It’s an age-old debate in the accounting community: whether marketing costs are treated as an expense on the income statement or as an asset on the balance sheet.
Dr Sonja Fourie, founder of Customer Science Lab, has developed a unique methodology that should be of huge interest to finance executives and CFOs.
Business managers often treat marketing expenses as something of a grudge purchase, the return on which is difficult to measure.
Fourie says that’s no longer the case. “There are ways to measure the return on this spending, but its far more important for finance executives to understand how they can use this spending to build long-term relationships with customers that will drive revenue well into the future.”
The Customer Science Lab has developed a proprietary Customer Relationship Score which measures the strength of the customer relationship and measures the long-term outcomes of your company’s marketing spend.
This, says Fourie, provides executives with the kind of scientific understanding of what marketing programmes (including sponsorships, loyalty programmes and discount offerings) work best and will continue working into the future.
The Customer Relationship Score (CRS) differs from the more traditional Net Promoter Score (NPS) which measures customer loyalty and is used to benchmark companies against their peers. The CRS delves into the customer relationship in more detail, looking at customer perceptions of the company and how it is building that relationship; the customers’ connection with the brand; and how customers feel they have been treated by the company.
With this data, Fourie is then able to do causal modelling to gauge whether customers will return.
That’s pure gold in the hands of accountants and marketing executives. It also turns what may otherwise be treated as a one-off expense into a long-term asset.
“CFOs and accountants of the future need to know what the drivers of revenue are. The first step is know your customer and efftecively communicate with them as part of a process of building long-term relationships,” says Fourie.
Online stores such as Takealot and Amazon have developed a strong understanding of customers, using data analytics based on each customer’s individual profile and buying habits. This allows them to tailor marketing messages to encourage customers to repeat buy – and it has been shown to work.
These online retailers are disruptors, they come from a demand-focused strategy.
In the business world there are thousands of lost opportunities, and this has been brutally exposed during the Covid pandemic. For example, when airlines were grounded as a result of the pandemic, few took the opportunity to proactively communicate with customers and provide vouchers for travellers whose travel plans were disrupted. This was a lost opportunity to strengthen customer relationships.
Restaurants, too, were caught napping before and during lockdown. They invest very little effort in getting know their customers, so were unable to communicate with them when the lockdown happened.
Loyalty programmes is one area of marketing spend subject to query by finance executives.
“My question to companies is this: are you able to measure the extent to which your loyalty programme has developed a customer relationship? For that to happen, it must be properly designed with the intention of strengthening customer relationships,” says Fourie.
“This is the time for entrepreneurs to step up and make a difference.” Fourie recommends CFOs and finance executives read a ground-breaking article on the rapidly evolving trends in marketing: Branding in the era of digital disintermediation by Katrijn Gielens and Jan-Benedict Steenkamp.
This articles shows how ecommerce retailers are able to communicate direct with customers and build a relationship independent of traditional marketing intermediaries. But these trends are accelerating at lightning speed, with brands (rather than companies) increasingly talking direct to their customers. It may, ultimately, lead to the disintermediation of manufacturers.
It can be accessed here: