True story...
A VP marketing at a global consumer financial services company has, for years, been "justifying" the ROI on marketing spend using a sophisticated marketing mix model. This model, developed painstakingly over a two-year period and refined continuously over the subsequent five, provided the foundation of
his argument that marketing was providing $X in incremental profit for every dollar spent on marketing.
The model was good. Taking into account the 12-month purchase cycle, it looked at not
only media mix, but changes in sales promotion programs, email, web, and mobile marketing initiatives. It also took into factored in competitive spending, brand preference scores, and customer
referral likelihood. In short, he was able to use the model to "isolate" the relative contribution of marketing activities versus other things the company was doing (e.g. adding sales reps,
opening new channel partnerships, etc.)
His confidence in his model was so high and his quantitative "proof" so rich that when challenged on the company's increasing commitment to
marketing spend as a percentage of sales, he would regularly reply "the model doesn't lie." And for the longest time, no one would challenge the VP or the power of his model.
Than
the CFO retired and a new one came in, from an industry where they hadn't used models. In one of his first meetings with the new CFO, the VP started into his marketing justification presentation,
showing the steady improvement in incremental profit per $ of marketing spend, when the CFO stopped him in his tracks and asked "How does your model account for the substantial changes in
consumer attitudes and behaviors in the current economic environment?"
The VP was initially stunned. No one had ever dared to question the validity of his model before. He
immediately began to describe the list of variables that his model DID take into account, and rationalized that such breadth must therefore reasonably account for the economic environment. But the CFO
cut him off by announcing that the model could NOT be used as the basis for marketing spend decisions unless/until it could be shown how it maintained its validity in the face of shocks to the
economy. Further, the CFO stated that given the company's tight performance expectations in the next few quarters, marketing spending would likely have to be cut back.
Partially angry at the
nerve of the CFO to question his authority and expertise, and partially embarrassed by his oversight of the economic factors in the model, the VP sulked back to his office and called in his head of
marketing intelligence. They talked about the implications of the CFO's questions, ranging from the specifics of enhancing the models to the risk of losing all credibility gained in the process
over the past few years.
My question: How would you handle this if you were in the VP marketing role? What would you do next? How would you respond?
I'll tell you what really happened
in my next post.