Marketing still not on the balance sheet

With businesses searching for ongoing reduction of costs and marketing being traditionally unable to assess the efficiency and effectiveness of its activities, some marketing functions have seen budgets shrink and influence evaporate. Chief Financial Officers have called for marketers to "quantify what they do" and bring "cold, hard figures" to the board table.

Although disagreement about specific methods of measurement still exists and stronger links between marketing actions and shareholder value are required, research over the past ten years has provided significant direction to refining a set of marketing metrics to measure the short-term and long-term returns of marketing activities.

Research into strongly differentiated brands has shown that brands can impact cash flow in a number of ways and thereby contribute directly to increased shareholder value.

Brands have been shown to increase the level of cash flow a business can generate by commanding greater market share; commanding premium prices; reducing sensitivity to changes in price; providing easier access to new country markets and business areas; and by increasing productivity by providing a clearer sense of purpose.

Brands have also been shown to accelerate cash flows by enabling the business to launch new products and services faster; being more responsive to advertising and promotions, and by stimulating innovation within a business. Brands can also extend the duration of cash flow by maintaining higher levels of customer loyalty for longer.

Key to any financial discussion, brands have been shown to reduce the risks attached to future cash flows by lowering the inherent risk in a business; lowering the cost of capital; helping companies deal with disruptions to their markets; and by creating barriers to entry for competitors.

The value of strongly differentiated brands is now accepted. Measuring the ongoing performance of marketing activities that build these brands is thus growing in importance. Such metrics should be necessary, precise, consistent and sufficient. Some should be general to allow comparison and enable competitive positioning, while others should be tailored to the specific business context. The idea is not to copy anyone, but to learn from everyone.

Although the furore created by Vodacom's reaction to the Interbrand Sampson rankings focused management's attention for a period, it dealt merely with brand valuation - only one element of measuring the productivity of marketing.

South African companies which appreciate the impacts that marketing activities have on customer preferences, market share, profitability and shareholder value need to determine the most suitable metrics for their organisation and track these to hold marketing accountable.

With this critical need in mind, the Gordon Institute of Business Science (GIBS) is hosting a one-day conference for marketing practitioners on Tuesday 4 October to explore the metrics used by leading South African companies and to provide an opportunity for companies to craft metrics to measure the short-term and long-term returns of their marketing activities. Further details are available at www.gibs.co.za/conferences/marketingmetrics