• by Carl Erik Kjaersgaard , Op-Ed Contributor, October 24, 2018

Marketing plays a fundamental role in driving growth and consumer engagement for businesses around the globe, creating an industry worth over $1 trillion.

Accurately determining the impact of marketing and crystalizing the actual return on investment (ROI) for a campaign is a challenge that marketers for decades have faced. The latest survey results from the IPA/ISBA find that 76% of marketers place “great importance” on being able to demonstrate ROI.

A survey from Deloitte found that 60% of Fortune 1000 CMOs could not quantify the impact of their marketing in both the long and short term.

The digital age has changed the marketing landscape rapidly, disrupting traditionally reliable marketing methods and techniques. WARC recently found that brands in the UK and US now allocate 23% of their budget to digital marketing -- up from 16% just a year ago -- with 63% of US technology budgets now spent in-house, rising from a 44% share last year.

But while marketing strategies have evolved quickly with new technology, the way marketers budget has not. Currently in many organisations, the marketing budget faces the same allocation every year, determined as an arbitrary percentage of audience reach -- instead of something more informative such as projected sales volume.

Most businesses currently use media agencies to manage a significant share of their marketing spending. However, agencies are often more interested in maintaining historical spending levels and allocations than challenging past assumptions to achieve savings, contributing to the stagnation of how these budgets are handled.

A proposed solution to the current, antiquated method of budgeting for marketing comes from Zero-Based Marketing. For a CMO, this means that you are essentially not guaranteed any budget (aside from certain operating costs) unless you can justify why you need it -- creating a marketing plan for the year based on business objectives.  

So what are the key advantages of this approach? Fundamentally, this zero-based approach tackles waste - marketing teams would no longer simply spend their budget to justify the same allocation in following financial year. It also creates a valuable debate between the marketing team, forcing all marketing to have clear, unified objectives.

There are a few primary reasons why zero-based marketing has not been embraced by businesses sooner: first, the zero-based approach has been traditionally viewed as incredibly time- and resource-heavy. Another criticism comes from it being tricky to measure the ROI or value of certain offline channels.

For global brands, marketing budgets are often separate for each business unit and country -- which limits visibility and comparison -- while the sheer multitude of spending categories can make it difficult to identify the highest-value opportunities.

However, in recent years there has been a proliferation of technologies that can process massive data sets unlocking an opportunity for marketers to measure the performance of their marketing investments and adopt a zero-based approach. Through data, AI tools are able to effectively model ROI from marketing efforts across channel and country, online or offline.

But the crucial development that makes the zero-based approach a genuine reality for marketers is the recent development of AI tools that are sophisticated enough to work in real-time.

So rather than relying on a plan that is devised annually and reviewed quarterly, marketers using AI tools and a zero-based approach can build a media plan in real-time that they can dynamically adjust taking into account a wide range of factors, such as the weather or competitor activity. This newfound agility empowers marketers to work in a way that truly demonstrates -- and optimizes -- ROI.  

A recent McKinsey survey revealed businesses that are methodical about investing funds unlocked through zero-based budgeting ultimately outperformed their market. Notably, often more than 50% of these savings can be achieved in the first 12 months of a zero-based marketing effort, allowing for a very rapid reallocation.

How we conduct marketing has changed significantly in the last decade -- and it’s important that how we budget changes alongside this.

With developments in machine learning and the ever-expanding ocean of data available at our fingertips, marketers are able to embrace a more analytical, granular approach to spending decisions -- making ROI the true common ground for decision making.