All _____ Are Not Created Equal
Posted May 17, 2012
Fill in the blank, anyone? For this discussion, insert "ROI". Return On Investment. Those three little words have eternally challenged and baffled us as marketers. They've caused us confusion and forced us to ignore, fudge, enhance, justify and massage numbers to provide an outcome with which we (and our bosses) are comfortable. And just when we were getting a handle on ROI for traditional marketing programs, social and digital vehicles joined the party. Now feels like we are starting all over...so should we just forfeit and ignore ROI, altogether?
How to Define ROI...
Since so much time and effort is spent determining the ROI of marketing programs, it's fair to ask what ROI actually is. In fact, we may never know. In its simplest form, it tells us if the money spent on a marketing program is justified by the return of sales and, ultimately, profit. Years ago, anyone competing against an FSI would challenge their ROI projections by introducing the "real ROI" of new consumers vs. current consumers who redeemed the coupon. With a simple stroke of the pen, you could quadruple the FSI's ROI and, depending on your audience's receptiveness, make a strong case that your coupon vehicle provided a better ROI than your competition. Voila!
So let's think about that scenario a minute. Same coupon. Same metrics. Two different ROIs. And yes, many marketers ultimately made million dollar decisions on metrics like these...totally justified by the way...all because of a new way of evaluating ROI.
So Where Are We Today?
The recent lead article of Advertising Age was dedicated to how today's marketers are ignoring ROI metrics. Based on an industry survey they conducted, 57% of CMOs don't establish their budgets according to ROI measures, but rather they tend to rely more on history and that age-old tool, "gut instinct".
Another point of view comes from Socialmediatoday.com,where David Johnson suggests that we throw ROI out the window altogether, and focus on ROE (Return on Experience). He further explains that if a brand creates such a valuable "experience", then consumers will communicate about that experience, both directly and socially, and thus produce rapid word-of-mouth, reduce your cost per customer and generate more sales.
Net, net, what Johnson is saying, whether he states it directly or not, is a good ROE equals a good ROI.
Is ROI Critical for Marketing?
Is ROI important? Yes. Is it critical? No. Marketing is so layered today that it is virtually impossible for any single marketing media or vehicle to be isolated enough to evaluate its actual ROI. Researchers have models, and Control Store Tests still exists. But the ability to isolate the specific motivational trigger that caused a consumer to make a purchase just isn't possible. And if you try to evaluate the entire plan for ROI, then you fall into the familiar trap of "which half of my marketing worked."
Relax. Be a Marketer.
So what do we do? Be a marketer! Great marketers understand how to balance analytics and instinct. If the evolution of today's marketing mix has taught us anything, it is that you better have a good sense of who your consumers are and what motivates them. Using that as starting point, layer on your instinct of what connects you with your consumer and prompts them to buy your brand. If done well, the end result should be both a positive ROE and ROI.