Quantifying Marketing's True Value

Marketing is facing an image problem despite being rooted in persuasion. Consumers are tuning out marketing efforts, CFOs are reallocating funds, and CMOs are experiencing high turnover. Common explanations like short attention spans, channel fragmentation, and outdated tech don't fully explain this issue. Generative AI, once seen as a solution, has not yet produced significant profits. Research indicates that a large percentage of enterprise GenAI initiatives lack a measurable impact on profit and loss, which is eroding trust in the boardroom. The focus has shifted from innovation to outcomes.

Metrics often emphasize reach over tangible results, segments instead of strategy, and volume rather than value. CEOs and CMOs frequently have differing perspectives. A significant percentage of CEOs evaluate marketing based on revenue growth and margin, while a much smaller percentage of CMOs prioritize those metrics. However, there is a solution to this decline. Similar to how Net Promoter Score (NPS) improved customer experience by offering a straightforward score and actionable strategy, marketing requires a similar metric. This metric is called the True Value of Marketing (TVM).

Understanding True Value of Marketing (TVM)

TVM serves as both a benchmark and a blueprint, providing an actionable index and operational framework to demonstrate and enhance marketing's impact. TVM views each marketing initiative as an investment and categorizes them as either value-adding, value-neutral, or value-contracting, enabling organizations to allocate resources effectively.

Components of TVM

Like NPS, TVM appears simple but has significant underlying implications. The TVM equation considers:

Profitable Customer Value (PCV): This represents the profit customers generate because of marketing efforts. It quantifies the business value created by acquiring, retaining, or expanding the customer base. This includes both short-term sales and the lifetime value (LTV) of customers before accounting for direct marketing investments.

Opportunity Value (OV): This indicates the growth potential realized by capitalizing on identifiable opportunities. It includes initiatives such as reducing customer churn, increasing upsells and cross-sells, and discovering profitable customer acquisition channels, rather than depending on uncertain prospects. This emphasizes the importance of strategic decision-making.

Complexity Cost (CC): This refers to the obstacles that impede progress, such as numerous platforms, redundant vendors, protracted approvals, and fragmented data. It acts as an invisible constraint on growth.

Applying the TVM Formula

As value increases, the score improves; as complexity rises, the score decreases. Initiatives that enhance value should be funded, those that stall should be improved, and those that detract from value should be discontinued. TVM provides a uniform index across brands, regions, and reporting periods, highlighting the core principle: a single source of truth outweighs multiple dashboards.

To implement TVM:

1. Establish the foundation:
   • Use contribution margin as a standard metric.
   • Define the LTV horizon.
   • Establish confidence bands for OV.
2. Identify key drivers:
   • PCV: Demonstrate actual gains through causal attribution.
   • OV: Use predictive models to estimate future effects.
   • CC: Use AI to assess the cost of complexity, so that retiring tools, consolidating vendors, and automating processes improve the score.
3. Implement a review process:
   • Conduct monthly CMO-CFO reviews that highlight the TVM along with PCV, OV, and CC, including a brief explanation of variances.
   • Evaluate each campaign using TVM to determine if it should be scaled (value-adding), refined (value-neutral), or stopped (value-eroding).

These results are substantiated by real-world application. A financial services firm encountered the common issue of rising customer acquisition costs, stagnant revenue, and dispersed marketing spend without clear profit correlation. The CMO believed in marketing's value, but the CFO was unconvinced. TVM bridged this divide. The marketing team established contribution margin as the baseline, agreed on the LTV horizon, demonstrated incremental gains with geo-holdouts, and integrated churn and upsell into weighted dollar amounts. Weekly CMO-CFO reviews classified programs as Scale, Tighten, or Stop. After six months, PCV increased, OV increased, and CC decreased. The net TVM Lift increased. TVM fostered alignment, marketing credibility, and overall growth. Similar to how NPS measures customer advocacy, TVM makes customer profitability manageable. This approach enables marketing to convert doubts into profits, allowing the enterprise to streamline processes, accelerate insights, personalize interactions, and precisely measure impact. Just as NPS transformed how companies listen to customers, TVM transforms marketing decisions. A single metric sets the standard, providing a common language for leadership and a strategy for leveraging AI to drive profits. TVM prioritizes profitable customers and positions the CMO as a driver of growth.

To implement TVM, align leadership, focus on outcomes, and assess each program based on its value contribution. Though challenging, the rewards include a shared growth language, a value-driven operating framework, and a culture of continuous improvement. By doing so, marketing can improve performance and achieve success in the age of AI.