The Fruitless Quest for Digital Media ROI
There is a lot of misguided talk about ROI lately and it will probably do more harm than good. Most of the efforts are well meaning, yet they enlighten more about the immaturity of the Digital Media industry than they do anything else.
The errors range from a misreading of the term to a lack of understanding about how advertising works to naïveté that manifests itself in suppliers believing everything that clients tell them.
I will try to dispel some of the confusion.
What is ROI?
ROI, for those who don’t already know, is a financial term and stands for “Return on Investment.” Although recent events have shown Financial Industry metrics to be found wanting as well, Wall Street types make a lot of money and so are assumed to be smarter than the rest of us. Therefore, it’s not surprising that marketing people want to emulate them.
However, if one looks at the way financial people use ROI, the error should become immediately apparent. ROI was never intended to be used for every, or even for most investments. Its main function is to evaluate businesses as whole or major investments such as an entire factory or business components that have a major effect on the bottom line.
Most investments, such as office furniture and equipment, employee training, etc. are not broken out separately. Even many high ticket items, ranging to specific machinery to multimillion dollar art in CEO offices, are not calculated. They are simply aggregated into larger investments.
ROI vs. Accountability
Accountability, however, is important. Suppliers have a responsibility to deliver what they promise and buyers have a reasonable expectation to get what they pay for. Like any contractual relationship, the metrics are decided by mutual consent.
Caveat Emptor cautions the consumer to beware, but the same should go for suppliers as well. It is all too easy for buyers to demand and all too tempting for suppliers to promise. Often, naïve media people are taken in by buyers who have a lot more experience and information on their side.
Accountability is, for the most part, built into media transactions: CPP, CPM, CPA, etc. Suppliers such as Publishers and Digital Media Agencies agree to these metrics when they sell their wares. The trouble starts when buyers get suppliers to agree to metrics that they can’t possibly deliver on effectively, such as the sales effect of a specific media or marketing action in an overall marketing effort.
Does the Difference Matter?
I would vigorously argue that there is more than semantics at stake here. Many Digital suppliers completely misread their role in the process. A good example is this presentation. Although entertaining and well done, the guy is not only headed for trouble, but incites others to run off the cliff with him!
He urges Social Marketing people to find a correlation between their activities and sales. It seems reasonable on the surface, yet only if one assumes that Social Media constitutes the bulk of marketing activity. Moreover, the subtext is troubling. He actually encourages confirmation bias.
The flaw in logical reasoning would be the same in finance as in marketing. Every investment simply can not be accounted for. Just as nobody calculates ROI for chairs and copy machines, nobody should realistically expect a direct correlation between every marketing action and sales.
Digital Media accounts for about 10% of global ad spend. Even in high water markets, like the UK, shares are only in the mid 20’s,. In all but the most specific cases, investment in Digital as a whole, much less any specific action, is dwarfed by other activity that is integrated into an overall marketing program.
An ROI calculation is just not feasible. Which is why, for most marketers, Digital ROI is irrelevant.
Moreover, advertising isn’t the only thing that affects sales. There is the comparative quality of the product, distribution, service, competitive activity, etc. Advertising has to do its job, but so does everything else.
It behooves the Digital industry to grow up if profits are ever to come in line with valuations. It is easy to blame clients who sometimes demand things from suppliers that they neither want nor need, but that’s misplaced. If one is stupid enough to agree to what one shouldn’t, the blame lies with oneself.
Awareness vs. Direct Response
I believe that the problem stems from the foolish overemphasis on direct response in the early days of the internet. While the direct response model can be very effective for some clients, for most it is not a full solution.
A good example is the auto category. Most car ads are not supposed to result in a sale. People don’t buy cars very often and so they put a lot of time and effort into researching the purchase.
Nobody can investigate every possibility so it is understandable that consumers only consider a few brands. Marketers call this phenomenon the “consideration phase” and for many products, it last a lot longer than the active buying phase.
Much if not most of auto marketing budgets goes toward image advertising that encourages consumers to consider their brands. Although some expenditure goes toward direct response as well, consumers are unlikely to respond to offers for brands that they are not considering and as noted above, the consideration phase lasts longer.
The average consumer is only capable of keeping 3-5 brands per category in their working memory, even those that are heavily marketed. (Try naming car brands off the top of your head and see where it starts becoming difficult). It’s a zero sum game. If you want to get your brand on a consumer’s consideration list, you have to knock another brand off.
That’s why brand awareness is so important. People generally don’t consider brands they are not aware of unless there is a deep discount or other special offer, which can be more expensive than advertising.
Can Marketing ROI be Measured?
Theoretically, it is possible to measure marketing ROI, but only under certain conditions and even then the results aren’t entirely conclusive. Even companies who have had success in this area are somewhat of a cautionary tale.
Research companies like Millward Brown do offer brand tracking services to their clients. However, most companies simply can’t afford the expense. ZenithOptimedia has had great success since it repositioned itself as the “ROI Agency.” There are other success stories as well.
However, successful ROI efforts come from companies who have very close and longstanding working relationships with the clients they serve and enjoy access to confidential internal data.
Moreover, these companies constantly struggle to manage expectations and deliver on them. In effect, they are successful because they have unique access and keep the definition of ROI fairly narrow.
A more sophisticated and expensive option is econometric modeling. There are a variety of companies that offer the services of PhD level mathematicians who build bespoke multivariate models for clients. I myself have had some limited success with two-variable models in excel.
However, even the most sophisticated econometrics doesn’t explain all of the variability in real world data. Definitive causality is a chimera, a pipe dream and a sham.
What is the ROI Answer?
Common sense goes a long way. Don’t promise anything you can’t deliver. Don’t agree to what you don’t understand. Try to do a good job.
Just because some clients demand the world, doesn’t mean that they actually expect it. If you go ahead and make a promise every time a client raises an issue, you’ve got much bigger problems than ROI.