You may know how to talk to consumers, but can you speak CFO? The Drum's Promotion Fix columnist, Samuel Scott, explains why speaking the language of the chief finance officer will be essential for marketers' survival in the testing times ahead.
If you want to know how to thrive at work despite the looming economic downturn, learn from the biggest mistake I have made in my marketing career.
When I was the first director of marketing at a high-tech startup company, our growing team was working wonders after a few funding rounds. But we had yet to do any real advertising specifically.
So, I took some time to write myself a brief and then create the outline of a campaign that I then delivered through a creative and humorous company presentation. If I had been working at an ad agency, the idea would probably have been well-received. But at the tech company, I failed.
I had focused so much on the creativity that I had neglected to answer one simple question: “What will be the financial benefit of this campaign?” (The full story is further below.)
And that question will become more important than ever this year as marketers defend their budgets in light of the economic effects of the coronavirus pandemic.
Marketing budgets are plummeting
In the US, Forrester’s updated 2020 ad spend forecast projects a 25% decline from $236bn in 2019 to $177bn this year. Gartner’s new CMO Spend Survey found that 44% of chief marketing officers expect their budgets to decrease this year.
In the UK, the Institute of Practitioners in Advertising’s (IPA) Q2 2020 Bellwether report revealed that just over half of companies slashed their marketing budgets from May to June and that two-thirds of survey participants reported a pessimistic financial outlook. (Conversely, eMarketer predicts that ad spend in China will grow 0.4% this year.)
Under accounting and financial reporting standards, chief executives must consider marketing to be an expense to minimize rather than an asset or an investment for the future. So, the current situation does not bode well for marketing departments because their budgets are often the first to face cuts during economic downturns.
But now marketers might have some help.
2020’s most important marketing research
In 2019, some of the most groundbreaking marketing research came from Les Binet and Peter Field, who used IPA data to show how companies should allocate their marcom spend between long-term brand and short-term activation goals.
In my work as a keynote marketing speaker, I incorporated those ideas into the main speech that I gave throughout Europe last year on media planning in 2020 and beyond. Other presenters in the industry also highlighted Binet and Field’s recommendations.
This year, the most important research may have come from LinkedIn’s B2B Institute in the US together with the IPA and EffWorks in the UK. Marketing to the CFO is a new report that will be critically important as marketers face an economic contraction caused by the coronavirus pandemic and resulting lockdowns.
The publication, authored by British marketing effectiveness researcher Fran Cassidy, offers a five-step playbook for “more financially accountable marketing” that uses shared chief marketing officer and chief financial officer objectives, language and metrics that are all tied to value creation.
Most significantly, the report advocates that marketers stop the use of trendy buzzwords and vanity metrics and shows how to frame brand building as an invaluable tool that increases pricing power and future cash flows.
Essentially, the research teaches marketers “how to speak CFO” – and nothing will be more important this year as chief marketing officers face cuts during this year’s likely economic downturn.
“In today’s tough business climate, marketers need to understand how to express the value they provide in financial terms. Marketing should not just be a cost center – it’s a mindset focused on driving growth,” Jann Schwarz, the global director of LinkedIn’s B2B Institute, told me.
“The CFO and his or her team are the most important internal audience to land this message with – using jargon-free language that resonates. Marketers often struggle with this, but Fran Cassidy’s report for the B2B Institute outlines a clear roadmap for success.”
How to “market to the CFO”
The B2B Institute and IPA’s research summarises itself through a VALUE framework. Understand how Value is created. Accept Accountability for the metrics that signify value creation. Use the Language of value creation. Grow the Understanding of value creation throughout the marketing team. Create a mindset based on Evidence. (Byron Sharp will be happy.)
According to the publication, such a framework leads to greater respect for marketing within c-suites, improved relationships throughout companies, and a louder voice for the customer throughout organisations. And all of that will likely lead to increased budgets – or at least less-reduced budgets during the present downturn.
As someone whose career has focused mainly on marcom, my favourite part of the report is the one that focuses on how we should change our language when speaking to the c-suite. One graphic that I will highlight.
Marketers know that we need to be customer-facing or customer-centric or customer-first – however you describe it. But the most important audiences for our own benefit are the CFO and CEO. And few have ever discussed how to promote marketing itself to them until now.
Look at it this way: how many people in marketing – or especially in communications – can even understand what balance sheets and income statements are saying? That is Accounting and Finance 101. We all need to learn that language.
I am lucky enough to have taken courses in those areas when I did my MBA studies. But many marketers are not as well-rounded. Such topics need to be a part of the marketing coursework at universities and professional certification programs.
However, changing the language that marketers use when talking to CFOs is easier than finding common ground over metrics.
“This depends entirely on how well versed the CFO is in marketing or how successfully you can show the connection between brand metrics and hard financial numbers,” Jon Evans, the CMO at System1 Group and host of the Uncensored CMO podcast, told me.
For example, increased physical availability will return a short-term increase in sales that can be measured quickly and easily. But higher mental availability grows slowly and is more difficult to measure. Marketers need to balance short- and long-term metrics.
“If you are getting into more specific brand metrics ,you need to be able to clearly demonstrate why they are important to the brand’s overall success,” Evans added. “I always used to ask my team what the most important brand metric is and why. It's surprising how often you get a vague answer that doesn’t connect back to financial success. If they couldn’t convince me, they wouldn’t convince the CFO!”
Still, the B2B Institute and IPA’s new publication does have some skeptics.
“The trouble is that a large part of the value of most businesses is based on their intangible assets (such as people, brand and intellectual property), not their tangible assets,” Alastair Thomson, a former finance director and CFO who is now with the FD Centre in the UK, told me.
“For short-term marketing initiatives, frameworks like VALUE have a lot to offer marketers in their conversations with CFOs and CEOs. Without a strong rationale for an ROI on marketing spend, of course the temptation is to reduce the cost of the marketing department one way or another.”
“That's also why it's exactly the right time to work on the long-term value marketing can offer. With few exceptions, a business makes a vastly greater return from increasing revenues than it does from reducing costs.”
One example is that the coronavirus pandemic right now might be a good time to grow revenue by establishing a new, premium price positioning at a time when many companies are surely cutting prices.
“When nobody else is doing it, your costs of doing so are much lower – and your impact is commensurately greater,” Thomson added.
When I failed to use this advice
Now, the rest of my aforementioned story.
Our marketing team had people doing Google Ads, publicity and PR, analytics research, SEO and content marketing. But no advertising. (Paid search is direct response and physical availability.)
So, I wrote myself the brief and created the outline. We sold a SaaS log analytics platform to IT professionals, so I did a throwback to The IT Crowd. I created a mock episode of the programme to communicate our product’s value. At the time, Marvel’s Cinematic Universe was taking off – so I even included a “post-credits scene” to foreshadow something unknown in the future.
A part from the beginning of the presentation:
I put the whole thing into a presentation and invited the marketing team as well as high-level people from the sales, support and IT teams to attend so I could get feedback.
At the meeting, I began with a short summary of the importance of brands and how they grow. And then I used a British accent while mimicking the mock IT Crowd characters and acting through the entire script with the accompanying visual aids. I said we would get press coverage as well and that we could add a call to action for the ad placements online.
I gave the performance my all and said it was an initial brainstorm that I could take up the management chain while asking ad agencies for RFPs. But the head of sales cringed during some of the jokes because she did not get the IT Crowd references. The support staffers said they thought it was funny but did not understand the point. (Still, the head of IT thought it was brilliant.)
Later, the chief executive sternly told me that the whole thing had been a waste. He said that based on my salary and the amount of time that it took to come up with the idea, he knew how much money I had cost the company. He said he would never have paid to do such a campaign anyway. Any funds required for the advertisement would have been rather used for many “pieces of content” and Google Ads clicks.
I took a big risk and failed. Of course, I have no idea whether the creative idea would have been successful. But I did realise later why the proposal was “dead on arrival.”
Sure, I had talked about the importance of brand, the use of humour, the incorporation of a relevant pop culture throwback hook, and the necessity of getting noticed and remembered among all potential category buyers for long-term success.
But I had neglected to frame the whole thing in terms of financial value. I wish I would have read the B2B Institute’s new report at the time. For someone whose job at the time consisted partly of communications, I had failed to communicate effectively.
Still, Thomson did offer some solace when I told him the story.
“It isn't the CEO's job to produce sales. It's the CEO's job to build the long-term value of the business,” he said. “In the absence of any better ideas, pushing sales isn't the worst thing you can do – but that grows corporate value in a linear fashion (all things being equal, 2x the sales makes the business 2x more valuable).”
“Working with intangible assets, including brands, the relationship is geometric (a brand that's 2x as better will produce a 10x increase in business value).”
“When you're in a linear world, such as short-term sales activation, you should make linear decisions. When you're in a geometric world, such as long-term value creation, you should make geometric decisions. Which broadly means being bold enough to do things that might not work. At the racecourse, odds are short on ‘dead certs’. In business, returns from ‘dead certs’ are small for exactly the same reason.”
But one problem is that high-tech startup companies – in my specific example – are often funded by venture capitalists who also sit on their boards. Those VCs rarely want to “do things that might not work” because they need to guarantee returns for their limited partner investors. (And then we wonder why only 5% of VC funds even beat the market.)
Regardless, financial knowledge is something that marketers turned off – but we need to turn it on again. Especially today. We should always try things that might not work – but we need to explain the potential financial benefits beforehand.
Those who succeed will save their budgets and grow the value of their companies the most during recessions.
The Promotion Fix is an exclusive column for The Drum contributed by global keynote and virtual marketing speaker Samuel Scott, a former journalist, newspaper editor and director of marketing in the high-tech industry. Follow him on Twitter. Scott is based out of Tel Aviv, Israel.