• by Pat LaPointe , Op-Ed Contributor, November 14, 2008

It can't feel good to be the head of marketing at SK Telecom lately. With even the Wall Street Journal proclaiming that, in effect, you're squandering shareholder value, the board meetings must be pretty uncomfortable. Safe to assume that the recruiters aren't calling either.

If you read the whole article, you'll see the story-beneath-the-story that rationalizes everything. The marketplace for mobile phone customers in South Korea is hyper-competitive, and massive amounts of marketing pressure are required just to hold onto customers while converting them from month-to-month status to contracted rates. Fair enough. Investment now builds Customer Franchise Value  over time. That makes sense.

But somehow, the marketing organization failed to explain to finance exactly how much shareholder value was being created through the marketing investments, or how much might have been destroyed had the marketing not been effective. It's a classic case of marketing looking down the road for growth while finance deals with the realities of accounting principles -- e.g., the requirement to book all expenses immediately.

Had the two parties better aligned on how and why the money was being spent, the alternate story might have read something like this:

SK Earnings Down on Customer Retention Investments

Seoul, South Korea - SK Telecom today announced that projected earnings for the year would be down by X% as they continue to make investments in shoring up the loyalty of their customer base for the future. SK's CEO told a gathering of analysts that "we have elected to make some substantial near-term investments in marketing to help us achieve our goal of being the number one mobile telecom provider over the next few years. While the initial costs are high, the forecast net present value of our investments provides a very attractive return to shareholders and builds a stronger platform for growth."

So, how do you keep the SK story from happening to you? Particularly if the marketing organization in your company is separate from the investor relations function?

First, clarify the understanding among CEO, CFO, and CMO about exactly how marketing investments are expected to create both near- and long-term shareholder value. Be as specific and precise as you can.

Second, establish business cases that forecast the expected returns from future investments based on a set of transparent and credible assumptions. There are many techniques for evaluating the net present value to be derived over time based on an investment made today. Compare the impact of various investment scenarios on both a cash-flow and asset creation basis.

Third, define the expected outcomes of substantial changes in spending patterns between you and your major competitors in a "game theory" framework where you alternately assume that one or more of you may dramatically increase or decrease their total marketing pressure.

Fourth, apply some structured decision techniques (the same kind as finance would in evaluating a new plant or IT would in assessing a new enterprise software investment) to  identify the critical risk factors and surface appropriate mitigation strategies.

Recognizing that there are many sub-points under each of these four steps, it's still a straightforward approach for linking marketing investments to shareholder value -- even in the murkiest of data-starved worlds. And along the way, it ensures clarity of marketing purpose while establishing specific success metrics.

It's hard enough to run a global marketing organization today and wrestle with fragmentation of audiences, messages, and media. Undoubtedly, the CMO at SK Telecom was managing what the company thought was important, and possibly doing a fine job of it. But it's painfully obvious by now that marketing didn't have the right clarity and alignment with the CEO of CFO -- or this message would never have been allowed to dominate the discussion of its quarterly results.

At least now you know how to avoid a similar fate.