Posts Tagged ‘ROI’

Tracking & Measuring ROI

Friday, February 25th, 2011

With today’s tougher competition, market volatility, and greater individual and team accountability, you must prove that your marketing efforts are getting the desired results. Virtually every dollar you spent on marketing today must be justified as both effective and efficient in terms of Return Of Marketing Investment (ROMI). This increasing accountability has forced marketers to develop various measurement approaches. But first of all, what to measure?

Generally, measurements should be taken to track the effectiveness of expenditure, including marketing program components and budgets; as well as the quantity and quality of customer response, reactions, and behaviors. The difficulty of measuring is that depending on the particular industry or business category, up to 70% of marketing expenditures may be devoted to programs and activities that cannot be linked to short-term incremental cash flow/profits, yet can be seen as improving brand equity. Therefore measuring the long-term impact on consumers is crucial for assessing ROMI.

Jonathan Knowles argues that “for marketers to secure a seat in a corporate management team, they must go beyond financial ROI measurement to address whether brands enable the business to generate superior returns over time. ” Some of his advice is listed below:

  1. To qualify a brand as an asset in financial terms, marketers need to measure it in terms of its ability to generate future cash flow.
  2. Marketers can create value only by changing customer behavior, because changes in attitude don’t generate cash flow.
  3. Marketers should measure brand equity in a way that captures the source and scale of the emotional component the brand adds to the functionality of the product.

With these things in mind, the objective of ROMI measurement is to dis-aggregate brand marketing and communication programs into a more granular format and structure that enables assessing the individual pieces and their relative contribution to raising overall entire brand equity and financial value, as well as their collective impact.

The ideal measurement system would provide complete, up-to-date, and relevant information on the brand and all its competitors, to the right decision makers at the right time within the organization. Crucial to designing a brand tracking, measuring, and managing system is to understand how brand equity gets created. Similar to the business value chain that provides managers the insight to generate and support business value, the brand value chain is a structured approach to assessing the sources and outcomes of brand equity by which the marketers create brand value (Model can be found at Page 3 of Brand value chain).

If you recall, FiG recently talked about brand auditing, which can be used to set the strategic direction for the brand. As a result of this strategic analysis, a marketing program can be put into place to maximize long-term brand equity. Tracking studies and measurements can then be conducted to provide marketers with current information as to how their brands are performing on the basis of a number of key dimensions identified by the brand audit.

Finally there is no final stage of measuring ROMI. The goal of optimizing marketing effectiveness can’t be achieved through one single measurement approach. Success depends on the on-going adjustments and integration of brand management, all based on a common understanding of the marketing process.