By José María Gómez, MKROI
If Not Now, Then When? Getting Past Barriers to Marketing ROI
It is fair to say that measuring the financial return on marketing investment is an increasingly greater part of the work undertaken by marketing professionals. All the same, there are still only a portion of firms that have integrated the marketing ROI paradigm into the way they plan, implement and evaluate their activities. What are the reasons for this gap? On the basis of my experience as a provider of marketing services in my work as an executive inside firms as well as in agencies supporting them, I will share four primary barriers in this article.
The Marketing Director of the first company in which I worked solemnly asked me during the final selection interview in his office: “What do you think I mean when I define marketing as complex financially?” I recited the definition Philip Kotler provided in his Marketing Management, in an edition of his book long before the inception of the Internet era. His definition of marketing concluded with the words, “in a way that is profitable for the business”. Of course, if marketing were not profitable, all that analysis, planning and implementation would make no sense. Although Kotler saved my life that day, the truth was that the edition that I had studied only devoted a few pages to issues related to the financial aspects of marketing activities.
The situation that I came up against after working for several months in that chaotic and brilliant marketing department – which was more chaotic and more brilliant than any other in which I ever have worked – was very different. It adhered as little to Kotler’s definition as the Director of Marketing’s challenging question did. No one talked about profitability there. They were very concerned about media GRPs, on-pack promotion redemption that endangered control of the marketing budget, or the awareness index for the latest TV commercial that skyrocketed the awareness curve on the advertising tracking study graphs. Above all, they were concerned about meeting production deadlines. There was so much activity afoot that the main challenge we faced was our capacity for managing the process.
Over time, our department ricocheted from frantic activity to melancholic calm. Someone at the top decided that our group had too many responsibilities and the Marketing Department began to lick its wounds for the ground they were losing without even putting up a fight. First, on the one hand, channel marketing became part of the Sales Department (the craze for Trade Marketing). Then, at the other end of the scale, customer relations began to be taken away from the marketing field (it was at the start of the CRM boom). When something was considered capable of bringing about incremental profits, they felt that the most opportune move was to take it away from the Marketing Department. We further complicated matters talking about attributes and attitudes, when those at the top were seeking higher returns.
I am sure that this story was common to many marketing professionals. And although several years have gone by since then, I believe that many people who are now launching their careers are still coming up against similar situations when they start working in their first marketing departments. Marketing covers a wide range of activities and produces all kinds of analyses of client and consumer attitudes and perceptions, yet it sometimes offers boards of directors very little or no certainty as to whether these efforts translate into incremental income and profits for companies.
The 2009 Marketing ROI & Measurement Study by the Lenskold Group/MarketSphere confirms this. Only 24% of the sample of marketing professionals interviewed agreed with the following statement: “We calculate ROI, NPV or other profitability metrics for at least some of our marketing campaigns/investments.”
Let’s address some of the reasons that still hold many companies back from using Marketing ROI and other profitability metrics as the primary evaluation of their marketing activities.
1. Marketers prefer to continue to work within their own comfort zones.
According to the definition offered by Alasdair White (2008), our comfort zone is the behavioural state within which we operate in an anxiety-neutral condition, using a limited set of behaviours to deliver a steady level of performance, usually without a sense of risk.
If we apply this definition to the field of marketing, we can recreate a picture in which marketing professionals are comfortable carrying out campaigns and measuring them through traditional marketing metrics. The process of managing marketing actions is in itself sufficiently complex. It involves different people and companies and is carried out under the pressure of timing and limited resources. It usually leaves space for personal creativity and the evaluation of others’ creativity. All in all, the current environment is capable of offering sufficient challenges and rewards for keeping professionals happy in their comfort area for a long time.
2. Marketing professionals perceive more risk than benefit
If these practices are not recognised positively within organisations, what interest can there be in promoting them? Above all, there is always a risk that the process will detect marketing actions that are not profitable or fall below the required ROI threshold.
The truth is that ROI is always on the CEOs’ and executive agenda, which is leading to increased pressure on marketing. If marketing does not take the reins when it comes to marketing ROI, someone else in the company will do it for us. The marketing department will then be relegated to an internal supplier of communication services and solutions or the implementer of business strategies that are defined by others.
Marketing ROI is misunderstood to be a judgment on marketing performance that will immediately eliminate under-performing initiatives. But instead, the marketing ROI process is designed to provide new insight to guide improvements and help marketing drive incremental sales and profits.
3. Marketers lack the knowledge needed to manage the ROI process
Realistically, progress in moving the current comfort zone to an optimal performance zone cannot be accomplished without increasing an organisation’s stress level. Moving towards a Marketing ROI paradigm can be perceived as a challenge for any marketing department.
The solution is to build knowledge, capabilities, and confidence with the marketing team. The process should move at a pace that is manageable for the organisation.
Running pilots within specific areas of our marketing activity and positive recognition of those who are adopting the new paradigm can be used as motivating elements.
Above all, a measurement plan should provide us with an identification of the part of the results obtained that is related to the baseline (what would have happened even if we had done nothing) and the part that is incremental. From the customer funnel perspective, understanding the degree to which our activity has motivated clients’ progress from one phase to another in the funnel.
Improved measurement methodologies such as the marketing mix modelling or market testing is allowing many companies of different sizes and levels of marketing investment to obtain the critical information they need to nourish their marketing ROI models. Furthermore, the increasing use of these techniques and their falling costs are placing them within reach of more and more marketing departments.
4. Marketers lack experience in evaluating marketing ROI.
Perhaps we do have the ability to put a marketing ROI framework in place for our company. We form an idea of the variables that have an impact on our activity and we even make a mental sketch of our business’ customer funnel: how clients progress from knowledge of our brand to repeat purchases and recommending our company to other potential clients.
Yet, the final barrier is a lack of experience and the knowledge of how to use and interpret these financial ROI insights in our pre-campaign analysis and how to analyse and assess the post-campaign results coming from our measurement plan.
Basic or advanced ROI spreadsheets or interactive tools can take away the mathematical and analytic complexities so marketers can concentrate on running diverse scenarios of their marketing plans to determine the relative contribution of each. By focusing the marketing staff on their strategies and tactical decisions, the understanding of what drives more or less ROI will become quite apparent and eventually intuitive.
The reasons restraining your company from getting started in the marketing ROI process could be included in the four above, or perhaps be of a different nature. Whatever it is the case, if you are not yet fully convinced to initiate the process, take some time to think if your competition is already an “Early Adopter” or even an “Innovator” in the marketing ROI adoption process curve. You can then consider if your organisation must work to catch up or has the opportunity to pull ahead.
José María Gómez is the managing partner of MKROI, a company offering marketing ROI solutions as an Authorised Partner of the Lenskold Group for Spain and Portugal. MKROI is an extension of his promotional and loyalty marketing firm Paradigma Marketing, based in Seville, Spain.