Tuesday, December 08, 2009

Making the "Best" Business Case for Marketing Investments

More than ever before, the approval of any significant marketing initiative is dependent upon a compelling business case. A business case is meant to function as a logical framework for the organization of all of the benefit and cost information about a given project or investment.

Working with this definition, one might conclude that a “good” marketing business case is one that increases the quality of decision making. Yet many of us in marketing have come to believe that a good business case is one that predicts a significantly positive ROI, IRR, and/or NPV for a given investment. Strangely, we tend to water-down any assumptions that actually seem to make the case “too good,” lest someone in finance really begin questioning our assumptions. Have you ever found yourself…

  • Using aggressive, moderate, and conservative labels on business case scenarios to show how even the most conservative view provides a strong potential return, and anything beyond that is gravy?
  • Identifying the always-low break-even point at which expenses are recaptured fully, and showing how this point occurs even below the conservative outcome scenario?
  • Taking a “haircut” in assumptions to show how, “even if you cut the number in half, the result is still positive.”

Every time you use one of these approaches in an effort to build credibility with finance or other operating executives, you paradoxically wind up undermining it instead. These tactics all have been shown to communicate subtle messages of inherent bias and manipulative persuasion which, intended or not, are noticeable to non-marketing reviewers – even if only on an instinctive level versus a conscious one.

In my experience, business cases get rejected most often for one of the following reasons:

  • Bias – senior management perceives that marketing is trying to “sell” something rather than truly understand the risk/reward of the proposed spending recommendations.

  • Jumping to the Numbers – showing final forecasts which contradict executive intuition before they have had a chance to reconsider the validity of those instincts.

  • Credibility of Assumptions – forecasts seem to ignore the effect of key variables or predict unprecedented outcomes.

Successful business-case developers recognize that there is more at stake than just getting funding approved. In reality, there are several objectives which must all be achieved with every business case:

  1. Protecting personal credibility. Any one program or initiative may be killed for many possible reasons. But you will still need to come to work tomorrow and be effective with your executives, peers, and team members. Preserving (and strengthening) your personal credibility is therefore the paramount objective.

  2. Enhancing the role of marketing. If you have personal credibility, you will want to use it to take smart risks to help the company achieve its objectives, and to influence matters relating to strategy, products, markets, etc. In the process, you need to be thinking about the role of the marketing function; how it can best serve the firm; and how you need to evolve it from what it is today.

  3. Bringing attractive options to the CEO – the kind that forces him/her to make hard decisions choosing between financially appealing alternatives.

There are always two dimensions to business case quality – financial attractiveness, and credibility of assumptions. In the end, it takes more than just financial attractiveness for a successful business case. It takes:

  • Thoughtfulness: demonstrating keen understanding of the role marketing plays in driving business outcomes and reflecting the input of the most critical stakeholders throughout the organization.
  • Comprehensiveness: including all credible impacts of spending recommendations, and calculating benefits and costs at an appropriate level of granularity.
  • Transparency: Clearly labeling all assumptions as such and presenting them in a way that encourages healthy discussion and challenge.

There are many ways to build a successful business case. But the most important learning is to understand the context in which your proposal will be evaluated BEFORE you put the numbers on the table.

Pat LaPointe is managing partner at MarketingNPV – objective advisors on measuring payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.


Martin said...

One of the challenges of making these marketing cases is credibility. For good reason many question marketing's ability to adequately predict cost. In some part because so little use is made of direct response marketing where costs are known. And results quantifiable. And that is the other side of many marketing initiatives. Using direct response marketing, a credible break even analysis is easy to do. And they are very revealing and compelling.

Anonymous said...

you have a nice site. thanks for sharing this resources. keep it up. anyway, various kinds of ebooks are available here