MEASURING ROI OF MARKETING COMMUNICATION
March 12, 2013
TEAM CLASS LEADERSHIP REPORT
What is Marketing ROI
Marketing ROI is the measurement of the impact of marketing activity on target business objectives (sales, profit, etc.) and is fundamental to clearly understand where to increase or decrease advertising investment. It asks two fundamental questions: 1) Is campaign A a better use of cash than campaign B?; and, 2) Does either campaign provide returns to a specified objective greater than those generated by other organizational investments? However, one problem faced is that marketing is often considered an art, not a science. Therefore, the overarching goal of marketing ROI should be to consider data that is available; not wring the art of the marketing; because doing so would decrease marketing ROI since creativity is essential to effective marketing.
There are a number of benefits of ROI calculations, including an increased understanding of key profit drivers and framework to guide investments and improved decision making resulting in more profitable growth. For example, on average, advertising effectiveness increased by 30 to 40 percent, when marketing ROI was considered. There are dangers in calculating ROI for marketing as well, including an overemphasis on the metric which can lead to a lack of insight if ROI used as a poor proxy for the “bigger picture”. Generally, if used as a basis for forward-looking decision making, as with any forecast a significant amount of faith is involved. The importance of marketing ROI continues to grow as the practice becomes more prevalent. However, while marketers think that they should be measuring their marketing ROI, only 39% go so far as to say that they consider it.
The Four Pillars and Setting Objectives
Marketing ROI capability is built on four pillars. Analytics, Decision support tools, Process, and Organizational Alignment. Analytics enables marketers to collect and analyze data in relation to the outcomes of events. Decision support tool empower marketers to take this analysis and convert it into knowledge, which can be distributed throughout the organization and applied to current and future events. Having the correct process in place, provides the necessary integration and utilization of analysis and decision support in the planning, execution, and measurement of events. Lastly, organizational alignment is necessary to create the motivation and understanding that marketers need to fully leverage the potential of marketing ROI.
Related to organizational alignment is the importance of setting objectives. It is essential to have a firm idea of what you want to achieve and how this fits into the strategy and long term success of the organization. This requires an understanding of organizational objectives, to which marketing strategy should be linked. Within the context of marketing ROI, great marketing campaigns are often defined by small successes that lead to an eventual big win. Therefore, marketing strategy should be focused on the capacity to achieve these goals, and set realistic targets while matching necessary resources.
Developing the Framework
Marketing ROI measurements actually pertain to one of three different time periods, each with very different objectives: (1) Before investment (decision) - used to decide whether to invest, or which marketing investment to make ROI for Marketing: Balancing Accountability with Long-Term Needs; (2) During investment: for long-term programs (e.g., major sponsorships), used to decide whether or not to continue and/or how to improve the impact; (3) after investment/accountability: used to ultimately learn the ROI of an investment (albeit the “returns” may not all be in at any given point)
Actual measurement of marketing