In the Classroom
Seeing Marketing Through the Eyes of the CFO

Mark McNabb, Vice President and General Manager of Nissan North America, knows that every dollar he puts into marketing has to count. "The auto industry is very competitive," he said. "It is a 100-year-old industry that is pretty mature, and product offerings are becoming more similar among companies. Competitiveness is intense, and cost is a big reason why companies have advantages or disadvantages."

Marketing is a significant part of the total costs of producing and selling cars. "If you look at total distribution costs, advertising and promotion are still a big part of them," NcNabb said. "At Nissan, we set out about five years ago to be more metrics driven. Manufacturing costs are easily calculated, but marketing is a little less scientific. The more science you can bring to it, the better. While it is pretty easy to measure media, measuring promotions and other initiatives is still difficult. It is getting more scientific but there is still a lot of art."

Scrutinizing Expenditures

Every marketing expenditure is carefully scrutinized. "We have these discussions about marketing every day, 365 days a year," McNabb said. "How do you get the most impact for your dollars, and how do you measure that? This is particularly a challenge as the market has become more fragmented."

At the end of the day, getting more impact from marketing dollars means more profits for the company and its shareholders or more capital that can be put back into developing new products. "As a publicly held company, you have a responsibility to shareholders to maximize every dollar they invest with you. It is imperative that you apply the same scrutiny to your company as you would to your own budget at home. This is a very capital-intensive, industry and we need to make as much profit per unit as possible."

Seeing Marketing as an Investment

While still an art, the science of marketing is continuing to advance along with metrics. McNabb recently attended Wharton's program on Marketing Metrics: Linking Marketing to Financial Consequences, which provides an in-depth look at innovations in the field. The topic is also prominently featured in Wharton's CFO: Becoming a Strategic Partner program. Understanding emerging approaches to metrics is important for marketers who must develop their marketing budgets and CFOs or other leaders who have to evaluate them.

"I encourage participants to think about marketing as an investment rather than an expense," said Wharton Professor David Reibstein, who teaches in both programs.

"Traditional financial measures do not capture the market asset. CFOs are the gatekeepers of the budget. They need to have some sense of marketing as not just having a short-term payoff but also a long-term result. Our standard accounting practices do not help in this regard."

Reibstein compares this long-term marketing payoff such as lifetime value of customers to an annuity and the development of a brand as a true asset. The challenge is, however, that financial annuities have a known depreciation or discount schedule. There is no such schedule for customers. And, assets can be depreciated, rather than expensed in the year they are acquired, yet the value of the brand is not always measured so it may be difficult to know the value of the brand that has been created.
While Reibstein concedes that accounting practices probably won’t be changed in our lifetime to reflect marketing value, there are some promising approaches to measuring marketing results.

"Recent analytic methods have helped us in trying to determine the long-term effect of advertising, and there is much more rigor to measuring the value of the customer and the value of a brand," he said. The emergence of marketing dashboards also is helping to create an integrated view of marketing and broader financial returns. "It is in the embryonic stages but dashboards are helping to identify the measures we should be looking at — not just sales but the intervening measures — and how marketing expenditures relate back to financial returns. It is not quite there yet, and their financial value has not been established, but it is very promising."

Although assessment of marketing expenditures is becoming more rigorous in many organizations, there are still gray areas. Spending over $2 million for a single 30-second Super Bowl ad may be hard to justify strictly on financial returns. "One always wonders how much is driven by ego and how much by sound business strategy," Reibstein said.

More Rigorous Answers

McNabb said one of the surprises during the Marketing Metrics program was that he realized that every organization was facing a similar challenges. "Every company across every sector is facing the same type of financial scrutiny," he said. "That was a real eye-opener."

The approaches to measuring marketing impact continue to improve. "The answers we are getting today are much better than two years ago," he said, "but there is still a lot of room to go."

    

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