Interview: Professor Malcolm McDonald
Marketing Accountability:
How to Measure Marketing Effectiveness
Steve Macaulay
Hello, I am Steve Macaulay and I am interviewing Professor
Malcolm McDonald about a book that he has co-written
called Marketing Accountability: How to Measure Marketing
Effectiveness.
Now Malcolm, give me some background why this book
came into existence.
Malcolm
McDonald
The origins of the book go back, I guess, fifteen years when
I was a full time professor at Cranfield. And I and one or
two perspicacious colleagues started research clubs at
Cranfield and research clubs that were sponsored by the
major organisations. Having found out what the problems
were, we got their money off them and we set about
researching and finding solutions to them.
Now one of those major problems was what has since come
to be known as marketing accountability. And it was about
this time as well, perhaps fifteen, fourteen years ago that
one of our late colleagues, Dr Susan Baker, she was doing
some research tracking what senior non marketers thought
about marketers. And the bottom line on a quite complex
study – so I am not doing it justice – concluded that the
marketing community were seen as slippery, unaccountable
and expensive. And she wasn’t the only one. More
recently in 2007/2008 the Deloitte report came out and that
also, I think, was the final nail in the coffin that the senior
community of chief executive officers and chief financial
officers were no longer prepared, particularly with the advent
of a recession, to contemplate these vast sums of money
spent by the marketing community without any apparent
accountability for it, other than we know it’s the right thing to
do.
So somebody had to start nailing this particular jelly to the
wall, and fortunately we had two generations of research
clubs that were able to do this. One is still current and it is
actually called the Marketing Accountability Research Club,
and it is still ongoing and it is still sponsored by some major
companies. We haven’t solved the problem totally, but we
reckon that we are about 90% of the way there.
Steve Macaulay
So if I read what the book says correctly, finance people
tend to put too much emphasis on the tangibles and the
short term; marketing people tend to look at the long term,
Professor Malcolm McDonald
but not from an accountability perspective and not a very
crystal clear way. Is that correct?
Malcolm
McDonald
Well it’s difficult to agree or to disagree with that. In a
sense you are right. Accountants are paid to count things,
of course they are. And the accounting community looks
backwards because that is what it does. You can only
count what has actually happened. And you are right in the
sense that marketing people are paid to look forward.
Now all the best companies in the world, and as you
probably know, I used to be Marketing and Sales Director of
Canada Dry, the best companies in the world like the 3M’s
and the 3i’s and the Xerox’s and the Unilever’s and the
Procter and Gamble’s of the world – the marketing directors
of those companies work very, very closely with the finance
directors. We work together. So they have to count what
has happened in the past; we have to look forward of
course, and make strategies. And those strategies have to
turn into numbers and if you work closely with your finance
partners you will have this wonderful, wonderful marriage of
finance and marketing.
Steve Macaulay
Now you have distilled this marriage down to a seven step
process in your book. Can you say a bit more about this
process and what it entails?
Malcolm
McDonald
Rather than boring people with going through what the
seven steps are, the method and process that we developed
and researched here in the Research Club, at Cranfield,
which is laid out in the book, consists basically of
differentiating between what we call lag effects and lead
effects.
Now lag effects are the outcomes of things that we have
done. So we measure; we measure things like sales
growth, we measure things like market share growth or
decline; we measure things like margins; we measure things
like customer retention; we measure things like upselling,
cross selling. But if you think about it Steve, these are the
outcomes of something that we have done in the
organisation.
So what we have done in the book, and in our Research
Club, is to relate all of those measures that I have just
outlined to products for markets. In other words, the things
that we sell and who we sell them to. And for each one of
those products for markets, those are the things you
measure. But you have got to get behind it and say what are
the things that cause those results? And that, I think, is the
secret of the book and what is new to the world; it’s actually
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September 2009
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Professor Malcolm McDonald
breaking down, for example, things like critical success
factors based on what makes people buy what they buy,
what their preferences are. Measuring those, and then
spending money to make sure that you are pulling the right
levers. But those are the lead effects and what we have
done by inventing – no you don’t invent it, you watch what
best practice is and you generalise it – but what you then do
is you make it absolutely crystal clear what needs
measuring, why it needs measuring, when it should be
measured, who should measure it, how frequently you
should measure it, to whom should it be reported and so on
and so forth. And it clarifies this complex area of bean
counting, which is the backward looking financial stuff and
the vague sort of forward looking strategy making.
It is possible to put numbers on it, and that is what the book
is about.
Steve Macaulay
That’s interesting. One of the things that struck me when I
read the book is a criticism really of marketing in the past,
that it has tended to be a bit of a loner and this encourages
you to work cooperatively with others- groups like sales
people, people in charge of CRM and so on, finance people.
Getting together in workshops, working together to work out
a strategy and how to make this work. Is that something
that you consciously tried to do to make these things real?
Malcolm
McDonald
Yes. I mean it’s not just the marketing accountability book.
It’s the books on marketing planning, it’s the books on
branding. It’s all processes. Marketing cannot exist in a
little world of its own, and bad marketing – and the world has
a lot of bad marketing in it – you have put your finger on it,
that is exactly what they do. They try and work in their own
little world and they try and ring fence what they do. The
best companies in the world, the brand leaders, they always
have teams of people which include of course marketers,
but they have teams of people working on these very, very
difficult corporate problems because you think about just
developing a brand for example. You cannot do that just in
the marketing department; somebody has to develop it, that
involves research and development; somebody has to
actually build the product, that involves operations and
production; somebody has to store the product and deliver
the product, that involves logistics and so on and so forth;
somebody has to do the customer service – if the product
breaks down etc – somebody has to do the relationship with
major channels. It has to be – and always has been in the
best companies in the world – a team effort. And this is
what the book on marketing accountability does.
All it does it separates out those components that need
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September 2009
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Professor Malcolm McDonald
measuring, that can be measured by marketing, but it isn’t
just that because when it gets to the who should be doing
things, that is where it becomes a corporate responsibility,
but now we know what its connection is for those other
disciplines to what is sold and to whom it is sold.
Steve Macaulay
Now you said that you are nearly there with pinning all these
things down. If you look to the future, what would you like
to see in a few years time of real marketing accountability,
where you feel comfortable with all these measures and so
on and they are actually working well in companies?
Malcolm
McDonald
There are two things and we are working on both of these
future related problems, issues, at the moment in our
Research Clubs at Cranfield. One is for want of a better
term, let’s call it multi channel distribution. We have a
myriad of channels, different routes to market, that we didn’t
have when I was a marketing director. In those days you
had advertising, you had direct mail, you had personal
selling – and a few things like that. Today you have got all
the electronic channels, you have even got the iPhone and
the iApplications coming along. You have got all the word
of mouth stuff, you have got CRM systems and it is actually
very complicated. And the world doesn’t yet know enough,
Steve, about how you measure the effectiveness or the
impact of what you are doing in those different channels.
So we have got a Research Club currently doing that.
The other one, which is still being researched as I am sitting
here by our Marketing Accountability Research Club, is this
whole issue of what you call maintenance expenditure on
marketing, as opposed to development expenditure. So we
are all familiar with net present value calculations –
discounted cash flows or whichever term you want to use.
The problem is if you use it on, let us say, a £10mn
promotional piece of expenditure, what you are not doing is
understanding how much of that £10mn you would have had
to spend to stay exactly where you are. And what we
should be doing is measuring the effectiveness – or the net
present value – of the incremental sales on the incremental
expenditure. And that is the issue that we are researching
at the moment.
Steve Macaulay
Malcolm, thank you very much.
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September 2009
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