What does Marketing contribute to the “Bottom Line”?
CMC- InsightExec 01 Aug 07
What is marketing’s contribution to the “Bottom Line”? As with many terms used in business, which have become fashionable jargon, the term “Bottom Line” has lost its meaning and become a business cliché. The generally accepted definition of “Bottom Line” is gross sales minus taxes, interest, depreciation, and other expenses. But, the term is also use to describe net earnings, net income or net profit, so that with more than one definition, defining the contribution of marketing to the “Bottom Line” is potentially more difficult. For this reason it is arguably better to look at the contribution of marketing to the generation of net earnings, income and profit, as these are the factors on which the success of the business is measured.
To demonstrate marketing’s contribution to the business as a whole requires a detailed marketing plan, that outlines and quantifies the objectives of the business and the marketing function. Such a plan should also include the detailed actions that are required to achieve the marketing objectives, and the measurements of performance to compare against the planned expectation.
Formal, quantified marketing plans are essential, if resources are to be allocated and managed effectively. However, marketing plans in themselves are no guarantee of the required results necessary to meet the company’s business objectives. Targets will only be achieved by the successful management of the whole of the business getting activities. Effective marketing managers need to have good leadership skills to inspire, motivate, direct and encourage the staff, who are responsible for delivering the results.
“Marketing”, is not another word
for advertising or selling, but comprises all those activities which anticipate
and satisfy customer demand profitably. In many businesses, marketing and
selling are still seen as entirely separate functions. Yet if marketing “anticipates
and satisfies customer demand profitably”, it must include selling as
an integral part of satisfying the customer.
A recent book, “Marketing Due Diligence,” seeks to link marketing
activity with the creation of shareholder value, as the “bottom line”.
Although shareholder value is important and is considered by some to be the
prime objective of any business, it is only part of the business equation.
Every business comprises three elements, shareholders who supply finance,
employees who do the work, and customers who supply the revenue. All three
elements must be satisfied if the business is to remain in being.
The purpose of all marketing activities is to generate a continuous stream of profitable revenue without which there can be no sustainable business. While brand awareness, market penetration, customer retention and many other aspects of marketing are important, their contribution is collectively to assist in making the successful sales from which the revenue is derived. Thus marketing performance must ultimately be measured by the amount of profitable revenue generated, together with the efficient use of assets and investment.
If all the business getting activities are to be managed efficiently and effectively, then measuring marketing performance is essential. While efficiency may be considered to be about the capable use of resources, effectiveness is about decision making and getting things done. Unfortunately, while performance measurement gives an indication of efficiency, it is limited in assessing management effectiveness.
Performance data provides evidence of the effectiveness of the strategy and actions, in achieving the objectives of the business and marketing plan, by indicating which were successful and which were not. If the marketing function operated in a controlled environment, it would be relatively easy to identify successful marketing activities and to repeat them effectively. However, all business getting activities operate in a dynamic environment, where markets, attitudes, technology and the economic conditions are continually changing. Thus the strategies and marketing activities which were successful yesterday will not remain so indefinitely.
For the manager of marketing, satisfactory results shown in performance measurements will include the risk that comes with success, namely an over-reliance on the ideas and methods that achieved them. In order to ensure a continuity of success, the marketing manager must always question the ideas and methods that achieved the results, regardless of whether they were good or bad, in order to ensure that the assumptions and methods are still valid in changing circumstances. This means that marketers must be forward looking, requiring the imagination to interpret conditions and how they might develop, so new strategies and actions can be developed, or existing ones adapted to meet new conditions.
Whether it is described as the “Bottom
Line,” “net earnings”, “income” or “profit”,
the professional marketer must always be able to quantify the contribution
made by the marketing function in the realization of the company’s business
objectives, in order to justify the need for the continuity of investment.
© N.C.Watkis, Contract Marketing Service 24 Jul 07
Contract Marketing Service, (Specialists in Measuring Marketing Performance
and Return on Marketing Investment.)