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The Finance Marketing Divide: Who holds the power?
 

The Finance Marketing Divide: Who holds the power?

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Finance and marketing must engage more deeply and communicate more often so that marketing campaigns are tracked and measured against bottom line results and finance understand more about the ...

Finance and marketing must engage more deeply and communicate more often so that marketing campaigns are tracked and measured against bottom line results and finance understand more about the marketing drivers of growth.

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  • Both functions are trying to create value for a stakeholderMarketing isaimed at creating and delivering value to the customer (external): this is by building consumer brand equity which is the effect that brand knowledge has on a consumers response to the brand – customer attachments, associations and beliefs about a brand. Biased processing of Finance activity is more aimed at creating value for shareholders (internal): this is sometimes called economic brand equity which is measured in terms of the incremental cash flows that would result from an branded products revenue over the revenue of an unbranded product
  • Utility: Factors like status, trust, belonging and self-image also combine with product performance and price. It is a complex equation but utility leads to customer preference which also drives premium margins and growth which is where the finance and marketing interface should find some common groundFamous Management Guru Peter Drucker wrote what a customer considers value is never a product. It is utility I.e what the product does for him/her.
  • Because of this, CFO’s have become more powerful: More CEO’s come from a finance or engineering background than marketingRecent Forbes 30% of Fortune 500 CEOs spent the first few years of their careers developing a strong foundation in finance. The prevalence of CEOs with a strong financial background points to the fact that large companies prefer CEOs who can create value for the company and who understand the company’s financial drivers. 15% Marketing is more art than science. Its hard to know whether all those dollars spent on marketing have led to an increase in real salesAsk 20 senior managers in any co. what marketing is and you’ll get 20 different answers. By contrast most people would agree what finance or production isMarketing managers tend to be more focused on PR and communications rather than products and pricing or place for that matter
  • Purchase funnel: Step flow of marketingAwareness: Familiarity: Consideration: Purchase: Loyalty

The Finance Marketing Divide: Who holds the power? The Finance Marketing Divide: Who holds the power? Presentation Transcript

  • THE FINANCE MARKETING DIVIDE Who holds the power? TIM GACSAL
  • MARKETING FINANCE The divide • In the same boat • Rowing in different directions Marketing Consumer Image source: freakingnews.com The Finance Marketing Divide Page 2 Finance Shareholder
  • WHY IS THIS IMPORTANT? Big numbers! $2.3b ($200m/mth) spent on media in NZ in 2012 Internet advertising is the fastest growing segment FY11 $328m vs. FY12 $363m. FY13 $450m expected What is a Facebook “like” worth? Source: Advertising Standards Authority The Finance Marketing Divide Page 3 Within that…social media is the fastest growing!
  • WHY IS THIS IMPORTANT? Biggest Spenders • Travel and Accommodation providers are the biggest spenders • Followed by Government Departments and then finance and banking industries Source: IAB/PwC New Zealand: Interactive Advertising Spend Q2, 2013 The Finance Marketing Divide Page 4
  • WHY IS THIS IMPORTANT? New Zealand facts • 76% of broadband access now wireless • 54% own a smartphone – expected to reach 74% in 2014 • 19% tablet penetration – expected to grow a further 60% in 2014 • 1.66m watch video content online in a typical week • Average time spent watching video content online in a typical week is 96 mins Source: IAB/PwC New Zealand: Interactive Advertising Spend Q2, 2013 Nielsen CMI Q1-Q4 2012 The Finance Marketing Divide Page 5
  • KEY CONCEPTUAL DIFFERENCES Marketing vs Finance • Creating value for the customer vs. shareholder • Building marketing assets vs. managing costs • Long-term market vs. short term profit • Increasing customer utility for the price paid vs. increasing income for the costs incurred The Finance Marketing Divide Page 6
  • TRADITIONAL APPROACH Co-exist but without true synergy • They both operate in silos • Try to align with each other, retrospectively The Finance Marketing Divide Page 7
  • TRADITIONAL APPROACH Typical result • A truce! • Contradictions at the operational level - Marketing campaigns not always evaluated or connected to financial results - Marketers afraid of the results if they were evaluated - Marketing budget seen as a cost to manage rather than core driver of growth The Finance Marketing Divide Page 8
  • MARKETING‟S UPHILL BATTLE A decline in influence • Tougher trading conditions place emphasis on short-term pressure from financial markets • Million’s spent on marketing but its impact is often hard to measure • There’s no clear idea of what marketing is • Two of the four P’s (products and pricing) are often controlled by the CFO Source: The Chief Marketing Officer is Dead, Dominique Turpin (President, IMD University) The Finance Marketing Divide Page 9
  • WHAT‟S NEEDED? Integrate Finance and Marketing • Marketing and finance collaborate more than superficially • Change of focus to dual objectives: - Short-term AND long term - Increase utility for customers AND create wealth for shareholders • Reorienting both functions towards the interdependencies of their objectives The Finance Marketing Divide Page 10
  • THE FOUR KEY INTERDEPENDENCIES Reinforcing interdependencies means drawing a tangible link between: Customer Value  Shareholder Value  Bottom-line/ Cashflows/Business Objectives And, between Marketing efforts The Finance Marketing Divide Page 11
  • PROPOSED APPROACH Simply put…. • Increasing Accountability of Marketing by: - Using financial metrics to quantify the effects of marketing - Integrating financial goals and making them an explicit part of marketing goals • Expanding the scope of finance by: - Softening the rigid financial focus to accommodate important but difficult to quantify intangibles - Viewing financial figures in the context of more holistic objectives The Finance Marketing Divide Page 12
  • ISN‟T THAT ALREADY HAPPENING? • Companies may like to believe so, but it’s more like: - fire-fighting effort, or - A forced retro-fit to keep all parties happy A recent report in the Harvard Business Review quoted a UK study that reported 72% of CEOs are tired of being asked for money from marketing departments without an explanation of how it will increase business. Furthermore, in the same survey, 77% of CEOs have had enough of talk about ‘brand equity’ that can’t be linked to any real equity. The Finance Marketing Divide Page 13
  • METHODS TO MEASURE MARKETING‟S IMPACT The big picture • Brand Equity Valuation • Intangible Valuation (Including Brands) = Market value – Tangible Asset Value The Finance Marketing Divide Page 14
  • METHODS TO MEASURE MARKETING IMPACT Brand equity valuation • Income Approach - Price premium - Royalty relief • Market Approach - Comparison of similar assets recently sold • Cost Approach - Amount invested or required to be invested to re-create the brand • PE Multiples - Incremental earnings associated with the brand * PE Multiple The Finance Marketing Divide Page 15
  • MONITORING CAMPAIGN SUCCESS Campaign ROI (CROI) • Pre-Campaign Measurement Evaluation Model: - Develop campaign scope and work plan - Estimate time to complete the work - Assign a salary to each person working on the campaign - Apply an overhead rate for the marketing division - Estimate expected Media/Agency costs - Estimate expected incremental cash flows from sales resulting from the campaign (+ other intangibles benefits such as market share increases, customer awareness increasesloyalty etc.) - Discount expected cash flow margins at the firms required rate of return • Why do this? - Create alignment between the organisation goals and actual marketing spend The Finance Marketing Divide Page 16
  • MONITORING CAMPAIGN SUCCESS Campaign ROI (CROI) Evaluation • Do returns meet investment benchmark hurdles? • Would alternative campaign strategy’s produce better returns? choose strategy with highest returns. • How do actual results compare with expected results? • How can learning's be factored into future campaigns? • What risk parameters should be set that enable allocation changes in the marketing mix but limit total shift in any given year (i.e. max % spend on unproven channels and limits on spend reductions in some channels and increases in others) The Finance Marketing Divide Page 17
  • KEY BENEFITS • Marketing investment decisions based more on facts than judgments • Move focus from “should we be spending on marketing at all” to “what's the optimum marketing spending needed to hit our targets” • Link marketing spend not only to bottom line results but also align with strategic priorities • Better business case for evaluating marketing spend and budget increases The Finance Marketing Divide Page 18
  • KEY BENEFITS • Better understanding of time-frames to achieve marketing campaign results • Greater transparency around marketing activity and productivity • Integrate marketing into the already well accepted world of finance • Better quality market data for financial forecasting The Finance Marketing Divide Page 19
  • MIGRATION TO THE DIGITAL DOMAIN Simple e-commerce metrics KPI Metric User Acquisition Cost • • • Cost to get customer to the website Conversion rate to paying customer Cost per conversion (Total campaign costs/no. of conversions) Visitor Value • • How much is each visitor generating in revenue How much should we spend to buy traffic to the site Purchase funnel • Where do customers drop out of the funnel – landed on site, multiple page views, product on wish list, basket created, check-out not complete, check-out complete Google Analytics • • • How visitors use your site how they arrived on your site (Click through rate) how you can keep them coming back The Finance Marketing Divide Page 20
  • END RESULT! Promotes „Constructive‟ conflict. Only possible when Marketing and Finance are: 1. Communicating 2. Talking the same language, and 3. Rowing in the same direction! The Finance Marketing Divide Page 21
  • QUESTION… What if you could „outsource‟ this challenging area to an integrated team of financial marketing experts? The Finance Marketing Divide Page 22
  • THE SOLUTION… BDO‟s finance marketing team We provide services that integrate the best finance expertise with your marketing activities The Finance Marketing Divide Page 23
  • OUR SERVICES Brand Marketing Audit • Provide financial leadership and strategic support to your marketing leadership team • Partner with key stakeholders to structure and evaluate pre-campaign investment ideas • Measure and evaluate the impact of post-campaign investments and optimize ROI • Set metrics such as indexing marketing spend and report results through key performance indicator development and tracking • Provide financial education and transparency to marketing business partners and crossfunctional teams • Provide financial, operational and decision support for media mix, production, CRM, digital, PR, marketing research, market-based development initiatives and other brand programs to help increase revenues • Provide accounting support, analysis and financial reporting, planning and forecasting of media, production and brand promotions budgets • Collaborate with external agencies and internal teams to develop tools and reporting systems The Finance Marketing Divide Page 24
  • Authors Contact Details: About the Author: TIM GACSAL tim.gacsal@bdo.co.nz Direct: +64 9 366 8057 Mobile: +64 21 400 846 Connect via LinkedIn: nz.linkedin.com/pub/timgacsal/45/a43/36b Tim has a solid background in Finance (EY/KPMG/BDO) and an MBA in Marketing. This rare hybrid background means Tim’s fluent in finance combined with marketing strategy and measurement The Finance Marketing Divide Page 25