The Elusive Search for Marketing ROI

Sitting in the conference room during a workshop with one of our customers management teams, our discovery work shifted to sales and marketing. Yes, the team felt they had great visibility with cost of sales and their supply chain.  Yes the team felt they had great visibility in the area of sales promotions, clearly illustrating for every % discount in markets and in the distribution channel corresponded to an effective impact of % sales change.  Sure enough their KPIs indicated good line of sight on these fronts. Then things got a little uncomfortable as we turned to marketing.  Karen (name changed to protect the innocent) shifted a little uncomfortably in her chair and replied, "isn't that a sales conversation?"  I quietly explained that most business models delineate sales from marketing functions.  Karen smiled. "I've been telling that to the sales people, they still ask me to report marketing together with sales." Ah, problem discovered.

As someone who has worked in both sales and marketing with many professional services and software companies, it's easy to fall into the trap of complacency to mix and blur business lines and metrics together. Particularly when compensation is tied to these metrics, un-bundling sales from the marketing process can lead to change - change which can affect KPIs and often people's compensation. Clearly both marketing and sales are different even though often the two functions report into the same governance board level (and eventually to the COO or CFO of most large corporations). In fact industry and academic organizations like APQC clearly define business capabilities and make this delineation.

The recent McKinsey Quarterly article "Why your Marketing Planning is Broken" by Jayne Eastman drives deeper into the subject of the elusive Marketing ROI.  For if marketing and sales are different processes then how might you determine clear Marketing ROI? Ms Eastman contends that price sensitivity and marketing spend are not the only factors in developing an ROI model. In fact the days where one could simply calculate the Marketing spend over gross margin and arrive at a gross ROI number are long gone.  Operating marketing in such a manner is like the kids game of asking Siri where a city is and finding it's on the wrong continent - you might actually get to a city of the right name but be in a very wrong place.  Likewise marketing - through the use of analytics - needs to determine the drivers and effectiveness of marketing spend aligned to product families, distribution channels, and customer segments, across the business canvas of an organization.  Analytics can indeed help parse the data to elevate those business drivers that respond with good effectiveness and elasticity in the marketplace - making sure you head towards the right town in the right country and make the proper course corrections along the way.  This can lead into new and exciting areas of customer engagement (CE) where millennial consumers may be tapped for their ever growing consumer spending power, as one example.

Back in the conference room things have returned to normal.  The management team was able to start the conversation around what is marketing versus sales versus trade promotion - discussing new models that will give marketing greater line of sight on determining key business drivers and how to measure those in a changing marketplace.  As the conversation turns to winning in new areas sales alone would not have been able to consider, there is promise of a new and more effective business approach. As marketing moves to demand generation particularly in new customer segments, sales has understood that the market fight isn't only their fight to win. And that is a good outcome everyone can get behind.