It is often said that those in the finance department and those in the marketing department come from two different planets! Because of long standing accounting principles and practices, marketing is often relegated to being just a cost line item rather than a value-generating activity.
Natalie Mizik, former Associate Professor of Marketing at Columbia Business School, now at Kenan-Flagler Business School, and Doron Nissim, Professor of Accounting and Finance at Columbia Business School, took a closer look at the implications of current accounting models and their representation of marketing activities. In their article, Accounting for Marketing Activities: Implications for Marketing Research and Practice, Mizik and Nissim found that common accounting principles and practices have led to distortions of marketing contributions in financial reporting. In addition, some experts feel that marketers don’t adequately communicate how their expenditures benefit the bottom line. Together these factors affect perceptions of marketing’s value, which can impact everything from marketing budgets to influence and practice.
To mitigate the negative light financial reporting can cast on the perception of marketing, Mizik and Nissim recommend marketers play a more active role in the financial reporting debate. According to them, providing “consistent, observable, quantifiable and verifiable information” on marketing spend and its results, and sharing financially-based performance metrics can improve the process of evaluating marketing efforts and lessen the conflict between the finance and marketing worlds.
A recent study released by the Center on Global Brand Leadership and the New York American Marketing Association (NYAMA) confirmed the need for a robust set of ROI measures to improve marketing’s standing within a company. The BRITE-NYAMA Marketing Measurement in Transition Study, Marketing ROI in the Era of Big Data, found that 70% percent of marketers say that their marketing efforts are under greater scrutiny than in the past. ROI metrics are critical to addressing the concerns about the contributions of marketing initiatives. However, more work is needed to develop a common understanding of ROI metrics even within marketing departments. The study revealed that although marketers see the value of ROI measures, there is confusion about the meaning and significance of ROI among marketers.
Marketers will need to continue to refine their understanding of ROI and develop consistent metrics, often specific to their own organization, in order to get CFO’s turned on to the results of marketing efforts.