How CMOs Can Build Strong Relationships With CFOs . . . And Why They Should

  Image Source:  The B2B Institute/IPA

For several years, marketing leaders have faced growing pressures from CEOs and other senior business leaders to prove the value of their activities and programs. To satisfy these growing demands, marketing leaders must address two distinct but related issues. First they need to develop measurement systems that will accurately capture the value marketing produces. And second, they need to effectively communicate the value of marketing to the CEO and other senior leaders.

Neither of these issues is easy to address. In the 2020 Marketing Measurement & Attribution Survey Report by Demand Gen Report, 54% of the surveyed marketers said their ability to measure and analyze marketing performance and impact needs improvement or is poor/inadequate. The comparable percentage was 58% in the 2019 edition of the survey, and 54% in the 2018 survey. 

Communicating the value of marketing is also challenging, but a new paper published by The B2B Institute provides several valuable insights on this important issue. The B2B Institute is a think tank funded by LinkedIn that focuses on the future of B2B marketing and decision making.

Marketing to the CFO:  The way back to VALUE for Marketers was published by The B2B Institute in association with The Institute of Practitioners in Advertising (IPA) in the UK. The report is based in part on 30 in-depth interviews with senior leaders of large B2B companies in the U.S., Europe, and Asia.

As the title suggests, one major point of this paper is that CMOs need to make a concerted effort to develop a strong relationship with their company's CFO. It argues that a solid CMO-CFO relationship is important for two reasons:

• First, CFOs have significant influence in many areas of the business that can impact marketing performance. CFOs have always played an important role in setting marketing budgets, but they're now involved in decisions regarding business strategy, technology spending, new product development, and pricing, as well as other business functions.
• And second, in many companies, most of the senior leaders don't have a thorough understanding or appreciation of how marketing creates value for the business. This lack of understanding can result in an under-investment in marketing and/or a misallocation of marketing budgets. Therefore, it's critical for CMOs to design and conduct an ongoing, evidence-based program to educate other senior leaders about how marketing "works" and how it creates value.

The VALUE Framework

The centerpiece of The B2B Institute/IPA report is the "VALUE" framework, which is depicted at the top of this post. The VALUE framework is designed to provide B2B CMOs and their teams a "practical roadmap" for building an effective relationship with the CFO and other financial colleagues.

The VALUE framework contains five components.

Value - The CMO and other marketers must have a clear understanding of now value is created within their company (structural sources of revenue, cost drivers, etc.) and how value is created for customers. This understanding helps the CMO and other marketing leaders to identify now marketing programs impact those levers of revenue growth and profit.

Accountability - CMOs should proactively and expressly accept accountability for those aspects of revenue growth and profitability that marketing can influence. A willingness to accept accountability will enhance the credibility of the CMO in the eyes of the CFO and other senior leaders.

Language - The CMO should avoid the use of marketing jargon when communicating with the CFO and other senior leaders. Instead, he or she should always seek to place marketing activities and programs in the context of desired business and financial outcomes.

Understanding - Because the value of marketing is often not well understood by non-marketers, it's important for the CMO to consistently communicate the value of marketing across and throughout the enterprise.

Evidence - CMOs should welcome the measurement of their activities and programs, and they need to work with the CFO to develop a measurement system that will accurately reflect the value that marketing creates for the business.

Marketing to the CFO provides worthwhile advice for enhancing the credibility of marketing among senior business leaders. B2B marketing leaders should take the time to review the full report.

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Is Your Company's CMO Really Just a CMCO?

 

In late February of this year, an article at the Harvard Business Review website made the provocative claim that the importance of chief marketing officers in larger companies had declined over the past two decades. Normally, this article would have generated a lively conversation in the marketing community. But within a couple of weeks after the article was published, marketers across the United States were completely focused on the COVID-19 pandemic.

The article's conclusion was based on an analysis of the compensation paid to the senior leaders of large companies between 1999 and 2017. The research identified the five highest paid executives of companies included in the S&P 500, S&P 400 MidCap, and S&P SmallCap 600 indexes. The authors used four job classifications in their analysis - marketing, technology, operations, and finance.

This analysis found that the number of CMOs who were among the five highest paid executives declined about 35% between 1999 and 2017. The authors contended that the results of their research supported their assessment in an earlier HBR article that "marketing as a function is less valued today than it once was." 

The conclusion contained in the HBR article stands in stark contrast with the prevailing view in the marketing community that the scope of marketing's responsibilities has expanded in recent years. But the article does raise an issue that should be concerning to CMOs and other senior marketing leaders.

Over the past several years, an increasing number of companies have appointed "chief revenue officers" or "chief growth officers." Some of these companies never had a CMO, while others created the new position to replace the CMO role. These organizational changes suggest that a growing number of CEOs and other senior business leaders don't believe their marketing function - and by extension the CMO - is maximizing growth opportunities.

I would argue that this perception is largely the result of how the marketing function has evolved over the past several decades. For the past 50 or 60 years, most marketers have been focused almost entirely on marketing communications and the technologies that support them. So as practiced in many companies, marketing came to mean marketing communications and not much more.

Marketing communications are certainly important, but leading marketing academics have long recognized that the marketing function has (or should have) other critical responsibilities. In the late 1940's, Neil H. Borden created a model of the "marketing mix" that included 12 distinct ingredients - product planning, pricing, branding, distribution channels, personal selling, advertising, promotion, packaging, display, servicing, physical handling, and fact finding and analysis. In his 1960 marketing textbook, E. Jerome McCarthy grouped these ingredients into the four categories that we know today as the 4P's of marketing - product, price, place, and promotion.

So marketing has long had a mandate that is broader than marketing communications. Unfortunately, many of these broader responsibilities have, over time, been transferred to other business functions, often with the acquiescence of marketing leaders. As a result, it's hard to argue that the influence of marketing has not been diminished. Recent research supports this view.

The CMO Survey

The February 2020 edition of The CMO Survey provides detailed information regarding the current scope of marketing's responsibilities. This survey generated a total of 265 responses from senior marketing leaders at U.S. companies, 65.6% of whom were affiliated with B2B companies. The detailed survey report makes it possible to isolate the responses from B2B marketers, and the following discussion is based on those responses. 

The survey asked participants to identify the activities that marketing is primarily responsible for in their company. The table below shows the activities that more than 50% of respondents (from either B2B product companies or B2B services companies) said marketing is primarily responsible for in their organization.

What activities didn't make the 50% cut? Those are shown in the following table.

These survey findings suggest that marketing's scope of responsibilities has not expanded much beyond marketing communications activities in most B2B companies. Seven of the 12 activities in the first table (shown in red) are centered primarily around communications. Also note that 3 of the 4P's - product, price, and place (distribution) - are completely absent from the first table.

If the importance of CMOs is declining, perhaps it's because most CMOs are actually CMCOs - chief marketing communications officers.

Illustration courtesy of OTA Photos (tradingacademy.com) via Flickr CC.

Charting the Course to Your COVID-19 Recovery

Two weeks ago, McKinsey & Company published an article discussing the steps that B2B company leaders should take to create an effective COVID-19 recovery plan. A post-COVID-19 commercial-recovery strategy for B2B companies identifies five components of a pandemic recovery strategy:

1. Identifying pockets of potential revenue growth
2. Adopting new go-to-market approaches to meet changed customer needs and expectations
3. Doubling down on e-commerce
4. Adapting pricing and/or offer configuration to suit customer needs
5. Introducing new and/or reengineered products or services

While all of these components are necessary (to some degree at least), I would argue that no component is more important for most companies than the first - identifying the most fertile sources of potential revenue growth.

As the authors of the McKinsey article point out, COVID-19 has "upended" demand patterns across all sectors of the economy. In some cases, the pandemic has substantially increased customer demand. Think mechanical ventilators, household cleaning products, and digital collaboration applications (e.g. Zoom). However, most B2B companies have seen demand for their products or services fall, at least temporarily.

Some recent economic indicators suggest that the bottom of the COVID-19 recession may have occurred in April. But the pandemic is far from over, as the recent surge of COVID-19 cases in several states demonstrates. And many public health authorities are still warning that we may face a "second wave" of COVID-19 in the coming fall and winter.

Because of the continuing impact of COVID-19, the economic recovery is likely to be uneven. Different industries and customer segments will recover at different speeds. Therefore, it's critical for business and marketing leaders to identify what revenue growth opportunities are (or can be) available to them and then determine which of those opportunities are most attractive under a range of economic scenarios.

While COVID-19 has dramatically affected demand patterns, it has not altered the structural sources of revenue growth that are always present, at least to some degree. The existence of these structural sources of growth isn't dependent on the economic or market conditions a company is facing at a particular moment in time. However, the volume of revenue that a company can realize from each source is greatly dependent on the economic and market environment. And for the next several months at least, economic and market conditions will be largely dictated by the trajectory of COVID-19, progress on the development of effective vaccines and/or therapeutics,  and the policy responses to the pandemic.

What COVID-19 Does - and Doesn't - Change

The diagram at the top of this post depicts the framework I use when working with clients to identify and evaluate revenue growth opportunities. The impacts of COVID-19 do not require the framework itself to be modified, but the pandemic does require a change in how the framework is used. In essence, COVID-19 requires company leaders to analyze sources of revenue at a more granular level. Here's a simple example of what I mean.

In the framework diagram, one of the two major sources of revenue is "Revenue from Existing Customers." In more "normal" economic times, we would map recent historical revenues to this source and use those historical revenues as the base for our projected future revenues. But in the COVID-19 economy, those historical revenues may not be helpful because, as noted earlier, different industries and customer segments will recover from the pandemic at different speeds.

In today's environment, business and marketing leaders need to segment their base of existing customers by industry, product usage, and perhaps by geographic market area, and then analyze which customer segments are likely to recover from COVID-19 first, and whether the demand from each segment will exceed or fall below pre-pandemic levels.

This type of analysis should be performed for every structural component of revenue, and the objective is to identify which customer segments, products, and geographic markets are likely to provide the greatest opportunities for growth over the next 6 to 12 months. The insights from this analysis will enable B2B marketers to target their marketing programs and investments where they are most likely to be productive.

Research Highlights How COVID-19 Has Changed B2B Buyer Behaviors

Wunderman Thompson Commerce (part of Wunderman Thompson, a WPP agency) recently published a research report dealing with the attitudes and behaviors of B2B buyers who make at least some of their business purchases via online channels.

The B2B Future Shopper Report 2020 was based on a survey of 200 B2B professionals in the United States. Survey respondents represented a range of job functions and seniority levels, including purchase managers, procurement managers, and C-level executives. The survey included respondents from fourteen industry verticals.

The Wunderman survey was in the field between April 17th and April 27th, at the height of the COVID-19 economic lockdowns. Therefore, this research provides important insights about how B2B buying behaviors had changed/were changing as a result of the pandemic.

Not surprisingly, Wunderman found that online B2B buying had increased substantially. On average, it was up 22% over 2019. The survey respondents reported that they are now making 48% of their B2B purchases online, up from 38% of purchases before the COVID-19 outbreak began. The survey found that companies of all sizes had increased their online buying during the pandemic.

The most popular online channel for B2B purchases both before and during the COVID-19 pandemic is suppliers' online portals. Sixty-seven percent of the survey respondents said they are now using this channel, up from 58% before the pandemic. 

One of the most significant impacts of COVID-19 has been the drop in purchasing directly from sales reps. Only 20% of the survey respondents said they were still buying directly from sales reps. Fifty-six percent of the respondents reported buying from sales reps before the pandemic.

Interestingly, this research found that the use of online marketplaces such as Amazon/Amazon Business had dropped from 44% to 42% during the pandemic. However, almost three in four of the survey respondents (73%) said that online marketplaces are more convenient than buying through individual supplier e-commerce sites.

The Wunderman survey also addressed whether and to what extent COVID-19 had caused B2B buyers to switch suppliers. Forty-three percent of the survey respondents said they had switched to a new supplier for some business purchases, and 20% said they had switched suppliers for all purchases.

When B2B buyers have switched suppliers, most of the decisions appear to have been driven by pragmatic considerations. The following table shows the top five reasons for switching suppliers selected by survey respondents:

Wunderman also asked survey participants what factors were most important to them when buying products online. The factors most frequently identified by respondents were also very pragmatic.

• Faster delivery (chosen by 45% of respondents)
• Price (44%)
• Product availability (41%)

The next most frequently identified factor - ability to find and select products easily - was selected by only 29% of respondents.

The theme of product availability also shows up in the pain points identified by the buyers surveyed by Wunderman. The following table shows the top five sources of dissatisfaction identified by survey respondents:

The Wunderman research provides a window into how COVID-19 has changed online B2B buying. It's important to note, however, that the big issue now facing B2B marketers is whether or to what extent the behavioral changes resulting from the pandemic will persist after the pandemic ends.

I'm more cautious that some marketing pundits who are already proclaiming that the pandemic has created a "new normal" in B2B marketing. I do believe that many of the B2B buying behaviors described in the Wunderman report will persist until an effective vaccine for the coronavirus is widely available. If I'm right, this means that current patterns of behavior will likely continue for the next 6 to 12 months. 

Will these pandemic-induced behaviors persist in a true post-COVID-19 world? Time will tell.

Top Image Source:  Wunderman Thompson Commerce

How to Build Compelling Value Propositions for the COVID-19 Recovery

It's no secret that the U.S. economy experienced a traumatic shock as the result of mandatory business closings and stay at home orders that were implemented to stem the spread of COVID-19. In April, retail sales fell 14.7% compared to March, and the unemployment rate also reached 14.7%, the highest rate since the Great Depression of the 1930's.

Recent economic data suggests that the bottom of the COVID-19 recession may have occurred in April. For example, June retail sales were $524.3 billion, up by 7.5% over May, and up by 21.3% over April. And the June unemployment was 11.1%, still at recession levels, but down significantly from the April high.

It's also clear that the pandemic is far from over. During the past few weeks, the number of COVID-19 cases has increased dramatically in a number of states, and in response, several state and local governments have reinstated some mandatory business closings and imposed other restrictions. These actions raise questions about the pace of the economic recovery over the next few months.

The most likely scenario is that the U.S. economy will be "convalescing" through the rest of 2020. It won't make a quick recovery to pre-pandemic health, but it will show continued, if uneven, improvement. Under these circumstances, business conditions in the second half of this year are likely to remain challenging. Revenues will be unpredictable for many companies, and the uncertainty will make business leaders more risk averse than usual.

To win business in this environment, many companies will need to "retool" their customer value proposition(s). The economic repercussions of the pandemic have altered the needs and priorities of many of your existing and potential customers. Therefore, value propositions that were compelling before the pandemic may be less appealing today and for the next several months.

The Basics Haven't Changed

While COVID-19 may require value propositions to be reengineered, it has not changed the attributes that make a value proposition compelling or the process that should be used to develop value propositions that will resonate with prospective buyers. So let's review a few of the fundamental principles of customer value propositions.

The diagram at the beginning of this post depicts the basic value proposition framework. It shows that all value propositions involve the interplay of three factors - the needs and priorities of prospective buyers, the strengths of your competitors' offerings, and the strengths of your company's offerings.

The diagram also shows where winning, toss-up, and losing value propositions are typically found in the framework, and the following table compares the attributes of strong, so-so, and weak value propositions.

Winners - Your strongest value propositions will exist when the strengths of your offering match the high-priority needs of your prospective buyers, and when your offering is clearly superior to the offerings of your competitors (relative to those high-priority needs).

Losers - Your value propositions will be weak if they focus on attributes of your offering that are inferior to the attributes of your competitors' offerings, or if they aren't aligned with the high-priority needs of your prospective buyers. 

Toss-Ups - In a three circle Venn diagram, the "sweet spot" is usually where all three circles overlap. But that isn't the case here. If your value propositions focus on features of your offering that are just equivalent to what your competitors are offering, you won't have a competitive advantage. You will win some deals and lose some deals, and whether you win or lose will likely depend on price.

To develop value propositions that will be compelling during the COVID-19 economic recovery, the most important step is to identify how the pandemic is affecting the business operations of your customers and prospects right now, and how it is likely to impact them over the next few months. 

The next step is to identify the attributes of your offering that meet those immediate needs. And lastly, focus on the attributes of your offering that make them superior to your competitors' offerings at meeting those immediate buyer needs.

COVID-19's Surprising Impact on Marketing Spending

Decades of research studies have shown that investing in advertising and marketing during a recession will enable companies to increase market share and recover more quickly when the recession ends. Nevertheless, the general view is that marketing is one of the first business functions to face budget cuts when times get tough.

It's now clear that the US economy is in recession because of the impacts of the COVID-19 pandemic. As COVID-19 spread across the country, it quickly became apparent that the pandemic would have a significant impact on marketing. But early in the outbreak - think March and April - there was little evidence on exactly how significant the impact would be or how long it would last.

Within the past several days, however, research has been published that provides several important insights about how COVID-19 has affected marketing. And the findings about marketing spending are particularly interesting - and a little surprising.

The CMO Survey (COVID Edition)

The findings of a special edition of The CMO Survey were published last month. The CMO Survey is directed by Dr. Christine Moorman, a professor at Duke University's Fuqua School of Business. It is conducted twice each year, and the results are usually published in February and August. Because of the COVID-19 pandemic, a special survey was conducted in May to capture the views of senior marketers at for-profit US companies regarding the impact of the pandemic on marketing. The survey produced a total of 274 responses.

The special survey addressed a wide range of issues. In previous posts, I discussed the survey's findings about how COVID-19 has changed customer behaviors and how the pandemic is impacting company sales and profits. This post will discuss what the survey results reveal about the impact of COVID-19 on marketing spending.

The survey asked participants what percent of their marketing budget had been lost or gained due to COVID-19 in the two months preceding the survey. The average change in budget reported by survey respondents was +5.2%. In other words, this survey panel, on average, saw their marketing budget increase in March and April. About 29% of the respondents said their budget decreased during that two-month period, while 30.3% reported no change, and 41.0% said their budget increased.

It's important to note that there was a wide variance in reported budget changes. About 28% of the respondents reported a budget increase of 20% or more, while 21.2% reported a budget loss of 20% or more. There was even a significant variance among B2B companies. Respondents from B2B product companies reported an average budget increase of +2.82%, while respondents from B2B services companies reported an average increase of +8.74%.

Other findings in the survey suggest that the COVID-19 pandemic has caused marketers to become more focused on customer experience and social media.

• In May, respondents, on average, said they were devoting 16.7% of their marketing budget to customer experience initiatives. That was up from 15.2 % of the budget in the January 2020 survey.
• In May, respondents, on average, said they were spending 23.2% of their marketing budget on social media. That was up from only 13.3% of the budget in the January 2020 survey.

The Merkle Research

The CMO Survey isn't the only recent research showing that marketers are increasing spending during the pandemic. Last month, Merkle surveyed 400 marketers at major US and UK companies spanning a wide range of industry verticals. In this survey, a majority of the respondents (52%) said they had increased marketing spending since the beginning of the COVID-19 outbreak.

When participants in the Merkle survey were asked to identify their most important tactical priorities during the pandemic, the top three priorities selected by survey respondents were:

1. Trying new marketing technologies or features (50% of respondents)
2. Becoming more consumer centric in marketing messaging (45%)
3. Developing new transaction fulfillment capabilities (42%)

The Takeaway

These research findings indicate that many marketers (and the companies they work for) have recognized the importance of continuing to invest in marketing during the COVID-19 recession.

Image courtesy of Sy Clark via Flickr CC.

Related Articles

Research Documents the Impact of COVID-19 on Sales and Profits

How COVID-19 Has Changed Customer Behaviors

Research Documents the Impact of COVID-19 on Sales and Profits

The COVID-19 pandemic has been wreaking havoc on U.S. businesses since March when the governors of most states began closing "non-essential" businesses and issuing "stay at home" orders. As the reality of the pandemic sank in, it quickly became apparent that COVID-19 would have a major impact on the financial performance of most companies.

What was not clear back in March and April was exactly how significant the impact of COVID-19 would be and how long the economic disruption would last. When public companies released their quarterly financial results in April, most withdrew forward financial guidance for the balance of 2020 because of the exceptional uncertainty caused by the pandemic.

As we begin the third quarter, business leaders still face many COVID-related uncertainties, but there are indications that the "bottom" of the COVID-19 recession may have occurred in April. For example, both retail sales and consumer spending were higher in May than in April, and the June unemployment rate was 11.1%, down from the April high of 14.7%.

A special edition of The CMO Survey provides several important insights regarding the impact COVID-19 is having on company financial performance and about expectations for further recovery. The CMO Survey is led by Professor Christine Moorman at Duke University's Fuqua School of Business, and is sponsored by the Fuqua School of Business, Deloitte, and the American Marketing Association.

The CMO Survey is conducted twice each year, and the results are usually published in February and August. However, given the widespread impact of the COVID-19 pandemic, a special survey was conducted in May, and the results were published last month. The special edition of the survey produced 274 responses from senior marketers at for-profit U.S. companies.

This survey addressed a wide range of issues relating to the impact of COVID-19 on marketing, but it also asked specific questions about how the pandemic had affected company sales and profits in the two months preceding the survey, and what sales and profits would look like 12 months after the survey.

Current Impact on Sales

On average, respondents to The CMO Survey reported that their company's sales revenues had declined 17.81% during the two months preceding the survey. However, the revenue impact varied significantly across companies. Nearly one in five of the respondents (19.5%) reported that sales had declined by 50% or more, and nearly half (46.8%) said sales had fallen by 20% or more.

Overall, B2B companies fared better than B2C companies. On average, respondents from B2B product companies reported sales declines of 14.28%, and respondents from B2B services companies said their sales had fallen by 16.92%.

The survey also revealed that the sales impact of COVID-19 varied considerably across industry verticals. The following table shows the sales impact on the five largest industry verticals represented in the survey.

Current Impact on Profits

COVID-19 has also had a major impact on company profits. On average, the respondents to The CMO Survey said their company's profits had declined 14.67% during the two months preceding the survey. About 18% of the respondents said that profits had declined by 50% or more, and 36.0% reported profit declines of 20% or more.

Once again, B2B companies were less affected than B2C companies. On average, respondents from B2B product companies said their profits had fallen by 9.79%, and respondents from B2B services companies reported an average profit decline of 11.96%.

The following table shows the average profit decline reported by respondents in the five largest industry verticals represented in the survey.

Future Expectations - Sales and Profits

The CMO Survey also asked participants to estimate how sales revenues and profits will look 12 months after the survey (May 2021). Overall, survey respondents were considerably more optimistic than pessimistic, as the following table shows.

A substantial percentage of survey respondents were very optimistic about the future. Nearly one in four of the respondents (23.6%) believe that sales revenues will be up by 20% or more by May 2021, and nearly one-third (32.8%) believe that profits will be up by 10% or more by May of next year.

Top image courtesy of EpicTop10.com (CC)