A recent short but interesting article in My Customer (14Oct19) entitled Why service and marketing should have a shared budget highlighted again how commercial activities in many businesses still operate in a silo mentality. The article went on to suggest “that marketing spend should be zero in a company delivering perfectly brilliant experiences, because the less you over-promise and the more you over-deliver, the more free marketing you get and the less you need to spend on marketing.” While this is an interesting theory, could it be true?
There are several companies which claim that they started or continue to have a marketing budget of zero, amongst them being the IT companies Google, Linux and Facebook. It also claimed that it was not only hi-tech businesses that were innovative and successful by doing “marketing” with a zero budget, but that some service companies such as McKinsey did not have a marketing organization, to which could be added Timpson’s, the high street heel bar retailer. But is it really true that successful “marketing” can be done without money? However attractive the idea may be, the idea that “marketing” may be done without a budget does not stand up to simple scrutiny, unless one has little or no real understanding of what is involved in “marketing.”
While the ability to sell is fundamental to business success, businesses frequently refer to “marketing” goods and services when they actually mean advertising and selling, as though there were something wrong with the action of selling. Articles in the business press would also suggest that many marketers seem confused about their role, appearing to have limited objectives, in the highly specialized disciplines of social media, communications and brand image, but having little or nothing to do with the actual process of selling.
Marketing as defined by the Chartered Institute of Marketing, is “the management process that anticipates and satisfies customer demand profitably.” Anticipating and satisfying customer demands requires many customer related activities including, advertising and promotion, marketing research, product development, brand management, and distribution but also includes making the sale, which is the executive function that ultimately brings in the money. “Marketing “ is therefore a management process for using resources and assets efficiently to produce profitable income, which involves a great deal more than simply promotional activities or even selling.
Commercial mangers have the responsibility of maximising profitable income for the long term future of the business, by getting and retaining the custom which produces the necessary income. To achieve this, commercial managers must succeed in managing, motivating and directing all the personnel collectively responsible for anticipating and satisfying customer requirements, while minimising costs and the use of assets , over a whole range of specialist disciplines including marketing research, product development, promotional communications, customer service and especially selling.
The internationally famous management consultant, the late Peter Drucker once said” if you can’t measure it you can’t manage it”.
Thus the effective management of all the assets and resources required to produce profitable income necessitates the use of performance measurements not just for sales but across all customer related activities.
The true cost of getting and retaining business involves all those elements which comprise “the marketing budget”, that include: warehousing, advertising , selling (salaries/expenses), discount, sales office expenses, bad debt, it software costs & licences, sales vehicle lease cost.
The article in My Customer would seem to suggest that it is possible for even large companies to declare that they have zero or very low marketing budgets, but this is not actually the case. The truth is that many companies, perhaps a majority, have little idea what it actually costs them to get and retain business. There are many reasons for this, but a misunderstanding of the nature and purpose of marketing by both marketing staff and senior management is probably a primary cause.
In addition, the traditional departmental organization in companies means that the responsibilities of a marketing organization are generally restricted to sales and sales support, rather than to the wider requirements involved with anticipating and satisfying customer demand. Investment in good marketing research is necessary to understand the market trends and anticipate customer demand. Satisfying customer demands includes other areas not thought of as part of the traditional “marketing” area of responsibility, such as product development, (guided by market research), production, and distribution. In addition, the area of credit control can have an important role to play in customer satisfaction. Thus “marketing” budgets are often at best incomplete in their scope, being derived from responsibilities of the marketing organization within the organizational structure, rather than from all those activities collectively involved in satisfying customers to produce income.
While it is possible to have a minimal or zero promotional budget, as some successful IT companies do, it is not possible to have a zero marketing budget if everything is properly accounted for. Perhaps the idea of the possibility to have a zero promotional budget stems from the desire from some marketers, to avoid having to measure the return on their investments, so there is an attraction in the idea of a zero investment. But the purpose of marketing is to generate money. Marketers will be measured on how much income they generate and how much it cost to produce it. Marketers must therefore be fully aware of what is involved in all the activities required to anticipate and satisfy customer demand profitably, and not delude themselves into thinking that they can get and retain business without cost.
While the various activities that are involved in anticipating and satisfying customer requirements need separate budgets for financial control, they need to be collectively managed under a single commercial manager