It's a trap! Marketers and ROI
Marketers should not focus on return on investment (ROI) as their key metric. Why not? Because it is not ambitious enough.
Don’t get me wrong. ROI is a helpful way to compare media choices, or different creative options, or even different service models. It is an important tool for marketers to make choices, and to improve. But be careful: it’s also a trap.
Sometimes ROI looks like clear proof of money well spent, to justify budgets to others. But the right measure of wise investment is overall business results, not short term return on marketing investment. We invest to achieve business outcomes – to achieve sales, profitability, sustainable revenue. I don’t think we marketers should expend our energy, or our colleagues’ time, in a conversation asserting our competence. Sales directors don't seek to prove the ROI of their sales team to the rest of us. They use internal team measures to compare performance and set benchmarks within the team – quite a different matter. Marketing activity, just like sales activity, is part of the whole business enterprise that generates value for customers and for the enterprise itself.
There are two big problems with ROI. First, it is vital for marketers to experiment, in order to improve how we do things. New services, new propositions, new channels, new forms of engagement, new offers – it’s down to us to initiate and drive change that makes our business more competitive, more distinctive, better at understanding and connecting with people, better at keeping satisfied, profitable customers for life. To do this, we have to test, then learn and optimise. It can't all work. No self-respecting marketer leaves innovation to their competitors.
Second, the work we do as marketers is part of a complex, inter-dependent system that builds demand and creates customer satisfaction. We should not promote a device that presents our activities as if they are freestanding, and as if marketing’s only contribution is to feed customers into the business cost-effectively.
It is right to measure whether marketing activities deliver as intended. It is also professional to show that you measure, and how you measure, the impact and value of marketing budgets. But don't confuse ROI with marketing effectiveness.
We can do better. The real point is not to get a return on marketing investment but to achieve business targets. That's the only measure that really matters. ROI isn't sales or profits. So even in this world of measurement, rigour and accountability, ROI should remain a tool for intra-marketing comparisons, not the currency by which marketers prove their value.
The value of marketing is still not a given, and sometimes it can feel like a battle for survival. It’s for us as the experts to set the ground rules, and to choose our weapons. Within the marketing communications bit of the marketing function, it’s more useful – even if it’s harder – to show people the value created by brands and consumer relationships than the simple return on investment generated by individual activities or campaigns. More broadly, the challenge is to raise the focus from efficiency to effectiveness, and marketing’s contribution to the shared business goals.
You might be pleasantly surprised, as I was in a senior marketing role, when the CEO and CFO were wowed by the work we were doing on marketing effectiveness. They had not had a sensible conversation with anyone about how marketing communication works in the short and longer term. Seeing the value of a brand demonstrated was new and helpful. They were smart enough to see that the financial ROI metric used for other business decisions didn’t apply - because some of the value we create is intangible. That, ultimately, is what a brand does for a business.
ROI can be misleading. It measures only the known positive impact of an activity. An obvious example is irrelevant or poorly targeted direct marketing that appears to pay back, but doesn't reveal how many customers are upset by receiving stuff that reveals how little the brand knows or cares. When you see tiny click-through rates or response rates of a few percent, you have to wonder about the impact on the other 95%.
That’s the risk of price promotions – they will always show short-term uplift, but over time they can erode brand equity because they reduce people’s willingness to pay. They also mask the underlying issues a brand or product may have, by creating an artificially inflated rate of sale. Yet it is our job as the marketers to find out the weaknesses in our offering and make them better. A focus on ROI is like a doctor who gives the patient aspirin to reduce their fever, and then says they’re better because their temperature has come down. I can always get you positive ROI, as long as you turn a blind eye to what I have to do to get it.
If we let ROI become our key metric we are tacitly agreeing that our only job is to spread the word about the business, to drum up customers, and that we can’t really be trusted with large sums of money. The irony of this is that when we do real marketing, we influence what the business makes, decisions to build factories and investment in people and processes – with far more lasting consequences than an annual media budget.
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