A previous article ("Varying Marketing Spending," DMReview.com, December 2002), discussed the concept of adjusting marketing investment based on current and future customer or segment value. Since spending varies dramatically across a customer base, companies should adjust their marketing spending for each customer or segment commensurately. For example, the company probably should not invest $100 in communications and incentives to a customer who can only be forecasted to return $10 in their relationship with the company. The goal is to balance marketing investment with return from that customer’s increased relationship to yield a positive ROI. By adjusting spending across segments or customer proportionate to potential margin, marketing can improve program effectiveness and increase return per marketing dollar invested.
The relationship between marketing investment and customer return has far-reaching implications. Marketing investment has traditionally been treated differently from capital investments such as plants or equipment, since marketing is usually focused on creating a strong selling environment. The close relationship between sales and marketing leads advertising, promotion and trade spending to be lumped into a general category of "cost of sales" and thereby to be associated with the company income statement differently than capital investments, which are usually amortized over some time period. When sales are increasing steadily, marketing costs can grow proportionately to sales with little challenge. When the economy slows, marketing finds its spending reduced to maintain a consistent cost of sales. The truth is, both the growth and tightening approaches fail to consider the similarity between marketing investment and capital investments and the implications of that similarity on budget and financing decisions.
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