CUSTOMatrix™ Insights Newsletter

Markets, Measurement, Metrics and Money

Eric Chriss and Michael Sick, Principal and CEO, Principal and Marketing Services , CUSTOMatrix, Inc.

Some would say that mixing marketing types with finance types is mixing oil with water.  Although it is true that the skill sets required to be successful in the respective areas is somewhat different, few organizations can succeed if there is not productive collaboration between their marketing and finance functions.
 
The stereotype of marketing staff tends to be that it is populated by creative types who think out of the box and act intuitively while their finance brethren are obsessively putting everything into the box and checking it twice to four decimal points.  While this may be amusing to joke about, marketing and finance are most effective when they work together to account for all the intangible variables that are ever present when you are dealing with projecting into an unknown future and fighting for market share with competitors who are often unpredictable and planning their own set of initiatives to slant the playing field in their favor.
 
Most business and strategic planning efforts require some forecasts of the future growth of the business segment, trends in the market place, an estimate of the potential marketing, strengths and weaknesses of direct and indirect competitors and many other factors that are often difficult to accurately quantify.  Finance staffs may often take on this process as they are comfortable working with quantitative data and are ultimately responsible for pulling together the spreadsheets used in a business plan.  At times finance staff may be dismissive of the marketing contribution or may believe that their marketing executive may not have strengths in quantitative areas.  At CUSTOMatrix™, we believe it is a mistake not to include marketing input in business planning, even if the data is estimates derived from outside sources and metrics from internal or external trends.  Even the marketing executive who may be uncomfortable with quantitative analysis has some intuitive insight into the "intangible" factors that are critical to defining the range of outcomes that provide the "Best Case" and "Worst Case" scenarios that may be considered.

Marketing Drives the Revenue Forecast

A credible budget must begin with a rational analysis of the market and its anticipated revenue.  Companies derive their forecast with varying degrees of confidence as depicted by the following chart:

As the marketing and finance process moves from “Intuitive-No Market Data-No Collaboration” to “Empirical-Targeted Market Data-Dedicated Collaboration”, the level of stakeholder confidence increases significantly.

While smaller companies lack the resources to support a full-time marketing professional’s development of targeted market information, the internet has become a fountainhead for quickly accessible business intelligence.  Although less credible than specific market data, some market data can increase confidence in the revenue forecast developed by the financial modeler.  And while it may not be empirical, this market information can become even more credible as the level of collaboration increases to include the evaluation by a professional marketing analyst.

For companies willing to take the next step and invest in the development of specific market information, there are a number of market research databases, which can be subscribed to either on a selective basis or for ongoing consultation.  These resources include:

Finance “Versus” Marketing or Finance “And” Marketing

Financial professionals quantify business events and assess risk based on a structured framework.  Marketing professionals study market behavior, evaluate trends, and attempt to anticipate consumer demand.  The challenge is to combine these two objectives and construct a forecast that aligns with the company’s model.  Having the most elaborate market information, with the greatest potential for stakeholder confidence is of questionable value, unless it can be interpreted by a trained marketing professional.  One of the pervasive challenges to achieving a meaningful collaboration between finance and marketing is the presumption that many non-marketing business people are experts at marketing.  At a minimum, determining how empirical information conforms to the company’s strategic framework requires a working knowledge of, among other things, consumer behavior, sales promotion and management, logistics, and product life cycles.

As the Stakeholder Perception chart indicates, the positive impact of greater investment in specific market information and dedicated marketing expertise results in a perceived value differential from zero to a positive 2.  Thus, in positive contrast to the neutral condition of “Some Market Data-Some Collaboration”, “Empirical-Targeted Market Data-Dedicated Collaboration” promotes the greatest potential level of confidence in the financial model by the stakeholder community.

When the time comes for the CEO to present the finished financial plan, having the confidence that the market assumptions have been vetted by professionals in marketing and finance can mean the difference between success and failure of the value proposition.

Should your organization be interested in increasing its revenue or evaluating the effectiveness of it marketing investments CUSTOMatrix Consultants can assist you in assessing your situation and recommending a course of action.

For additional newsletter articles go to:

CUSTOMatrix™ Insights Newsletter