The High Cost and Low Return of Marketing Innovation

Originally published June 2013

Why are corporate chief marketing officers replaced so often, seemingly unable to remain in their corporate roles for more than a few years? CEOs are in their roles for an average 8.4 years and CFOs for well over ten years. The average tenure for CMOs remains a mere 3.5 years, although job duration has increased from less than two years just a few years ago. It remains a disturbing reality that relationships between most Fortune 500 companies and their media and agency partners are tenuous at best.

Although much has been written about CMO's short job tenure, a few major reasons have been ignored. One is a warped sense of the role of research and development in the marketing community and another is the failure of many CMOs to engage in real partnerships with media companies and agencies.

There is a direct correlation between expendable media/agency partnerships and expendable CMOs. The average agency/client relationship is about the same as the average CMO tenure and while most reports suggest that CMO turn-over leads to agency turn-over, I argue that the reverse is true. CMOs and corporate marketing departments tend to have a short-term perspective on both relationships and marketing programs. They rarely build strong and sustainable partnerships with media companies and pressure their agencies to constantly innovate, but fail to convert their most successful efforts into long-term strategic campaigns. Institutional marketing memory within organizations is lacking and replacing a CMO rarely has any meaningful downside. Obviously there are exceptions but even within the most successful marketing departments, short-term thinking often dominates.

Over the course of the past four decades, I've worked closely with the senior management of dozens of major multi-national marketers, most leading media agencies and hundreds of media companies. My role has focused on innovation – inspiring it, guiding it, and evaluating it. The most dominant pattern that is evident after years of working with these companies has been the short-lived support that corporations and their executives provide to even their most successful marketing programs. Investments in marketing innovation, which should lead to the development, testing and institutionalization of long-term strategic media company relationships, more often results in a series of one-off promotional initiatives.

The refrain I've heard for years from both media agencies and media vendors is that they're constantly required to develop new ideas; and that their most successful ideas and initiatives are implemented for a season or a year, and then discarded as clients search for the next new and different big idea. Marketing and advertising, it seems, is held to a very different standard than every other corporate function. Marketing innovation has become more about the ideas themselves than about the sales results they might generate.

Marketers reading this are probably responding defensively. Not true in my organization. Not true at all. But consider these realities, to which most agency and media company executives can attest.

U.S. corporations invest an average 3.5% of their revenues in research and development. The goal, obviously, is to identify, through R&D, products, services and business opportunities that have the greatest potential to generate incremental revenue growth. The role of management is to measure and evaluate results from the R&D process to inform long-term strategic investment. A pharmaceutical company, for example, can invest upwards of ten percent of revenues in R&D to identify and test new products. A fractional percentage of tested products will make it to market. Imagine what would happen to the executive who brought a product to market, experienced a successful uplift in sales, and then pulled the product off the shelves in order to shift attention to other unproven products. That executive would most certainly be fired.

What about the financial services industry? Imagine the fate of an executive who invested a year developing and introducing a new branded service and another year testing it in the marketplace with outstanding consumer response, but then pulled that service from the market in order to divert funds to another still untested service. Fired!

Or the television programming executive who launched dozens of new TV series and pulled all of them – including the hits -- off the schedule in order to try something new and different for the next season. Absurd to even consider.

Yet, marketers ask their media partners to come up with new ideas every year, discarding promotional programs developed and implemented by their agencies and the media regardless of how successful they might have been. Advertisers invest an average 3.5% to 5.0% of marketing communications programs in testing new, mostly digital initiatives. Yet, the purpose of these tests often proves to be more about touting their department's innovative spirit than it is about strategic long-term investment guidance. Early and mid-stage digital companies tell me their greatest challenge is converting successful test budgets into sustainable and growing relationships. I've seen the research that proves the tests achieved or surpassed well-defined goals, yet the clients and agencies fail to expand meaningfully on their successes, instead shifting their focus to new test programs and the next new thing.

Several of the largest television and publishing media empires have invested significantly in innovative customized integrated marketing and promotional initiatives for their clients. While these programs may generate premium pricing for associated media inventory, they are economically unviable unless they prove to be sustainable and self-funding. Several of these companies are scaling back their investments in customized innovation because they have not resulted in sustainable relationships. Investment in innovation demands that successful programs pay for those that never see the light of day. But even when it produces a great success for a client, the program rarely is renewed more than once or twice, if at all. Instead of doubling down on the programs that produce results, clients shift their focus to the next big idea.

At their core, relationships between media companies and marketers remain focused on delivering cost efficient reach and frequency. Ideas and innovation are simply the ante, and with each new hand (or negotiation) a new ante is required. If the last hand resulted in a huge winning pot, it's all too often irrelevant.

Even in sports, where sponsorships are highly valued annuities, marketers seek new promotional ideas every year, requiring their agency and media partners (and the sport leagues) to constantly invest in R&D without the benefit of building on their successes. Branded content initiatives, today's hot industry trend, are too often viewed as one-time only ideas and are shelved as marketers search for the next idea they can socialize to their bosses and colleagues.

I've confirmed with agency media buyers and planners that their average client has budgets in the high six figures to low seven figures annually for testing new digital media opportunities, new research-based buying tactics, and innovative hot new companies. But success measures for these initiatives are rarely standardized, and all too often there is simply no model in place to increase investment in those few initiatives that deliver positive results. Instead, the innovation/R&D budget remains focused on finding new ideas and opportunities, while last year's investments either get sent to the trash heap or get pushed from the R&D budget into line-item negotiations against much larger competitors where they are unknown and ignored. Marketers' investments in innovation, which should provide guidance and opportunities for sustainable growth, generate little more than irrelevant trade press mentions and frustrating unprofitable experiences for the agencies and media partners. And we wonder why CMOs have a short tenure.

Yes, online video, mobile, social marketing and other technology-driven marketing tools are experiencing exponential growth – but primarily because they respond to shifting audience attention. Most of these growth budgets are being managed through programmatic and algorithmic buying with cost efficiency as the primary measure of value. Budgets invested in truly innovative marketing through these emerging platforms are stagnant and falling into the same pattern of idea-centered one-off initiatives that are costly for the media partners and agencies and rarely convert into sustainable programs.

There are a handful of CMOs who are truly focused on innovative partnerships with media companies and agencies. But if you've attended conferences where they're presenting, their focus is almost always on a recent highly visible and successful campaign. Check back in a year and that successful and highly touted success has probably been benched. Long-term sustainable marketing initiatives, such as American Express Small Business Saturday, Dove Real Beauty and Geico campaigns, are few and far between. Long term partnerships between media companies and marketers are rare. Few CMOs show up at media and marketing industry conferences, network Upfront presentations, or industry awards programs. While many Fortune 500 companies may be members of the Association of National Advertisers, only a small percent of them are regularly present at industry events.

According to my survey, the top twenty U.S. media companies can claim an average of two to six large advertisers where they have deeply embedded long-term partnerships that result in sustainable innovation with mutual economic benefits. When you exclude fashion and retail, the number declines even further. I don't have the statistics, but I expect finance, human resources and manufacturing executives are far more dependent on deep and sustaining relationships with their vendors and partners than marketing executives are on their media partners. Media and agency partners can come and go… and so can the CMOs themselves. When CMOs begin nurturing partnerships with media and agencies founded on innovation with mutual long-term economic benefit, I expect we'll see more of them remaining in their positions for a long, long time. And that will be a good thing.