CMOs Struggling with ROI

As a direct marketing practitioner, I was tempted to write that CEOs and CMOs are finally catching up.

Catching up to what, you may ask.

They are realizing that strategically driven direct marketers had it right all along. It's not just about demand generation, positioning or branding as important as these all are. But that these were never the goal of marketing, but rather strategies to achieving the ultimate goal -- ROI.

For decades agencies and their clients thought that if they focused on demand generation, that sales would automatically follow. In the background, direct marketers were seen as second class citizens who were concerned only about short term sales. Except perhaps for a few such as David Ogilvy who undertood better the value of the direct marketing discipline. Rodney Dangerfield reflected the reality of the direct marketer's plight when he said, "I don't get no respect"!

But lo and behold came the digital age, where the customer rules. And every marketing expenditure must be measured based on its ability to yield profitable revenue within a financially acceptable timeframe.

Instead of soft quantification for millions of dollars spent on awareness advertising, CMOs must now give hard justification for their budgets.

Those days of anecdotal evidence are gone forever. And CMOs everywhere are still adjusting to a world direct marketers have championed for decades.

In what I consider to be the best research on this subject, IBM conducted a study in 2011 that aimed for 1,000 participants. In this Global Chief Marketing Officer Study, more than 1,700 CMOs from 64 countries spoke face to face with IBM Interviewers for an hour. Here is a brief analysis of the results as I see it.

Determining ROI the number 1 issue facing CMOs today

"Most CMOs are struggling in one vital respect — return on investment (ROI). Our research shows the measures used to evaluate marketing are changing. Nearly two-thirds of CMOs think return on marketing investment will be the primary measure of their effectiveness by 2015. But proving that value is difficult. Even among the most successful enterprises, half of all CMOs feel insufficiently prepared to provide hard numbers".

Let's be honest. In the past, most CMOs were not required to provide hard evidence that their strategies were working in the form of monthly or weekly ROI reports. But with increasing pressures brought on by the global economy, an increasing flood of competitors facilitated by digital media and a slow growth economy, organizations are keeping a tighter rein on their marketing expenses.

CMOs must now focus on deeper knowledge of customer behavior and not just markets

Many direct marketers become frustrated with agency educated CMOs who rely on market reports rather than a deep understanding of the behaviors exhibited by their own customers.

"One reason most organizations struggle to get the customer insights they need is that they still focus on understanding markets rather than individuals. At least 80 percent of CMOs rely on traditional sources of information such as market research and competitive benchmarking to make strategic decisions. Similarly, more than 60 percent rely on sales, campaign analysis and the like."

In the new world, CMOs must get a better handle on where buyers look for information, move from channel to channel and ultimately reach the buying decision.

It is no longer enough to know how segments make the purchase decision, but how each individual customer makes a purchase. This knowledge forms the foundation of the CRM strategy by customizing the message, selecting the preferred channel for repurchase and other steps each customer uses to purchase your product instead of a competitor's.

CMOs finally understand the need to marry up with IT

If you have read other posts on this blog, you know that direct marketers consider the relational customer database as the core of any significant marketing program.

Without it, any analysis of ROI tied to specific channels or testing is impossible. In fact, the ROI analysis relies wholly on the quality and quantity of the CMOs understanding of individual customers.

"The data explosion tops the list of headaches. More than 70 percent of the CMOs who think it's important say they aren't fully prepared to deal with its impact".

As one CMO stated: "I don't see how we can go forward without embedding IT into marketing."

Gearing up the staff to handle the analysis needed to run a state-of-the-art marketing effort

Marketing demands more now than just great creative concepts and flawless media execution. More than ever, customer insight comes more from understanding behavior than primary research.

As direct marketers have said for some time, what customers do and what they say end up dramatically different.

In the new world, data driven marketing makes companies more competitive. It also makes customer driven CMOs invaluable to the company because they understand customers better than any one else in the organization.

Pertinent and accurate knowledge of customer behavior requires a different skill set from the traditional marketing group.

Now marketing teams need analysts and digital experts who possess marketing know-how.

CMOs grapple with this staffing question. What is best? Marketers who have an understanding of digital or digital technicians who have some knowledge of marketing.

My contention is that you should be open to both options.

"Likewise, nearly two-thirds believe they will need to change the mix of skills within the marketing function and enhance its analytics capabilities. A telecommunications CMO in China summed up the general view when he noted, "Re-thinking our skills mix within the marketing function and aligning with IT are priorities for us."

The bottom line

CMOs must move from soft results analysis to hard ROI evaluation criteria as quickly as possible. They must also find a way to shore up their own skills in database marketing, analytics and CRM. Then integrate these concepts into the company's DNA starting with the CEO and then moving over to IT and ultimately overall operations.

Posted on May 14, 2012 and filed under Branding, Direct Marketing Strategy, Recruiting Talent.