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ROI: Friend or Foe?

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One of the greatest challenges for any good marketer is discerning between trends and transformations. They often look and feel the same at the start, moving through the world of marketing like a virus until everyone is speaking the same 3-letter acronyms—like CRM, CMS, SFA. But while a trend heats up and cools off, a transformation continues to simmer, ultimately changing the practice of marketing. One such transformation is brewing right now, which many have written off as a trend. Don't make the same mistake. The next time you hear “ROI,” resist the temptation to roll your eyes, and think instead about the impact those three letters will have on your career. If you're in marketing, the impact will be dramatic.

Roi Means Accountability

Beyond the cookie-cutter positioning statements that promise “maximum Return On Investment”—a trend which will die too slowly—the ascendance of financial terms into marketing language is a signal of the growing pressure to quantify the financial value of each marketing investment.

For hard-driving businesses, ROI means nothing less than accountability. If I give you a dollar, I expect a dollar-fifty in return.

The sudden celebrity of ROI is due largely to the excesses and failures of the recent boom and recession—which is why many call it a passing trend. But the real pressure for accountability is being driven by factors far more durable than the cycle of our economy, namely: advancing technology and increasing market complexity.


Technology Makes it Possible

There have been numerous attempts to quantify ROI in marketing, dating back at least to the early 1900s, when direct marketers tracked responses to advertising.

But most marketing return analysis has avoided financial measures for MROI and concentrated instead on "softer" qualitative measures such as awareness, attitudes and recall, while many growing businesses routinely neglect any marketing measurements at all.

Today, data-mining and tracking technology are sophisticated enough to bring us within reach of accurately tying customer behaviors, actions and revenue to specific marketing programs.

And by technology, I don't mean just software and systems, but the science of how to track and mine data to extract meaningful knowledge. If you doubt the increasing sophistication of marketing science, do a Google search on “Market Basket Analysis,” an area of intense academic research focusing on complex marketing mathematics.

The writing on the wall is obvious. As technology advances our ability to track behavior—and to provide models where tracking isn't possible—businesses will increasingly migrate towards marketing activities that can be measured.

I'm not saying this is unequivocally good; I'm saying it's inevitable.

Media Makes it Complex

Even as our ability to track customer behavior grows, the media space is becoming more complex, with innovations in communication channels continuing to grow. The choices available to marketers for reaching out to their audience are complex, confusing and subject to constant change.

To build an effective marketing mix in such a complex and changing environment is a challenge to the capabilities of any marketer. Though many savvy marketers understand the need for performance measures to guide their decisions, simply generating data doesn't provide the clarity needed for key decisions.

You may know, for example, how many leads were generated by your last email campaign. But do you know how many leads will turn into sales?

Do you know what the lifetime value of those sales will be to your business? Do you know how the value of those sales compare to potential sales from other available channels?

Such complexity explains why many of today's most successful marketing programs are incorporating more of a business mindset. In the right hands, a focus on ROI doesn't just make the marketing function a bean-counting performance-oriented revenue driver, it makes you accountable for knowing and serving your customers well.

Get to Know Your Customers

It's nice to know that even while the world is changing, the fundamentals remain solid. Good marketers are still measured by how well they know their customers.

While you may know what it costs to reach a customer, you need to know which customers really drive revenue. Look beyond campaign stats and pursue strategic business-level questions such as:

  • What are the historical behavior patterns of the existing customer base?
  • Which customers drive the greatest revenue, and why?
  • What messages have they been most responsive to?
  • What programs have driven the greatest revenue?
  • Which products or services drive the greatest revenues to the company?

By defining the relevant metrics and making them an integral part of the marketing process, you can better measure, refine and optimize your marketing mix—and avoid being thrown off balance by the next change in the media landscape.

On a strategic level, such metrics are the basis for understanding customer value and true acquisition cost. On the tactical level, these metrics help define specific program objectives and expected financial benefits. On both levels, better metrics lead to more informed decisions.

Get to Know Your Technology

Unfortunately, today's marketing environment suffers an enormous deficit in technology experience, which undermines the “street credibility” of most traditional marketers.

In most businesses there is a tremendous gap—if not outright hostility—between marketing and IT departments, engendered from competing goals and responsibilities.

Technology has always been central to business and marketing, all the way back to the days when marketing literally meant “getting your products to market” and relied on such new fangled technologies of transportation as steam engines and railroads.

Marketing will not stop in its evolution to wait to for marketers to learn technology. Instead, it will migrate towards those understand both marketing and technology.

Here again, the fundamentals haven't changed—in this case, the importance of time-honored direct marketing principles. Tracking and data-mining technology provides a basis for measuring marketing ROI, but without traditional principles used to test, analyze and continually optimize the media mix, the numbers will be worthless.

This is your best hedge against losing ground in your career to those that would turn marketing into an automated function.

If you can't bridge the gap in your own company with cross-functional teams, you must find partners conversant not only in direct marketing techniques, but in IT capabilities for data mining, customer relationship management, personalization and business analysis.

Maintain Your Brand

In the quest for marketing ROI, there's an obvious temptation to abandon soft measures that have been developed to measure customer loyalty, market perception and brand awareness.

For most businesses, though, the far greater danger in the push for ROI is the tendency to lose focus in brand development by emphasizing measurable, but ad-hoc, marketing initiatives.

Many of the businesses I work with today instinctively drive campaigns with the most immediate cost/return advantage. The focus is on short-term initiatives to generate leads, launch a product or produce a sale. The notion of building a market position, much less a sustained positioning message, is near extinction.

I believe this is a trend caused by the current market, and will subside whenever the market recycles and competition hinges once again on growth rather than survival. My confidence is based on the belief that brand is the final and most important fundamental.

Without long-term development objectives as a back-drop for short-term marketing campaigns, companies will only have Efficiency as a competitive tool, which provides a very limited market advantage.

As the focus in marketing moves towards hard data in analyzing the revenue and profit driven by each campaign, you need to hold your marketing efforts together with consistent visual and non-visual brand messaging, across all customer touchpoints.

There's no reason to sacrifice brand for MROI. Straight analysis won't yield all the answers—a performance-oriented marketing strategy still needs the creative spark to bring it to life.


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Christopher Kenton Mr. Kenton is president and senior strategist at Cymbic, a full service marketing agency and consultancy (www.cymbic.com). Cymbic specializes in positioning and marketing technology products and businesses. He can be reached at ckenton@cymbic.com.

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