August traditionally is the month everyone flees to the beaches, mountains, or points unknown to recuperate from work-related stress, only to find that close proximity to family is not always the best antidote.  We hope you haven’t completely tuned out this month because we’re focusing this issue on how you can improve the allocation and ROI of your marketing spend with great articles from experts in this area.

In fact, the topic is so important that the CMO Council’s Elite Retreat in December is entitled:  “Less Burn:  More Return.”  The December 12 -13 get together in Sonoma, California will examine new marketing operational models and allocating, adapting, and advocating marketing spend in great detail.  David Haigh, founder and CEO of London-based Brand Finance plc. will keynote the Elite Retreat and lay the foundation for how best to maximize marketing spend.

In this issue we offer perspectives on the topic from John Petralia, senior vice president of marketing, for Iron Mountain in our Get to Know a CMO column; Raj Srivastava, an MPM Forum advisory board member and director of Emory University’s Institute of Brand Science, offers his POV on the subject; Eric Peterson, CEO and principal consultant at Web Analytics Demystified, approaches the topic from a Web perspective; and, James Connor, CEO of The James Group, instructs on how to set marketing budgets using customer value.

All four of these contributors understand that marketing is being challenged to deliver greater value and return at a time when budgets are being spread across an increasing number of business units.  These experts provide an early look at how to get "Less Burn: More Return."

August is rich with other mind itching articles, also.  Thomas Ordahl’s article The Existential Product makes the case that products are becoming less tangible and are instead bundles of benefits delivered through combinations of services, technology, Internet functionality, and hard goods.  Hard to argue when the iPod is used as an example.  Deborah Eastman - CMO of Satmetrix – takes on an Advertising Age article that says CMOs have zero impact on sales and concludes that the heart of the challenge is who carries the CMO title and how CMO performance is measured. 

Finally, we’ve dedicated The Download column this month exclusively to a new study conducted by Maritz Research called:  “Managing Your Boss:  The Impact of Manager Personality and Style on Employee Performance.”  Find out where you fit and what your employees call you…are you a “Superman” or a “Wonder Woman?”

Bob Nelson is also Academic Director for the CMO Council's MPM Forum and Mastering MPM programs and is a Puerto Vallarta, Mexico-based brand optimization consultant.

GET TO KNOW A CMO:

Marketing Magnified: Tell me about how marketing is structured at Iron Mountain?

We have five primary areas within the marketing organization that I manage. The first group is product and solution marketing, in-bound marketing, and out-bound marketing. The second group includes field marketing, marketing communications, trade shows and events, database marketing, and analytics. The third group is Internet marketing. Our fourth group is focused on advocacy programs or consultative selling where we develop risk assessments for our customers benchmarked against best practices from their peer group. By the way, this group has a 3X ROI for Iron Mountain. Finally, there is the marketing intelligence group, which drives marketing strategy informed by business intelligence and industry and customer trends. There are 50 people within the five groups. We don’t have a corporate marketing function at Iron Mountain. In my role as head of marketing I am also an executive team member.

Marketing Magnified: Getting a bang for your marketing buck is this month’s focus. What process do you use to allocate your marketing budget to get the biggest bang?

I’ve been building my organization for the past three years and have ensured that marketing is aligned with key business objectives. Maximizing our core business is our key strategy. We translate that to marketing by leveraging our customer base. Our biggest opportunity is to drive cross-sell and up-sell of our existing base. When we allocate dollars, we look at our business objectives and then try to drive revenue growth through new product and customer penetration. Another key area is customer advocacy because it’s the primary driver for customer loyalty. It’s a better measure than satisfaction for incremental growth when considering share of wallet. Customer advocacy is built through education and training. We use seminars, Webinars, white papers, customer events and other tactics to educate our customers. We also provide them with risk assessment. All of these activities help to build a perception that we are a trusted and valued partner our customers look to for thought leadership. They give us permission to be thought leaders. We both teach them and solve their problems.

Marketing Magnified: What are your top three spending priorities this year?

Number one is our customer advocacy initiative followed by demand generation through cross-sell and up-sell, and, of course, new product launches.

Marketing Magnified: How do you measure the ROI of your marketing spend?

One of the key areas we measure and report on for the marketing team is  marketing-activity based ROI, that is how much demand we create and our conversion-to-opportunity success. We also look at how many we convert to sales, average order size, and total revenue influenced. We also look at the top 10 vertical markets year-over-year revenue growth. We also look at new product revenue growth as a percent of new sales. Customer thought leadership metrics are also employed (Web site traffic, our knowledge center traffic, number of Podcasts downloaded, Webinar participation, etc…). And, we look at customer product penetration rates for three product categories across the total customer base: cross-sell penetration rates, spend-to-budget, and spend to marketing headcount.

Marketing Magnified: Do you have a formal MPM or marketing performance measurement system in place?

No, not a formal system, which would be nice to have but we have other priorities for our budget right now. We have a foundation set up, but it’s manual. This works just fine for us now. We spend our money to increase revenue, decrease costs, and decrease risk for the corporation. The measurement program in place works fine but we have no software tool. We use two dashboards to keep the organization informed, a quarterly executive dashboard and a monthly marketing dashboard. We also plan to include our results in business unit results.

Marketing Magnified: What are your top three marketing challenges this year?

Continual optimization of our marketing programs and continual feedback loops to optimize our spending. Also, I am placing a strong emphasis on recruiting. Sometimes it’s hard to recruit “A” level players in the B2B space. I want the best players possible from a market that is beginning to tighten up. I’m looking for people who have what I call “business athleticism”, that is they understand business. They should also have technical expertise so they can hit the ground running and domain expertise. And, I want to make sure we stay focused on priorities that meet corporate goals and don’t get overextended. They key is to focus spending to get better results and better yield.

POINT OF VIEW: THE PERILS OF RESOURCE ALLOCATION AND RETURN ON MARKETING SPEND

The quest to establish a link between marketing spend and financial performance has also been echoed globally as Chief Marketing Officers (CMOs) struggle to show how major market-based investments lead to increased performance and shareholder value. While there is little disagreement about the importance of marketing performance measurement – what is not measured cannot be well-managed – there is limited consensus on how to go about doing it. Unsurprisingly, marketers have homed in on metrics such as return on marketing investments (ROMI) to both measure the return on marketing spend (retrospectively) and to compete for funds against other demands for corporate resources. The search for a single silver bullet is likely to be both elusive and a mistake.

As Ambler and Roberts (2006) argue with considerable passion, market performance measurement has to be multi-dimensional. One must distinguish between tools and metrics that are useful for marketing performance evaluation versus those that might be better for planning and resource allocation. Backward-looking measures are more appropriate to monitor past actions performance. Forward-looking measures and tools are more appropriate to plan the future.

The distinction between retrospective and forward-looking measures may not pose a problem in mature, stable markets. But, in dynamic markets subject to product and marketplace changes, looking backwards may not be the best way for driving forward. Human nature gravitates to tangible information. The tendency to focus on what has happened, not what might happen, places too much weight on short-term results. Let’s look at challenges faced by marketers in each of these contexts.

Performance measurement challenges

Measures based on outcomes of past marketing actions are used to provide information for reward and incentive systems, and market diagnostics to aid adaptive management and planning the future. These metrics are in and of themselves less useful. Their value is enhanced when compared to credible benchmarks related to key competitors or expectations based on historical performance. Subsequent variance analysis can provide diagnostics information.

There are many issues that marketers must contend with in assessing past performance. Some marketing actions such as price-promotions are inherently short-run and can be best evaluated via short-term measures such as changes in margins, share and ROMI. Other marketing actions such as customer acquisition, channel development, and brand-launch expenditures have long-term, multi-period payoffs. Short-term performance metrics - such as ROMI -under-estimate the impact of marketing on business performance. Historically, marketing analysts have not done a good job in controlling to this difference. Marketing mix models (and now more comprehensive marketing dashboards) can lead to questionable conclusions. For example, advertising, which has long-term, multi-period benefits is often drowned by price-promotions when its impact is examined in terms of monthly or weekly sales response.

Short-term performance measures such as ROMI do not capture the impact of market-based investments on the value of off-balance sheet intangible assets such as brands, customers, and channel partners. These investments and consequent market-based assets can be leveraged to enhance cash flows, accelerate growth, and reduce business risks – in short, drive shareholder value (Srivastava, Shervani and Fahey 1998). Omission of such “value” metrics can leave “blind spots” in decisions ranging from resource allocation to M&A valuations, costing marketing a seat at the C-Level dining table and corporate boards.

Resource allocation challenges

Since its humble beginnings in 1919, the DuPont model has come a long way in being accepted as a standard technique in the industry for measuring performance based on return on assets and investment, and the definitional components (margins and turnover) leading up to it. Quite understandably, performance measures such as ROMI derived from the DuPont model also guide resource allocation. But, using the same metrics to both measure past performance and to resource the future can have disastrous results:

• The best way to kill new product innovations that have long-run payoffs is to use short-term, backward-looking metrics such as margins, turnover, and return on assets that favor incumbent products thus starving innovations of badly need growth funds.
• Blurred insights can lead to questionable decisions. For example, higher short-run sales response elasticity for price-promotions has led to a systematic decrease in the share of marketing mix budgets allocated to advertising in the long run.
• Because marketing activities are listed as expenses rather than investments, they must typically “pay” for themselves within a year. Ironically, market-based assets such as customers and brands are the only assets that appreciate, and not depreciate (Srivastava et al 1998).

Logically, strategy must precede metrics. However, metrics can develop a life of their own and begin to dictate strategy. Because of reward and incentive systems based on key performance metrics, managers all too often manage metrics such as ROMI rather than managing the business. For example, when profits or returns are limited under adverse economic conditions, companies often cut back on marketing investments in order to produce acceptable performance (ROMI’s). Ironically, for strong companies, this may be the best time to go on an offensive because less robust competitors may be weaker still (Srinivasan, Rangaswamy and Lilien 2005).

If strategy is to precede metrics, knowledge of the competitive environment and company objectives must precede strategy development. Short-cycle environments require fast-cycle capabilities such as flexibility and agility. Markets at different stages of their product life cycle (PLC) offer different opportunities and pose different challenges. The challenge during the growth phase of the PLC is to justify investments in intangible market-based assets such as brands and new channels. Because costs are quite concrete and benefits are intangible, companies often under-spend in this phase. As markets mature the strategic imperative shifts to maintaining share and enhancing profitability. Here marketing mix models and dashboards play important roles in enhancing marketing productivity. A Deutsche Bank study based on analyses across several product markets suggests that companies might be overspending in mature markets.

Resource allocation approaches must also accommodate product-market differences. Even within the same product category, emerging markets with double-digit category growth require brand investments while developed markets may require cost controls. For example, HP’s PC division faces daunting competition from Dell and a flat market in the U.S. Growth in India is upwards of 30 percent and HP faces a limited Dell presence. Clearly, there is also no silver bullet when it comes to marketing performance assessment and resource allocation. The right metrics depend on the firm’s objectives, strategies and competitive environment.

References

Ambler, Tim and John Roberts (2006), “Beware the Silver Metric: Marketing Performance Measurement has to be Multidimensional”, Report 06-113, Cambridge: Marketing Science Institute

Srinivasan, Raji, Arvind Rangaswamy and Gary L. Lilien (2005), “Turning Adversity Into Advantage: Does Proactive Marketing During a Recession Pay Off?”, International Journal of Research in Marketing, 22, 109-125

Srivastava, Rajendra K., Tasadduq A Shervani, Liam Fahey (1998), “Market-based Assets and Shareholder Value: A Framework for Analysis”, Journal of Marketing, 62, Iss. 1; p. 2-18

MEASURING MARKETING ALLOCATION AND RETURN ON INVESTMENT ONLINE: COMPETING ON WEB ANALYTICS

Most marketing organizations have already made some investment in Web analytics technology, and the most common use of these applications is measuring campaign response and conversion.  Solutions like Omniture SiteCatalyst, WebTrends Marketing Lab, and Google’s Google Analytics are widely deployed by companies large and small to measure the impact of marketing and site design efforts.  And for the most part, these technologies are pretty straightforward.  By simply tagging the campaign, the landing page, and the conversion event, Web analytics systems enable rich online campaign tracking designed to support marketing allocation and ROI analysis.

Unfortunately, despite sounding easy, many companies have now discovered that Web analytics is hard, and that producing accurate reports and actionable recommendations for the CMO is far more difficult than expected.  When you take into account the changing technology landscape and largely inaccurate measures of visitor engagement, the challenge magnifies. 

Consider the following data collected from a recent survey conducted by Web Analytics Demystified, Inc.

• Forty percent of companies report having failed to properly “tag” campaign elements prior to their deployment.
• Twenty five percent report having failed to produce reports for newly deployed campaigns
• Only 12 percent of companies report that Web analytics answers more than 90% of their questions about online marketing
• Thirty one percent report that Web analytics answers less than 50% of the same kinds of questions
• When asked if the majority of people in their organization who come in contact with Web marketing data actually understand the data, 69 percent of survey respondents said “No.”

The same survey found that only 15 percent of companies have fully integrated Web analytics into their decision making process—the ultimate goal for any organization wishing to compete on analytics.  Web measurement tools are supposedly easy to use yet companies still struggle to collect data, answer questions, and communicate their results. 

Answering hard questions requires attention to detail

Clearly there are still barriers to “doing” Web analytics effectively in marketing organizations.  Unfortunately, Web analytics is the primary source for teams working to answer the following types of strategic business questions:

1. What is the current return on investment from online marketing efforts and which campaign channels are producing the greatest ROI?  Is there a different marketing mix that will improve that return on investment?
2. Are visitors finding the site through branded keywords, unbranded keywords, or a combination of both?  If the latter, what is the optimal allocation of expenditure on branded and unbranded keywords that willdrive the same level of acquisition and sales?
3. How many different campaign elements do our customers see online prior to making a purchase?  Does it make a difference if they see a banner ad first then search for a branded term?  And how does the marketing attribution model account for multiple impressions through multiple channels?

The need for technology to answer these questions is obvious, and most good marketing executives recognize the need for smart people to manage Web analytics systems.  But technology and people are not enough; the ability to benefit from your existing and ongoing investment in marketing measurement is directly tied to your organization’s willingness to take a process-driven approach towards Web analytics. 

Currently, only seven percent of companies in the U.S. are taking a process-driven approach towards Web and marketing measurement, but half of these companies report a positive return from their investment in measurement.  One in two companies leveraging business process in their online marketing efforts is using the available data to make more money than what is invested in people, process, and technology.  Conversely, only 16 percent of organizations that rely exclusively on employees to drive the use of data and 16 percent of organizations that have no defined strategy for data analysis, report positive return from their investment.

Do you compete on (Web) analytics?

Despite Web analytics being hard, the most important processes required to create a data-driven organization are widely understood.  To determine if your organization is able to use Web analytics to effectively optimize online marketing efforts, ask yourself the following five questions:

1. Have you assigned ownership of marketing measurement to someone senior in your organization?  The most common mistake that companies make is the failure to assure that someone at the VP level is responsible for analytics.  Senior managers need to actively request analysis and recommendations, not wait for this type of information to appear.
2. Have you allocated resources to produce analysis?  While I said earlier that “most good marketing executives recognize the need for smart people” this point is worth repeating.  No matter what your analytics vendor says, dedicated resources are required to answer complex strategic questions.
3. Have you given your people a mandate to produce analysis and make recommendations?  One unfortunate reality is that most marketing organizations spend far too much time generating reports and not nearly enough producing analysis and recommendations.  Reports are a necessary evil, but reports rarely ever answer strategic questions, analysis does.
4. Are you doing some type of multivariate testing?  Collecting data for data’s sake is a waste of valuable time!  Analysis needs to drive the generation of refutable hypotheses that are then validated using an A/B or multivariate testing platform.
5. Are you taking a process-oriented approach towards measurement?  You have three choices regarding how your organization leverages data to optimize your marketing mix: reliance on technology, reliance on people, and reliance on process.  But only reliance on process produces consistent, repeatable, and transferable results—allowing your organization to take a data-driven approach that transcends vendors and dependence on individual employees.

The opportunity Is clear

As the global shift to online marketing continues, companies able to take advantage of the voluminous data their interactive efforts produce will emerge as the new analytics competitors.  And while Web analytics is hard, it’s far from impossible, and a process-driven approach can transform measurement from a tedious obligation to a strategic competitive advantage.

SETTING MARKETING BUDGETS USING CUSTOMER VALUE

The purpose of marketing is to make more money. Everyone can agree on this. If the purpose is clear, why do so few people understand how to calculate marketing return on investment or understand how to set a proper marketing budget? This article will share with you an essential and efficient method for properly allocating marketing budgets based on customer value.

Know the lifetime value of your customers

To do ROI Marketing, each business must first know its lifetime value of a customer. This magic number explains how much one should be willing to spend to acquire a new customer.

The concept is simple. If the lifetime profit on a customer were $1,000, would it be worth spending $200 to acquire them? Of course! Conversely, if the lifetime profit on a customer were $1,000, would it be worth spending $1,500 to acquire them. Certainly not! You’d be taking money out of your pocket. The thing is, very few businesses actually know their magic number, the lifetime value of their customer—making it impossible to do return on investment marketing or allocate appropriate marketing budgets to achieve business goals.

To calculate the lifetime value of a customer and discount it back into today’s dollars, you need to use a simple Net Present Value formula (NPV). For many business owners, this is the moment they were warned about in high school: when algebra would save their life. “Before conducting this analysis,” said Tony Lu, President of Roundhouse, an IT company, “we were focused on the wrong customers segments."

The formula looks scary, but we’ve made it even simpler by a free downloadable spreadsheet available at http://www.thejamesgroup.com/customervalue. You can simply enter in designated boxes four variables and instantly understand the lifetime value of a customer. You or your client probably knows each of these variables. Being within 10% is good enough for directional purposes. The variables are: 1) Average annual revenue per customer, 2) Average gross profit margin before marketing expense (EBITDAM), 3) Cost of capital, and 4) Average number of years a customer is held.

Here’s the key: This magic number is the profit a company puts in its pocket for the lifetime of each customer. After all the business costs, this is what a customer is worth. The NPV equation is calculated before marketing expenses to show what you can afford to spend to acquire a customer and still be profitable. The NPV number is discounted back to today’s dollar using the cost of capital as the factor to reflect the time/value of money. This allows you to compare apples to apples when the marketing investment will occur. Your cost of capital is a measure of marketing risk and typically runs between 12-20%, depending on how volatile your business is. Every business has a magic number. Do you know yours?

Lifetime value is often poorly understood

Why is this so important? Most small and mid-sized businesses struggle because they don’t understand what a customer is worth and how to set their marketing budget accordingly. Small and mid-sized businesses are notorious for leaving money on the table because they don’t spend enough on marketing. In the last few months, I’ve advised several business-to-business and business-to-consumer companies who were shocked to realize how poorly they understood the link between their customer value and marketing budget.

Let me share a typical example. Say a company earns $100,000 in average annual revenue from a business-to-business client. They have an average gross margin before marketing expense of 40%. Their cost of capital is 12% and their average customer relationship lasts 4 years. The Net Present Value of a customer then is $121,494, expressed in today’s dollars - a very healthy lifetime value of a customer, indeed.

Now this business had only allocated $200,000 per year to their marketing budget and they were unsure if they should spend $10,000 to have a booth and materials at a key industry tradeshow. Let’s evaluate their question using what we know from their customer value. With a $120,000 customer value they could go to 12 tradeshows at $10,000 each ($120,000 cost) before they would have to win one customer - and still break-even. The trade show would be a very good bet for them. If they won one customer at that first tradeshow they would realize $110,000 in net profits over the lifetime of the customer.

The point: By understanding the value of a customer and the probability of winning customers at tradeshows, the client could easily see that for them, this tradeshow was a good investment. Without this understanding, they would have missed the show and limited the growth of the company. Thank goodness for the math of marketing.

 Creating a marketing budget

Companies often ask: “What should our marketing budget be?” This too is an easy process if you follow the four key steps of ROI marketing: 1. Understanding the lifetime value of your customer, 2. Estimating your target acquisition cost per customer, 3. Determining the marketing budget necessary to achieve your goals, and 4. Predicting which tactics will best realize these goals. All of this is math, and simple math at that.

There are several methods for determining target acquisition price, one of which is to look at your own historical data. For example, a marketing budget of $200,000 divided by 11 customers won equals an $18,000 historical acquisition cost (previous budget ÷ customers won = historic acquisition price). You can compare multiple years.  

Here’s a general example of how to create a marketing budget: If a company loses $3 million of revenue through customer attrition annually and wants to increase revenue $2 million for the year, they need to win $5 Million in total revenue. If the average customer revenue were $100,000, they would need to win 50 new customers to reach their business goal. If the target acquisition price were $18,000 then the marketing budget would be 50 new customers times $18,000, which equals $900,000. Marketing budget = (target revenue ÷ average customer revenue) x target acquisition price.

While this budget may seem like a lot, consider the company with a customer value of $120,000 X 50 customers. This would generate $5.1 million in profit over the life of a customer.

Setting marketing budgets based on customer value is just math. Business people that understand the math of ROI marketing are superior at strengthening and growing businesses. ROI Marketing is particularly powerful for small and mid-sized businesses that can’t afford to waste money. It is essential to not only manage your costs, but also not leave easy money on the table. Shouldn’t ROI Marketing be used to help your business make more money?

THE EXISTENTIAL PRODUCT

Think of an iPod.  What you likely picture is a white device with earbuds.  But that’s not the product.  It is arguably not even the most important part of the product. The iTunes application and service we use to buy music, make play lists, and manage our iPod is the essential ingredient to the experience.  Without it, the iPod would be little more than a cool looking hard drive with earphones.  Now consider the Blackberry.  Product or service?  Again, the functionality is made manifest in the device but in reality that device is really an enabler of wireless data and a variety of applications.  Perhaps even more abstract, consider what a strange animal the credit card is.  It can be a payments method, an unsecured personal loan, concierge service, or various forms of travel insurance all represented in a piece of plastic that signals cache but has little real utility by itself.

Products are becoming less tangible and are instead bundles of benefits delivered through combinations of services, technology, Internet functionality, and hard goods. The “offering” is more often than not a collection of tangible and intangible benefits ranging from utilitarian to emotional.  And because of that, the offering is impossible to sense or comprehend in any single moment -- in short -- the product has gone existential and is now more of an idea than a thing.

Ultimately this adds up to something very interesting – the last stage of product completion exists in the mind of the customer.  And for marketers and product developers alike, this presents a unique challenge and opportunity.

The opportunity

Let’s face it.  Most products are commodities.  Mobile phones, SUVs, and credit cards all do 99% of the same thing.  This means businesses are playing with a one percent or so difference that distinguishes their product from competitors.  And that small part is what makes a customer pick one product over another and is frequently what the customer perceives that product to be.  Traditionally, a big part of that one percent was branding and marketing.  Businesses sought to differentiate their offering by imbuing it with emotional attributes like prestige or hipness or safeness.

Today products are mental constructs composed of disparate experiences ranging from online applications, in-person interactions, physical form, and branding.  Again, for the iPod this includes form (visual simplicity of the iPod); functionality (the user interface); applications (iTunes); and, branding (messages, advertising).  In the case of Cadillac it is form, functionality, and branding but also the dealer experience and the Onstar system.  When successful this mental construct is seamless and accrues to a single product concept (we don’t think of the iPod and iTunes as different).

With this growing malleability of products, businesses have more options with which to distinguish their products.  Products can much more easily wrap their offering with additional benefits and functionality.  For example, Microsoft’s recent bundling of their online properties as Windows Live with Windows Vista or New York magazine’s highly localized Web site.  Services conversely can differentiate through products – consider what a boon it has been to AT&T wireless to carry the iPhone service.  Services can even distinguish themselves through the addition of other services – an example being Best Buy + Geek Squad.  Better yet, products also can be easily adapted to unique market segments by turning on and off different benefits or functionality.  Again, looking at credit cards, consider what’s really different between a green, gold, and platinum American Express card.  In short, the differences between products can in fact be small and yet produce great perceived differences.  

The challenge

If the last stage of product completion is in the minds of the customer then where does product development stop and marketing start?  Answer: They’re converging (or at least should be).  Traditionally, the product development to marketing process was quite linear, which made sense in a hard goods/manufacturing intensive context where cost of product development was high and businesses were focused on securing long-term IP or reputational advantages.  Today, with heightened market transparency coupled with the advantages of easily deployed Web-based and mobile technology, just-in-time and customized manufacturing capabilities, and customer service innovations, the ability to develop, adapt, and deploy products is easier, cheaper, and faster.
 
Clearly, if product completion is changing then product origination will need to adapt as well.  Smart companies are recognizing this, but it implies significant change in how both product development and marketing operate.  We predict marketers are going to push further upstream into product development.  Increasingly, the act of branding or positioning a product will include the actual selecting and packaging of its functionality or attributes.  Product developers in turn will increasingly operate more like James Bond’s “Q” working in his lab to create cool ingredient attributes and functionality that can then be packaged to meet new market opportunities or differentiate against existing offerings.  The age-old chicken and egg question - does the brand define the product or the product define the brand? - continues to get more confusing as the practices of developing and marketing of products blur.

For marketers and product developers this is a good thing.  Too many of us marketers have been handed a less than compelling product and then been expected to practice some sort of marketing black magic that makes people want to buy it.  And too many product developers have watched inordinate amounts of money being spent on marketing that could have been used to make enhancements to their products.  In the end, product development is typically very good at finding and developing innovations that appeal to the marketplace.  Marketing is typically very good at creating brands people can understand and relate to emotionally.  In the world of the existential product, both can do their best.

THE CHALLENGING WORLD OF THE CHIEF MARKETING OFFICER

The role of the CMO continues to be in the spotlight as organizations try to understand their contribution to the business. Why is it that this role has been chosen as the poster child for performance measurement? Is this a case of misunderstanding or bad hiring?

In a July 7, 2007 Advertising Age article entitled “CMOs Rapped for Having Zero Impact on Sales,” the authors reference an upcoming study to be published in the Journal of Marketing suggesting that CMOs don’t have any effect on a company’s financial performance. This is at the heart of the challenge we face as CMOs. On one hand it may be a factor of who carries the title, and on the other hand it may be the way performance is measured.

The CMO title

There are plenty of marketing executive that should not have the title “Chief Marketing Officer.” Many of these individuals have grown up in the creative ranks and believe their job is developing creative advertising campaigns and new visual identity systems. While these are part of the job, this is does not deserve the title of CMO. Defining the marketing leader using words such as “Chief” and “Officer” sets an expectation of being a business leader with a more strategic focus on understanding the market and working across the business to develop strategies to increase market share.

Measurement

Measuring impact on sales is only as good as the tracking systems used. In a business-to-business market, a lead is likely to be touched 10-15 times before the customer makes a decision. These touch points can come from a variety of marketing sources including the Web site, public relations, collateral, webinars, analyst reports, sales presentations, and product positioning. Tracking the original lead source of closed deals can provide tangible evidence of the role of marketing, but what about all the other activities that touch the buyer during the sales process? Few SFA systems track all touch points through the decision process and identify the broader role marketing plays.

Get out of the office

Too many marketing professionals run marketing from behind the desk. They meet with agencies, hold brainstorming sessions, plan events, and design campaigns, yet they rarely meet with customers.  The CMO is an executive of the business and should be meeting regularly with customers and prospects to truly understand the market, buyer needs, and their organization’s performance in fulfilling its brand promise.  You may not be the product expert, but you are a business leader and chances are your customer is a leader too. Find a way to add value, show the customer they are important and help the sales person close the deal. That’s a tangible impact on sales. 

Measuring brand equity

Brand equity offers many benefits such as price advantage, competitive preference, and stock price premiums.  In the Advertising Age article, they state that the upcoming study included Microsoft and Apple. How can anyone suggest that the value of these brands have no impact on sales?  According the annual Interbrand/BusinessWeek brand rankings, Microsoft has a brand value of $58B in an organization that generates $51B in revenue annually. Apple is listed with a brand value of $11B, increasing 21% in the last year. At the same time Apple has increased quarterly revenue by 23%, earnings by 73%, and share price by 93%. Zero impact on sales?

The balancing act

The CMO must balance short-term and long-term goals. In the short term you must feed sales, in the long term you must build brand. It's a tricky balance and requires the support of your CEO and management team to define priorities and select the right investments at the right time. Too often we get pulled off course by responding to everyone’s request for what they think marketing should be doing: go to this tradeshow, respond to this article, etc… Work with the management team, define the priorities, and stick to them unless something has significantly changed in your market and you need to respond accordingly.

What about customer experience?

Today’s media landscape introduces new challenges and puts brand perception control in the hands of your customer. Your brand is defined by your customer’s experience at every touch point, yet the marketing executive has little or no control over the performance of the organization in delivering on the brand promise. Internet word-of-mouth enables rapid exposure of bad customer experiences that can have a significant impact on sales and significantly decrease the effectiveness of your marketing efforts.  Maybe the next report should be on how the call center experience impacts brand equity!

Bottom line

The role of the CMO is diverse and requires a broad set of skills. You have to be part scientist and part artist. For those that grew up as artists and don’t have experience in another functional areas, they will be challenged in addressing the more strategic elements of the job. Those that thrive on developing strategies to capture market share and drive growth should continue the quest to measure impact and work with your partners at the executive table to align your agenda with theirs.

At the end of the Advertising Age article they also reference a soon-to-be released study by Booz Allen Hamilton entitled “CMO Thought Leaders: The rise of the strategic marketer.” Co-author Andrew Tipping states: "Yes, financials should be included, but intangibles have to be, too, and described in a way you can talk about at the end of the year."

The CMO needs to develop a balanced scorecard with their boss and gain agreement on priorities with their peers. Marketing is not an advertising campaign. It’s a multi-disciplined approach to defining, attracting, capturing and retaining your most valuable customers.

THE DOWNLOAD

Editor’s note: The Download this issue focuses exclusively on an important new research report from Maritz Research.

MANAGING YOUR BOSS: THE IMPACT OF MANAGER PERSONALITY AND STYLE ON EMPLOYEE PERFORMANCE

It's been said “people don't leave companies, they leave managers.”   Indeed, Maritz has conducted numerous studies demonstrating the importance of a positive relationship with one's manager as a key predictor of whether employees will remain with a company.   While no one would question the impact the quality of managers has on employee turnover, several questions emerge from this type of discussion.   Exactly what qualities define a 'good' manager?   Do certain personality types make better managers than others?   How does a task-oriented vs. a relational-oriented management style impact employee performance and customer experience?

To address these questions, Maritz conducted a national online poll of 1004 working Americans.   Qualified study respondents had to be 18 years or older, work at least an average of 30 hours per week, and not be self-employed. Respondents were asked to indicate their level of agreement or disagreement with a large battery of attitudinal statements pertaining to their workplaces.   These statements included both internally focused items (e.g., job satisfaction, intent to remain employed, intent to recommend the company as an employer), and externally focused items (e.g., employee evaluations of how customers perceived the company's products and customer service.)

In addition to answering the series of agree-disagree statements, respondents were asked to perform a Q-sort task in which they were presented with 24 adjectives that could be used to describe their direct supervisor's personality. Each person was instructed to identify three adjectives that most described his or her supervisor, and three adjectives that least described the supervisor.   After doing so, respondents were asked to prioritize the remaining adjectives, according to the degree to which they provided secondary descriptions of their managers.

Cluster analysis, which is a mathematical method for categorizing the descriptors into groups, was used to create six distinct supervisor personality profiles.   These profiles are described in the following paragraphs, along with some of the attitudinal characteristics of employees reporting to each type of manager. Respondents were also asked to identify a well-known fictional character that best corresponded to their manager's personality type.   This exercise was intended to add a bit of “color” to the segmentation profiling.   Finally, respondents were asked whether they would retain or fire their own boss if given the opportunity.

Six supervisor personality types

The Respected Professional (29%)

Nearly three-out-of-ten work for a supervisor best characterized as a Respected Professional. The Respected Professional is largely task driven, but also seen as honest and reliable. They act consistently and “know their stuff'.” At the same time, they are not perceived as ruthless or controlling. They are flexible when the situation requires and make decisions with the good of the business in mind.
Most employees will not become “buddies” with this type of manager. However, Respected Professionals earn the trust of their employees. They get the job done, without a lot of personal involvement with their direct reports. They maintain a professional distance, but aren't necessarily seen as uncaring. They just do what's needed to get the job done and save their personal relationships for outside of work.

Employee satisfaction and commitment are high among those reporting to this manager type.   In many regards, they are rated similarly, or just slightly lower, compared to the Caring Mentor (described in next section). Direct reports do, however, rate the Respected Professional lower than the Caring Mentor on supervisor caring attributes and making the company a fun place to work. Even so, the Respected Professional is rated better on these attributes than the four remaining manager types emerging from this analysis.

All in all, the Respected Professional is viewed positively as a manager.   When asked which character most described this boss type, 76% described him/her as “Superman or Wonder Woman” – open to your ideas, while 13% described this manager as “Charlie Brown” - everyone's pal.   Only 4% would fire this type of boss if they could.

The Caring Mentor (26%)

This manager is highly relational and greatly appreciated by direct reports. Honesty is one of their strongest attributes. They genuinely care about their people. They are cheerful, generous, friendly, and flexible. They are not perceived as particularly task driven, nor are they controlling, tough, or ruthless. They are knowledgeable and act consistently.   People are their most important priority at the workplace.

Employees serving under this manager are the most likely to stay with the company long-term, as well as the most likely to recommend their company to others. Only 2% said they would fire this boss if they could. Eighty-one percent (81%) describe this boss as “Superman” or “Wonder Woman.”

Win-At-Any-Cost (19%)

These supervisors are tough, controlling, and ruthless. Worse yet, they are not seen as honest, ethical, or intelligent by their direct reports. They are extremely Machiavellian in that the “ends justify the means.” This manager type does not worry about offending people. They may have achieved success through their methods since they are likely to be described as “upper class,” but not envied.

Direct reports do not indicate respect for these bosses, seeing them as “inconsistent” and “clueless.” Given the personality descriptors associated with these managers, it is unlikely they would respond negatively to this feedback as long as their direct reports work to achieve the managers' goals. Not surprisingly, these managers have the lowest employee engagement among all supervisor types. They are seen as being strictly out for themselves. They breed dissatisfaction and disloyalty. Seventy-one percent (71%) would fire this boss if they could, with another 20% not sure. The Win-At-Any-Cost boss is described as a cross between “Daffy Duck” (29%) and “Cruella DeVille” (26%).

The Taskmaster (10%)

The Taskmaster is tough, controlling, and task-driven. However, unlike the Win-At-Any-Cost manager, the Taskmaster rates higher on both ethics and competence. The Taskmaster is a “Type A” personality; not cheerful or peaceful, but more focused on achieving goals. Driving productivity is a top priority for this manager. They are generally rigid, but not particularly ruthless. People simply aren't as much of a priority as successfully completing a task.

The Taskmaster isn't seen as particularly effective by direct reports. They are preferred to the Win-At-Any-Cost manager, but don't engender much in the way of employee loyalty. Their direct reports see them as only modestly effective with respect to how they serve customers. In short, people don't hate them as much, but don't particularly respond to their leadership style either.

Direct reports describe this type of manager as a cross between “Superman” or “Wonder Woman” and “Cruella DeVille,” indicating they get the job done, but without much concern for the well being of their people. About one-in-five (18%) would fire these bosses if they could, with another 27% not sure whether they would retain them as a supervisor.

The Likeable Loser (9%)

The Likeable Loser's direct reports generally think their boss is a decent enough person, just not particularly competent. They are wholesome and charming, while at the same time seen as inconsistent and clueless. They are not seen as imaginative, intelligent, tough, successful, or task driven. They probably achieved their position because someone liked them or because they were someone's brother-in-law.

The Likeable Loser's direct reports simply don't respect him or her and would generally like to have someone else manage them. Employee engagement ratings for this manager type are similar to those who report to Taskmaster – somewhere in the mid-range.   Employees don't hate these managers; they just don't have a lot of use for them.   However, almost twice as many (32%) would fire this boss compared to Taskmasters, with another 28% not sure. Only 40% would retain this manager.

The Likeable Loser is most likely to be described as “The Invisible Man” (34%) or “Charlie Brown” (27%).

The Glad-Hander (7%)

The Glad Hander is a friendlier version of the Win-At-Any-Cost manager. They are very similar on most characteristics including being seen as dishonest, unreliable, clueless, and uncaring. However, they are viewed a bit more positively, characterized as friendly and flexible. They are at least recognized for having a more ingratiating approach than the slash-and-burn style of the Win-At-Any-Cost manager or the Taskmaster, but they aren't seen as any more effective nor are they respected very much by their direct reports.

Despite being seen as more personable than the Win-At-Any-Cost manager, the Glad Hander's direct reports rate him or her almost as badly on managerial effectiveness.   On a few qualities, the Glad Hander's ratings are better than the Win-At-Any-Cost manager, but still significantly lower than all other manager types.   Despite this, their friendlier personalities makes getting rid of them less of a priority, as only one-in-five (20%) would fire this boss outright, compared to the extremely high percentage wanting to get rid of a Win-At-Any-Cost manager.

The character description of this manager type was mixed. The largest proportion (26%) described this boss as “Charlie Brown” – someone who wants to be liked, with 19% describing this boss as “Daffy Duck” and another 19% describing him or her as “The Invisible Man.” It should be noted there were some who appreciated this manager, with another 19% referring to him or her as “Superman or Wonder Woman.” These are probably individuals who have found some way to align themselves with this manager and benefit from his or her managerial tactics.

The impact of supervisor personality style on employee engagement

Employee engagement is generally considered the result of several components, including how satisfied employees are with their jobs, their intent to remain long-term with the company, and their willingness to recommend their workplace to others.

With regard to employee engagement, those working for Caring Mentors and Respected Professionals show significantly higher levels of engagement than for any of the other four personality types. Taskmasters and Likeable Losers come out in the middle with the two most self-interested manager types (Glad Handers, Win-At-Any-Cost) engendering very little employee satisfaction or loyalty.

The impact of supervisor personality style on the customer experience

While it is clear that different personality styles impact employee attitudes toward their jobs, what about the impact of supervisor personality style on the customer experience?   Some might be concerned that, if a manager cares too much about their direct reports, perhaps customers are neglected. The data clearly show this is not the case.

The most caring managers (Caring Mentors) produce the most caring employees. While some might fear being too caring about employees can be a negative for a boss, it is clear this manager type facilitates the most energized employees. Furthermore, employees serving under this manager have the strongest customer affinity. Most interesting is employees reporting to this manager rate their companies the best on having a strong customer focus. It is likely companies that hire caring, supportive managers also provide the same type of customer care. This manager type engenders positive feelings toward co-workers and senior leaders as well.

While employees who work for Respected Professionals evaluate the quality of the service they provide to customers as better than those who work for the other four manager types, they do not enjoy their interactions with customers any more than the others. The moral of this story is if you care about your people, they will care about your customers.   While it can be argued this is all perceptual data from the standpoint of employees, Maritz has conducted studies demonstrating an extremely strong relationship between employee perceptions of product and service quality and actual customer satisfaction as measured by customer feedback surveys.

Conclusions

Assuming the information provided by this study can be projected to the entire U.S. workforce, the data provide some very striking conclusions. For starters, only slightly more than half (55%) work for someone who could be considered an effective manager (Caring Mentors, Respected Professionals). One-in-four (26%) work for managers who completely lack any ability to motivate employee performance (Win-At-Any-Cost, Glad Handers). It is no wonder Maritz studies measuring employee attitudes have consistently shown low levels of workforce engagement.

A second important implication is that a manager's relationship with his or her employees is essential to creating a positive customer experience. While both Caring Mentors and Respected Professionals are associated with more positive employee perceptions of customer service, only those who work for the most caring managers demonstrate a significantly greater affinity for customers. Employees who believe their managers have their best interest in mind are unquestionably those who are most likely to go out of their way to provide high levels of customer service.

The data also call into question the effectiveness of managers who are either focused too much on tasks and not at all on employees or managers who have good relationships with their employees, but possess no ability to adequately manage tasks. However, no manager is viewed more unfavorably than the manager using his or her employees to advance a personal agenda without regard for anyone but themselves. Unfortunately, the data suggest this manager type exists to a far greater extent than most would like to believe.

The same Maritz study that produced these results also examined attitudes of workers broken out by age demographics. Young workers who are under 30 years old, who also are considered Generation Y, were the least likely to remain loyal to an employer.   The reason is most young workers realize companies no longer offer lifetime employment.   Young workers are those most likely to ask the question “what's in it for me?'” If companies have managers perceived as self-interested or uncaring, they will have a particularly difficult time attracting and retaining young talent.

The results reflect a changing cultural landscape of the American workforce. In a previous era, a self-focused, command and control management style could be accepted within certain corporate cultures. Given the increasing “war for talent,” particularly young talent just coming into the workforce, companies will need to hire and promote a different type of manager than in the past. Instead of managing by intimidation, managers have a greater need to inspire the loyalty of their workers through a caring, mentoring management style, or at the very least, a style that inspires respect and admiration. This is not only important for recruiting and retention purposes, but also for creating customer loyalty since the most caring, committed employees produce the most positive customer experiences. In this regard, management quality can be directly linked to the growth and retention of profitable customers, and ultimately to the success or failure of an organization.

UPCOMING EVENTS

2007 CMO Council European Summit:
Impacting Value
How Marketing Drives Business Innovation & Growth
Dates: November 27-28, 2007
Location: Hotel Adlon Kempinski
Berlin, Germany
Website: http://cmosummit.org/2007/europe/index.html

Global organizations, regional operations and micro-businesses are being challenged like never before to evidence the business value of their strategies, programs, resources and spend. Today’s marketers must face globalization, new media channels, market fragmentation, increased customer control and demands, product and service commoditization and the constant push for innovative competitive edge and increased profit, senior marketers have quite the burden to bear. more »

2007 CMO Council Summit:
The Elite Retreat
Less Burn: More Return
Dates: December 12-13, 2007
Location: The Lodge at Sonoma
Sonoma, CA
Website: http://www.cmosummit.org/2007/north_america/index.html

The 2007 CMO Council North America Summit, dubbed The Elite Retreat, will take on the theme “Less Burn: More Return” to contemplate, formulate and advocate best practices to eliminate the agony of allocation. By invitation only, attendees will enjoy an intimate networking opportunity mixed with knowledge sharing and participation in establishing the best practices around some of the most hotly contested, questioned and vital challenges that face senior marketers. more »

TechTarget Online ROI Summit
Dates: September 20 - 21, 2007
Location: San Francisco, CA
Event Category: Other

Learn about the latest online marketing strategies and campaign tactics from experts and peers in the IT industry. Several general sessions will incorporate expert advice on subjects you care about; latest performance data on the “new media” types that really work, including podcasts, video applications, social community sponsorships like blogs or wikis and contextual marketing. Hear Best Practices on closed-loop lead management as well as insights from leaders Google and Yahoo! on latest SEM tactics. more »

ClickZ Specifics: E-mail Marketing 
Date: October 2, 2007
Location: Hilton New York. New York, NY.
Website: http://www.clickzevents.com/email/fall07/

BtoB's NetMarketing Breakfast  
Date: November 15, 2007
Location: San Francisco, CA
To register, click here.

Learn how to optimize your interactive marketing strategies! Our panel of experts will reveal the best strategies for effective e-mail marketing, search, webcasting, online advertising and more.

Voices in Business
Join Donovan Neale-May, Executive Director of the CMO Council, as he speaks with B2B Marketing for their featured Podcast brought to you by Voices in Business.  To listen »

Technology Buying and Media Consumption Trends Webcast Now Available On Demand
Join Marilou Barsam and Donovan Neale-May as they discuss research findings from a series of quarterly technology marketing surveys to TechTarget’s IT Research Panel for the first and second quarters of 2007. The goal of these surveys is to establish a benchmark and trend analysis of buying priorities for technology solutions and media consumption trends. Also, Marilou and Donovan talk about how IT pros can align their business needs with their IT investments, favored content types and new media adoption.  View this on-demand webcast »

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