The CMO Survey Blog

Holding on to Marketing Leaders

When times get tough, do marketing leaders get fired? Three years of results from The CMO Survey indicate the answer is “No.” Looking at Figure 1, we can see that the number of years a top marketer is in his or her current role in a company averages 4.4 years and that this number has not changed dramatically over the last three years: 2009 (4.3 years), 2010 (4.6 years), and 2011 (4.3 years). (more…)

How to Invent a Marketing Function

Studying organizations over the years, I have found that new marketing leaders often join companies that have only the beginnings of a marketing function. Facing such a situation, how do you invent a marketing function? What are the key steps? What capabilities help marketing deliver what it can offer companies? (more…)

Managerial Discretion and CMO Value

You know the stats:  CMOs are reported to have an average life of just over 2 years.  You also know the gripe:  Marketing has an unproven effect on the firm’s performance in capital markets.  I intend to help shed light on these ideas throughout this blog at various times.  Academic colleagues Boyd, Chandy, and Cunha recently published a paper in the Journal of Marketing Research (and a much easier to read version in Advertising Age) addressing the stock market impact of a CMO. The specific questions they asked were whether, and under what conditions, hiring a CMO contributes to firm performance.

The study used new CMO announcements collected from major newspapers and wire services (such as the Wall Street Journal, PR Newswire, and Dow Jones Newswire) from 1996-2005 and included a variety of industries.  It may not be surprising that the results were mixed—some CMOs contributed substantially to stock price movements and others did not.  In fact, in 46% of the cases in the sample, the stock market response to the appointment of a CMO was positive, whereas in 54% of the cases, the response was negative. Given these results, the next logical question is why the CMO effect differs across firms.

As it turns out, a CMO’s “managerial discretion” is a critical factor in determining his or her impact on stock values.  Discretion can come from a variety of sources, including the CEO.  This study examined the effect of the firm’s own customers as a factor limiting the CMO’s freedom to decide or act in accordance with what a CMO judges best for the firm.  In short, powerful customers can constrain a CMO’s discretion.  The authors explain that this finding extends to both end customers and intermediate customers (such as Walmart, a P&G customer or American Express, an Oracle customer).

How do powerful customers limit the managerial discretion of CMOs?  They can force price concessions and product modifications, they can demand extra service or special deals, and perhaps worst of all, they can resist innovations that cannibalize products in inventory, that require new training or expensive new infrastructure investments.

One piece of good news is that customer power does not influence all CMOs alike.  Individual and firm factors affect the contribution a CMO makes to the firm value.  Experienced CMOs—either previous CMO experience or experience from outside of the firm—mitigates the degree of customer power.  CMOs that head large firms, CMOs in firms with strong performance records, and CMOs of firms operating across a broader scope of markets also tend to escape these problems.

The authors state that “Marketers often play an important role in developing strong economic ties between firms and their customers, but the results from this research ironically show that a move toward strong economic ties with a few customers may actually limit the effectiveness of top marketers in driving firm value.”  That’s a tough tightrope to walk.

If you are a marketing leader in your firm, how do these findings resonate?  How do you serve your customers while also ensuring they are not challenging your discretion beyond what is reasonable?

Marketing Metrics: What CMOs Report

The August 2010 CMO Survey included a special section on marketing metrics. Seven important facts stood out when I analyzed the responses from the 574 marketing executives who participated in the survey.

1. Revenue metrics dominate: Revenue metrics (sales, market share) are the primary means they use to evaluate marketing activities. Unfortunately, few link marketing actions to critically important firm outcomes, such as customer retention (15%), profits (14%), brand value (11%), net promoter score (7.5%) and stock market performance (2 percent).

2. The quality and use of market insights not evaluated: While market insights are very important drivers of innovation and growth, only 25% of the firms surveyed use metrics to evaluate the quality of these insights, and only about one-third evaluate how market insights influence managerial decision making.

3. Marketing metrics examine the long-term impact of marketing: 72% of marketers report that metrics focus on the long-term impact of marketing. This number is much higher than I expected. Although I don’t have information about this metric over time, I asked this question because I thought it would be lower and a big press splash. Bravo marketers!

4. Marketers fail to account for revenue and cost information across channels: 53% report below average integration of cost information about customers across channels and 33.4% report below average integration of revenue information about customers across channels. It is no wonder marketers also report elsewhere in The CMO Survey that the highest level of marketing spending is going towards integrating what they know about customers.

5. Metrics fail to assess competitor reactions to firm marketing actions: Only 24% of firms use metrics that assess competitor reaction to their marketing programs. The focus is on customer reaction, which I agree is central. However, firms appear to be largely ignoring how competitors’ actions might interfere with customer reaction.

6. Social media metrics focus on hits, page views, and repeat visits: Instead, firms are measuring the number of followers or friends (25.4%), sales levels (17.9%), revenues per customer (17.2%), buzz indicators (15.7%), customer acquisition (11.8%), profits per customer (9.4%), customer retention costs (7.7%), and net promoter score (7.5%). Firms use an average of 2.4 social media metrics.

7. C-suites use an average of five marketing metrics to guide decision making (95% confidence interval around the mean—3.6 to 6.7): This number is higher than I expected and it shows increasing influence of marketing in the firm. The average number of marketing metrics used by the C-suite was highest among companies in the B2C services (10.4) and B2C product (7.4) sector and lower among B2B product (3.9) and B2B services (3.2) companies. C-suites of companies that sell products on the Internet use more marketing metrics (7.4) compared to companies that do not (3.2).