4 ROI Myths
Everybody wants value for money. Accountability is a crucial element of any business relationship. Shouldn’t there be a simple formula to evaluate return on marketing investment?
Unfortunately, there isn’t one and there never will be. Running a business requires judgment, skill and experience. Any simple rule of thumb is bound to be either so narrow that it misses the big picture or so general that it’s meaningless.
That doesn’t stop people from trying though, which is why we’re inundated with ROI myths. Here are four of the most damaging:
Response = ROI
There are many ways to improve response. Put a scantily clad woman on a banner and watch CTR’s skyrocket. That doesn’t mean that there is a return on investment, it just means that you got people to click.
CTR’s for banners are usually just a few percent at most. Rich media and e-mail can be considerably higher (I’ve gotten as high as 20% for e-mails). However, even in the best cases, the overwhelming majority do not immediately respond.
Focusing solely on direct and immediate response ignores ensures that you will miss the opportunity to communicate effectively with consumers. Many purchases require significant investment and consumers put a great amount of thought into them. A Pavlovian response is of dubious value.
Effective brand communication is not a pick-up line. The goal is to build a relationship, not a one night stand.
Sales = ROI
Sales numbers can be deceptive as well. It’s easy to flood sales channels for a quarter or two. Current sales say little about long term prospects.
Competitive marketing activity also needs to be taken into account. Many companies will see an uptick in sales as their competitors go dark in preparation for a big launch campaign. Should the calm before the storm be seen as delivering effective ROI?
Moreover, focusing exclusively on sales promotions may produce results in the short term, but the brand will decay in the medium and long term, making future sales promotions less effective. This effect is very real and can be measured econometrically.
As this paper from the Marketing Science Institute shows, two thirds of return on brand investment shows up in long term performance. That doesn’t make the return any less real, just less immediate.
Suppliers should be responsible for ROI metrics
Unless a supplier has adequate access to internal client data, any ROI estimate will be incomplete, which is why I’ve argued that most of the talk about digital ROI is a waste of time. Unless all marketing activity is taken into account, any evaluation is more likely to confuse than to explain.
To really do ROI right for an integrated marketing program, sophisticated mathematics, comprehensive data and expensive software need to be utilized. It’s not a part time job. Suppliers are responsible for delivering a product, not evaluating marketing effectiveness.
Moreover, the success of the outdoor advertising industry shows that marketers are more than able to evaluate effectiveness even when media metrics are not easily obtained.
One Size Fits All
Different categories have different needs, different companies have different strategies and different campaigns have different objectives. You can’t evaluate a one channel campaign for an e-commerce site the same way you do a multibillion dollar ad budget.
That’s why we have marketing briefs, so that campaigns will be executed according to specific objectives.. To assume that every marketing program should be evaluated the same way is just foolish. (For a more in depth discussion of various approaches, see this ROI post).
How to Approach ROI
ROI is an evaluation, not a calculation. Business isn’t “paint by numbers,” but requires judgment. Simple rules are for simple people.
While there is no general formula for assessing ROI, every serious effort should include:
Objectives: Both brand and sales objectives need to be taken into account. There’s no sense in pumping up sales while your awareness numbers plummet.
Competitive activity: An often overlooked factor in marketing effectiveness is competitive activity. Share of voice can usually explain results better than a simple budget analysis. That’s why many marketers closely monitor their aggresivity index (expenditure share / market share)
Integration: There’s very little utility in evaluating one part of a marketing program in isolation. To evaluate media mix, techniques such as factor analysis and multivariate modeling can point the way. An effective integrated marketing program works synergistically, so there’s no point in acting as if any one part is working on its own.
ROI is a complex issue and shouldn’t be taken lightly. But with some effort and good sense, myths can be avoided and results delivered.