Companies should tell investors how they are investing in marketing

Investment bank Deutsche has released a report showing that most investors do not feel thay have a good idea how food & drink companies are spending their marketing budget. This is not a surprise as many annual reports (financial statements) use inconsistent terms to report on marketing expenditure and often lump advertising in with market research costs, trade spending etc.

• I absolutely agree that companies should explain more how they are making marketing investments. They do not need to give away strategy, but they should itemise things more diligently – telling shareholders how much is being spent individually on consumer advertising

• Trade support

• Tracking research

• New product research

• Marketing science/R&D

Why do I say this? Because investors are trying to get a handle on what the future profits of the company might be. They are only interested in this year’s sales and profits as an indicator of future returns. Marketing expenditure helps them work out if a company is stealing from future returns to make this year look good.

If marketing expenditures were better disclosed then senior management would be less pressured/tempted to cut or tinker with them.

Byron