my bringing in four people from my former employer: two sales supervisors who are now sales managers and two brand managers who are now marketing managers.
During our CorStrat planning last February for the coming fiscal year July 2013 to June 2014, top management told us that they hold themselves accountable for the company’s “financial health.” Then, the CEO turned to us and said: “We want you in marketing and sales to be accountable for this company’s ’marketing health’ and to present to us your marketing health metrics. You have this fiscal year to develop this marketing planning discipline for full implementation after.”
We understand you have an “Accountable Marketing” seminar which we plan to attend but in the meantime will you please give us a summary of the “marketing health” metrics that your Accountable Marketing seminar covers plus one or two reference books we can read so we can fast-track learning how to make our Marketing and Sales accountable.
A: It’s about time that marketing and sales become accountable for the company’s and its brands’ “marketing health.” To answer your question, here are our marketing health metrics briefly explained in the total context of Income Statement Management.
The starting point is this basic I/S-based proposition: “Marketing and Sales are accountable for top-line revenue and for bottom-line marketing contribution to overhead and profit.” We now tackle each of these two accountabilities in turn.
First is top-line revenue accountability. Here’s the simple revenue equation:
Revenue = (price) x (Quantity bought)
The equation says that two variables are accountable for revenue. The first of these is “price” and the second is made up of all other marketing mix variables influencing “quantity bought.” Those other marketing mix variables are the rest of the 4 Ps aside from price, namely, product, promotion, and placement.
If R & D did its job well, “product” will embody all of the consumers’ top priority values including its distinctiveness versus competition. If the product has that distinctive differentiator, consumers will value it so much that when its price increases, its quantity bought won’t fall (as is the usual case) but will in fact go up. For example, this is what research found with the loyal consumers of Alaxan. Manny Pacquiao, a most loyal Alaxan user, is said to have told his training team that even if Alaxan’s price were to double or even triple, he would continue buying and taking it before, during and after training. But note that product is accountable for revenue not directly but through its influence on quantity bought. That’s unlike price which is accountable for revenue in its direct positive revenue influence.
Promotion is of two types: (1) “pull” promo which is advertising; and (2) “push” promo which is sales promotion. The TV commercial and the product sampling for the new Dove deodorant won’t raise revenue directly but only indirectly through persuading deodorant users into buying it. So these two marketing mix variables are accountable for revenue also via their effect on quantity bought.
Similarly for placement or distribution. Making Gardenia loaf bread available in more supermarkets and convenience stores, and requiring the distributor’s sales reps to give it more selling time will raise its revenue only through their influence on quantity bought.
For the need to be accountable for bottom-line marketing contribution, the sources remain the same, namely, the 4Ps. In its ability to raise revenue directly, price is the only marketing mix variable that has a direct effect on marketing contribution. All the others require efficient allocation and spending of their respective budget. For product, the budget to cost-effectively manage is COG or cost of goods. That’s the largest expense item in the brand’s income statement often making up 60 percent to 70 percent of total revenue. And yet there’s no such thing as a COG Manager accountable for its cost minimization. In contrast, advertising, which is just about 5 percent to 10 percent of total revenue, has an advertising manager accountable for its cost-effectiveness.
We’re not talking about a case for cost cutting. In TQM (Total Quality Management), costs are resources and if you cut them you drain the company’s lifeblood. It’s resources’ inefficient usage that’s the problem. It’s waste-cutting and not cost cutting that’s needed.
Because we explained accountable marketing in the context of income statement management, what we’ve covered in the foregoing is a set of financial metrics and effects of accountable marketing and sales. We have not dealt with the consumer behavior effects of the marketing mix variables as a whole and individually. That should be for the next or another Marketing Rx column.
As to your request for one or two reference books on accountable marketing, we will include this in our annual column dedicated to what books to read for this year.
Keep your questions coming. Send them to us at [email protected] or [email protected]. God bless!
