“I don’t see marketing as a cost. I see it as an investment.”
That’s what Tesco’s CEO, Ken Murphy, told investors in October 2023, showing the belief of one blue-chip business leader in the power of a strong brand, backed by marketing expertise, to deliver strong and sustainable returns.
A poll of 200-plus investment analysts, published the same month by the Institute of Practitioners in Advertising, suggests that they share his view. When asked which criteria they used when appraising a company, 79% of respondents cited the strength of its brand and marketing. That made it the most cited factor, above even leadership quality (76%), technological innovation (72%) and reported profit (71%).
But do most business leaders think like Murphy and institutional investors? Do they truly believe in the importance of marketing as an investment?
Boards know that marketing matters – but how much?
Chelsea Grayson is a seasoned business leader, corporate board member and consultant. A former CEO of fashion companies American Apparel and True Religion, she says: “Boards aren’t stupid. They see why you need to do brand marketing and why you must develop passion and warmth for a brand.”
But she stresses that such an investment must be backed by evidence, pointing out that marketing is “a cost centre in a lot of ways. They put you in a box with legal – in that you’re both spending money versus bringing it in – until you show them that you’re bringing it in.”
Toby Horry, brand marketing and content director at tour operator TUI Group, believes that arguing the macro case for marketing is relatively straightforward. But he adds: “It’s when you get to discussing the next level of detail that things become harder. If you’re a CEO, you might be saying: ‘Should I spend this money we have on a new factory or on marketing?’ It’s probably a lot harder to work through a business case for the latter and prove it. Brands are getting more sophisticated at making such measurements. It just requires more money, resources and effort to make the marketing case.”
Measuring ROI for the short and long term
The detailed analysis enabled by developments in digital technology has enabled marketers to track returns on their investments far more effectively in recent years.
While she was at True Religion in 2018-19, for instance, Grayson saw how the business case for marketing advanced in leaps and bounds, thanks to new IT. She recalls that the board became “deeply interested in the evidence-based arguments” for various marketing investments – and in the views of the firm’s martech partner.
Boards aren’t stupid. They see why you need to do brand marketing and why you must develop passion and warmth for a brand
“It was the only vendor that got to present to the board, because the members were so interested in hearing that we could see exactly where every dollar was going,” Grayson says.
Marketers have gained access to dashboards that show the impact of their expenditure on digital platforms owned by the likes of Amazon, Google and Meta. But the data these produce tends to concern immediate clicks and sales conversions achieved via specific channels. When it comes to analysing the longer-term effects of investments across all channels, and on the brand itself, econometrics has emerged as a vital tool.
Also known as marketing-mix modelling, econometrics enables statistical analysis to be applied to quantify the impact of marketing activity based on critera set by the organisation. Based on the insights that emerge from this process, marketers can adjust their spending to optimise the ROI.
The key factor for any marketer trying to introduce econometrics to their business is to “ensure that the finance team has bought into the model”, Horry stresses. “Otherwise, people can see it as a vanity thing and they won’t buy it.”
Does what we measure really matter?
Some marketing experts warn against placing too much emphasis on data derived from specific online platforms. Michael Farmer is a strategy consultant and the author of Madison Avenue Makeover, a critique of the advertising industry. He believes that some firms are overcomplicating their investments and losing sight of things that really matter, such as marketing’s impact on organic revenue growth.
“The problem is that marketing puts together ‘scopes of work’ that all my investigations show aren’t related to what needs solving,” Farmer argues. “They’re executions in every possible media channel in the hope that one of them will work. That represents a huge amount of work that doesn’t need to be done, because it adds no value.”
It’s clear, then, that marketers still face problems when it comes to demonstrating a clear ROI. What can they do to enhance their standing in the C-suite and make a more persuasive case for the investments they want to make?
Ensure that everyone is speaking the same language
Grayson would advise marketing chiefs to balance the performance and brand sides of the task. She explains: “If you can show that you’re a CMO who focuses mostly on martech and you happen to have a brand team, then you’re perfect – that’s the chef’s kiss.”
Grayson also stresses the importance of speaking the same language as that of the finance team. CMOs would “would do well to talk in terms of profitable revenue generation and net and gross margins. And they should have conversations about Ebitda and how they’re running their P&L,” she says. “They should come across more like financial planning and analysis executives than marketers.”
Horry adds: “Ensure that you’re having conversations about the brand in terms of the direct value it can bring. For businesses such as TUI, it’s about demonstrating that a stronger brand equates to more direct and organic traffic and a higher conversion rate. If you can start proving those links, you can show its value.”
Farmer believes that marketers require a “transformation”. CMOs, he stresses, must “not forget why they’re spending money. Ensure that everything you do – every media channel you buy in; every creative campaign you develop – improves the probability that your brands will grow at higher rates than before.”
