Great news for corporate executives with an eye on marketing performance: The discipline of measuring and managing marketing ROI is rapidly growing and taking hold.
For at least the past five years, marketing executive surveys have put marketing ROI at the top of the agenda, and you had to wonder when the talk would lead to action. The results of the forthcoming "2006 Marketing ROI and Measurement Trend Study" (Lenskold Group/MarketingProfs.com), now in its second year, show a sizable jump in marketing's ability to measure financial impact.
Marketing organizations need to assess where they stand and how well they are progressing relative to their industry. What do the trends in calculating ROI and other profitability metrics, or in linking brand measures to incremental sales and profits, mean to you? Are you part of that movement, or do you run the risk that your competitors are pulling ahead?
Progress is being made, yet most companies remain under-funded for marketing measurements and still have further to go. So, where do you stand in your measurements of the financial returns from marketing?
The stakes are high. A company's ability to put marketing ROI measurements and analysis into practice to increase efficiency and effectiveness so that every marketing dollar spent produces more financial results can create competitive advantages and greatly enhance marketing's credibility within the organization.
Few have achieved a leadership in this emerging discipline, but the trend is clearly on the upswing:
- In the 2005 study, over half (53%) of the marketers surveyed described their ability to measure the financial returns (ROI) generated across all forms of marketing as "a long way from where it could be." This year, that number has dropped to 42%.
- Moreover, 16% of the 791 marketers surveyed consider their ability to measure financial returns as either "a source of real leadership" or "as good as it needs to be," compared with only a total of 8% one year ago.
- The remaining companies (42%) are making progress with ROI measurements but report their ability as "somewhat short of where it could be."
Marketing ROI has clearly moved from the stage of early adopters into the early majority, taking hold in mainstream corporate practices.
More specifically, 31% are calculating ROI, net present value, or other profitability metrics for at least some of their marketing campaigns/investments compared with just 19% in 2005, according to those participants knowledgeable about the organizations' practices. This increase comes as fewer marketers report relying entirely on traditional marketing metrics without any financial metrics (now 36%, down from 48% in 2005).
For those of us working within the specialized consulting area of marketing profitability management, these results are consistent with our own observations. There has clearly been a shift from companies' exploring and seeking information on marketing ROI--to finally launching ROI measurements and analyses.
The most significant barrier remains organizational culture that is somewhat resistant to change or cannot put staff and budget resources behind what is known to be the right course. Measurement challenges, too, exist, although the perceived barriers tend to be much greater than real barriers.
Now, more marketing executives are starting to move past the "wait-and-see" attitudes that are common during the early-adopter stage. Those who take action in this next "early majority" phase of marketing ROI adoption can benefit from the proven path taken by the early adopters and still earn a competitive advantage over those that will make up the "late majority" and the laggards.
Other results from the survey further evidence the adoption of marketing ROI. First, there has been some relief from the extreme under-funding of marketing measurements and analytics. Whereas almost 8 in 10 (78%) in 2005 said their funding was either "far below the right level" or "slightly below the right level," that proportion has dropped to 64%.
Despite such progress, the gap in funding of marketing measurements and analytics is still high and must be closed if companies are going to effectively bring the discipline of financial performance analysis into marketing.
And the motivation to take action is still quite significant in terms of the profit potential. Among those companies measuring financial returns, 92% indicate that profits can increase if measurements are put in place to capture marketing's contribution to sales.
The amount of anticipated profit growth is quite astonishing, with 74% indicating a potential increase of 10% or better.
Key findings can be summarized as follows:
- Marketers have improved their ability to measure the financial impact of marketing, including an increase in those able to link brand measures to incremental sales and profits.
- The early adopters achieving success in their measurements of financial returns are still in the minority (16%), but there is a solid base of the early majority (42%) who consider their ability to be somewhat short of where it could be.
- Despite the improvements, funding of marketing measurement and analytics remains a problem.
- Marketers with the discipline to measure financial returns are using measurement methodologies (pre-post analysis, market testing, marketing mix modeling, and quantitative research) at much higher rates than those not measuring financial returns.
- The profit potential that can come from improved marketing measurements continues to be significant and is critical for strengthening marketing's role in retaining and growing financial contribution.
- Along with the increased use of financial metrics, non-marketing executives have increased confidence that marketing investments are profitable. Marketing credibility clearly grows with increased accountability.
The complete "2006 Marketing ROI and Measurements Trends Study" will be released in May with full details.
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I was asked recently if marketing ROI will continue to be a priority or fade away. My response was that it will continue to be a priority as long as maximizing profits continues to be a priority for the corporation. Generating profitable returns and managing corporate investments—including marketing expenditures—is a fundamental responsibility that will never fade away.
Proponents of improving marketing measurements and financial management are clearly stating that we need systemic changes in the way we do business. The team with the best insight typically wins and the opportunity to achieve profitable growth exists for those companies that take action, using marketing ROI as a competitive advantage.
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