New IPA report reveals evidence that marketing is an investment

Evidence and arguments for treating brand marketing as a sustained strategic investment in a company’s long-term business priorities

Eighty percent of today's investment analysts examine marketing expenditure in the companies they cover. More analysts also cite the strength of a company's brands and marketing as an important factor for their appraisal of stock exchange listed businesses than the quality of their leadership or record of technological innovation.

Yet when businesses are under-performing, marketing budgets are some of the first to be cut. The resulting reductions in marketing expenditure are often viewed in financial markets as a positive short-term cost saving with less attention paid to their impact on the future performance of brands and businesses.

'Marketing is an investment', the IPA's new publication, examines why marketing budgets continue to be vulnerable to short-term cuts despite increased understanding of how brands and marketing contribute to the bottom line. Written by former City analyst Ian Whittaker, Founder and Managing Director of Liberty Sky Advisors consultancy, and expanded from his presentation at EffWorks Global 2023, the report presents evidence and arguments about why marketing expenditure is still too often seen as a cost to be managed in line with a company's near-term outlook when brand-building marketing is really an investment in its future.

There are four parts to the report:

  • Part one briefly outlines the problem of why marketing expenditure is too often a victim of short term budget cuts.
  • Part two includes exclusive new findings from an IPA survey with Brand Finance, the brand valuation
    and strategic consultancy, of perceptions about marketing among more than 200 UK and US investment analysts.
  • Part three discusses evidence of how maintaining marketing budgets has helped the recent pricing and profit performance of some major brand owning companies.
  • Part four features recommendations on how marketers can make a more persuasive case that marketing can be a long-term investment in future business growth to a variety of financial audiences, from CFOs and boards to analysts and accounting bodies.

Building on IPA/Brand Finance data showing analysts who engage more with companies' marketing strategies and their communications about financial results tend to have more positive views about marketing spend, the report encourages corporate client marketers to reach out more to analysts and broader financial audiences and to make a more convincing case that brand building marketing is an investment through action in five suggested areas.

  • Share more widely with analysts high quality evidence from their own company and industry sources about the longer-term financial benefits of effective brand building.
  • Be more consistent in demonstrating, internally and externally, how marketing addresses the current strategic and financial priorities within their business.
  • Use language that encourages marketing expenditure to be bracketed with other longer-term investments made by the company.
  • Embrace techniques used to evaluate other types of long-term corporate investments (such as discounted cashflow models) and not just rely on ROI calculations to justify marketing spend.
  • Continue the wider dialogue about reforming the accounting treatment of marketing expenditure and brands.

We are conscious that changing attitudes to marketing is a marathon, not a sprint. The messages and recommendations in this report will need to be continually reinforced and supported by the right research and communication. However, when it succeeds, this journey could cement understanding of the central role of marketing investment in generating long-term value for businesses.

Laurence Green, Director of Effectiveness, IPA
IPA members can purchase the full report for £10. £25 for non-members.

 

Last updated 25 January 2024