Measuring Marketing by ROI is BS

 

From Wikipedia:  In financerate of return (ROR), also known as return on investment (ROI), rate of profit or sometimes just return, is the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interestprofit/loss, gain/loss, or net income/loss. The money invested may be referred to as the asset, capital, principal, or the cost basis of the investment. ROI is usually expressed as a percentage.

ROI is a useful tool for measuring the return from a company as whole, or a discrete piece of capital equipment, i.e., a milling machine, a truck, conveyor belt, etc.  It is totally inappropriate to use it as a measure of Marketing effectiveness.

Unfortunately, the rise of social media tools has been paralleled with an increase of metrics; opens, bounces, returns, page views, repeat visits, etc.  Because of these metrics some have suggested that Marketing can now be quantified and can be measured as a percentage, based on the “investment.”  Nothing could be further from the truth.

Taking each of the marketing segments in turn:

Product Management.  A Product Manager brings a new product to market.  Working with development, he/she provides a Market Requirements Document, works through a Functional Specification and then negotiates with development over a 12-18 month development cycle on the final product, including alpha and beta tests.  He/she is responsible for launching the product, pricing and positioning it based upon learned knowledge of the buyers, competitors, market conditions and need for profit, as well as training the sales force on how to sell it.  And it is well known that approximately 80% of new product introductions fail.   If the investment in a Product Manager is his/her salary, and success is measured after 2-3 years, it is hard to see how an ROI is calculated or even meaningful.

Corporate Marketing.  Corporate Marketing is responsible for establishing and maintaining the brand of the company, interfacing with the press and analysts and ensuring that the company’s position is well understood by all stakeholders.  This is a continuous job, with multiple variables always at play.  Investments may be all internal, or shared with outside firms or agencies.  Surveys can be conducted regarding how the brand and/or company are perceived vs. competitors and prior years.  But the essence of a brand is its emotional content with the buyer which is often developed over a long period of time.  Does it make sense to measure Corporate Marketing on an ROI?

Product Marketing Product Marketing, working with Product Mangement and Sales is responsible for developing and delivering leads within a defined time frame, usually 12 months.  Product Marketing uses a variety of tools to generate leads and help close sales including; direct mail, trade shows, webinars, YouTube, blogs, SEO, website, CRM tools, etc.  The goal of Product Marketing is to keep the sales funnel full and to deliver sales qualified leads to the sales force, thereby optimizing their performance.

The proper mix of old marketing tools and new marketing tools depends on the company, its maturity, its industry and competitive actions. There is no consistent right “answer” as to what works best that is applicable to all companies.  Hence any generation of an ROI is applicable only to that company and may vary year by year.

Going deeper, there is an art or craft to developing messaging that works both with old and new marketing tools.  The tactics used to get people to open and respond to a direct mail piece is different from those used to get people to open and respond to an email.  Trying to assign a value to this art is virtually impossible.

To be clear, ROI can be applied to marketing tools (CRM, Social media tools, etc.) when it can be shown that the new tools produce productivity improvements over current practices.  However, the subjective allocation of costs to events or programs, where the outcome is dependent upon numerous variables and calling this calculation an ROI is nonsence.  For example, allocating 1 ½ marketing people to the cost of a direct mail campaign, and assuming that all the sales that closed were the result of this campaign ignores or overlooks all other aspects involved.  Using this approach one can get an ROI that ranges from a negative percentage to 1000%…in short, meaningless.

Is your Marketing department measured on an ROI basis?  Let me know.

RHM  4/5/2011

1 comment to Measuring Marketing by ROI is BS

  • Jim Matorin

    Bob:

    Right on. I am so, so tired of people using the term ROI when so many elements go into an effective marketing mix. I think a better use of time and measurement would be to break down and examine profitability and retention of key customers.

    Jimmy

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