I’ve been
digging in to Victor Cook’s new book about marketing finance, "Competing for Customers and Capital" and in there’s a
lot to chew on. The essential premise of the book is that marketing adds value
not only to customers and the bottom line, but that marketing performance has a direct and measureable link to shareholder value. The more investors can measure the investment a
business makes in marketing, including the efficiency with which marketing
dollars return revenue and market share, they can develop a much clearer
picture of the company’s health and relative risk.

Cook describes
some of those measurements, and a number of differentials and derivatives, that
spotlight critical performance metrics such as a company’s marketing
efficiency, the ratio between a company’s share of market value and share of
market revenue, and the maximum earnings a company can profitably generate from
its market share. You may need to brush up on your accounting fundamentals to
fully appreciate the financial mechanics, but that’s pretty much a given if you
want to advance in marketing these days. Even if you’re rusty at numbers, the
implications of Cook’s emerging framework are stark and easy-to-understand
reminders of how marketing is being reshaped to respond to the growing
pressures for accountability.

“[Marketing
managers’ P&L statements] are not charged interest for the capital invested
in product markets. There are two important implications of this practice.
First, marketing managers will quite properly think money is free. If you’re
spending ten million bucks on an ad campaign in a company with a 12% weighted
average cost of capital, the cost of that capital does not appear on your
P&L statement. But, you say, you didn’t actually borrow the money. True,
but someone
is paying the $1.2M cost of that
capital. If the bank isn’t paying for it, then your shareholders are. Second,
if marketing managers were charged the cost of the capital they use, you would
find them giving much more serious attention to “return on investment” (ROI).
And senior managers would take their plans more seriously.” 

If that’s
not a wake-up call, let me put it in clearer terms. We’re not talking about how
well your latest campaign performed—cost per click, cost per lead, etc.—we’re talking
about how effectively your campaigns have delivered market share and profit. If
the emperor has new clothes, you can think of this as a production line of
mirrors.

More to come…