Measuring Marketing ROI: Holy Grail or Myth? - Issue: 2004 Qtr 3
Warning: this article may contain disturbing thoughts for CEOs, CFOs and bean counters in every department.
No one in his right mind would say, “Hey boss, I’ve got a great idea. Let’s spend tons of money and have absolutely no idea what we get in return.” When other departments invest money, they can develop a return-on-investment (ROI) rationale to justify the expense. For example, a manufacturing executive can demonstrate the reduced costs that a new machine or process will have, based on cycle time reduction, reduced labor, less scrap and rework, etc. But it is much more complex for marketing.
Quantifying marketing can be difficult.
The problem is that marketing initiatives, like other corporate activities such as training and human resources, are much more difficult to quantify, especially for B2B companies.
Unlike consumer product marketers, it sometimes takes months or years to make a B2B sale (for items like major capital equipment or complex software systems). Increasingly, B2B sales are often committee decisions that feel like it’s all about the lowest price (even though sometimes the higher price gets the order). And then there’s that pesky notion called perception. “What’s that?” you ask. Well, if you remember the old phrase that “no one ever got fired for recommending IBM,” you can see that brand perception is an important component in any sales situation.
It’s not easy to understand how and why companies — and the people in them — make decisions. And it’s not easy to measure the direct effect that individual marketing initiatives have on these decisions. If you want easy metrics, open up a donut shop. Then run an ad in the local newspaper. Make an offer (buy a dozen, get one free). Count the number of donuts you sell and compare that to what you sold last week without the promotion. Were your sales greater than the cost of the promotion? That’s one simplistic, and important, way to look at marketing ROI. But the story is a bit more complex.
Measuring responses isn’t everything.
In the world of B2B marketing, measuring response to specific initiatives (i.e., number of click throughs to a web banner, responses to a direct mail, participation in a trade show promotion) should be a typical part of doing our jobs, and they are useful in measuring at a certain level the value of a marketing activity. But, these measurements don’t connect the investment to sales or the bottom line, because they don’t address the larger issue: are my marketing efforts materially contributing to the building of my brand? A CEO is likely to be more concerned with how marketing initiatives improve customer loyalty and shareholder value. And you can’t get to that type of marketing ROI counting direct mail responses.
As the right marketing ROI questions are asked, many firms find that they have no metrics in place to measure the real important issues. For example, are you measuring “sales” or “share of customer”? Are your product/service offerings so limited in scope that ancillary opportunities are restricted? It really comes down to understanding the different kinds of marketing initiatives that can and should be measured. Because marketing is a big investment. Is it really productive to ask how much business was generated by the advertising campaign? Unless there is a direct opportunistic relationship between the advertising and the prospect, measurement is futile (the donut shop can measure the effect of advertising, but a product or service sold through distribution cannot measure ROI the same way).
Deciding what’s important.
Perhaps the solution is to measure both tangible activities and long term, brand-building activities. From a shareholder value perspective, the value of the brand’s equity is where the true value resides. Brand equity is defined as: the set of assets and liabilities linked to a name that adds or subtracts to the value provided to the user. The higher the value to the end user, the more value it is for the shareholders. Because brands live in the hearts and heads of customers/prospects, the ultimate goal of a brand is to build a positive equity position with these people.
The real measure of marketing ROI is the success of individual, measurable activities combined with long term brand building initiatives that together build brand equity.
Is the holy grail of marketing ROI achievable? Yes, but it takes hard work over the long haul. Successful brands are successful businesses. Whether companies invest millions or thousands of dollars in marketing activities every year, the successful investments are the ones that build awareness and loyalty by delivering quality products and services that connect on emotional, practical and financial levels with customers. Companies that measure the right things are the ones that achieve a clear view of their marketing ROI.
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