Marketing ROI Can Improve CRM Profitability

Achieving a positive return on investment (ROI) is a fundamental principle for good business management. Consistently delivering positive returns keep the business healthy and shareholders happy. Most CRM systems, like other significant capital expenditures, go through an ROI analysis before the investment is made. Companies are just starting to turn their attention to measuring and managing ROI on the billions of dollars spent on marketing each year. Accelerating the implementation of more sophisticated marketing ROI processes can help increase the returns from previous CRM investments and provide the framework for managing customer profitability.

Peter Drucker says the business enterprise has one purpose – to create a customer – and only two basic functions – marketing and innovation. Similarly, CRM has one purpose – to create a valuable customer relationship – and two basic functions – marketing and the customer experience. Marketing is required to build a brand promise, motivate customer purchase behavior, and manage the dialogue component of the customer relationship. The actual customer experience serves as Drucker’s “innovation” component to differentiate and deliver on the brand promise, reinforce customer purchase behavior, and represent the service component of the customer relationship.

The time has come to take the financial scrutiny that is often in place for customer experience investments, such as new product and service introductions, call center technology, Web-based customer service, and new distribution channels, and bring it into the investments made within the marketing organization. CRM technology, data warehousing, campaign management and analytics software, and other marketing automation provide marketing organizations with better quality data, faster access and real-time analytic capabilities. Regardless of the stage of technology, there are sound marketing ROI processes that can be put in place to guide customer-centric strategies as well as the supporting tactical decisions.

Here are some of the ways marketing ROI processes support CRM strategies:

• Marketing initiatives to drive customer retention can effectively be assessed to ensure the incremental value generated from “saved” customers will meet company ROI requirements. (For more information on how the dynamics of customer defection and retention marketing, see the white paper Retention Marketing Profitability: ROI Challenges Influencing the Retention Versus Acquisition Debate
• Investment limits can be established for each customer, based on projected incremental customer value (different than customer lifetime value) which can be used by multiple channels for retention initiatives. Investment limits can also be set for each distinct product or service offer to guide sales and marketing spending. Calculating these investment limits is done to account for the company’s minimum ROI threshold requirements since breakeven values do not lead to financially sound decisions.
• Marketing-based loyalty programs can be more accurately assessed using advanced marketing ROI techniques to guide investments and ensure positive returns.
• Targeting and segmentation is approached differently when marketing ROI is analyzed incrementally until the last dollar spent reaches the minimum ROI threshold. This analysis also supports the creation of marketing programs with multi-tiered spending levels.
• Offers, pricing, and purchase incentives can more effectively be assessed based on accurately categorizing which marketing investments at risk and comparing the ROI projections based on relative incremental sales rates.
• “Residual value,” which represents the marketing impact that one investment has on the returns of future investments, can be captured and tracked without distorting ROI measurements and over counting results.
• Marketing allowable charts can present marketers with a broader view of the correlation between investment levels and sales rates that align with ROI objectives.
• Customer profitability can be managed through a multi-level analysis that encompasses the independent ROI for each marketing activity, the incremental ROI that each activity brings to the existing series of marketing activities, and the aggregated ROI of all marketing activities combined.

Marketing ROI has been misused and miscalculated far too often. It is essential that the marketing ROI processes put in place 1) align with the strategic marketing decisions that are being made, 2) maintain financial integrity that is free from subjectivity and 3) reflect the dynamics of customer behavior. You want to create projections and measurements that are as accurate and predictable as possible which means using quality data, along with predictive metrics and modeling, benchmark values and reasonable assumptions.