Can chief financial officers help companies make the most of their investments in digital advertising? PwC investigates.
The advertising ecosystem is changing rapidly. Back in the Mad Men era, marketing departments could trace only tenuous relationships between campaigns and sales. Today, an abundance of data and powerful technological tools afford marketers the ability to discern direct attribution links and quantifiable return on investment. An executive can track just how many direct sales of a wrap dress a Twitter ad campaign produced, how many of those buyers were new customers, and how the spending affected the margin on each product sold. In theory, marketers can prove in great detail, to the satisfaction of the most exacting financial minds in their organization, precisely how they contribute to the top line.
In practice, the structure and opacity of the digital advertising ecosystem make it much more challenging to get an actual read of where all the money goes. There’s an old line among ad pros that we know half of all advertising is wasted; we just don’t know which half. In the digital realm, there’s a newer, more troubling statistic: Only about 25 cents of every dollar spent on digital ads results in the placement of an ad that is seen by a real human. Although marketers are working hard to get a handle on how their campaigns produce value, they could use an assist from colleagues who have a different set of capabilities: chief financial officers.
Among other things, CFOs see it as part of their role to diligently evaluate the audit trail for most company costs. And whether the spending is on energy, office leases, or capital expenditure, CFOs often just need to task colleagues to aggregate and analyze budgets, and monitor the cash coming in and going out. But advertising spending is often a blind spot, particularly in the digital realm. That may seem strange, given the size and importance of the industry: According to Ad Age, U.S. advertisers will spend close to US$500 billion on marketing and media in 2021. And according to the PwC Global Entertainment & Media Outlook 2020–2024, global spending on digital ads in 2020 was $125 billion, and it is growing at a healthy annual rate of 4.2 percent. But authoritative data on marketing spending mostly exists at an aggregate level. And without granular, itemized receipts, finance teams are unable to determine where a company may be spending unnecessarily.
Given the importance and size of this category of spending, CFOs cannot afford to continue viewing marketing spend as a black box. Rather, they must prioritize understanding the advertising ecosystem, and then apply the line of rigorous financial questioning they bring to other areas of the organization.
With that goal in mind, how can CFOs wade into the world of media optimization and effect financial change?
CFOs historically have not needed to know much about the ins and outs of marketing. And that puts them at a disadvantage when they get together with their colleagues on the marketing side. They can start getting up to speed by becoming better acquainted with the marketing ecosystem.
CFOs should begin by understanding the two main reasons that marketing spending is so difficult to track. First, it’s very fragmented. A chief marketing officer doesn’t just pick up the phone and place orders for ads with a single entity. Large companies often work with multiple agencies; one may specialize in social media, another may specialize in TV. And each agency is allocated only a portion of all marketing dollars. Because money is spent in these silos, companies lack a holistic view. And even in instances in which all marketing functions are performed in-house, spending is often scattered across different brands, regions, and platforms. These divisions leave the CFO without a single source of truth as to how the marketing spend is being allocated.
Read the full report here.