R. Gopalakrishnan*

The marketing function periodically comes under intense scrutiny from the top management and such is the situation currently too. It has been on trial in a cyclical phase and we are at that phase now. Marketing gets on trial when it fails to deliver what is expected. This could be the result of a slowdown in the economic environment, which puts pressure on margins, thereby raising eyebrows. It is only natural that cash-strapped CFOs expect marketing to do more with less. This raises questions about whether such demands are justifiable. Does marketing add value to the shareholder's wealth?

Part of the failure can be attributed to the marketer's focus on the market rather than the customer. Over the years, some duties of marketing have evolved into specialist departments. For example, the logistics or supply chain management team handles distribution and channel responsibilities, while customer satisfaction, which is crucial for retention, is the responsibility of the customer service departments or, in most cases, is managed through technology-driven databases.

Back to the customer
So what was the problem? Indian businesses became inwardly focused, forgetting the truism that marketing is the business of business. Marketers failed to realise that the context of consumer decision-making had undergone a change in recent times, mainly due to the availability of information from multiple sources. They had been relying on old marketing tools to connect with the consumer. This led to a number of lapses. Market research failed to obtain consumer insight. Mass advertising failed to attract and retain customers. As a consequence, marketing efforts failed. If marketing is the business of business, it amounted to saying that, in effect, the business had failed.

It was David Ogilvy, the advertising guru, who said, "Half the money I spend on advertising is wasted. The trouble is, I don’t know which half." This is proving to be true. That marketers are not accountable for their actions is causing CFOs to rethink key roles in deciding marketing budgets. There are many management thinkers like Adrian Slywotzky who argue in favour of treating marketing spend as capital expenditure rather than revenue expenditure. The rationale is that strong customer relationships are forged over a long period of time. However, questions still arise. Can the return on investment on marketing be quantified? The answer is both yes and no. Every capital-budgeting activity in the organisation is subject to strong evaluation in terms of ROI or pay back, so why not marketing spends?

On the other hand, for years corporations have attempted to devise techniques and metrics to measure the impact of marketing initiatives on the company’s bottom line, but without success. Marketing was perceived to be the only department to remain out of the purview of any kind of metrics. In short, marketing spends were perceived as not being subject to any questioning or accountability, much to the chagrin of functional groups like sales, manufacturing, production and finance.

Quantifying the art of synthesis
Despite the limitations of using an analytical approach to measure the impact of marketing, many corporations now use advanced analyses, consisting of statistical tools, to measure incremental sales volume from all types of marketing activity carried out in the organisation. The US-based consulting firm, Hudson River group, has developed a technique called 'Marketing Mix Modeling' to measure the driving factors of marketing on a concurrent basis. This technique measures every activity that impacts business, provided data is available. The resultant ROI or the incremental net revenue derived from each marketing initiative, using the above technique, has helped firms abroad channel spending for optimum results.

When marketing comes under pressure, it responds by being more scientific and analytical. While the drive to be more analytical and quantitative is welcome, the moot point is whether marketing is a science or an art. The drive to get more analytical may have ended up costing us our ability to be intuitive.

Quantitative tools that used statistics were successful up to a point. They produced results as long as markets were expanding and every player was assured an opportunity. But the power of analyses soon ran its course, and its utility waned as competition set in and the market got saturated and complex.

As product differentiation became difficult, market initiatives through market research failed to obtain the relevant consumer insight. These analytical tools assumed direct correlation, whereas in reality there were tangible and intangible factors that either worked for or against the success of marketing initiatives. The drawback of these tools was their failure to recognise the creative or intuitive aspect of the marketing function. That is why marketing initiatives have moved away from the science of analysis model to the art of synthesis model.

Three pillars of marketing
Marketing is all about winning the first or the second position. It is seen as wasteful by a mindset that yearns for order, stability and cost minimisation. However, the endgame is efficiency from the customer's viewpoint, waste being an inevitable by-product. Marketing is about satisfying the customer.

Marketing is not the job of one department alone, but the business of everybody in the organisation, whether in manufacturing or services. It is this confinement or departmental mentality that has distanced the customer from marketing. Every business is about getting and retaining customers. For instance, Tata Engineering has, as part of its 'new-products process', set up multi-functional teams to assist in augmenting its dealer network. Additionally, over 250 plant engineers spend over six months in customer contact.

This brings us back to the issue of how to measure and improve the effectiveness of marketing. Marketing is like golf; you learn the rules and implement them. You have to learn to do the right things at the right time and in the correct manner to increase the probability of reaching your marketing goals. 

There are three pillars on which successful marketing depends. The first pillar rests on developing customer intimacy. A company can gain a lot from investments made to acquire, satisfy and retain customers by improving their perceptions about the brand. In order to achieve this objective, the company should have answers to the following:
How much do we spend on understanding the consumer?
Is it well spent in terms of the consumer insight we get?
Does the management committee or the executive committee have 'consumer trends' on its agenda?
Do management / executive committee members devote time to meeting consumers and developing a viewpoint, based on their customer understanding?

During one customer visit, the Tata Engineering team found truck operators carrying a higher load in order to manage their economics. This led to frequent breakdowns in the rear axle. The team studied the overloading patterns and designed an axle that carried higher loads and provided better value to the customer.

Empirical studies prove that a marginal improvement in customer retention can lead to a spectacular rise in profitability. Even in relative terms, the company focusing on retention would have much better margins than the company focusing on acquiring customers.

The second pillar rests on tracking the health of the brand. Companies have to devise systems and processes to track and monitor the health of the brand. To ensure that the brand remains healthy, the company should have the following issues in mind:
Do we measure our brand health on pre-determined parameters?
Can we correlate our business actions with the deltas in the 'brand health metrics'?
Is our competitive strategy significantly developed from data derived from the brand track, customer intimacy and competitive intelligence?

The Tata Brand is measured through the 'Tata brand track', an ongoing market research study. The study, conducted every six months, captures the opinions of all stakeholder groups, monitoring perceptions of the brand in terms of familiarity, image and personality. The ratings by the respondents are compared with the ranking perceived by peer corporate firms.

While formulating a strategy, it is important to take the external perspective into account and align it accordingly. It is for this reason that the Tata Group devised a holistic and institutionalised framework called 'fact and information-based reverse engineering', or Fibres, to ensure that a company monitors its external environment. Under the framework, information on a competitive environment is collated and analysed, and the strategy is modified accordingly, based on the situation.

The third pillar of marketing rests on innovation. In order to build an innovative culture within the organisation, the company should define the innovations in product delivery. Are they widely understood? Should the company be aware of the global benchmark and where it is relatively placed. To be more effective, all the managers across functions are infected with the virus of innovation.

Innovation in product development can lead to incremental or fundamental change in customer behaviour and response. For instance, Rallis has set up processes that can track innovative product development efforts within the organisation. The company has also been able to measure the incremental revenues accruing from such efforts on a regular basis

To sum it up, like any other function, marketing effectiveness and metrics also need to be revisited time and again. The key to marketing effectiveness lies in defining goals rather than controlling the monetary aspect.

* Mr Gopalakrishnan, executive director, Tata Sons, spoke to Abhishek Sinha and R. Radhakrishnan