How to speak the language of a game-changing shift

Ads might be more effective at growing margins than growing sales, so marketers will need to get better at CFO-speak to benefit.
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By John Bradley and Carrie Bradley

Given that we have long advocated marketers and their agencies needing to be able to talk the language of business, it was no surprise to read research by Empathy Inc. on the linguistic disconnect between CMOs and CFOs.

The report certainly doesn’t pull any punches. While quotes like “marketers are often criticized by other business professionals as being ‘creative’ or ‘fluffy’ or ‘liars’,” might be a little over-the-top, they lay out just how wide the gap between marketing and finance can be.

However, where we differ from the authors is in this assertion: “marketers need more people who can decipher the available data into real business decision-making parameters.”

No, it’s not that marketers need more people who can do this, it’s that all marketers (and their agency partners) need to have these capabilities if they want to play a full role at the c-suite level.

These language and capability gaps have come into even greater focus with new insights on how advertising really works, thanks to the combined efforts of the Ehrenberg-Bass Institute and the godfathers of advertising effectiveness, Les Binet and Peter Field.

To summarize their latest thinking, the effects over different timescales of brand-building advertising and sales activation (which includes most online advertising) have been widely disseminated, broadly accepted and also pass the common-sense test. As Binet puts it:

“Advertising increases or maintains sales and margins, by slightly increasing the chance that people will choose your brand, by making the brand easy to think of and easy to buy, and creating positive feelings and associations via broad reach ads that people find interesting, and enjoyable and targeted activation that they find relevant and useful.”

Advertising increases or maintains sales and margins”? Woah! Two new concepts have crept in here! Firstly, that advertising may only maintain, rather than increase sales, and secondly, that advertising may have a role to play in increasing profit margins.

What counts about the first point is how marketers communicate in CFO-speak the all-too-true reality that advertising’s impact on the sales line is very often both limited and tenuous. An advertising spend that maintains sales can be communicated as a terrific investment, but only if you can demonstrate that its absence would send the sales line plummeting earthwards.

Marketers avoid (or are just bad at) making this argument because it involves unsexy things like “do nothing” scenario sales projections being run through financial forecasting models. But, if the prevailing wisdom now is that adspend merely maintaining sales is, in many cases, its actual intended purpose, then you’d better learn how to evaluate these “do nothing” scenario cases if you want your request for extra money that won’t increase sales to be accepted.

The second point, that advertising can enable brands to increase profit margins, has the potential to be a complete game-changer in the argument to spend on advertising. The ability to increase one’s prices and not lose any sales has been a bigger, more alluring c-suite goal than spending to increase volume sales for the entire history of the marketing and advertising professions.

But again, we would caution against just blurting this out to the CFO, because your brands’ prices will have been increased before you had even switched off your mic.

To make the bold promise that prices can go up and flow entirely to the bottom line requires a very different type of conversation, one that will be almost entirely in financial terms. This will then need to be backed up with a lot more diligence in testing and measurement than the industry has ever able to muster proving that advertising could always be relied upon to increase sales. Because it couldn’t.

This switch in emphasis on the role of advertising from growing sales to growing margins makes for very exciting times for marketers and their agency partners. But, if you want to benefit from them, you should begin by bridging the marketing-finance language gap and then put in the necessary groundwork to be able to prove that spending to maintain sales is a good investment and spending to increase profit margins is a great investment.

John Bradley and Carrie Bradley are managing partners of The Bradley Group.