Lenskold

Lenskold Article Series

by Jim Lenskold

Surveys Say…Challenges Remain for ROI Measurements but Discipline Pays Off

A number of research studies have been released that present different perspectives on marketing accountability, measurements and ROI. The Lenskold Group and MarketingProfs added to the list with our 2007 Marketing ROI and Measurements Study. Our analysis of the 759 surveys completed with marketing practitioners worldwide focused on the difference between companies using profitability metrics and those using traditional marketing metrics with no financial metrics. Among other findings, the research clearly shows that companies using profitability metrics for at least some of their marketing campaigns have an advantage in outgrowing competitors and earning the confidence their CEOs and CFOs.

Our research, combined with the findings from studies conducted by CMO Council, MMA and FEI, and Red Herring, indicate that marketing ROI measurements and processes face major challenges, but prove to be quite rewarding when achieved.

Are We There Yet?

Let’s start with a perspective from senior-level financial executives. A survey conducted by Marketing Management Analytics and Financial Executives International found that just 7% of these financial executives are satisfied with their company’s ability to measure marketing ROI. While this may seem extremely low, our study of marketing professionals found only 9% of marketers believe their ability to measure the financial returns across all forms of marketing is “a real source of leadership” or “as good as it needs to be.” The balance indicate it is somewhat short or a long way from where it should be. So marketers are really no more satisfied than the financial executives at this point in time.

 

Working closely with companies implementing marketing ROI solutions, I’ve observed that while progress is being made and success stories are being shared, marketers are also raising their expectations on what they would like to achieve, which consequently influences their satisfaction levels. In fact, the percent of marketers considering their ability to measure financial returns to be as good as it needs to be or better actually declined from 2006 when it was 16%.

ROI Metrics & Profitability Discipline Delivers

When asked to describe their company’s growth in the upcoming year compared to their competitors, 60% of the companies using ROI expect somewhat or much greater growth than their competitors, compared to 48% of those using no financial metrics. For those measuring ROI, 30% indicate their CEOs and CFOs are very confident that marketing investments are profitable while just 6% of those not using financial metrics report the same. An additional 51% of each group indicate CEOs and CFOs are somewhat confident, bringing the totals to 81% vs. 57%, respectively.

 

Expectations that improved profitability that can come from better measurements are high and consistent regardless of the current metrics used. The majority of marketers (55%) expect they can generate 10% or higher profit improvements if better measurements were in place to capture marketing’s contribution to incremental sales.

 

The CMO Council’s Marketing Outlook 2007 study, conducted with 350 senior marketers, indicates that progress is being made in key areas. Within the list of just the top three accomplishments the marketing organization achieved in 2006 they found:

 

  • 21% indicated they improved the yield and accountability of the marketing organization worldwide
  • 16% reported they extracted customer data and analytics for better decision making
  • 15% introduced a formal marketing performance measurement system

And a Red Herring study reported that fifth on their list of strategic priorities for marketer executives in the upcoming year was “improving accountability for marketing programs”, cited by 33% of the 42 CMO/VPs surveyed.

Still, Challenges Exist

While the commitment and high prioritization to improve marketing ROI and measurements remain strong, challenges exist. In fact of the top 10 challenges reported in the CMO Council study, most had a direct connection with creating the ability to measure and manage marketing profitability. Here are the top six of those 10 challenges (with my commentary):

 

  1. Quantify and measure the value of marketing programs and investments (basically, measuring ROI)
  2. Improve the efficiency and effectiveness of the marketing organization (enabled by performance measurements and ROI analysis)
  3. Grow customer knowledge, insight, and conversations (customer insight is a major factor in ROI improvements)
  4. Improve the allocation and ROI of marketing spend (challenge number one was measurement, while challenge number 4 is acting on that knowledge – perhaps the most critical)
  5. Extract greater value and profitability from customer relationships (enabled by ROI analysis)
  6. Increase credibility, influence and perceived value with senior management (an outcome of ROI as CEO and CFO confidence increases)

The most significant barriers driving these challenges tend to be driven by the organizational culture and the resources required to implement change. This is made more difficult by the fact that 76% of marketers indicate their budget for measurements and analysis is below the necessary level (Lenskold Group & MarketingProfs study).

Approach ROI as a Process, Not Just a Metric

It’s important to recognize that the success of companies using ROI and other profitability metrics does not come from the metric alone. In our 2007 study, we gauged the strength of other aspects of the ROI process and did indeed find consistency. Companies that use profitability metrics have a broader discipline around managing profitability as evidenced by their strength ratings in the following areas (based on the top 2 ratings on a 5 point scale ranging from very strong to very weak).

Very Strong & Strong Ratings

ROI/Profitability Metrics

Traditional Metrics (with no use of Financial Metrics)
Targeting and segmentation based on customer profitability
42%
20%
Use of predictive models for targeting and segmentation
31%
8%
Customer retention and churn reduction of high value segments
42%
30%
Customer acquisition of high value segments
38%
21%
Data mining and analysis of customer and sales data
44%
11%
Managing the customer buying cycle with tightly integrated marketing (and sales)
34%
12%
Strong alignment in planning and implementation between marketing and sales
39%
19%
 

When looking at how the difference in the use of ROI metrics correlates with the discipline across the broader spectrum of marketing profitability management, it is no surprise that these companies are outgrowing the competition and earning the confidence of C-level executives.

 

Improving measurements and ROI analysis is a valuable step in building credibility. However, the pursuit of measuring ROI for all marketing initiatives is not nearly important as applying the measurements of select marketing initiatives to improve profitability. Show that you can identify high value customers through targeting, predictive modeling and data mining, and then acquire and retain those valuable segments. Alignment between sales and marketing is a critical part of the ROI process since the investment of resources by both groups is collectively responsible for the profitable returns generated. The same applies to better integration within marketing to better manage the customer buying cycle from initial suspect to long-term, profitable customer.

 

The companies considered leaders in their ROI adoption will tell you it’s a journey of continuous improvement. It may be a while before we see very high satisfaction levels with ROI measurements. Companies moving forward with ROI discipline are being rewarded with success and faster growth, so maybe you only need to be one or two steps ahead of the competition. Keep working at it. We expect you to make some progress in the coming years.