Marketing with Smart ROI
Marketing with smart ROI by Stephen Rogers
Is marketing one of the last bastions of unregulated expenditure within a business?
There is growing pressure from the Boardroom and Executive Management Committee's to bring marketing and communications expenditure to heal. However, this is more fundamental than simply requiring the Marketing Director to take an obedience class. It's not just about control, but increasingly performance, measurement and extracting a true understanding of the genuine return on investment that marketing and individual marketing campaigns are bringing to the business.
Too long perhaps has the Industry been hiding behind the excuse that marketing is a complex function, with multi-dimensional facets that embrace social, behavioural and emotional attributes whose very subjectivity tends to mean that they can only be assessed by qualitative assessment and not by any more stringent quantitative cost benefit modelling.
There are a plethora of quotes which more often than not are used by senior executives when talking about or even to their Corporate Communications or Marketing Directors... 'I know half of my marketing expenditure is working. I'm just not sure which half that is...
One conclusion might be that this is just a sort term macro-economic driven response. When times are hard, budget pressures increase and expenditure levels are subject to greater scrutiny. It has always been so...and it will all be forgotten once the good times start to flow again...but will it?
Perhaps not. True CFO's maybe using the current macro-economic situation as a stalking horse, but this simply reflects their long held belief that marketing needs to be subjected to the same financial rigours as the rest of the business.
So be prepared. Be very prepared.
So is there cause for communications consternation or marketing mayhem... amongst the marketing departments up and down the land?
Not necessarily. Firstly though it's important to recognise and accept the fact that this is and will continue to be a reality of business life. Secondly, to plan for it and to pre-emptively prepare for it. This will help to ensure that the initiative still rests within the marketing function and not elsewhere within the organisation.
There are three steps that need to be taken to help move marketing into the realms of business metrics normality:
- Accountability
- Measurability
- Return On Investment.
Individual businesses might well have addressed some of these elements, but very few have done so as a single end to end process.
The first step like many things the hardest. But critically having done it once, it gets easier - because once a base line has been established a reference point exists against which all future analysis can be benchmarked.
In addition it's worth remembering is that the process is an iterative one and can and should be evolved and developed campaign on campaign, and year on year.
Accountability
This is already well established within most organisations marketing departments, in terms of business & personal objectives, project team management, performance reviews, internal publication of these on the corporate intranet and in the more advanced companies agency & supplier objectives and performance reviews.
What's important here is not only that the team knows whose doing what and whose responsible for delivering it, but also that the rest of the organisation has the same level of understanding and sense of transparency into the marketing department.
Measurement
This is where for many people it gets a bit harder. But it's doesn't have to be. The starting place quite clearly is in the setting of the key objectives for the given campaign or individual activity.
The process of measurement is simply to be able to have in place a structure or format that allows an exercise to be undertaken that can determine whether the agreed objectives have been achieved. This means defining key criteria that can be monitored, can be collated and then assessed against a meaningful target - either a previous year's benchmark or an industry reference indicator or indeed 'best effort insights'.
The challenge is identifying the criteria and then being able to find the most appropriate method of credibly and cost effectively monitoring them.
Return on Investment
Typically ROI has been defined as the money the business makes on any given project/activity that is greater than the original investment made or cost incurred. Marketing has always found it hard to be included within any given ROI as anything other than a pure cost. An almost necessary evil, CEO's may think 'as everyone else is doing it, it can't be wrong' or 'if I don't and my competitors do - can I afford not to?'
There is a potential solution though.
Smart:ROI Index though looks not simply at the pure numerical functional analysis of the marketing campaigns but also the wider picture. It is designed to express the benefits and impacts of both the formal quantitative financial analysis and the qualitative market performance assessment. The combination of these two gives a broader and more balanced understanding of how effective marketing investment projects, campaigns and activities have performed.
Smart:ROI Index is determined by calculating the financial cost/benefit ROI %, together with the combined total of 4 qualitative performance indicators or metrics, such as % market share increase/decrease, % brand awareness increase, or media coverage growth.
To work through an example. If a given marketing campaign has costs of £100,000 and produces (directly/indirectly) revenue/benefits of £130,000, the Financial % ROI is £130,000 divided by £100,000 multiplied by 100 - equalling 130%.
On the Performance Metric side there are in this example four metrics, Market Share, Brand Awareness, Advertising Responses and Media Coverage. The percentage increase (or decrease) is calculated for each of these - based on historic data.
So let's assume that market share has increased by 2%, brand awareness by 3%, advertising responses by 6% and media coverage by 8%. These are then added together to give a total Performance ROI of 19%.
The two totals are then added together to give a Smart:ROI Index of 149%
So what does this actually tell a company? Well it certainly reflects a more balanced and realistic view of the marketing campaign by demonstrating not simply the pure cold financial calculation, but also the other contributory factors that will impact the success of a campaign and the overall business.
The Smart:ROI Index therefore allows Marketing Directors and CFO's to both have a better understanding of how effectively the marketing budget is being managed.
So there will be no need for the Marketing Director to 'sit and beg' in front of the CFO for more budget next year, as the CFO will already pavlovian like believe that he is as happy with the marketing spend as a dog with two tails...
This article was originally printed on the Strategic fusion website, and you can learn more about Smart ROI [http://www.strategic-fusion.com/our_articles/index.php] here.
Stephen Rogers has over twenty years' experience in strategic marketing and corporate communications gained across the government, business and consumer arenas.
Prior to co-founding Strategic Fusion, he held a number of senior roles in the security, IT and telecomms sectors, most recently as Corporate Marketing Director at Inmarsat, where he created and implemented the company's first integrated global marketing strategy.
Is marketing one of the last bastions of unregulated expenditure within a business?
There is growing pressure from the Boardroom and Executive Management Committee's to bring marketing and communications expenditure to heal. However, this is more fundamental than simply requiring the Marketing Director to take an obedience class. It's not just about control, but increasingly performance, measurement and extracting a true understanding of the genuine return on investment that marketing and individual marketing campaigns are bringing to the business.
Too long perhaps has the Industry been hiding behind the excuse that marketing is a complex function, with multi-dimensional facets that embrace social, behavioural and emotional attributes whose very subjectivity tends to mean that they can only be assessed by qualitative assessment and not by any more stringent quantitative cost benefit modelling.
There are a plethora of quotes which more often than not are used by senior executives when talking about or even to their Corporate Communications or Marketing Directors... 'I know half of my marketing expenditure is working. I'm just not sure which half that is...
One conclusion might be that this is just a sort term macro-economic driven response. When times are hard, budget pressures increase and expenditure levels are subject to greater scrutiny. It has always been so...and it will all be forgotten once the good times start to flow again...but will it?
Perhaps not. True CFO's maybe using the current macro-economic situation as a stalking horse, but this simply reflects their long held belief that marketing needs to be subjected to the same financial rigours as the rest of the business.
So be prepared. Be very prepared.
So is there cause for communications consternation or marketing mayhem... amongst the marketing departments up and down the land?
Not necessarily. Firstly though it's important to recognise and accept the fact that this is and will continue to be a reality of business life. Secondly, to plan for it and to pre-emptively prepare for it. This will help to ensure that the initiative still rests within the marketing function and not elsewhere within the organisation.
There are three steps that need to be taken to help move marketing into the realms of business metrics normality:
- Accountability
- Measurability
- Return On Investment.
Individual businesses might well have addressed some of these elements, but very few have done so as a single end to end process.
The first step like many things the hardest. But critically having done it once, it gets easier - because once a base line has been established a reference point exists against which all future analysis can be benchmarked.
In addition it's worth remembering is that the process is an iterative one and can and should be evolved and developed campaign on campaign, and year on year.
Accountability
This is already well established within most organisations marketing departments, in terms of business & personal objectives, project team management, performance reviews, internal publication of these on the corporate intranet and in the more advanced companies agency & supplier objectives and performance reviews.
What's important here is not only that the team knows whose doing what and whose responsible for delivering it, but also that the rest of the organisation has the same level of understanding and sense of transparency into the marketing department.
Measurement
This is where for many people it gets a bit harder. But it's doesn't have to be. The starting place quite clearly is in the setting of the key objectives for the given campaign or individual activity.
The process of measurement is simply to be able to have in place a structure or format that allows an exercise to be undertaken that can determine whether the agreed objectives have been achieved. This means defining key criteria that can be monitored, can be collated and then assessed against a meaningful target - either a previous year's benchmark or an industry reference indicator or indeed 'best effort insights'.
The challenge is identifying the criteria and then being able to find the most appropriate method of credibly and cost effectively monitoring them.
Return on Investment
Typically ROI has been defined as the money the business makes on any given project/activity that is greater than the original investment made or cost incurred. Marketing has always found it hard to be included within any given ROI as anything other than a pure cost. An almost necessary evil, CEO's may think 'as everyone else is doing it, it can't be wrong' or 'if I don't and my competitors do - can I afford not to?'
There is a potential solution though.
Smart:ROI Index though looks not simply at the pure numerical functional analysis of the marketing campaigns but also the wider picture. It is designed to express the benefits and impacts of both the formal quantitative financial analysis and the qualitative market performance assessment. The combination of these two gives a broader and more balanced understanding of how effective marketing investment projects, campaigns and activities have performed.
Smart:ROI Index is determined by calculating the financial cost/benefit ROI %, together with the combined total of 4 qualitative performance indicators or metrics, such as % market share increase/decrease, % brand awareness increase, or media coverage growth.
To work through an example. If a given marketing campaign has costs of £100,000 and produces (directly/indirectly) revenue/benefits of £130,000, the Financial % ROI is £130,000 divided by £100,000 multiplied by 100 - equalling 130%.
On the Performance Metric side there are in this example four metrics, Market Share, Brand Awareness, Advertising Responses and Media Coverage. The percentage increase (or decrease) is calculated for each of these - based on historic data.
So let's assume that market share has increased by 2%, brand awareness by 3%, advertising responses by 6% and media coverage by 8%. These are then added together to give a total Performance ROI of 19%.
The two totals are then added together to give a Smart:ROI Index of 149%
So what does this actually tell a company? Well it certainly reflects a more balanced and realistic view of the marketing campaign by demonstrating not simply the pure cold financial calculation, but also the other contributory factors that will impact the success of a campaign and the overall business.
The Smart:ROI Index therefore allows Marketing Directors and CFO's to both have a better understanding of how effectively the marketing budget is being managed.
So there will be no need for the Marketing Director to 'sit and beg' in front of the CFO for more budget next year, as the CFO will already pavlovian like believe that he is as happy with the marketing spend as a dog with two tails...
This article was originally printed on the Strategic fusion website, and you can learn more about Smart ROI [http://www.strategic-fusion.com/our_articles/index.php] here.
Stephen Rogers has over twenty years' experience in strategic marketing and corporate communications gained across the government, business and consumer arenas.
Prior to co-founding Strategic Fusion, he held a number of senior roles in the security, IT and telecomms sectors, most recently as Corporate Marketing Director at Inmarsat, where he created and implemented the company's first integrated global marketing strategy.
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