Manufacturing CMOs struggle with ROMI metrics

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1 Manufacturing CMOs struggle with ROMI metrics A report from the Economist Intelligence Unit Sponsored by

2 Manufacturing CMOs struggle with ROMI metrics To resonate with the business, marketing needs to link its initiatives to the key drivers that matter to the CFO, the CEO and, ultimately, the shareholders. Measuring the return on marketing investment (ROMI) seems a simple enough concept. Yet many chief marketing officers (CMOs) at manufacturing firms are still struggling to bridge the gap between what they measure and what P&L owners care about. Business owners are rewarded based on revenue and profitability growth. The metrics that marketers track leads generated, customer satisfaction, search engine referrals (see Figure 1) are also related to revenue (less often to profitability), but not always directly. Perhaps this is one reason some CMOs have a higher opinion of their own performance than their C-suite counterparts (see Figure 2). Many marketers are aware of the problem and are trying to correct it by finding more relevant metrics. We are trying to understand the one, two or three things that are really going to move the Figure 1 CMOs and others in C-suite are split over which performance metrics manufacturing firms are using to track return on marketing investment (ROMI) (% of respondents on performance metrics their organisation employs to track ROMI) Customer engagement Business analytics Sales leads Profit from expenditures Customer satisfaction Sales conversion Referrals Brand awareness Revenue from expenditures Customer retention Customer lifetime value CMOs Other C-level 55 Source: Economist Intelligence Unit 1

3 Figure 2 CMOs are more likely than other C-suite executives to believe they are effective at using business-useful metrics (% of respondents saying they agree or strongly agree the CMO is effective) CMOs Other C-level Delivering customer insights that drive business value Establishing a clear business case for new marketing investments Delivering measurable ROI for marketing expenditures We are able to track the value of marketing investments across channels We are able to track the value of marketing investments across functions Source: Economist Intelligence Unit CMOs need to analyse the P&L at a product and customer level to ensure we identify and act on those areas that are not providing a direct positive impact on the operation Chris LeBlanc, sales & marketing manager, 3M Filtration Products for Australia and New Zealand needle and get people to choose us instead of our competitors, or choose us above something else, says Matt Wohl, vice-president and CMO of Welch s, a family farmer-owned co-operative. To resonate with the business, marketing needs to link its initiatives to the key drivers that matter to the CFO, the CEO and, ultimately, the shareholders. Instead, many marketers focus on traditional marketing success criteria such as purchase interest, uniqueness scores and visibility, even when it s not completely clear how those metrics are driving the desired business result. This tendency helps to explain why manufacturing CMOs believe they are better at various aspects of linking marketing activities to the business than others in the C-suite believe them to be (see Figure 2). CMOs need to close this perception gap. Chris LeBlanc is sales & marketing manager for 3M Filtration Products for Australia and New Zealand, and agrees business-specificity is critical. He says, CMOs need to analyse the P&L (and work with manufacturing) at a product and customer level to ensure we identify and act on those areas that are not providing a direct positive impact on the operation. Once the direction has been established, then marketing, sales, finance and operations/manufacturing need to set the KPIs that will address or measure the critical few areas targeted for improvement. This approach requires different functions to communicate and agree on business priorities and agree on which metrics can best demonstrate progress on those targets. For each firm, the metrics will therefore be different. However, Mr LeBlanc notes that marketers in manufacturing may have an impact on the gamut, from broad financial measures such as gross margin and income contribution to specifics like plant utilisation identifying those key product areas and/or product lines that may not be generating the expected revenue. Mr Wohl says the marketing/c-suite dialogue needs to be iterative, including an open and honest dialogue around what didn t work. We have to be willing to have a conversation around our misses and where we might have expected one result and didn t get it, so we don t make the same mistake again, he says. As marketers, he adds, If we don t deliver the business results, we have to circle back and say, okay, was that really a driver? This type of dialogue can help to close the fundamental disconnect between traditional marketing metrics and business results. In the case of 3M Filtration Products ANZ, says Mr LeBlanc, We can increase the focus and prioritisation of sales and marketing activities towards those key areas of the business that provide a better return to the corporation. To invest in marketing, the business owners need to be confident that marketing activities will 2

4 deliver revenue and profitability. Unfortunately, many are not. Among surveyed executives, 18% of CMOs claim to be excellent at establishing a clear business case for new marketing investments, and another 38% say they are good at it. Among C-suite respondents, however, only one-third say their CMO is good at establishing that business case, and % specifically say their CMOs are lacking. What to do Forty-four percent of CMOs say their company can clearly demonstrate marketing s contribution to the top line, but only 27% of other C-suite executives say the same. This is a snapshot of the disconnect that prevails at many manufacturing firms, where CMOs are keen to demonstrate their effectiveness, but are struggling to do so in a meaningful way. These figures highlight the need for clear communication between misunderstood marketers and their results-oriented counterparts. Marketers should: Clearly show how marketing metrics are related to the top line and, if possible, to the bottom line. To ensure honest feedback, repeatedly test their statements against the beliefs of the CFO and CEO audience in order to unearth and counter objections. If marketing activity is linked only to deals closed ie, revenue do what you can to influence segmentation, targeting and pricing, to ensure that marketing activity can drive profitability as well as revenue. Ultimately, Our effectiveness is measured by asking, Did we deliver the [results] we said we d deliver, says Mr Wohl. Focusing on metrics that have an unclear business impact creates a false sense of achievement among CMOS. That could be why 55% of surveyed CMOs but only 30% of others in the C-suite say the performance of their company s marketing investments was ahead of peers in the last year. 3

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