IS MARKETING A COST OR AN INVESTMENT?

Investment: Allocating money for the purpose, and with the expectation, of it generating a substantial future financial return.

There’s a difference in opinion about whether marketing is a cost or an investment. Indeed, corporations treat it as a cost for accounting purposes and write it off as such for tax relief. However, to perceive marketing as a cost center is not to expect any returns from it. It is literally and figuratively to write-off marketing.

When perceived and treated as a cost center, marketing costs are cash outflows without any link to or expectation of financial gains. If your organization regards marketing as a cost, then its role is likely to be limited to salesforce support. In this case, the organization doesn’t recognize nor appreciate marketing’s ability to impact customer behavior and generate sales. Accordingly, when times are challenging, such as in a recession, contraction, or even slowdown in category growth, the introduction of more aggressive competitors that cut into your entry’s market share—among others—marketing budgets and departments are cut. The organization will purge unnecessary costs, of which it judges marketing to be one of them, to protect bottom-line profit.

If, however, marketing is perceived as an investment, then its strategies ane activities are intended and expected to generate and reap a substantial financial benefit. The organization expects marketing spending for initiatives to drive sales, build market share, and contribute to profit growth. Moreover, marketing is tasked with the responsibility of generating a favorable ROI (return on investment). Marketing is appropriately utilized to drive customer preference, win customers, stimulate repeat purchasing, increase customer purchasing frequency, and/or transaction size, among others. Marketing spearheads business development and growth. 

The late Peter Drucker—management guru, author of 39 books and educator—stated, “Because the purpose of business is to create a customer, the business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.” By the way, marketing and innovation are NOT mutually exclusive.

In investing our personal finances, we put our chips down on those financial instruments and companies providing and anticipated to continue providing attractive returns.  Similarly, when investing in marketing, we must identify what returns we expect each activity to yield. If we believe marketing is an investment but don’t know what it is producing and or can’t demonstrate line-of-sight to sales, then we aren’t truly investing. Instead, we are gambling! Gambling is not anything like investing. Gambling is not a smart strategy. In practice, it is reckless and dumb! It will squander precious resources, adversely impact the business, diminish the organization’s faith in the marketing function, and lead to the organization perceiving and treating it as a cost.

If the organization views and treats marketing as a cost, it is undervaluing its role and missing out on a powerful force for building its businesses. It is a sign of ignorance. If marketing is perceived as an investment but is unable to demonstrate line-of-sight to sales, then it is gambling. It is neither a responsible use of the company’s assets, nor is it good stewardship. As mentioned, it’s reckless and dumb! On the other hand, if marketing is perceived and treated as an investment by testing before broadscale implementation that demonstrates line-of-sight to success (i.e., in the words of Professor Drucker “makes money,” then it is indeed a worthy investment. It’s smart marketing!

Make your marketing matter more. Read AVOIDING CRITICAL MARKETING ERRORS: How to Go from Dumb to Smart Marketing and take your marketing to the next level. Learn more here: http://bdn-intl.com/avoiding-critical-marketing-errors

Stay SAFE and be well.

Peace and best wishes,