ROI AND COMMON SENSE
“What is the ROI?” That’s a big question that rolls downhill, from CEO to CMO to agency.
Regardless of size of client or budget, and organization should have an expectation that what they spend on marketing should be less, much less, than the long-term positive revenue impact of their efforts. But what we’ve found is that the genesis of the big question is too often founded in misperception of ROI, based on metrics used by multi-million dollar consumer brands. Most “real life” companies are not multi-million dollar consumer brands. A small to mid-sized company CEO’s need for accountability is respected; managing their perception of what form that accountability takes a combination of academic theory and practical, real world common sense.
ROI, by nature, is an “observational discipline” rather than a predictive model. Most CEO’s are really asking for a predictive model of performance. More than once we’ve had CMO’s tell us “they make up predictive results” for CEOs simply to get projects of common sense approved, and call it ROI. Predictive models can be assumptions, but the good ones are based on historical testing.
Historical testing takes time, money and discipline. Sounds simple, but most companies don’t allocate budgets or human resources for monitoring or measurement. Not just measurement of a test, but ongoing charting of where sales come from, when they come and why they come. The first step to any ROI program, or predictive modeling exercise, is to monitor day-to-day business activity. That’s usually a luxurious FTE most companies choose not to afford.
Research is another way to measure ROI, especially when results aren’t necessarily directly tied to sales, such as in an awareness campaign. It’s considered “old school” these days to suggest a quantitative research study, but that’s how metrics are done. When companies find out how much it costs, the pre-and-post research can sometimes be more than the campaign it measures.
Brand value ROI metrics, if done correctly, are complex. Everyone’s been looking for the magic bullet for the value of brand communications for two decades. Well, here’s how you figure it: What’s the value of potential shareholder perception? A higher IPO? Media perception of a brand for public relations purposes? A brand for recruitment purposes? An increase in the percentage of unsolicited RFPs or sales inquiries? A higher acquisition price? A reduction in the need to discount? All of these can be measured, charted over time, and fuel substantiated proof that brand communications is a valuable investment. Who does this? Big big big companies do it. No one else. But because small companies can’t measure these things (too expensive) doesn’t mean that brand communications should not be funded.
Agencies don’t measure response to advertising, clients do. Oddly, this is a surprise to most clients. There are direct response agencies that manage sales within the entire channel (such as infomercials), that in turn provide response data and ROI specific to a single, managed campaign. Grocery store scanners can measure coupon redemption and sales of Coke on an endcap. But in the vast majority of cases, clients are the ones measuring…and again, the vast majority of clients don’t have sales measurement disciplines in place.
Integrated media campaigns deliver substantially higher results than single media campaigns, and most paid communications campaigns these days speak to prospects via multiple channels. That said, one shouldn’t take a slice of tactical media inside an integrated campaign and evaluate it for its relative ROI without careful consideration. Clients have sometimes come to us after a wildly successful multiple media campaign to declare something like “the radio didn’t work, and had no ROI.” In reality, the radio did its job to support another, easier response component of the campaign, such as direct mail. Clients who have insisted upon eliminating the “non-response” mechanisms of a campaign, such as outdoor, have seen substantially poorer performance of their subsequent overall campaigns. In business-to-business marketing, the same principles of integration apply, with integrated campaigns substantially out-performing print-only campaigns.
CRM (Customer Relationship Management), with all its profiling, is still the grand champion of metrics-driven marketing. But CRM is an organizational culture, not a marketing department tool. Unless an organization, from the CEO on down, is committed to CRM, it, too, is more of a marketing director’s headache rather than the cure for top-down accountability.
It’s a tough road for marketing directors caught in the ROI squeeze. Advice? Measure what you can, when you can, and leave the rest for your MCD (Mathematics of Common Sense).
For more information or to schedule a seminar, contact Denise Kohnke at info@lemonaderadio.com
© Denise Kohnke - Lemonade Stand