Maximising Return on Marketing Investment

Introduction

Whether we are in a recession, economic downturn, or period of prosperity, every company has a time where it has to pull in its costs. When the finance department look at where they can claw some money back, they always look at marketing cost reduction as an easy target; and it is always an easy target, as historically it couldn’t defend itself from a return on investment point of view. Marketing may not be an exact science but it has now been around long enough to start defending itself by proving its value by delivering clear evidence of marketing budget effectiveness. Customer Champions believe that the advent of CRM solutions has meant the measurement of return on marketing investment (marketing ROI or ROMI) is now proving to be an achievable goal.

With companies increasingly being managed on a quarter-by-quarter basis, or even shorter, the argument of the short-term gain of marketing cost reduction and the immediate impact on the bottom line versus the longer-term loss of revenue, appears very attractive to finance teams. After all, the lost revenue impact of reduced marketing spend will be something that becomes visible in the future, and therefore will be managed in the future. How the marketing budget is cut is frequently a “black hole” and often appears to be random at best, or takes the approach of an across the board percentage cut. Whether it is based upon personal relationships, or vague beliefs it does very little to support a management by fact approach.

Managing marketing budgets through effectiveness is key

Customer Champions believe that the influx of CRM ensures that companies can now begin to place themselves in a position where marketing budget allocation is driven by its effective use following detailed marketing efficiency measurement processes. We all know the old adage that “50% of advertising works, we just don’t know which 50%”, is increasingly wearing thin, particularly with finance departments and senior management trying to understand marketing budget effectiveness.

Many marketing gurus tackle the issue of return on marketing investment (ROMI) in the cleaner cut marketing world of FMCG, but few are prepared to tackle the B2B market. The relationship between marketing, the suppliers and the B2B customer is so much more complicated than the B2C market:

• the value of each customer is significantly higher so any mistakes with marketing execution to an individual can be extremely costly
• the complexity of the mix of marketing activities is far greater in B2B than it is in B2C
• the total customer base is relatively small so any segmentation of the market to allow for tracking the impact of different marketing activities becomes extremely difficult

The devil is in the detail

Customer Champions believe that the key approach to overcoming the traditional inability to implement marketing measurement in the B2B market is to take a practical bottom up approach. Start with identifying what marketing activities are currently being performed. In a B2B environment activities can be broadly categorised into:

1. advertising
2. direct mail
3. telemarketing
4. social media
5. PR
6. events
7. hospitality
8. sales aids
9. market research
10. sponsorship

Each of these activities then need a decision on what are to be the key measures and why. A key element here is to understand what is the primary purpose of performing the activity. Although we would all love to relate marketing activity directly to increased revenue, and maybe even profit, this may not always be appropriate, let alone possible.

Using the AIDA model

The AIDA model (Awareness, Interest, Decision, Acquisition) gives us a good starting point from which to identify the major purposes of marketing activity, vital if marketing measurement results are to be of any value. Customer Champions have expanded this list to allow for the importance of internal measurement, hence the key marketing purposes have been categorised as:

1. internal awareness
2. customer awareness
3. customer relationship
4. lead generation
5. revenue generation

These overall purposes then need to be related to the list of primary activities so that a set of key marketing measures can be developed. This is often where the trouble really starts, as the introduction of these measures is totally dependent upon a process for data collection and submission. Although most parts of business capitulated to the onslaught of quality and the need for processes during the late 80s and 90s, marketing managed to stand tall and argued its case for why processes were not key. This defensive position has now resulted in a few chickens coming home to roost. Without processes there is no consistent form of measurement, and therefore little data to provide to a return on marketing investment approach.

Take for example the running of a series of customer events. Customer Champions have found that companies either don’t identify how to measure the effectiveness of the event, or, when they do, they seek customer feedback on non-commercial issues. For instance, “how good was the catering?” rather than seeing if they have changed customer perception or awareness levels by attending the event. Companies are also missing the opportunity to link already established data sources to marketing activities. Customer Champions have through their own studies found that over 95% of major companies now perform some form of customer satisfaction measurement. Yet it is increasingly apparent that only a tiny minority of those link this data source back to marketing activities.

Consistent measures

Customer Champions argue that only once a basic and consistent set of marketing measures is in place against every marketing activity can the effective measure of ROMI be established. To date, too many companies are still spending marketing budget against activities “because we have always done that” rather than identifying from where they get their best return. Customer Champions contend that many B2B companies, particularly those with larger marketing budgets, don’t seek to establish clear objectives, and measures of success before budget is released against activities. A marketing plan is drawn up at the beginning of the year in order to justify the total budget, but the lack of basic management data against specific activities within that overall budget does not support tracking the effectiveness of the marketing budget spend.

Either the data exists today, or the introduction of simple processes would generate much of the data required to manage marketing budgets more effectively. Once the data is available it is relatively easy, through internal benchmarking for a company, to identify areas of marketing excellence, and those that are in need of support. Armed with data about revenue generation is ideal, but even knowing …

• what costs should be expected against an activity type
• their standard ratio of attendance to invitation against events or hospitality
• who was invited and who actually attended
• response rates from direct mail or telemarketing
• cost per attendee for events
• ratio of attendee to sales lead
• conversion rates from sales lead to actual revenue
• how the above differ through job functions of the Customer

… gives a management team some basic information on which to manage budgets.

ROMI data collection made easy

The crux of the issue is to make the measurement valuable, and to ensure that data collection is easy. Customer Champions have found that the creation of a representative joint team from marketing and finance has a significant impact in being able to develop measures that are supported, and can be delivered against. The marketing team members need to have the following characteristics:

Once the team is in place and the marketing measurement defined against required outputs has been established, the next issue will be the establishing of an effective method of ROMI data collection. Many companies today already have some form of customer or budgetary system that they have to use, it may even be a CRM system. The collection of this ROMI data has to be directly linked to these. If it is seen as yet another system that requires data input it is likely to be disregarded. Therefore integration of a ROMI data collection system with others already established is key.

Don’t forget the people amongst the ROMI data

Companies can now start to identify how to maximise the effectiveness of their marketing budgets. The starting point has to be how they want to use that data to drive their business, and then identify what measures need to be in place. Overlaying all of this though is a cultural issue where marketers have to accept that they will now be measured on the return from their marketing investment. This on its own is no minor achievement, and is to be ignored at companies’ peril.

Take the next step

To find out more about the practicalities of maximising return on marketing investment in your organisation, please get in touch.

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