- Understanding the dynamic between Marketing & Finance in a COVID-19 ‘new normal’.
- Getting into the Finance mindset is important to building a key business ally.
- Integrating Finance into the Marketing organization will help manage for success.
- Wearing a bigger hat beyond marcoms will place Marketing as a business function that clearly articulates the return on investment from an overall business perspective.
- Employing frameworks such as Zero-Based Budgeting and ERRN will help marketers zone in on activities that have a big impact at an acceptable cost which should be maintained; and highlights other activities that should be examined more closely.
- Scenario planning will help marketers reduce risk, plan for a range of different potential future states and be in a far more confident place to take budgetary decisions.
- Providing context via relevant case studies in analogous situations will help marketers and finance teams understand the market share state of play.
We all know the tune by now; we’ve seen the memes and overused industry headlines. COVID-19 has had and continues to have an impact across the globe, disrupting supply chains, reducing demand across many sectors and closing some down altogether. But with infection rates beginning to flatten and decline in some countries, concern is now shifting to how the economy is likely to play out over the next four quarters.
Research shows that the vast majority of CFOs view the pandemic as a major business challenge 1 and that overall business optimism 2 has dropped from 59 down to 42 in the US since March 15th 2020. On a scale of 0 to 100, that’s a big drop, but is likely to fall further. APAC, which began to suffer earlier than many other regions, has continued to see declines in CFO business confidence in April 2020.
Marketing & Finance in the COVID-19 World
The relationship between Marketing and Finance is arguably one of the most important ones in any business. The greatest success stories are from Marketing and Finance sharing the same vision for business and working together to quantify marketing investment returns.
Easier said than done in the COVID-19 world.
The topline is in jeopardy. Finance will be prioritizing spend that provides for both quick ROI while continuing to solidify the future. Pre COVID-19 marketers would have been able to answer business questions with a good degree of confidence and certainty, fueled by years of investment in analytics. Marketers had the data and knew how to translate it into business growth.
That certainty is now gone. The old rules don’t necessarily apply, and in some cases, Finance departments are taking the reins in marketing decisions. Marketing, you could say, has been ‘covid-ized’.
However, this presents an opportunity to strengthen the alliance with Finance, ensuring Marketing remains the engine of business growth.
The View from Finance
Understanding the Finance mindset is key. Inherently, Finance people are risk averse. They need marketing to prove why their investments will pay back and clearly communicate how much money will come back, and when.
And uncertainty will drive Finance to react.
“To the degree that we can mitigate some of that uncertainty and potentially shorten the ROI timeline”, says Ralph Pepino, Gain Theory CFO, “the greater success of gaining more control over budgets and potentially opening up more budget dollars.”
Get Finance into the Marketing Bed
There cannot be an ‘us vs them’ approach when you are trying to win the bigger game, Finance and Marketing need to be batting for the same team.
- Build Cross Functional Teams: if this isn’t the case already, start now. This will ensure you are integrating finance at the heart of the process when building ROI models.
- Encourage Curiosity: to the degree that it is possible, invite Finance into media and marketing conversations and ask them to stress test. As well as ensuring transparency, this will help build trust and lead to more integrated business outcomes.
Wear a Bigger Hat
The CFO and executive team are making company survival decisions—and they are doing this in conditions of heightened uncertainty. Uncertainty around supply chains and around reactions from creditors and shareholders; uncertainty about current demand; and uncertainty about how a suddenly remote and fearful workforce are likely to react. Marketing plays a key role in making these decisions—but is just one element.
- Consider Business Constraints: identify areas of uncertainty the executive team are dealing with where marketing can help, provide clarity, and add value. These may be in product, supply chain and distribution.
- Talk the Talk: as the old adage goes ‘cash is king’. Finance will be interested in cash flow. So, rather than focus on terms such as “brand” marketers need to link to business outcomes applicable to your organization such as increasing revenue, customer acquisition and value, cash flow and shareholder value.
Employ a Zero-Based Budgeting Framework
Like every crisis before this, cash and cash management are of central importance. Whether we’re talking about payments to suppliers, negotiating trade credit or paying employees, liquidity is key. Marketers must acknowledge this and accept that all non-essential spend will be cut. The trick is to understand exactly which elements of the marketing budget are essential in this environment.
This is where zero-based budgeting (ZBB) steps in. Adopting ZBB will help articulate the current key lines of spend—not just for the short term, but the long term too. For example:
- Which audience do you need to reach?
- Why are you trying to reach this audience (maintaining demand vs. growing future)?
- Can we reach the same audience more efficiently (swapping day-parts on TV, moving from linear to OLV, increasing social)?
- Can we reduce our reliance on Paid and get more from Owned assets?
At Gain Theory, we summarize this kind of discussion into an ERRN quadrant to make the visualization simple. Adopting this approach will help marketers zone in on activities that have a big impact at an acceptable cost which should be maintained; and highlights other activities which should be examined more closely.
Employing a ZBB approach will be welcomed by Finance teams as Ralph Pepino, Gain Theory’s CFO will attest to: “I am a fan of the ZBB approach because it forces marketers to re-look at their assumptions, throw rocks at them, and formulate a revised plan as to how to spend their dollars in this new climate for maximum return in the shortest amount of time.”
When uncertainty is high, the first thing we need to do is begin reducing this to more manageable risk. While no outcome is guaranteed, if we have planned for a range of different potential future states, we will be in a far more confident place to make budgetary decisions.
And marketing teams are in a strong position to lead this process. For example, how will our strategy vary if the recession recovery is “V” shaped vs “U” shaped? What do we need to put in place if key markets are more like an “L” with a prolonged deterioration? For companies operating in multiple markets, how will tax regimes change? What about trade restrictions?
Part of this programme is to identify the key signposts or lead indicators that will reveal which future is becoming more likely. These will vary sector by sector and company by company. A good place to start is to look at what is happening in similar markets in parts of the world that are further ahead on the curve.
Relevant Case Studies
Context is key, and broad industry studies that claim a steady and predictable relationship between companies that advertise during recessions and growing market share down the line are unlikely to cut much ice with the CFO.
Excess Share of Voice. Correlation does not prove causation. It is just as easy to argue that continued advertising is a sign of a well-run company with good crisis measures in place to ensure a stable cash flow while those that don’t advertise have generally high liquidity issues, with a proportion of these declaring bankruptcies, leading to an inevitable increase in market share down the line.
But we can pick case studies that make the point clearly: the reasons for the collapsed stock price at Kraft do not need to be rehearsed again and there are numerous other examples from various knowledge banks at the IPA and WARC. Two general points are:
- We know that strong brands are correlated with strong stock prices, both from Gain Theory’s own research as well as Kantar’s.
- Be aware of what your competition is doing—track closely, understand what its likely impact on you will be and whether you need to respond (this may include ad spend).
Marketers Can Hold the Reins
As most Marketers will know by now it’s inevitable that the marketing budgets will be placed under the COVID-19 lens, scrutinized and potentially cut. Thankfully, Marketers can play a part in controlling that process. Having the right outlook when dealing with Finance will help. Taking a step back and understanding the factors at play: supply chains; logistics; alternative ways of reaching customers and fulfilling orders; and cash management.
Be rigorous in your understanding of which KPIs are really KPIs right now, and how best to move them. For some, a ZBB approach will make sense, for others, adopting a different methodology may work best.
But if you want to make Finance your ally and have a hand to play in the marketing investment decision process during COVID-19, rigor is key.
1 PWC, April 2020
2 Duke University – CFO Global Business Outlook