Measuring and Managing Returnon Marketing Investment
Marketing managers must ensure that their marketing dollars are being well spent. In the past, many marketers spent freely on big, expensive marketing programs, often without thinking carefully about the financial returns on their spending. They believed that marketing produces intangible creative outcomes, which do not lend themselves readily to measures of productivity or return. But in today’s more constrained economy, all that is changing:
For years, corporate marketers have walked into budget meetings like neighborhood junkies. They couldn’t always justify how well they spent past handouts or what difference it all made. They just wanted more money for flashy TV ads, for big-ticket events, for, you know, getting out the message and building up the brand. But those heady days of blind budget increases are fast being replaced with a new mantra: measurement and accountability. “Marketers have been pretty unaccountable for many years,” notes one expert. “Now they are under big pressure to estimate their impact.” Another analyst puts in more bluntly: “Marketing needs to stop fostering ‘rock star’ behavior and focus on rock-steady results.”
According to a recent study, as finances have tightened, marketers see return on marketing investment as the second biggest issue after the economy. “Increasingly, it is important for marketers to be able to justify their expenses,” says one marketer. For every brand and marketing program, says another, marketers need to ask themselves, “Do I have the right combination of strategy and tactics that will generate the most return in terms of share, revenue and/or profit objectives from my investment?”17 In response, marketers are developing better measures of marketing ROI. Return on marketing investment (or marketing ROI) is the net return from a marketing investment divided by the costs of the marketing investment. It measures the profits generated by investments in marketing activitiesMarketing ROI can be difficult to measure. In measuring financial ROI, both the R and the I are uniformly measured in dollars. But there is, as of yet, no consistent definition of marketing ROI. “It’s tough to measure, more so than for other business expenses,” says one analyst. “You can imagine buying a piece of equipment . . . and then measuring the productivity gains that result from the purchase,” he says. “But in marketing, benefits like advertising impact aren’t easily put into dollar returns. It takes a leap of faith to come up with a number.”18
For years, corporate marketers have walked into budget meetings like neighborhood junkies. They couldn’t always justify how well they spent past handouts or what difference it all made. They just wanted more money for flashy TV ads, for big-ticket events, for, you know, getting out the message and building up the brand. But those heady days of blind budget increases are fast being replaced with a new mantra: measurement and accountability. “Marketers have been pretty unaccountable for many years,” notes one expert. “Now they are under big pressure to estimate their impact.” Another analyst puts in more bluntly: “Marketing needs to stop fostering ‘rock star’ behavior and focus on rock-steady results.”
According to a recent study, as finances have tightened, marketers see return on marketing investment as the second biggest issue after the economy. “Increasingly, it is important for marketers to be able to justify their expenses,” says one marketer. For every brand and marketing program, says another, marketers need to ask themselves, “Do I have the right combination of strategy and tactics that will generate the most return in terms of share, revenue and/or profit objectives from my investment?”17 In response, marketers are developing better measures of marketing ROI. Return on marketing investment (or marketing ROI) is the net return from a marketing investment divided by the costs of the marketing investment. It measures the profits generated by investments in marketing activitiesMarketing ROI can be difficult to measure. In measuring financial ROI, both the R and the I are uniformly measured in dollars. But there is, as of yet, no consistent definition of marketing ROI. “It’s tough to measure, more so than for other business expenses,” says one analyst. “You can imagine buying a piece of equipment . . . and then measuring the productivity gains that result from the purchase,” he says. “But in marketing, benefits like advertising impact aren’t easily put into dollar returns. It takes a leap of faith to come up with a number.”18
Arecent survey found that although two-thirds of companies have implemented return on marketing investment programs in recent years, only 22 percent of companies report making good progress in measuring marketing ROI. Another survey of chief financial officers reported that 93 percent of those surveyed are dissatisfied with their ability to measure marketing ROI. The major problem is figuring out what specific measures to use and obtaining good data on these measures.
A company can assess marketing ROI in terms of standard marketing performance measures, such as brand awareness, sales, or market share. Many companies are assembling such measures into marketing dashboards—meaningful sets of marketing performance measures in a single display used to monitor strategic marketing performance. Just as automobile dashboards present drivers with details on how their cars are performing
A company can assess marketing ROI in terms of standard marketing performance measures, such as brand awareness, sales, or market share. Many companies are assembling such measures into marketing dashboards—meaningful sets of marketing performance measures in a single display used to monitor strategic marketing performance. Just as automobile dashboards present drivers with details on how their cars are performing
the marketing dashboard gives marketers the detailed measures they need to assess and adjust their marketing strategies. For example, VF Corporation uses a marketing dashboard to track the performance of its 30 lifestyle apparel brands including Wrangler, Lee, The North Face, Vans, Nautica, 7 For All Mankind, and others. VF’s marketing dashboard tracks brand equity and trends, share of voice, market share, online sentiment, and marketing ROI in key markets worldwide, not only for VF brands but also for competing brands
Increasingly, however, beyond standard performance measures, marketers are using customer-centered measures of marketing impact, such as customer acquisition, customer retention, customer lifetime value, and customer equity. These measures capture not only current marketing performance but also future performance resulting from stronger customer relationships. Figure 2.8 views marketing expenditures as investments that produce returns in the form of more profitable customer relationships.21 Marketing investments result in improved customer value and satisfaction, which in turn increases customer attraction and retention. This increases individual customer lifetime values and the firm’s overall customer equity. Increased customer equity, in relation to the cost of the marketing investments, determines return on marketing investment. Regardless of how it’s defined or measured, the marketing ROI concept is here to stay. “In good times and bad, whether or not marketers are ready for it, they’re going to be asked to justify their spending with financial data,” says one marketer. Adds another, marketers “have got to know how to count.”
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