Paul Holmes 18 Feb 2019 // 6:03AM GMT
One of the first public relations conferences I ever attended—in London, more than 30 years ago—focused on measurement. The gist was that as an industry we needed to go beyond counting clips to proving that we had a measurable impact on business goals: that PR drove sales, that a good reputation could pay off in everything from decreasing the risk of regulation to increasing employee loyalty.
Three decades on, how depressing is it that little has changed. Except that counting clips no longer requires a team of people equipped with reading glasses and scissors.
If that sounds a little unfair, consider a survey conducted at the end of last year by Proof Analytics and presented at the Connect CFO Leadership Summit in Chicago. The top-line finding: while all but one of the 400-plus C-suite executives surveyed said they believed in the power of great marketing and communications to create business value, 96% said their marketing and PR teams were “unwilling or unable” to prove return on investment.
Among the other troubling findings of Proof’s research, which included more than 400 senior business leaders in 160 key Fortune 1000 C-suites:
- 94% reported that they had little or no reliable understanding of the quantifiable business value actually delivered by marketing;
- 97% said they had little or no idea how much money they should be investing in marketing and PR;
- 72% said that they expected that 2019 marketing budgets would be cut by 10% or more.
Says Mark Stouse, Proof founder and a veteran of marketing and communications roles at BMC Software, Honeywell, and HP: “Many of the C-suite respondents went out of their way to say that their frustration did not stem from a lack of belief in marketing’s impact, but rather the failure of their marketing teams to embrace full accountability for ROI and business value.”
And Tom Schodorf, a board member for high-growth technology companies such as Rapid7, says: “Marketing and communications have a very privileged place in most companies. It is often one of the most expensive investments many companies make, and it is one of the most important parts of a successful company’s growth, profitability and acceleration. But while great marketing with proven business impact is a major contributor to a company’s income statement, unproven marketing is essentially an opportunity cost ‘tax’ on growth, profitability and shareholder value.”
I suppose PR and corporate affairs executives might be tempted to take some comfort in the fact that CEOs and CFOs are apparently just as unhappy with marketing as they are with corporate comms. After all, many of us have heard repeatedly that our problem is that PR measurement falls short of the high standard set by advertising. Now it turns out the advertising and marketing folks are no better at this stuff than we are.
But that’s pretty cold comfort, because the lion’s share of most PR agency revenue comes out of the marketing budget, and their problems are therefore our problems.
First, marketing budgets are—at best—stagnating. The Gartner Group’s CMO Spend Survey saw marketing expense budgets level off from their climb to 12.1% of company revenue in 2016 to 11.3% in 2017. Spending with agencies declined from 25% of all marketing investment to 23%. Said Ewan McIntyre, research director, Gartner for Marketers: “One thing is clear—previous budget increases have come with weighty expectations, some of which have yet to be met.”
Second, turnover in marketing departments is alarmingly high. Recruitment consultancy Russell Reynolds has identified a “CMO succession crisis,” with CMO tenure down and CMO turnover rising: competitor Spencer Stuart called 2018 “the year of the CMO shuffle.” And tellingly, Russell Reynolds says 75% of new CMOs are recruited from outside the company, an indication of dissatisfaction with internal performance.
Third, shorter CMO tenure means an ever-intensifying focus on short-term results. Marketers who worry that they won’t be in their current jobs more than a couple of years are much more likely to focus on driving immediate sales than building long-term relationships and reputation. While PR can be effective in a transactional role, a lot of what PR firms do is all about long-term stakeholder value.
And fourth, there’s the ever-increasing influence of procurement departments on agency hiring decisions. “Procurement teams have been crushing agency margins for a decade, mostly to offset the real and perceived risk of agency's inability to prove business impact and value,” says Stouse. “This is not just a desire to lower costs… a conscious risk mitigation strategy carried out by businesses who believe they need what agencies provide but are not sure what it's really worth.”
And finally, there is another trend identified in the Proof research: as a majority of respondents no longer believe their marketing team can answer the ROI question, finance departments are being asked to assume control over performance measurement and analytics for marketing and PR.
“The Proof survey is a giant wake-up call for marketing and PR teams, and their agencies too,” said Michelle Killebrew, CMO of PwC New Ventures. “This survey places a white-hot spotlight on the difference between marketing and PR as service providers, and marketing and PR as proven value creators and ROI generators.
“Business leaders want to know that every marketing and PR dollar is helping their sales teams sell more product to more customers, faster and more profitably than sales could do if marketing was not there. If that’s not happening, why is that and what can we do differently? And if it is, can we spend more on marketing to get even more value?”
A deeper dive into Proof’s research finds that a failure to embrace meaningful measurement is driving a disconnect between senior marketing/communications executives and other inhabitants of the C-suite:
- 95% said they doubted whether marketing leaders have the same understanding of value creation as business leaders, with many marketing and PR teams defining value in non-financial terms;
- 92% of respondents said that they were not sure that marketing leaders understood the range of business problems that need to be solved;
- And more than half said they felt marketing teams ignored the question of ROI, seeing it as a point of vulnerability or a ploy by sales or finance leaders to justify cuts to marketing budgets.
To be specific, Gartner found “a stark difference in the metrics that key stakeholders hold dear. CEOs, for example, may value revenue, profitability and market value share, while CMOs may elevate share of voice, awareness and brand metrics to their strategic dashboards.” When asked to define the most important metrics on their marketing dashboard, CMOs surveyed cited “awareness” as the most important metric, beating out ROI, market share, and measures of customer value and satisfaction.
We see this emphasis on awareness echoed in our SABRE competition. An analysis of entries across six categories—from digital campaigns to new product introduction to corporate image—found that awareness is the single most common objective. Except that in PR, awareness is rarely actually measured. Instead, good old fashioned clippings—volume of coverage, reach, opportunities-to-see—are treated as a proxy for awareness.
I questioned this emphasis on awareness—or, in the case of PR, mere volume—during a judging session last year and got some pushback from the CCO of a major food marketer. His CMO had told him that there was a direct correlation between the reach of a campaign and the subsequent sales increase. For that reason, the CMO was focused on reach above all else.
But focusing on reach alone ignores any value that might be added by strategy, messaging or creative execution. Indeed, advertising could increase performance on this metric by simply throwing more money around. (One wonders whether this is the preferred measure for some CMOs for precisely that reason: it’s a metric over which they have absolute control.)
So while I’m hesitant to question the wisdom of one of the largest marketers in the world, there must be some metric—engagement, perhaps—that shows a stronger correlation to sales.
The Proof survey identified nine questions that marketing and communications professionals should be able to answer. None of them have anything to do with awareness:
1. Are we spending the right amount on marketing, advertising and communications?Should we be spending less, or more?
2. If we increase or decrease marketing spend, what are the short-, medium-, and long-term business impacts of those decisions?
3. Are we past the point of diminishing returns on marketing and PR investment, or do we still have headroom to create substantial additional value?
4. How long does it take for our marketing and PR investments to deliver impact and value? What’s marketing’s time-to-value in our business?
5. How do we know that our marketing and PR is creating the desired audience effect?
6. How do we know that audience belief is translating into more deals, bigger deals and faster deal velocity?
7. With regard to opportunity cost, where should we spend our next marketing dollar (or other currency) most effectively?
8. At what point do I get more value from investing more in marketing and communications than in hiring more sales people? Or vice versa?
9. Should we be insourcing or outsourcing more of our marketing and communications support? Why? Who creates the most value the fastest?
Stouse suspects—and I agree—that both marketers and public relations professionals look at questions like that and are more worried about what the answers may reveal than they are excited about the possibility of proving conclusively that what they do has an impact. We hear a lot about FOMO (Fear of Missing Out), but in the PR industry the greater concern might be FOFO (Fear of Finding Out).
“Analytics often scare people,” says Stouse. “Many marketing and PR pros are afraid to know what's working and what's not. They see analytics as a judge in black robes, not as the coach and bodyguard that it really is.” He says one agency CEO told him that, "if I'm given the choice between being able to prove that we're right versus no client ever being able to prove that we're wrong, I'll take second option every time."
That fear is misplaced, based on the work Proof has done identifying the impact of marketing and communications activity on critical areas such as audience decision psychographics and sentiment (confidence, and trust), sales performance (deal generation, deal expansion, and deal velocity) and ultimately financial performance (revenue, margin, and cash flow).
“The good news is that the analytics show that many marketing and PR teams are generating tremendous impact and value for the money they spend,” he says. “The bad news is that most business leaders still can’t see that impact and value clearly. CEOs and CFOs have been concerned about this for a long time.”
Agencies in particular are missing out. “The agency-client relationship is in crisis,” Stouse wrote for this publication last year, highlighting research suggesting that average agency tenure is about 26 months and falling.
“While many agencies have in-house analytics teams, most agency leaders see them simply as just one more bright, shiny service they can charge for, ignoring the fact that it's an opportunity to change the game forever,” he says. “This is a huge miss. The analytics show that if agencies charged for the value they are creating, their top and bottom lines would explode with growth and profitability.”
In fact, Stouse sees improved analytics as an opportunity to revolutionize the agency model. He quotes Bob Beauchamp, a veteran CEO and board member for public companies including Raytheon, whose op-ed for The Holmes Report two years made the case for a new approach to proving value: “Boards, CEOs and CFOs often see a budget request as an investment deal: in return for X dollars, the business unit or functional team usually promises to deliver more revenue, better margins, accelerating cash flows, and brand accretion…
“Marketing and PR professionals clearly believe they create a lot of business value. But business leaders need a lot more than belief. We need CMOs and CCOs who believe so strongly in their financial impact that they will tie their compensation to it, just like any sales leader. The same is true for advertising and PR agencies and marketing consultancies.
“It’s time to say clearly that hourly billings have no connection to value creation. Modern CMOs and CCOs should compensate their agencies and consultancies based on the incremental value they create.“
Stouse agrees. “It's time to learn, to grow, to add value, and to win,” he says. “There's only one way to do that, and that is for agencies to tie their business models to what they say they believe about their value. Always a winning business strategy, that's also the advice any great agency would give a client under pressure. It will work for the agencies too because the core value of what they do is undiminished. In that, the analytics have made me very confident.”
Some agencies have embraced the opportunity. In May last year, for example, Allison+Partners announced plans to rollout Proof’s business impact analytics software to the firm’s clients worldwide over the next two years. Brent Diggins, the agency's managing director of measurement and analytics was clear about the upside: “Every client’s business is different, but they all want to know what financial return they’re getting for their investment dollar. Very soon, any agency that can’t answer these tough questions will find it very difficult to win or retain clients.”
PR agencies in general have a history of looking at opportunities and seeing only threats. They worried that the digital revolution would make traditional media relations less relevant, rather than seizing the opportunity to deliver their messages through new media. They feared that the convergence of earned and paid would lead to ad agencies invading their turf, rather than seeing it as an open door to supplement their own campaigns with paid.
Will they allow their fear of accountability to prevent them proving their value? After 30 years, maybe it’s time to embrace more meaningful metrics.