Chicago AMA | For Marketing Professionals

Companies ask marketers:
What are we getting for what we're spending?

It's a question more and more marketers are called to answer. In fact, the entire field of marketing is under attack from a barrage of challenges including downsizing of function and staff, empowerment and decentralization, increase in the power of trade, challenges to the importance of the brand and reallocation of finite resources. Increasingly, corporations are de-emphasizing marketing and putting their money behind sales, and CFOs are making decisions affecting brand building.

WHY THE ATTACK? According to Don E. Schultz, Professor of Integrated Marketing Communications at Northwestern University's Medill School of Journalism and President of Agora, Inc., it's largely because "advertising and marketing took the wrong fork in the road in 1961."

Historical marketing systems were built on the concept of major marketers dominating the marketplace, a choice which "made a great deal of sense given the technology of the time." This marketplace -- based on the theory that most consumers bought and thought the same -- was characterized by mass communication, polling and surveys, mass marketing and demand-driven consumers. Communication with consumers was advertising-based and flowed oneway -- "assuming the marketer was in total control and that the guy with the most money wins."

In this environment, says Schultz, "Marketers talked marketing talk and 'open- ended attitudinal' rather than 'closed-loop behavioral' processes." Put another way, they chose to focus on feelings, images and psychological movement rather than purchase behavior. This choice provided marketers with"escapes and excuses from fiscal responsibility. And it also turned marketers into tacticians.

"We effectively removed advertising as a business investment/strategy and turned it into a marketing tactic/activity, causing marketing to fly directly into the face of the strategic needs of the organization. And we've been trying to recover from that decision ever since."

Marketplace shifts have seen emphasis move from the marketer to a channel- based marketplace characterized by "strong, dictator retail organizations." and toward a 21st century marketplace dominated by the consumer.

How can marketers work effectively within tomorrow's marketplace? According to Schultz, marketers will need new skills and processes which support closed-loop processes, measurable effects, strategy rather than tactics and investments instead of expenses.

Specifically, he says, marketers must be able to separate business building activities -- tessentially short-term, measurable responses which can be acomplished within the fiscal year of the organization -- from brand building activities which are longer term and provide ongoing returns to the organization.

Marketers will be asked to talk not markets. but customers. We must be able to talk financial talk and know how to separate marketing and communications spending into business-building and brand-building investments.

This "below the line" focus, he explains, can result in investments which build assets and brand value. "The key is how they are developed, calculated and evaluated."

Business-building investments should demonstrate short-term results and return on investment.:Brand-building investments incorporate fixed costs, capitalization, amortization and replenishment -- spending to maintain/build the brand which is constantly declining in value as customers die or move, technology changes, competitors intercede, etc.

"We need to be able to identify customers and how much they've spent with us. Then we can ask how much we want to spend to hang on to them or to get another like them."

Business-building investments require the following elements:

behavioral data
closed-loop systems
identification and valuation of customers
changes in income flows
continuous improvement

A five-step integrated process, Schultz continues, looks at the value of the customer and incorporates a behavioral database, integrated marketing process, integrated message and delivery process, return on customer investment, and budgeting and allocation.

Brand-building investments, he says, must be treated the same way, using closed- loop systems and measurable investments against estimated returns on brands as intellectual properties which are continuously declining in value in a dynamic marketplace.

"Current accounting systems are not realistic in today's marketplace," he continues. Though it will "probably mean changing financial systems to do it," organizations will need to be able to show lifetime customer value as a manageable asset..

"The brand has multiple values: in addition to value to consumers and end/users and value to the organization, the brand has value to channels, employees, stockholders and peer groups.

Schultz concludes, "When we begin to understand the total value of the brand, we can start to measure that value in the marketplace." And this will be a necessity because, "When it comes to cost pressure on marketing, we ain't seen nothing yet."

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