Marketing is a balancing act between a slew of conflicting forces for growth. Here's a simple model to help the marketing department establi...9 Dec 2020 234 Views
The role of the marketing department in balancing priorities for maximum business growth.
Marketing is a balancing act between a slew of conflicting forces. Lowering your prices can boost short-term sales but hurt profitability. Investing most of your budget in tactics, like search ads, can temporarily increase traffic to your site. But this will leave your business vulnerable over the mid-to-long term due to insufficient investment in brand development. Product “upgrades” made by your R&D department may increase product cost and time to market yet be of no value to buyers. Developing your own e-commerce channel can eliminate reseller commissions. This can also decrease sales volume from frustrated resellers who feel slighted.
At the busy intersection of all these opposing directions lies the marketing department. In that position, the marketing department must constantly assess the merits of options, forecast likely outcomes, and make the call that best serves the business. It is a tough balancing act requiring diligent risk management and constant trade-offs. In this sense, marketing serves a central regulating function in your company.
This job is made all the more difficult by the sheer number of decisions that the CMO has to make each month and the vast number of variables involved in each. To help CMOs and their CEOs address this challenge, our team has developed a simple management model. It clarifies priorities and helps managers get a grip on the variables involved in this balancing act.
In this model the role of the marketing department is to find the balance between three desired outcomes that are often in opposition:
- Sales for revenue today
- Brand Equity for revenue tomorrow
- Margin for price integrity at all times
By boiling down the responsibility of the marketing function into these three expectations, we not only provide a tool for decision making but also a definition of the marketing role in the company.
Mid-sized companies rely on short-term sales to maintain desired cashflow. If that dries up, then its game-over. So no one will argue about the importance of short-term sales. What’s more, immediate sales provide immediate gratification. They are also the one metric everyone can embrace. They represent cash in the bank— what’s not to love?
There is a lot the marketing department can do to support the sales team in this regard. Foremost among that support is segmenting and building brand equity. That is, defining the most lucrative segments of the market and generating demand there before the sales person calls. From the perspective of a CEO or CMO, these two functions are paramount to profitable growth and besting competitors. In my experience, sales teams take a different view.
Sales folks place the most value on the marketing department’s ability to provide them with sales-support material. In doing so, they tend to discount all other work performed by marketers as fluff. From their perspective, this makes total sense. However, if the marketing depart devotes most of its time and budget to short-term sales-support functions, the trade-off will be its ability to develop brand equity and strategic advantage in its category.
Again, balance enters the picture. Sales and marketing themselves are incongruous functions. They have different objectives, incentives, methods, and priorities. Too much of a good thing, including sales today, can be detrimental if it is causing deficits in other important areas. This is also an argument for why the head of sales should be able to work independent of marketing, but be put under the gentle reins of a competent CMO.
A sale today provides little guarantee of a sale tomorrow. Increasing the probability of future sales is possible, but not with the same tactics and tools employed for short-term sales. The best way to ensure future sales is by building and maintaining brand equity.
At its essence, building brand equity is building a strategic advantage over competing brands to pave the way for sustained sales over years. This is playing the long game and making moves that may not trigger sales today. What the brand does gain, however, is awareness, understanding, interest, trust, belief, loyalty, and advocacy among potential buyers. Once you have those, you have a valuable brand because the equity you have built among buyers increases the probability of future sales. But building brand equity is hard work. It requires focus, budget, time, and skill – not to mention buy-in from management.
Developing brand equity starts with a program of ongoing (not episodic) market research. This provides insight into your markets, competitors, and, most importantly, your prospective buyers. Understanding their perspective and what they value provides a blueprint for developing a competitive advantage. With buyer insights you can also segment your market intelligently and develop a sound strategy that outlines the brand’s category, position, value proposition, and supporting arguments. You will also need to define aspects of the brand like personality, back story, causes, visual profile, narrative, purpose, tone, and manner into one cohesive identity for the brand.
If your company has developed a sales-centric culture where cash is king, you will struggle to find the support required to develop brand equity. Such companies can grow profitably one sale at a time playing by the rules of the category leaders. Mid-sized companies who do this typically hit a ceiling where growth slows and sales tactics alone won’t get them to the next level. This is a natural time to consider establishing a proper marketing program to build brand equity. But for companies who, from the start, set their sights on building sustained sales and growth, as well as category leadership, then investing in brand equity is a no-brainer.
Related to Brand Equity is your company’s ability to maintain a pricing strategy in the face of heavy competition. In other words, not having to cave on price in order to win sales. As Tim Williams put it: “Profit is driven mostly by price. Price is driven mostly by brand perception. That makes brand-building an activity central to business success.” Apple is a good example of a company that has developed strong brand equity. Their efforts in that regard allow them to maintain demand while selling their products at prices that are the highest and most inflexible in their respective categories. And its not just high-innovation products like iPads or iWatches. A simple power adapter from Apple is four and a half times the cost of a replacement power adapter without the Apple logo.
Moreover, the ability to maintain even modest increases in price yields far more profit than moderate gains in volume or reductions in cost. That makes price the most powerful profit lever a manager has. This is commonly referred to as “pricing power.” According to Warren Buffet, pricing power is the single most important factor in evaluating the health of a business. And Brand Equity the key to unlocking that power.
It is not uncommon for a company with a radically new product to be able to command a higher price so long as no reasonable substitutes exists. That’s the reward of innovation. But it won’t last forever. What’s more, that level of radical innovation is rarely found across all of a companies product lines and offers. So how does a company maintain Apple-like pricing across every item it sells? In this model, it is the job of marketing to ensure that buyers are willing to pay a premium price for the company’s product. This, again, requires time, budget, and focus to achieve. If the CEO determines the marketing department’s budget based on the resources required to produce sales-support material, then it will never happen.
Sixty years ago, Jerome McCarthy’s marketing mix model helped marketers manage the plethora of marketing functions into 4 manageable categories. In that same vein, this model aims to simplify the many different, and often conflicting priorities, CMOs and CEOs must juggle on a daily basis. It does this by reducing them to three desired outcomes. Under this model it is marketing’s responsibility to strike the right balance between sales, margin, and brand equity. This way, its efforts will deliver the optimal mix of sales today, sales tomorrow, and profit always.
NOTE: To learn more about how these concepts could benefit your company, check out my new book: International Brand Strategy: A Guide to Achieving Global Brand Growth, now available for pre-order from Amazon, Barnes & Noble, Waterstones, Kogan Page, and other booksellers. For bulk orders, contact Kogan Page directly for a discount code and customized covers.
Speaker, consultant & founder of Duffy Agency, the flipped digital agency that provides accelerated growth to aspiring international brands.