Measuring Marketing ROI Can Be Harmful to Your Marketing Department!
A few of my friends IM’d, emailed and called me yesterday to talk about the post I wrote on ROI not being a good indicator for how well marketing is doing. That prompted me to elaborate on the subject a bit in this post.
First, lets look at the statement that Marketing is not a set of simple linear processes that can easily be measured - but rather a complex multi-variable and non-linear process.
Assume you have a new product version, for which you develop a special upgrade price and an extra sales incentive. Lets further assume that you have done well and therefore enjoy some positive word of mouth in the marketplace. You now decide to launch this product upgrade with a massive email campaign and by participating in a industry trade show. What does the ROI on the email campaign tell you about the efficacy of email marketing in this case?
Answer: NOTHING!
The email campaign could bomb because you could have the wrong offer for that audience, or a sales incentive that competes with a better one which causes the channel to push an alternative product. You could have had a few of your products explode a few weeks before the whole campaign, resulting in negative word of mouth. Or you could get 30% of the good leads that both read the email and went to your show. How do you then determine ROI? And assuming that you can, what does it tell you?
NOTHING! You can not predict the behavior of the whole system by understanding the individual parts…there are too many variables in the whole system…the system will exhibit some emergent behavior, which cannot easily be measured with standard ROI metrics.
All of this leads to the next statement I made yesterday. Lets assume that you can find a solution to measure ROI which takes into account all the inter-dependencies and variables that rule your market at this particular point in time. What does it tell you about the future performance of marketing programs, incentives and promotional pricing schemes?
NOTHING!
Because ROI is a trailing indicator, not a leading indicator…
So are there leading indicators that marketers could use? The best one I found so far is ROI, but not as in Return on Investment - but as in Return on Information, as defined by John Hagel. You measure ROI both from your company’s point of view as well as from the customer’s point of view. As John says: “From an organizer (company) perspective, the question becomes: How much effort and cost did I invest in acquiring information about individual participant and how much value have I been able to generate in return, both for the participant and for me? From a participant (customer) perspective, the key question is: How much information about myself and my needs have I provided, how much effort did it require and, relative to both of these, how much value have I received in return from the information provided?” You could extend this concept to also measure the amount of information you need to provide a prospective buyer for him/her to make a buying decision.
Looking at it this way is definitely a more holistic systems approach to measuring success. And unlike the traditional ROI, it could help you predict future behavior. If the Return on Information from a customer’s point of view is positive, chances are that all your messages will be amplified by positive word of mouth…
So how could measuring marketing ROI be harmful to your marketing department? As I said yesterday, by insisting on measurability, companies will force marketing execs to break marketing into a collection of simple linear processes, which is not how marketing really works. By doing so you will miss all the opportunities at the intersections, and kill programs that should be leveraged in certain circumstances at at certain times. And for as long as you will have an ROI-driven marketing department, the credibility of your marketing department will continue to diminish, and the frustration of the executive team with the CMO will continue to increase.
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January 16th, 2008 at 11:09 am
Francois, thanks for putting this into perspective. Great post.
January 16th, 2008 at 1:41 pm
Thanks Eric…appreciate the feedback.
January 16th, 2008 at 2:37 pm
So you are saying measurement is valuable, but it is important to think about what you are measuring. The focus for a successful marketing orientated company is on determining how well you convey information to the customer. Measuring the value to the customer as well as yourself makes a lot of sense, as marketing is all about listening. The focus should be on making a better product/company which is profitable, rather than running a good campaign.
I suppose that would mean you might actually see a higher conversion on one type of campaign with traditional ROI, but a lower return on information overall for the same campaign. Media relations is probably a good example of a type of marketing campaign that is often difficult to measure with traditional ROI but easier with return on information as I think it would be easier for a customer to remember a publication’s article about your product.
January 16th, 2008 at 3:24 pm
John - thank you for taking the time to comment. I should have been clearer in my post and explicitly say that I am not against measuring - just that the old ways of measuring an assembly like do not work in the case of marketing.
I do believe that to great extend Marketing is a science - and therefore can be measured. Continuing the analogy. it is just much closer to biology than to fluid mechanics
January 16th, 2008 at 8:49 pm
I am all for science, though my preference is geology, which is also surprisingly an art as you have to read the rocks to think about what happened in the earth even though you cannot observe directly.
Oh, I did not think your were suggesting measuring was all bad, just that there’s more value in measuring in return in information.
I’ve been a marketing director where the main way we measured was traditional ROI. It helped increase the sales of one company I worked at by 100% in six months. However, I think we could have done better if we had also used ROI 2.0.
January 16th, 2008 at 8:57 pm
The problem is that a lot of indicators that measure ROI are too tactically focused, e.g.: campaign based.
Since marketing as a function is scrutinized, marketers try to justify their actions with low level indicators when they should focus on the bigger picture, e.g.: how am I impacting my brand by my actions vs. did my campaign get x% hit, reach….
What’s more important is what I would call the ROO, return on objectives which is less palpable than your day to day actions.
January 16th, 2008 at 8:57 pm
ROI 2.0…
Francois Gossieaux continues the discussion about measurement in his post about measuring return on information rather then return on investment for marketing departments. Francois thinks that measurement is valuable, but it is important to think about…
January 21st, 2008 at 2:43 am
Francois
You are so right on this. While I think some ROI can me measured, it never can truly reflect the full influence because there are oh so many factors that go into it.
I once told a women friend of mine that worked at a technology company here in the DC area that she was being treated as if she was a “marketing administrator”. Marketing is all tactics. Boss didn’t know about marketing but felt he did.
Return on Interest is an interesting concept, but how does one measure that one as well?