The good news for CFOs and CMOs is that marketing has become significantly more measurable as more customer activity occurs on digital channels. The bad news is that there is still a chasm between the way marketers want to spend their budget and the way that CFOs believe budgets should be spent.
While a CMO wants to allocate budget to branding and other upper funnel tactics, CFOs focus on the bottom of the funnel where it’s easy to see purchase activity. CMOs know that branding and other activity is important but may struggle to prove to CFOs how early stage marketing actually drives more lower funnel activity compared to spending more downstream.
It’s no wonder that only 22 percent of CMOs say that their relationship with CFOs is truly collaborative. One thing that can help: if CMOs show CFOs how they can deliver a return on their budget using different metrics. This not only empowers CMOs, but it allows them to create an approach to measurement and reporting that illustrates the incremental value of different marketing tactics up and down the funnel, aligning the two teams around company growth and profitability.
Stop Focusing On The Last Action
Many CFOs believe that measurement approaches like last-touch attribution are focused on “return on ad spend,” or ROAS. CFOs often connect the dots between purchases and the most recent activity before the purchase. For example, affiliate pages are often the last touchpoint before a sale. A CFO who wants their marketing team to spend more on affiliate marketing is making a couple of critical mistakes.
First, the idea that the last action “caused” a sale is faulty. In many cases, the person would make the purchase either way. Second, lower funnel activity like visiting affiliate sites only captures a fraction of the total addressable market. By spending more on affiliate sites, marketers are over-indexing on known shoppers and are not bringing net-new people to the site. ROAS for affiliate marketing certainly looks great, but that’s because it’s getting more credit than it deserves.
Avoid Multi-Touch Attribution, Too
It seems to make logical sense that if the last action doesn’t deliver the full picture, a holistic view of all customer touchpoint could help allocate “credit” for the sale more accurately. Multi-touch attribution has gained popularity for this very reason, but it doesn’t do the job effectively. Multi-touch attribution only measures what a marketer is doing, not what they should do.
For example, if a marketer starts sending out a lot more emails, then email will appear to become a more significant influence on the sale. This may or may not actually be the case—the multi-touch model is simply picking up on the fact that purchasers were “touched” by email more frequently.
Measure for Incrementality
Attribution—in any sense—is inherently flawed if marketers don’t know how much a channel or touchpoint contributes incrementally to a sale. Take affiliate: If a marketer is able to run a test to suppress affiliate by a fixed percentage for enough time, they will be able to see the downstream effect on sales. If there’s a 3 percent decrease in sales at the end of the test, then the marketer knows that affiliate’s incremental contribution to sales is 3 percent for a given budget.
If marketers are able to do the same suppression test for each channel at the right fixed percentage, then they can construct an accurate pie chart of how much each channel contributes incrementally to overall sales. Periodic incrementality testing, channel by channel, can help you calibrate the incrementality of each channel. Ideal operation, however, is persistent lift experimentation to understand the incrementality of seasonality as well.
Note that even after a comprehensive test, the total won’t add up to 100 percent. What’s leftover is a brand’s equity: that occur even if there is no advertising at all. That number is a valuable thing to keep track of because it shows how much the marketing team’s work is building up durable purchase behavior that lasts much longer than a single purchase cycle. (Hint: it shows the additional value of brand advertising!)
Realign Based on Customers, Not Channels
It’s easy to read this and think that I’m focused on channel allocation, but that’s not the case. Once a CMO has calibrated the incremental contribution of each channel, the next thing to do is to understand more about audiences. Most retailers have at least two—customers who will buy regardless of marketing activity, and everyone else. The “everybody else” group represents the opportunity for growth. It might include people who aren’t familiar with a brand, people who bought one time based on a promotion or lapsed customers.
This group is what actually drives that incrementality because they weren’t likely to buy until they were exposed to marketing.
What CFOs really want to do is ask CMOs how they will spend across channels to drive more incremental purchases for this “everybody else” group. At the same time, CFOs can ask CMOs how they can decrease wasted money on durable customers. Ideally, CMOs will allocate spend to maximize incremental sales and minimize wasted spend on those most-likely to buy without messaging while building up durability.
ROI is Better Than ROAS
What becomes clear at the end of this exercise is that ROAS is simply a proxy for what’s easiest to measure, but it doesn’t show how much money a CFO can expect to get back from marketing.
Giving CMOs an ROI goal frees the CMO to spend the way they need to in order to maximize incremental purchases and build out brand equity to create a more durable sales pipeline. The company will become more aware of their durable customer base and understand their potential growth opportunity through incrementality. Not only does the CMO and CFO become more aligned, the CFO sees the CMO as a money-maker rather than a money-taker.
David Lokes is VP of Digital Strategy at Bluecore