Optimization Group was recently invited to participate in an important meeting held by the Marketing Accountability Standards Board (MASB). The Board’s mission is to “Establish marketing measurement and accountability standards across industry and domain for continuous improvement in financial performance and for the guidance and education of business decision makers and users of performance and financial information.”
Several of the world’s foremost authorities who are studying the effects of marketing activities on financial results discussed aspects of their work. A growing body of empirical evidence suggests that (in general) only 20% of the financial returns from a marketing investment occur in the year of the expenditure… the other 80% of the benefits carry over to future years. This finding could change the way companies account for marketing expenditures – shifting a short-term view of marketing as an “expense” to a longer-term “investment” perspective. It’s not out of the question that, at some time in the future, marketing investments will be capitalized and amortized much as R&D is treated today.
From our point of view, a more practical question arises: If marketing effects accrue over longer periods of time, then what is the best approach to the development of measurement systems? The consensus is that marketers will need to continue measuring several intermediate effects variables such as brand awareness to predict the longer-term financial results. Other variables which can have predictive power include perceived value, perceived differentiation, loyalty measures, etc.
Traditional means of measuring return on marketing investment often focus on short term gains and overlook the 80% of results seen in the longer term. Newer, more powerful methods have been developed to uncover often hidden causal relationships between intermediate measures (internal and external) and financial results.
In light of this rising trend, it may be beneficial for your organization to re-examine its current and future approach to marketing measurement.