So what are the dangers of ROI?
In advertising, there's a joke that the only way to increase marketing ROI is to spend nothing, because that way your ROI will be 100%. As soon as you invest a penny in marketing, you will lose some of that spend. Unless your business is either a monopoly or putting your competitors out of a job, the chances are you share market with some competitors.
This uncertainty tends to lead people to want to know what the direct, functional return on marketing investment is. And that's why marketing ROI is so popular. It's easy to explain, and generally it's understood by non marketing team members. But it can also lead you astray because it gives the (usually wrong) impression that things are going well when you spend less.
Here's an example.
Campaign 1 shows an ad to 1 million people and gets 10,000 responses. That's an ROI of 1%. Then Campaign 2 shows the same ad to a more targeted audience of 100,000 people and gets 2,000 responses. It's easy to spot the problem here. Campaign 2 reached only 20% of the audience of Campaign 1, but the ROI actually increased to 2%. These kind of numbers encourage brands to go tighter, narrower and more targeted.
But let's say you wanted to make the case for brand building in a company obsessed with ROI. How are you going to do that? A good place to start is this fact. To grow, a company needs to attract new customers. Or it needs to sell the same thing for more money. And that's a job that's heavily influenced by things like awareness, perception and consideration of your brand, rather than raw sales statistics.
So how do we go beyond ROI and get to a better place?
The first, and most obvious challenge is that each measure should work for the stage of the marketing funnel you're measuring. And while you can't measure the ROI of brand directly, you can show how it's contributing to and changing sales behaviour. (Let's assume in this case that your sales force or online conversions are working well.)
Before anyone buys from you they need to consider you. And they can't consider you if they're not aware of you. At that level, we're not trying to measure sales on the cash register. It's about understanding what people think and feel about your brand. From there you can work out how your brand influences profit and sales. A simple thing to do here is to run a survey where you ask customers to rate you and a competitor on a scale. This will give you data on if they consider your brand, and how you stack up against the competition.
But there's a couple of steps even higher up the ladder than this one. At the brand level, you can track what people think about your brand in general. Tracking this over time is like an early warning system that shows whether people see you as different from the competition. You can often match shifts in sales to changes in brand perception or awareness. And speaking of awareness, this is the final and most important metric of all. Do people know your business exists?
The early warning system
This sort of info is gold for a business. It doesn't generate a sale, nor can you track it with an ROI statistic. But it helps you understand your customers better. It tells you when to invest more in your brand, and when you can hold back. In other words, it's the sort of big picture data that's vital to making good decisions.
Measuring the big picture is a competitive advantage. Understanding what levels of awareness you have; how do people think about your brand, and how is that changing over time? And then how does that influence people as they move through from awareness, to consideration and on to a purchase? You can calculate the conversions between those key stages, and attach a value to those moments and try and tie them to profit. All of a sudden, it's clear when and where brand really does make a difference.
The key take away here is that lots of short term wins don't make for long terms gains. Businesses need new customers to maintain profitability or to grow. So if ROI metrics tend to force people to think only about the sales end of the process, it stands to reason that we lose that little bit of focus on all those little things that contribute to a sale. And we all want healthy brands that drive awareness and considration, maybe it's time to steer clear of this simple, but deceptive metric.