Marketing: Expense Or Investment

At the risk of stating the obvious, we live in challenging economic times. This week the focus is on the potential for Greece to default on its sovereign debt and what that might mean for the Euro zone, and beyond. Against a backdrop of high levels of consumer debt and unemployment, and low levels of consumer confidence and spending, it can be hard to be optimistic about the economy.

At times like these, companies quite naturally react with caution by controlling and reducing expenses. For example, they might reduce travel, cut staff or postpone capital expenditures. From my perspective, the really bad news comes when they cut marketing spending.

Marketing budgets can become a target for cutting at companies whose executives view marketing as a non-essential expense that could be cut without dire consequences, at least not in the short term. This view of marketing as expense rather than investment creates pressure on marketers to reduce spending during tough times.

Here’s the issue for marketers. If other executives view the money you control as an expense with no obvious measurable benefit, it’s a lot easier for them to want to cut that expense.

On the other hand, if they understand how marketing helps to acquire, develop and keep profitable customers, then they’ll be more inclined to see marketing as an investment that is essential to delivering great business results in the short, medium and long term. The path to that understanding is measurement.

Organizations that see marketing as an expense generally don’t understand how it creates value for the business, or don’t believe that marketing spending decisions are being made in a way that helps to optimize business value over time. Marketers who want to shift the Executive Team’s perspective to view marketing as an investment need to show that these “investments” are being evaluated using data that means something to the whole executive team.

How can you use measurement to help your executive team view marketing as an investment? Here’s a five point plan to begin that shift:

1. Commit to Measurement: Pick one standard approach to measurement that you can apply consistently to each and every marketing program. Applying one approach consistently is what enables you to compare each program to the others, so you will know which are most and least effective and be able to adjust marketing investment strategies accordingly.

2. Involve Key Individuals: To develop an approach to measurement that will be considered valid, involve those that determine how money gets allocated during budgeting, and where to cut when it’s time to cut. Typically, this can include the President and/or CEO, and the heads of Finance, Marketing, Sales, Operations, Technology, and Human Resources. With their involvement, you’ll be measuring the things that matter to the people that matter.

3. Determine What to Measure: This step is about making sure your marketing measurement process will measure the right things. You need to understand all the Key Performance Indicators that your key individuals monitor. These should be included in your measurement process, provided marketing can actually impact those KPIs. You also need to consider the organization’s objectives and the specific objectives of each individual program. You’ll be measuring results vs. these objectives.

4. Make Measurement Someone’s Responsibility: You can do it yourself, delegate it, put a team together or outsource it. Just make sure everyone is clear about who will do the measurement, when it’s supposed to happen, and how they’re going to get the data they’ll need.

5. Integrate Measurement: Ensure some of your marketing metrics become part of the organization’s KPIs that get reported and monitored regularly. Review and share your results which you can integrate into your planning process. This integration will help connect your marketing investments to business results.

Marketing budgets commonly come under pressure during tough economic times. Measurement can help you to defend those budgets but if you end up having to cut your budget, at least your measurement process will help identify where to cut.

Here’s an idea. While your competitors are diligently cutting their marketing, instead of cutting along with them, keep investing in your most effective types of programs (as identified through measurement) and you’ll steal market share from your thrifty competitors!

That incremental market share will help replace lost revenue should your market shrink and will really pay off in the longer term if you can maintain your share when the market grows in a stronger economy. That sounds like a good investment to me!