Silo Focus May Cost Brands Millions

by George Wiedemann, 13 May 2019

Odds are very good that you can add hundreds of thousands or even millions of dollars to your corporate bottom line and also increase corporate valuation, if your marketing budgets are $10 million or more, and if the spends are siloed across the customer journey touchpoints.  Efficiencies in the silos can prove to be false savings and distract from the bottom line. Allow me connect the dots for you.

One of the most interesting new perspectives on brand performance and enterprise value is from Daniel McCarthy, an Assistant Professor of Marketing at Emory University’s Goizueta Business School in Atlanta. He presented his new corporate valuation model at our DRUM Summit last year. Dr. McCarthy explained that for years, the primary method of calculating enterprise value relied on discounted cash flow (DCF) algorithms. Instead, he and his colleagues examined and perfected algorithms based on customer lifetime value (CLV). Unlike CLV, DCF is based entirely on historical information, which has proven prone to weak predictability. 

By understanding customer lifetime value metrics and the strength of those data points to predict futures, Dr. McCarthy and his team made a breakthrough: They identified weakness in the Wayfair customer base in 2017 and called out that the stock was overpriced. Sure enough, poor performance followed and the stock took a hit.

This approach (and subsequent breakthroughs) connects with our view of unified media and unified marketing producing the best value from marketing spend. At DRUM, we know that middle metrics in silos can lead to dollar savings in that particular silo, but often miss a much larger impact on the final metric of CLV — say, cost per account. The final metric ties together and optimizes the often-siloed touchpoint spends. This focus on middle metric efficiency is nothing less than false savings. Allow me to illustrate this concept using an actual client experience — a client who, because of an NDA, cannot be named.

The client case involved the CMO, who governed the lead generation marketing budgets, and the EVP of Sales, who remained in charge of the call center sales force where the leads were sent. These executives complained to their CEO of interference in their areas. The CMO grumbled, “Don't tell me how to generate leads,” while the head of sales replied, “Don’t criticize my salespeople and techniques.” The CEO felt the situation was solved by telling the CMO to optimize cost per lead, while telling the head of sales to optimize cost per sale. The CMO produced the lead goal with the cost per lead optimization focus and spent less — a hero for having saved a large marketing expense number. 

We call that a middle metric focus, and the “efficiency” of hitting the lead goal for less budget a false savings. Why? Let's just say, for the sake of argument, that the CMO saved $100,000. This focus on cost per lead and savings flooded the call center with leads — low quality leads. So even though the sales team optimized the cost per sale, that cost went up substantially, because with low quality leads, conversion sank. Before the focus could be changed back to a final metric (overall cost per account), the enterprise lost almost $10 million. That's why we call saving $100,000 in one silo, only to lose big in the end, a false savings.

Here at DRUM, we are working hard to unify media spend across the touchpoints with a final metric focus. Rather than devoting attention to a particular silo, to the exclusion (and even detriment) of the overall organization, we are committed to growing the value of the entire enterprise.