James D. Lenskold Summary : Six key reasons why marketers must make advancing their marketing ROI capabilities a priority for 2003
Article: There’s been a lot of talk about marketing ROI in recent years, but has there really been any action? Data accessibility has increased and measurement processes have advanced, but marketing organizations still need true financial accountability. And for what purpose? To preserve creativity? To avoid threatening performance measures? Or just to keep number-crunching out of their job description? If you are not aware already, take a closer look—marketing ROI processes provide valuable insight into the strategic planning process and can actually simplify the decision process while contributing to profit goals.
There’s never been a more urgent time to implement marketing ROI processes. Companies are dependent on marketing organizations to win a greater share of profitable business in a very tight competitive market. At the same time, marketing expenses are under scrutiny, and it’s important to hold tight to the best investments while trimming only waste and low-performing investments.
Most marketers do work toward the objective of generating profits even if other metrics are used to guide their decisions. Marketers must make advancing their marketing ROI capabilities a priority for 2003 and here are six key reasons why.
1. Support creative thinking. As marketing strategies are being developed, ROI analysis shows insight into the correlation between spending and results as well as investment limits per customer value. This insight can break the traditional mindset to spur creative thinking and market testing based on initiatives that require a broader range of marketing investments.
2. Compare diverse marketing opportunities. There are many tactical initiatives that can be implemented toward the same business and sales goals, yet the value of each is not always easy to compare. Marketing ROI analysis makes it possible to compare and prioritize initiatives as diverse as growing the field sales force, increasing brand advertising or launching a new loyalty program. It’s also the ideal approach for prioritizing the budget allocation between acquisition, retention and cross-selling programs.
3. Improve campaign and customer profitability. Once marketers understand how to apply the straightforward financial ROI equation to guide marketing investments, it’s easy to expand the management of campaign profitability to include customer profitability. Managing customer profitability has much more potential to show profit growth and foster integrated communications across the company. It’s the piece often missing from CRM initiatives.
4. Streamline decision-making. Companies that have even a reasonable grasp on marketing ROI know that speaking in financial terms that the CEO and CFO understand makes it much easier and quicker to secure additional budget. It’s also easier to put a non-marketer’s great new idea based on a “hunch” into perspective relative to existing marketing programs that may be performing very successfully.
5. Be viewed as an investment instead of an expense. It never makes sense to us marketers that a company would cut marketing to improve profits when our work is supposed to be driving profits. It’s the perception that’s associated with the old saying that “half my marketing budget is wasted, I just don’t know which half.” With marketing ROI in place to manage marketing investments, each budget cut should reflect some loss in future profits, requiring more careful consideration.
6. Create winning strategies. It’s a lot less fun to play sports when you don’t keep score, so why not align your marketing measures with the goal that really matters—profits. Applying marketing ROI tools and techniques during the planning and measurement stages will lead to more profitable marketing. It helps support the need to target more valuable customers and to earn a greater share of customers. It keeps spending in check and leads to integration that manages customers through the sales cycle from awareness and understanding to closed sales and loyalty. The benefits of more profitable marketing extend to employees, shareholders and customers. It truly is a competitive edge to have more profits that can be reinvested. Taking action to implement marketing ROI requires a careful approach to ensure that processes and tools are accurately aligned with the decision process to deliver the appropriate goals. Marketing ROI is not extremely complex, but it’s rare that companies get it completely right. Accenture’s Insight Driven Marketing report in December 2001 showed that 68% of marketing executives indicate they are challenged by their inability to measure campaign ROI. This could even be underestimated. Adding to the problem is the industry itself. More than half of the ROI calculators that I’ve come across on the Internet do not provide accurate calculations (some can be found on very well-respected Web sites, which shall remain unnamed for now). In addition, articles published on the topic of marketing metrics and ROI are often inaccurate. Without accurate marketing ROI processes, practitioners will make poor decisions and profits will not be optimized.
The process for implementing marketing ROI must be very comprehensive to include all investment components, estimate the incremental customer value generated just from that investment, and calculate the ROI with consistency for a valid comparison to alternative investment opportunities. It is also essential to break ROI down to the smallest decisions possible, which in some cases will mean assessing the ROI of one incremental dollar spent. At the campaign level, ROI processes can effectively guide target market selection and modeling, offer development, channel mix and pricing.
Managing customer ROI helps maintain a focus on the best customers and keeps investments into loyalty and CRM on track. An organization with solid ROI processes in place can shift from the typically insane annual budgeting process into the dynamic management of a marketing investment portfolio.
With marketing ROI, small changes can have big impacts in the bottom line. It’s been talked about for many years now and even more so in the past year. Change like this requires the “believers” out there to become true champions that will take action. Your parents may have told you that money isn’t everythin, but in the business world, there’s no shame in competing for and winning profits to the best of your ability.
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