Profit is the most sacred word in business—its lifeblood. Without it, businesses cannot survive. Even nonprofit organizations require profit to survive (although revenues are usually from sources other than end users of products or services, and all incoming revenues are “expensed” in the current reporting period). So to be inclusive of all types of organizations, let's call it cash flow.
Cash results from creating value. Marketing produces cash when we create value for customers.1 Marketing is thus the “root of all income” in all organizations. Marketing is the process of creating and harvesting inward cash flow.2
Becoming Rainmakers
Producing cash flow goes a long way toward making Marketing more influential and respected. We become known as rainmakers when we…
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Understand how the organization generates cash.
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Develop the entrepreneurial drive to generate cash.
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Promote marketing throughout the organization as a producer of cash.
1. Focus on how your organization makes money now
We marketers must first understand how the value we create for customers generates cash for our organization.
In general, Marketing generates cash by attracting and keeping customers, but there are many ways to do this work. Marketing must plan and implement its work in accordance with the approaches for making money set out by the organization. Think of 10 organizations you know, and think about how each makes money. It's likely that among the 10 organizations there are 10 different approaches (see the table below for different models and examples of how to generate cash).
2. Make money for your organization and work to find better ways of making money
We must be motivated to produce cash for our organization. That is the measure of success recognized by top management. Planning and implementing market strategy and tactical programs are only as good as the cash results they achieve.
Process is fun and even fulfilling, but marketers must be motivated by the end result. If the track we are on is not leading to the generation of cash, we must find a better track and make the necessary changes. Successful marketers have an entrepreneurial drive to generate cash and, therefore, make it a priority to focus on how to best contribute to the organization's strategy to produce cash and improve that strategy.
3. Work to make your colleagues in other parts of the organization understand that marketing generates cash
In addition to knowing how our work generates cash and being motivated to produce cash, we marketers must work to be perceived within the organization as a producer of cash. While Sales is perceived as a producer of cash by definition, Marketing is not always understood in terms of the outputs it generates.3
Learn how to combat colleagues' views of marketing as a set of inputs that cost money but do not produce money. A chief financial officer of a large consumer products company recently interviewed candidates for a mid-management position in his department and asked them what a company should do if it is going bankrupt. The experienced finance executives—all with MBAs in finance and three or more years of work experience—recommended increasing cash flow.
However, not one identified increasing cash flow as a marketing issue. They know cost accounting cold; they don't know revenue accounting. We marketers must work to convince them of this truth: marketing produces cash flow.
The Reputation-Building Principle
This is the gist of the Reputation-Building Principle: Marketing is valued when it produces cash for the organization and when it is perceived as a source of cash by others throughout the organization.
The critical work to produce cash involves knowing how the organization makes money, and how marketing plays a vital role. Customers are the primary source of cash for any organization. Satisfying customer needs or problems is ultimately how all organizations generate cash. Yet, frequently, marketers do not know how the organization fulfills customer needs to generate cash.
If the amount of cash generated, and ultimately the organization's growth rate, are the business objectives, the way the organization chooses to produce cash is the business strategy.
As the expert in understanding and serving customer needs, Marketing is skilled to determine the best strategy for generating cash. In those all-too-rare organizations where Marketing has a place at the strategy table, Marketing has a voice in deciding the best ways of generating cash and the organization may already understand Marketing's role in executing that strategy.
Most often, however, top management does not involve Marketing in the process of setting strategic direction. Left out of strategy discussions, Marketing is left to guess and gamble as to what top management wants, causing marketers to narrow and simplify their focus to selling more products or services to more customers. Marketers left out of the strategizing process too often assume that top management wants Marketing to focus on increasing market share—but that is just one of many possible strategies for generating cash.
To be influential and respected within the organization, marketers must be clear about the organization's strategy for generating cash and act accordingly. Knowledge of customer needs and ways of standing apart from the competition will suggest not only the best strategy but also the ways that marketers can contribute.
The following table summarizes 10 models for generating cash, each with a different way of serving customer needs.4 Included in the column headed “Marketing's Role” is a brief statement of how Marketing's focus on customers is the critical determinant of success.
Cash Models and Marketing
| Cash Model | Marketing's Role | Example |
| 1. Pyramid Provide a hierarchy of choices to several customer groups simultaneously | Identify needs of current and potential customer segments and suggest different levels of products or services that can serve three or more simultaneously | American Express cards in platinum, gold, silver, each offering different services and privileges |
| 2. Multi-Component The same product sold in different forms to customers at different times with different price sensitivities | Clarify and quantify customer price sensitivities on different purchase occasions; factor price elasticities into other marketing mix decisions | Coca-Cola in a restaurant, supermarket, convenience store, vending machine |
| 3. Time Instant or quick diffusion in the marketplace to exploit interest in new product | Identify characteristics and motivations of early adopters who will pay for the newest and the best and tell their friends; connect with customer needs | Intel microchip technology innovations in speed and capacity |
| 4. Multiplier Use one skill in many different forms/products/contexts | Learn how to apply or package a specific product or service for many different customer needs | Disney characters for movies, theme parks, consumer products |
| 5. Specialist Cater to one target group willing to pay a premium for customized offerings | Develop expertise/solution to serve the needs of a special target group; become recognized as supplier who understands the customer; design à la carte menu | EDS systems integration with specialization by industry sector |
| 6. Installed Base Maximize sales of hardware at tight margins leading to maximum sales of consumable products at high margins | Build hardware sales with an attractive quality/price equation to build users of compatible software | Hewlett-Packard printers and ink cartridges |
| 7. Blockbuster Build R&D pipeline projects with greatest business potential | Increase feasibility and minimize risk of project investments; improve speed to market; learn how to position new products in the minds of prospects | Pharmaceuticals from Genentech or Amgen; automobiles from Nissan like the remodeled Quest |
| 8. Brand Create consumer loyalty based on a desirable promise of value | Create premium value based on unique and relevant emotional connections | IBM, BMW, Bose |
| 9. New Product Total profit earned by all players in a market goes up, peaks and comes down to zero | Product lifecycle based on consumer adaptation, number of suppliers and price competition together determine capacity for generating cash | Sony Walkman, Palm |
| 10. Digitalization Competitive advantages based on information technology | Use information to drive improvements in production productivity, speed to market, inventory management, customer experiences and loyalty | Dell computers and peripherals sold direct to consumers |
Understanding which of the many cash models your organization or division uses enables you to demonstrate how Marketing produces cash or how it can contribute additional cash. Marketing's role as a producer of cash is a function of consumer insights and programs that lead to such cash-generating outcomes as these:
- A new market segment for an enhanced version of an existing product
- Consumer acceptance of new products in the R&D pipeline
- A brand that commands a premium price
- Alternative uses of existing products
- Customer experience and service improvements
- Expertise in a niche market
- Vertical diversification
- Internet distribution
Once we marketers are clear about how the organization generates cash and how and where we contribute, convincing others in the organization to see us as cash producers is straightforward.
And entrepreneurial drive goes a long way toward making sure we stay focused on outputs rather than inputs. Act as though “Marketing is the root of all income.”
To make Marketing the root of your organization's income, use the following questions as a guide:
1. Clarify the cash model or models used in your organization
- How were the models chosen?
- Are they working?
- Did Marketing have a voice in the selection of the models?
- How does Marketing contribute to making the models successful?
2. Can marketing improve or suggest replacing the current cash models?
- Analyze customer research and competitive intelligence for cash-generating opportunities.
3. How do top managers and each of the major departments see Marketing's contribution as a generator of cash?
- Where do you need to “sell” more effectively within the organization?
- What improvements can you make in your story?
This article is from Roy's upcoming book, Making Marketing Matter: How to Win Respect for Marketing in Your Organization, soon to be published and sold in digital form by MarketingProfs.com.
Notes:
1 From a marketing tutorial for the National Park Service by Dr. Steve Hutchens of Creighton University, updated January 2002 at https://www.creighton.edu/~hutchens/nps_c_05.html.
2 Tim Ambler in Marketing and the Bottom Line, Financial Times Prentice Hall, 2nd edition, 2003.
3 This is frequently a source of tension between Marketing and Sales.
4 Adapted from just some of the models for generating profits discussed in The Art of Profitability and The Profit Zone by Adrian Slywotzky, Warner Books (2002) and Three Rivers Press (2002), respectively.
