In a rapidly changing advertising world, can Chief Financial Officers help companies make the most of their investments in digital advertising?
It is very easy to say that marketers can prove in great detail where is the advertising budget allocated and how they contribute to the top line but that is possible in theories. How many direct sales a Twitter advertisement produced, how many of those were new customers, and how their spending has affected the margin on each product sold can only be explained in theories but if we look at practicalities, it is much more challenging.
Practically, the structure and opacity of the digital advertising ecosystem make it much more difficult and challenging to actually calculate and understand where all the budget goes. According to statistics, only about 25 cents of every dollar spent on digital advertising results in the placement of an ad that is seen by a real human being. This clearly states that no matter how hard are marketers trying to produce value through advertising but they can use an assistance from colleagues who have a different set of capabilities: Chief Financial Officers.
Giving CFOs more power in the marketing ecosystem can truly become an asset. CFOs just need to task colleagues to aggregate and analyze budgets and monitor the cash coming in and going out. According to the PwC Global Entertainment & Media Outlook, global spending on digital ads in 2020 was $125 billion, and it is growing at a healthy annual rate of 4.2 percent. Considering the size of the spending, CFOs cannot afford to continue viewing expenditures on marketing as a black box rather they have to prioritize understanding the marketing system.
If we take a look at history, CFOs were not needed to look at marketing expenditures and handle the ins and outs of marketing but now that the digital realm is changing rapidly, they can start getting up to speed to understand the entire ecosystem of marketing and advertising.
UNDERSTANDING THE DIFFICULTIES OF MARKETING
CFOs can begin by understanding the two main reasons which make marketing so difficult to track. First one being, fragmented marketplace. Marketing is not at all a trouble-free job. A Chief Marketing Officer doesn’t just pick up the phone and place orders for advertisements. It’s not that simple. Large businesses often work with multiple agencies strategically; each agency is assigned and allocated only a portion of the marketing budget. The spending is often scattered across different platforms and regions. That’s where the problem comes in. These divisions leave the Financial Officer without a single source of truth as to how the marketing spend is being allocated.
Secondly, the details of how and where the advertising budget is spent are still extremely murky. The best example can be programmatic media (the use of automated technology to purchase ad space). Advertisers buy ads from a variety of publishers via a real-time auction that occurs within milliseconds, to ensure that their ads are targeted to the right audience, in the right context, and at the right time.
Undoubtedly, this marketplace dynamics enables better targeting and greater speed but unfortunately, it also causes enormous inefficiencies in the supply chain because of the immense amount of leakage along the way. A study by PwC conducted with ISBA showed that only half of an advertiser’s spend reaches the publisher and the other half is difficult to track. The study also found that “about one-third of the supply chain costs — about 15 percent of total spending — is completely unattributable, simply lost to the system. Additionally, advertisers are likely losing more value than the study suggests, as the data stops at the publisher and does not quantify impressions that may not be seen by an actual human.”
The Solution to the problem
That’s where the role of CFOs comes into play. As earlier stated, supply value leakage is a problem in the advertising ecosystem, and unfortunately many marketers are not aware of this problem. Therefore, CFOs can play a significant role here. They can challenge their marketing departments with difficult questions that can result in acquiring great value for the company. Those questions can be:
- How much of our media spending is on the purchase of ad space compared with the production of ads?
- How much of our media budget is wasted on ads not viewed by a consumer?
- How much are the fees charged by each individual player in the digital media supply chain?
- Which of our partners is providing poor value for the money?
To bring transparency to the supply chain, CFOs can work with marketing departments as collaborators. While CFOs can reevaluate how to optimize marketing budgets, marketers can adjust in-flight campaigns in order to test different outcomes or drive better results. To sum up, we can say that finance and marketing officers can come together to drive true transformation and resolve the issues created by the transformational changes in the digital marketing ecosystem.