January 1, 2020


Why marketing ROI is a an incomplete metric.

My team often engages in client projects designed to improve marketing outcomes. Many times, clients describe their primary objective as an increased return on marketing dollars or return on investment (ROI). However, this is often the wrong object and their real goal should be improved marketing effectiveness.

“That sounds like semantics,” you say? Yes, this is an argument over semantics, and in this case, semantics matter.

When stating the primary objective as improved marketing ROI, the aperture is usually focused on an optimization exercise, which pits financial resources on one side of the equation and levers — such as channel spend, targeting algorithms and A/B testing — on the other side.

A couple of decades ago, marketing analytics recognized that specific activities were easier to link with outcomes based on data that was readily available. Over time, this became the marketing ROI playbook and was popularized by consultants, academics and practitioners. This led to improved targeting, ad buys and ad content. These improvements are very important, and we would argue that they are still a must-do for most marketing departments today. However, once resources are optimally allocated across channels, winning ads identified and targeting algorithms improved, marketing is still not as effective as it can be. Now is when the hard part of building a more effective marketing function actually begins.

For a moment, let’s imagine a typical marketing ROI project from the customer’s perspective. Imagine you are actively shopping for a refrigerator. A retailer uses data to appropriately target you at the right time, across multiple channels, with the right banner ad and a purchase naturally follows, right? Of course not.

  • What about helping you understand the variety of features, prices and brands available?
  • What about helping you understand the value of selecting them over other retailers?
  • What about the brand affinity and trust this process is developing in the consumer’s mind?

Because this purchase journey can play out over weeks or months, these marketing activities are more difficult (but not impossible) to measure and are often left out of the standard ROI project. However, these activities are as influential as the finely tuned targeting algorithm that brought you to the retailer’s website in the first place.

Back to why semantics over ROI and marketing effectiveness matter. Today, the term “marketing ROI” is calcified within a relatively narrow set of analytical exercises. WE have found that using marketing effectiveness as the alternative objective gives license to a broader conversation about how to improve marketing and customer interaction. It also lessens the imperative to link all activities directly to sales. Campaigns designed to inform, develop relationships or assist in eventual purchase decisions are then able to be measured against more appropriate intermediate metrics, such as online activity, repeat visits, downloads, sign-ups, etc.

“Today, the term “marketing ROI” is calcified within a relatively narrow set of analytical exercises.”

What makes this work more challenging is that it requires marketers to develop a purposeful and measurable purchase journey. In addition, it requires a clear analytics plan, which drives and captures specific customer behavior, identifies an immediate need and provides a solution so the customer can move further down the purchase journey.

Finally, it requires developing an understanding of how these intermediate interactions and metrics eventually build up to a holistic view of marketing effectiveness. Until marketers can develop an analytical framework which provides a comprehensive perspective of all marketing activity, marketing ROI is merely a game of finding more customers, at the right time and place who will overlook a poorly measured (and, by extension, poorly managed) purchase journey.

What do you think?

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