I’ve written before about the “Theory of Constraints” as it relates to marketing and customer acquisition. The idea is that all systems (including those that support customer acquisition) are constrained in some way, and only by systematically breaking those constraints can growth potential be realized. It is in this context that I’ll use the Moneyball story to address the mother of all marketing constraints, money.
First, do you know the story behind Moneyball, the Michael Lewis non-fiction book that was turned into a feature film starring Brad Pitt? If not, let me tell you the premise. Throughout the 90’s and early 2000’s, Major League Baseball was becoming less about athletic competition, and more about financial supremacy. The gap between rich teams and poor teams was more pronounced than in any other professional sport and growing quickly. In the 2002 season, the richest team in baseball, The New York Yankees, had a payroll of $126 million, while the Oakland Athletics, the league’s second poorest team, had a payroll of just around $40 million (roughly a third of what the Yankees were paying).
Due to the significant financial disparity between rich teams and poor teams, it would stand to reason that the rich teams would consistently win more games than poor teams. Rich teams could afford the most talented players, and since all the other elements and rules of the game are equal by design, more money should equal more wins. Except it didn’t.
In fact, during this period, the bottom of each division was filled with teams that paid huge salaries and failed spectacularly. On the other end of the spectrum were the Oakland A’s, led by General Manager Billy Beane, who operated with the second lowest payroll in baseball yet still managed to win more regular season games than any other team except the Atlanta Braves. How had Beane managed to accomplish this? According to Michael Lewis, the answer begins with an obvious point: “In professional baseball it still matters less how much money you have than how well you spend it.”
The Connection Between Dollars and Wins
What makes the Moneyball story so interesting is how budgetary constraints lead Billy Beane and the Oakland A’s to break with baseball convention and develop a laser-like focus on the connection between dollars and wins.
By systematically challenging every assumption, superstition, and custom of a more than 100-year-old game, Beane was able to reveal and leverage its inefficiencies. His evidence-based approach, which prized financial efficiency above all else has revolutionized the game. His return on investment (based on the Pappas Measure of Financial Efficiency) was as much as six times better than that of his richest competitors.
Marketing Return on Investment—The Connection Between Dollars and Sales
So why should marketers care about the Moneyball story? Because just like a Major League GM, a marketer’s job is to win… to win customers, to win loyalty, to win market share. And just like Billy Beane and the Oakland A’s, most marketers are constrained by the budgets afforded to them. Thus, a marketer’s true value to an organization should be evaluated based on his or her ability to drive profitable sales growth more cheaply than the competition; to win at the game of return on investment.
Yet surprisingly, this point is lost on many of today’s marketing executives. According to Gartner’s 2018-2019 CMO Spend Survey of 621 marketing executives in North America and the U.K. at companies with $500 million to $10 billion or more annual revenue, only 7 percent of respondents listed “Return on Investment” as the most important metric they tracked. Had this same question been asked of CEOs and CFOs, their responses would likely provide a much different picture.
Disconnected from Business Priorities
So why have so many marketing executives lost sight of how their work supports business priorities? Just like the GMs in the Moneyball story, the culture of marketing tends to overvalue certain activities and undervalue others. For example, there is a broad tendency to overvalue creative ideas, and undervalue the distribution of those ideas (working spend vs. non-working spend).
Another example is the general state of FOMO (fear of missing out) that exists within marketing circles that encourages everyone to chase the same trends even when the trend is so widely known that returns are no longer attractive.
One final example is the general belief that marketing is a creative discipline that doesn’t require the types of documented policies and processes that are vital to ensure efficient spending in other departments, such as production and procurement.
In short, just like the Pre-Moneyball era of baseball, there are tremendous opportunities for marketers to adopt the Moneyball approach to marketing; specifically, to capitalize on the waste and inefficiencies of their competitors in order to dominate their market. But before we dive into the details of what that entails, we need to agree on one point:
The team who can acquire profitable customers, for the lowest cost, wins.
What I mean by this is that in any market, if your organization can acquire and maintain profitable customer relationships for a lower cost than your competitors can, eventually your organization can become the market share leader. Everyone knows that winning in baseball or business comes at a cost… but the lower the cost, the more wins you can generate.
In part two of this post, we’ll take a closer look at what the mechanics of the Moneyball approach mean for your marketing team.