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The Post-ROI Marketing World

2012 June 20
sisyphus

Marketing used to be about two things: Creating a big idea and executing it as cheaply and efficiently as possible without sacrificing quality.  We looked for large audiences and negotiated tough deals.

That’s evolved somewhat in recent years, as both agencies and clients recognized that too much emphasis was being put on outputs and not enough on outcomes. Just because you reach a lot of people doesn’t mean that you’ve driven the business forward.

The ROI movement sought to more closely align tactics with business goals.  It has been highly successful.  So successful, in fact, that most of the important problems have largely been solved.  What remains involves computational resources and integration.  Therefore, we are now entering a post-ROI world of innovation, open brands and co-creation.

The Rise of Marketing ROI

The post-war economy was an era of mass media.  There was a limited amount of TV stations and programming was geared to mass audiences.   Advertising pioneers such as David Ogilvy and Leo Burnett developed powerful brand images that transformed the landscape of commerce.  Great creative work combined with mass audiences evolved brands into consumer icons.

Then, in the 80’s and 90’s, cable and satellite technology revoltionized media and fragmented audiences.  No longer could you be sure that your target consumer would see your message no matter how big the idea was.  The central question became “where is our consumer.”  Media buyers became masters of optimizing reach and frequency.

More recently, digital media created a host of new ways to target and re-target consumers. Google and Facebook showed that advertising was more than just reaching people with messages, but also driving sales and getting people to share brand messages. In order to manage all of the various data, a new industry of advertising technology has arisen.

The chart above (click to enlarge) gives a rough approximation of the path an ad travels between the time a consumer clicks on a page to the time that an ad is displayed.  It’s really quite amazing when you think about it.  Where we used to think merely in terms of demographic targeting, now we have a host of targeting methodologies to choose from.

The result has been a lot more flexibility and better outcomes, optimized in real time.

Outcomes, Not Outputs

While all of the technology is impressive, ROI is about a whole lot more than metrics and KPI’s, it’s about moving the business forward.  That requires more than delivering impressions and clicks, but understanding specific brand needs.  A “one size fits all” approach is no longer considered efficient.

As I’ve written before, we have entered a post-promotional paradigm.  Consequently, path-to-purchase models, which are basically expanded versions of the chart below, have come into widespread use and have played an important role in aligning marketing strategy with brand objectives.

Some brands are well known, but fail at the point of purchase.  Others have strong sales, but consumers are unwilling to recommend them to their friends.  Still others, have a devoted following, but suffer because most people don’t know about them.  Those are very different problems which require vastly different solutions.

The combination of better technology along with a better understanding of brand objectives has proved to be a powerful combination.  We are no longer treating all brands the same way and simply trying to reach as many people as possible, but are efficiently deploying resources to where they will have maximum impact.

However, for marketing communications professionals, ROI efforts are becoming a victim of their own success and we will increasingly have to go beyond ROI in order to produce superior results.

The Curious Case of Logistics

To understand the fate of ROI techniques, it’s instructive to look at another core business function: Logistics.

Wal-Mart, for example, has invested for decades in their logistics systems, with outstanding results.  At the heart of these systems are algorithms designed around the age-old traveling salesman problem, one of the most difficult conundrums in mathematics.  So difficult, in fact, that it has never been fully solved.

However, the perfect doesn’t need to be the enemy of the good and computer scientists have invented ingenious self organizing techniques such as genetic and swarm intelligence algorithms that can closely approximate a solution.  The more processing power you use, the better your answer will be.  You can essentially choose your level of efficiency.

Nowadays, a business get the benefit of the decades of investment in logistic algorithms by simply calling up UPS and many companies do.

A Question of Competency

Advertising technology is approaching a similar situation.  Much of the work is now done by machine intelligence rather than by humans.  Many of the biggest problems have largely been solved, it’s mostly a matter of processing power which, by the way, is getting cheaper and more plentiful all the time.

That’s not to say that there isn’t room for innovation.  Natural language processing, for instance, has a lot of untapped potential and companies like Networked Insights and Open Amplify are beginning to harness it.  Other areas, like Big Data, are developing quickly and attracting a ton of investment.

However, and this is a crucial point, none of these technologies are specific to the marketing services industry and, to be honest, the industry has very little competence in developing advanced techniques.  That means that it’s going to be harder for practitioners to differentiate themselves based on them.

Competing on the basis of which third party providers you choose is no way to achieve a sustainable competitive advantage.  Without that, how can you win?

Creating Efficiency and Creating Value

The ROI movement has been enormously successful and will continue to evolve and advance.  However, it doesn’t take much imagination to see that in the future we will see more and more computational power chasing fewer and fewer efficiencies.  What’s required is a change in emphasis from creating efficiency to creating value.

Let’s assume it took Edison 1000 tries to invent the lightbulb, how would we calculate the ROI of the first 999?  Does it matter?  On what basis would a corporation evaluate launching the next Pinterest or Instagram?  In much the same way, calculating ROI, as important as it is, does not create great brands, big ideas do.

And that’s where things really get exciting.  Digital technology, after all, does a whole lot more than calculate things.  It allows us to dream, simulate and experiment.  We can choose our scale, evaluate in real time and run with what works.  We can open up our brands and co-create with consumers and partners.

The future of marketing services is to become effective API’s for open brands.  In the post-ROI world, the only limit is that of our imaginations.

- Greg

8 Responses leave one →
  1. jean-louis permalink
    June 21, 2012

    Intellect has a keen eye for method and technique and is blind to aim and value, A Einstein

    If you don’t understand don’t invest W Buffet

    Decision making is painful, Me

    so your article leads us to anticipate the next wave of M&A activity along the vsalue adding chain. you are about to generate the next bubble Greg ;D

    [Reply]

    Greg Reply:

    Well, the morning I wrote it WPP bought AKQA:-)

    - Greg

    [Reply]

  2. June 21, 2012

    Greg,

    Very nice read to imagine how the future looks. I like your phrase: “change in emphasis from creating efficiency to creating value”.

    On my opinion, digital and on-line technologies provide the outcome (and income) in the following areas:
    - creating efficiency (cost reduction, speeding the processes, enlarging the volume of transactions, etc.);
    - creating and supporting innovations;
    - creating new markets and business opportunities.

    We have today the perfect infrastructure (ecosystem) for creating efficiency (logistics, customer service, collaboration).

    We need the ecosystem for creating innovations and business opportunities. Many countries are investing in this new innovation infrastructure as the way out of crisis.

    Distinction the new economy from traditional business model is the change in emphasis from products (things) and services to relationships and transactions (John Perry Barlow, Cybernomics: Toward a Theory of Information Economy, 1998). The new economy imitates the biological life: does not hold back the information but distribute it, does not become stable but permanently transforms.

    Sergei

    [Reply]

    Greg Reply:

    Spasibo Sergei!

    - Grisha

    [Reply]

  3. June 24, 2012

    Are we truly in a “post-ROI” world? Or has our definition of ROI morphed into something non-traditional? Whereas the end-game used to be a pure dollar figure metric, perhaps now it’s truly dollars plus brand advocacy. Regardless, I’ve yet to see a measured ROI goal attained that wasn’t considered a marketing success – at least in the short term.

    You always get me thinking, Greg! Thanks for the post.
    John Cavanaugh´s last blog post ..This is what guilt looks like

    [Reply]

    Greg Reply:

    Those are valid points John. Let me make two clarifications.

    1. I’m not sure that we are actually “in” a post-ROI marketing world, but it does seem to me that we are heading there fast.

    2. m By “post-ROI” I didn’t mean to that ROI doesn’t or shouldn’t matter anymore, just that it isn’t a point of difference. Who would buy a car based on the speedometer? You just expect it to work.

    As the process becomes more and more automated, I suspect we’ll see less people touting ROI. Over the past 5 years, major agencies have put enormous investment into ROI technology, hoping for a breakthrough, only to find that their competitors were busy developing the exact same thing at the exact same time.

    The investment in ROI technology will go on, of course, but I doubt that we’ll talk about it as much in the next five years as we have in the past five. My guess is that we’ll focus a lot more on the technology’s ability to create insights.

    Anyway, time will tell…

    - Greg

    [Reply]

  4. June 25, 2012

    Is this the reason why we are building more surrogates for ROI? I am referring to the proxy ROI metrics which try to measure trust,engagement ( Net Promoter Trust score comes on the top of my mind) As we try to leverage social capital built by brands by allocating monetary value for non-monetary aspects like attention, flow, I feel we are moving further away from the traditional ROI(Show me the money!!!). What do you think??
    Venky´s last blog post ..Does Indian Education system breed innovation?

    [Reply]

    Greg Reply:

    Venky,

    I’m not sure that’s quite right. We have long used metrics other than sales for ROI, even for financial metrics (i.e. margins, etc.). I think that for marketing, using indicators for brand health for ROI metrics is not only okay, but warranted. Just looking at sales doesn’t tell you much about whether your business is improving (i.e. discounting can hurt the business, but improve revenues).

    For example, net promoter score is a very good measure of advocacy. If you have low NPS for you category, that’s a very big problem. Moreover, it indicates specific actions (as do other non-monetary metrics like awareness, consideration and loyalty).

    That doesn’t mean sales isn’t an important, or even primary, but simply knowing that your sales are going up or down isn’t nearly enough.

    - Greg

    [Reply]

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