IPA in drive to include marketing KPIs in financial reports

LONDON - In its latest attempt to emphasise the value of marketing to Britain's biggest companies, the Institute of Practitioners in Advertising (IPA) this week will launch a guide - 'KPIs for Marketing Reporting: A Framework for Effective Marketing Disclosure' - setting out why marketing needs to be included in company reports.

IPA in drive  to include marketing KPIs in financial reports

According to the IPA, marketing-related key performance indicators represent 12% of a company's value, but remain absent from the reports of FTSE 350 companies, despite changes to the Companies Act 2006 that require them to use KPIs to chart achievements, providing them with the opportunity to include them.

According to Janet Hull, consultant head of marketing and reputation management at the IPA, there is real demand from non-marketing specialists in the City, particularly among bigger long-term investors and their equity analysts, for information about marketing.

Measuring performance

'Current reporting is piecemeal and inconsistent. There is an innate belief in the power of marketing, and a real desire to understand how to evaluate good marketing from bad and how well it is being managed,' says Hull, who describes the publication as a catalyst for more structured discussion and debate.

Undoubtedly, marketing KPIs matter - the IPA points out that they are one of the main drivers of turnover growth and that they are also the biggest item of expenditure on intangibles, so it is crucial that companies demonstrate that they are investing responsibly. Marketing is also a competitive differentiator, but strategic marketing investment, designed to build brand value, takes time and firms must acknowledge this.

So why are companies apparently missing a trick by not including marketing KPI information? The IPA believes that despite a hunger for information among the financial community for the value of marketing KPIs, it is ignored in financial reporting because marketing departments are either not involved in preparing them, there is a lack of confidence in the credibility of marketing data among those who prepare them, or there is no coherent framework against which marketers can provide the data the boardroom wants. In short, there is a clear disconnect between the data needs of campaign managers in marketing, who are seeking to optimise individual brand campaigns, and the data needs of their chief financial officers and their chief executives.

The report acknowledges that although shareholders recognise marketing as an inexact science, there are ways in which marketers can demystify their discipline. It also includes a comprehensive 20-point framework relating to the marketing function that is generally applicable across all sectors.

Among the points that measure success, five key ones emerge - value market share, ratio of new top existing to lapsed customers, share of voice relative to share of market and ratio of winning to mediocre to unsuccessful campaigns, as well as marketing payback.

Marketing metrics

With these, and the other more obvious measures such as volume of additional customers and changes in value from existing customers, the IPA believes that an overall financial metric will be produced that quantifies marketing payback and return on marketing investment, which provides a relative measure of marketing effectiveness and efficiency.

The IPA acknowledges that the 20-point framework provides a basis for early discussion between those who create the annual report, marketers and their agencies. With this, and three changes in reporting practice to encourage better marketing disclosure - standardisation of advertising and promotional reporting, a 'Marketing' section in the narrative report, and formal marketing reporting in the boardroom - the true value of marketing would be revealed.