The 21st century challenge for Chief Marketing Officers (CMOs)
Mohit Das, ACI Fellow and Global Vice President, Marketing Effectiveness and Analytics, Kellogg Company
A CMO’s biggest nightmare is a conversation with the CEO on whether marketing investments made by the company are working hard enough. The CMO’s focus is on building brand experiences that develop a connection with the target audience. However, CEOs are more concerned with how this contributes to the revenue and profit goals of the firm.
CEO-CMO conversations are relatively easier when CEOs are ‘brand stewards’ and believe in consumer-centric business models. The conversation gets a lot tougher when the CEOs have risen by virtue of operations or sales or are instead big believers in sales centric or product & technology-centric models.
Whatever the business and organizational context, it is imperative for the Marketing organization to focus on developing key performance indicators that are better understood by the entire C-suite. The challenge is that the Marketing outcomes defined by most CMOs are mostly in-process metrics or are diagnostics on brand health. It is hard to look at some of the KPIs and draw a link to how they impact top-line or bottom-line growth. This ambiguity is worsened when Marketing KPIs do not correlate well with Financial KPIs, which often causes the CEO or CFO to question Marketing investments and recommend big cuts when the business is underperforming.
Brand awareness, brand consideration and differentiated brand equity were treasured measures in a Brand Manager’s arsenal of tools in the 20th century. These assets are time-tested and are strong barometers for brand health. However, in the last decade leading up to the 21st century, a couple of disruptions have forced us to think beyond these metrics.
The 3 big shifts that CMOs have to grapple with
1. New sales channels and new marketing touch-points
In several categories the barriers to entry have significantly reduced, as alternate channels (e-commerce, specialty channels, convenience channels, Customer-to-Customer models) become more mainstream. These channels are also typically the hotbeds for cutting-edge product innovation and double up as sales and marketing channels. Social media channels and digital media have enabled smaller companies to market their brands to specific target groups based on demographic, location, behavioural or attitudinal targeting. For example in China, the beauty and cosmetic market is highly competitive, with the retail concept of “cosmetics supermarket” or “one-stop shop” becoming more prominent. This is seen through the entry of players like Watson’s, Sephora of France and Sasa in specialty retail. Online cosmetics shopping has also seen rapid growth, with Chinese consumers beginning to buy cosmetics and skincare products online. According to the HKTDC survey, 69% of female respondents and 65% of male respondents would buy skincare products and cosmetics from online stores mainly because “online shopping is convenient or offers a delivery service”.
2. The brand experiences that lure the Gen Y generation are different from those that appeal to Gen X or baby boomers
Millennials who live in the world of “loading the next new app” are getting more comfortable with experimenting beyond established leading brands from trusted companies. Safety and reliability have become table stakes driven by stronger regulatory frameworks and global knowledge flows. Niche but interesting ideas, new innovative packaging, experiential products and services and sensorial features are capturing the imagination of millennial consumers like never before. New innovation domains are being explored in each category (e.g. mobile phones are being marketed based on the quality of their cameras) and existing domain spaces are becoming commoditised (cars are no longer being sold based on reliability alone). The appeal of big brands in the 20th century was centred on product benefits that catered to a large set of consumers – however, millennials in the 21st century seek the excitement of exclusive brand experiences and are spoilt for choice. A one-size-fits-all approach rarely works. DBS Bank operates in India with a digital bank concept – there are no physical branches. Instead, a digital interface meets the banking needs of young Indian millennials through online transactions. This marks the birth of a bank without paper and which does not require forms or signatures – a portable bank that notifies users of the best opportunities and deals based on their respective locations and the actions they are about to take. It also offers much better interest rates as operating costs are far lower than that of any traditional bank, and is responsive to changes in users’ preferences, through AI and Machine learning software. At the same time, this is a bank with tremendous inbuilt security – beyond one-touch passwords and the vagaries of today’s cyber-security issues – so all private information is kept safe. This revolutionary digital banking experience has been able to draw 1 million Indian customers in the last 3 years of operation with this niche, but cutting-edge concept that appeals to the aspiring Indian millennial.
3. Big companies settling for “me-too” concepts
Big companies are forced to play catch up on innovation as their R&D lags behind. They desperately seek breakthroughs but have to settle for “me-too” concepts under the umbrella of mega-brands to drive broad relevance and consideration. These brands fall into the trap of trying to be the “jack of all trades” and yet end up being master of none. Dozens of small new brands are micro-targeting the fragmented consumer landscape with sharply focused products and services. This has led to a “long tail phenomena”, with leading brands losing market share to new niche brands. All this has occurred despite these leading brands investing in building brand awareness, consideration and investing behind legacy equity assets. Legacy brand assets may be nice to have, but are unfortunately insufficient to prevent a steady erosion of market share for the big brands. A great example of this is how local Chinese and Indian local health, wellness and food companies have come up with new products that infuse traditional ingredients (traditional herbal ingredients in China and Ayurvedic herbs in India) and created product offerings that are strongly appealing to the Indian middle class. Patanjali promises ‘natural’, ‘better for you’ products in India in categories like noodles, toothpaste, soaps and wheat flour and is steadily eating into the shares of big multi-nationals like Unilever and Nestle.
So, the 21st century marketer needs to transition away from the 20th century marketing mindset and move away from merely influencing consumer perceptions & attitudes towards sparking an actual change in consumer behaviour.
In a world where new business models are being created without traditional marketing, it is not enough to just influence consumer attitudes with Marketing. The bar is now higher – ultimately, we need to prove that strong brands add value to shareholders in terms of better returns. This is only possible if we are able to isolate the impact of marketing investments on revenue and profit growth.
Operationally, this calls for 3 big changes in mindsets and brand management skill sets:
1. Brand strategy & Innovation strategy have to be congruent and Marketing and R&D need to work in harmony with aligned objectives:
In the 21st century, brands cannot continue pursuing the same strategy they have been for years. There has to be a constant iterative process of looking at consumer and category trends and at adjacent categories to develop a blueprint for growth. This has to be done annually and, in some dynamic categories, more often. Also, a potent strategy starts with a good strong strategic analysis with the classic “where to play” framework. However, this now needs to be supplemented with ‘spend a little – learn a lot’ pilot & test markets that are regularly pressure-testing strategies and challenging assumptions to promote long-term growth. Big successful brands have to look beyond core category benefits and create the need for new benefits that may not have previously existed in order to gain competitive advantage. For instance, camera quality is now a category driver for phones, and Samsung, Apple and Huawei have invested in improving their mobile cameras. The Apple iPhone 7 marketing campaign was centred on its superior and improved photo quality. This is a great example of how marketing communication and brand strategy need to be dovetailed with an innovative strategy right from the start. Innovation will increasingly become the lifeblood for brands and the driver of continued growth.
2. Agile in-market optimisation of marketing content
The 20th century marketer was trained to create strong content and prove that the content had a likelihood of building business before significant investments were made in the market. Content pre-market testing was a ‘report card’ for the Brand Manager. However, a culture that rewards pre-market assessment and chest-thumping will no longer survive in 21st century, where in-market execution and real-time content development, customisation for different platforms and targets make or break brands. This does not mean that getting the content right is not important – on the contrary, quality content will always remain important and even more so as it becomes increasingly challenging to capture the imagination of consumers. Some might argue that content is the most important driver of marketing effectiveness – but pre-testing of content is not necessarily a formula for success. Pre-market testing is becoming less relevant in the agile, ‘always-on’ world in the highly fragmented media landscape where the attention span of consumers is becoming shorter. This is forcing brands to dig deeper into finding relevant content that engages consumers and forces them to pause and participate with the brand assets.
3. Real-time data access to optimize Marketing ROI
Brand Managers of the 20th century spent most of their time in concept development, content development and planning. The execution and tracking of the media plans was managed by media agencies. However, in the newly fragmented digital media landscape, brand managers need to keep tabs on media delivery (reach, frequency, impressions, viewability, rerun on ad spend, granular digital and social KPIs, etc). They need to make quick decisions, move more money into touchpoints, target strategies that are working (i.e. delivering higher ROIs) and rationalise investments from touchpoints that are not working (i.e. delivering low ROIs). Continuous optimisation within and across touchpoints and understanding the trade-offs between the different KPIs is critical for the success of a marketing program.
You get what you measure. The Proof of the Marketing pudding.
Ultimately, the success of marketing needs to be grounded around 3 questions:
1. Is the marketing increasing your user base and converting more non-users to become users of your brand?
2. What return on investment are you getting from your marketing investment?
3. Are you growing faster than the market?
#1. Grow your user base or brand penetration
User base growth provides the simplest way to determine if marketing dollars are building brand salience. Other than the obvious financial link of this metric, we know that penetration growth has a positive impact on overall brand loyalty and hence a multiplicative effect on brand revenues. An increase in brand penetration can be driven by strong innovation that brings new users into the franchise. It can also be driven by superior branding communication that helps more people relate to the brand. It is important for brands to think about their route into the market and understand the importance of ‘be where the shopper is shopping’ to grow brand penetration.
#2. Grow the Return on investment on your marketing spending
Marketing investment needs to be AT LEAST profit neutral. If you are not measuring the ROI of your marketing investment, you are likely sub-optimising this investment. In the past, consumer packaged goods companies were more forgiving of low short-term ROI of marketing investment since marketing expenditure was seen as building long-term brand equity. This is still true but we now know that if marketing investment is not paying out in the short run, it is likely not strong enough to build your long-term brand equity as well. Also, disruptive business models are shaking up traditional brand advertising – strong brands are being built with digital models anchored on strong e-commerce capabilities and tactical digital and social advertising (with a focus on earned and owned media vs. just paid media). The marketing organisation of the future should get data savvy and invest in measurement systems that continuously drive marketing optimisation.
#3. Growing ahead of the market
This is an important measure that determines whether you are winning, in the midst of competition and growing market share. It is important to put a lot of thought into defining the market. A myopic definition of the market can again undermine your brand, whereas keeping the market definition too broad would likely make you lose focus and pull you in too many directions at once.
As a 21st century marketer, you need to get comfortable with real-time data, constantly challenging and improving your marketing strategies. Be sure to define and align your KPIs upfront and develop robust measurement systems and governance processes around these KPIs. Overtly, link your brand KPIs to revenue and profit growth so that the organization understands the value that the Marketing function is creating. It is imperative that the innovation strategy is strongly hard-wired with marketing strategy and hence collaboration with R&D becomes critical in meeting your goals. Most importantly, make sure that you have a way of measuring the Marketing return on investment for your big bets.
Author: Mohit Das
Date: 22 January 2018
About the Author
Mohit Das is a Fellow of the Institute on Asian Consumer Insight and the Global Vice President of Marketing Effectiveness and Analytics at Kellogg Company. Over his 22-year career in Marketing strategy, insights and analytics, Mohit has worked across leading consumer product companies and consulted clients in several industries on business strategy and go-to-market execution.
Mohit started his career at Procter & Gamble and held several leadership roles in Asian & USA within P&G’s Beauty & Household Care and Food businesses. Prior to joining Kellogg’s, he worked with McKinsey & Co. and helped setup an Innovation Hub in Singapore focused on Asia Consumer Insights. Mohit is a trained facilitator in the “7 Habits of Highly Effective People” and has a passion for bringing in change in the way companies think about and develop innovation.