"I Want My ROI!" And Other Marketing Mandates
by Alf Nucifora
If there's one thing the current recession has done, it's to spotlight the need for ROI on marketing spending. With every corporate expense coming under the minute scrutiny, marketing dollars are no longer immune from the demands of accountability and performance. There's impatience to the demand. Management wants immediate ROI, in many cases payback on the marketing investment within a twelve month period, or less.
In terms of specific results, serious questions are being raised about sales and marketing delivery versus spending. Was that expensive sales collateral material really necessary? Has advertising spending really resulted in a significant increase in brand awareness? How effective has that direct response campaign been in generating qualified leads? How effective is the sales function in converting leads to sales?
Where the ROI discussion is at its most tenuous is in the areas of modeling and retention. Even though database marketing and CRM implementation are now more prevalent within the marketing universe, there is still little modeling done with respect to identifying the most profitable client and prospect niches and allocating marketing funds accordingly. Too many marketing dollars are distributed according to the Velcro principle - let's throw them against the wall and see what customers they stick to.
There is also an alarming silence on the subject of customer retention. Most marketers still covet fresh leads as distinct from nurturing their existing client base. While not necessarily cheaper, it's quite often easier to solicit the new lead, which often leads to an expensive and unproductive share-of-market war where everyone steals from each other. With a 30+% annual customer turnover rate, the cellular phone companies are the poster boys for this behavior. One of these days, they, like other marketers, will learn to appreciate the incredible margin potential that resides with the existing customer.
Advice for the Interested
If ROI is now dominant on your radar screen, consider the following criteria for evaluating the effectiveness of your marketing and sales performance:
- Zero Spending: Evaluate what would happen if, tomorrow, you cut your marketing spending entirely. What would be the impact on sales performance, both short term (first 90 days) and long term (next 36 months)? That's a calculation that most companies don't make and is unquestionably a starting point in determining the value of your marketing effort.
- More Sales Effort: If diminishing sales revenue is the current concern, is it simply a matter of appointing more sales people or can that sales increase be garnered by changing to a new sales channel, e.g., from direct selling to online?
- More Measurement: You can't assess ROI without a core base of measurement. This means more metrics, all the time. Be prepared to track performance for every marketing element, e.g., phone, website, coupons, sell through rate, etc.
- The Difficult Question: As CEO or company head, be prepared to put your sales and marketing people to the test. Never accept a request for incremental spending without a committed estimate of incremental revenue - and the element of risk involved in the decision. Demand a specific commitment.
- Cost vs. Value: Always compare the value of the prospect vs. the cost of acquisition of the prospect. It's what the direct marketing people do so well. And, if in doubt, test the proposition before final roll out. Again, it's what the direct response folks do so well.
- Copy the Best Practice: The organizations that have made marketing ROI an art are out there to be studied and copied. Scrutinize the performance of catalogue companies and direct-to-consumer marketers such as CDW, Amazon.com, Land's End.
The Experts Speak
I spoke to a panel of experts recently; people who live their lives under constant ROI pressure. Their advice reeked of scar tissue and life-or-death accountability.
Says Maribett Varner, Executive Vice President of BKV, a full-service direct response advertising agency, "You must measure every element of the transaction from inquiry to fulfillment to conversion. There are always buried efficiencies."
Pat Horgan, Partner at Paladin Associates, a management consulting firm specializing in sales and marketing activity, recommends holding the marketing functionaries accountable at all times. Says Horgan, "Take sales and marketing seriously and subject it to the same scrutiny as the other operational functions and spending decisions. But allow marketing some freedom. It's not a truly scientific practice."
Guy Powell, Partner of Coacta Business Group, a sales and marketing consultancy operating in the B2B space, suggests that the marketing function "should show how it's invested dollars are more productive than those in other areas." Powell notes that there is a predisposition to invest in areas like IT which can be equally elusive in measuring and delivering ROI to the company. To that very point, sales and marketing practitioners must become more proactive and aggressive in speaking the ROI language and in communicating their value and worth to a management that signs the marketing checks and is experiencing acute pain and doubt in the process.