The Chief Marketing Officer matters

Firms with a CMO in 2000-2011 performed 15% better financially.

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📝 Intro

60% of Chief Marketing Officers (CMOs) say they experience pressure from their CEO to prove the value of marketing (The CMO Survey, 2018).

It’s not easy to always demonstrate short-term impact, especially if a firm is going through a strategic change that produces long-term results (e.g. building a digital platform to move away from 1-1 sales).

Here’s some clear-cut proof that CMOs, and marketing, matter.

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Companies with a CMO perform better

Impacted metrics: Stock price
Channels: Leadership
For: Both B2C and B2B
Tip type: Existing research (May 2015)

📈 Recommendation

If your company doesn’t have one, consider appointing a CMO to give marketing a strong and equal voice at the leadership level. Your firm’s performance is likely to improve.

If your firm is still small, a Chief Revenue Officer (CRO; unified sales and marketing leadership) or a CEO or COO who understands and is focused on marketing could do the trick until you grow enough.

🎓 Effects

  • A high-profile 2008 study found that having a CMO in the top management team had no impact on a firm’s performance (using 2000 - 2004 data). But other studies contradicted that and found that CMOs do improve performance. 

  • The authors of this study went deeper and broader to find a solid answer to this question. They analyzed 12 years of data (2000 - 2011) across most industries using a more advanced model.

  • They found that firms with CMOs perform ~15% better than firms without CMOs (based on Tobin’s q, an indicator of overall financial performance). They also performed better on the stock market.

  • The impact of CMOs seems to be particularly strong in firms that:

    • Have higher than average sales growth, because acting quickly on customer insights is particularly important in high-growth situations

    • Are relatively smaller*, because the bigger a company the bigger the C-level team, and each individual has less influence

    • Have CEOs with a relatively short tenure, because when CEOs are less powerful CMOs have more influence

  • The presence of CMOs is not linked to sales growth. It’s only when looking at the overall financial performance that we see the effect (which includes sales but also other metrics such as assets, costs)

(Financial performance of firms with and without a CMO from 2000 to 2011. The high average performance in 2000 is likely due to the Dot-com bubble - Click to zoom in)

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🧠 Why it works

  • CMOs raise the importance of marketing in the C-suite.

  • This brings the voice of the customer into the boardroom. Decisions become more closely linked to a deeper understanding of customers (e.g. satisfaction).

  • In turn, this improves company performance.

✋ Limitations

  • *The study is based on data from medium-large firms (minimum $250m sales in 2002) who report their advertisement and R&D spending. The results should hold for smaller firms because there is no correlation between size and CMO/no-CMO performance, but this was not directly tested.

  • The researchers use advanced modeling of correlations to find that CMOs cause firms to perform better. Still, this method of discovering cause -> effect is weaker than running controlled experiments of firms with/without CMOs and studying their performance.

  • Simply adding a CMO to the management team is unlikely to improve a firm’s performance. Instead, the presence of a CMO is a signal that marketing is influential in the company.

🏢 Companies using this

  • Of the sample of 1604 companies over 12 years analyzed in this study

    • 37% had a CMO in 2011

    • 30% never had a CMO in the time period, 7% always had one, and 63% had one in some years but not in others

⚡ Steps to implement

  • Once appointed to the C-suite, CMOs should be given managerial discretion in order to be effective (as should other leadership roles).

🔍 Study type

Market observation (analysis of 1604 public firms’ performance over 12 years)

📖 Research

Germann, F., Ebbes, P., & Grewal, R. (May 2015). The chief marketing officer matters!. Journal of Marketing.

[Link to paper]

🏫 Affiliations

Mendoza College of Business, University of Notre Dame; HEC Paris; and Kenan-Flagler Business School, University of North Carolina. United States and France

Remember: This research could be disproven in the future (although this is rare). It also may not be generalizable to your situation. If it’s a risky change, always test it on a small scale before rolling it out widely.

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