Senior law firm marketers have been seriously talking about ROI since at least the mid-1990s. Believing in its relevance and importance to financial decision-making, this “proof” has frustratingly been like a mirage in the desert. For years we have relied on anecdotal data and stories – an RFP or pitch that was won, a lawyer who cross-sold another practice, a client interview that resulted in new work.
We have always coveted the sound financial management that corporate-America marketers have had. Well, until now. According to a just-released Marketing Measurement in Transition study by Columbia Business School Center on Global Brand Leadership and the New York American Marketing Association called “Marketing ROI in the Era of Big Data,” it appears that our perception of how rock-solid corporate marketers are in their ROI tracking and management is skewed.
The researchers interviewed 253 marketing executives from large corporations and were hoping to “gain a better understanding of changing practices among large corporate marketers in the following areas: data collection and usage, marketing measurement and ROI, and the integration of digital and traditional marketing.” Among others, they asked the following questions:
- Which organizations believe that they are doing well with respect to measuring marketing ROI?
- What are they doing that allows them to succeed in measuring marketing ROI?
- What are some of the barriers organizations face in measuring marketing ROI?
- How does knowing their marketing ROI affect how they view and use metrics?
The headline for the ROI section of the report is this: ROI – Marketers Know They All Need It, But Can’t Even Agree What It Is
Here is an excerpt from the results:
Marketers think that they should be measuring their marketing ROI …
Marketers know that they need to justify their decisions financially. 70% say that their marketing efforts are under greater scrutiny than ever. 39% go so far as to say that they consider it important to spend only on marketing activities where the financial effects can be measured.
…but many managers aren’t measuring marketing ROI either consistently or effectively.
Only 43% of organizations are establishing their marketing budgets based on marketing ROI analysis. By contrast, 68% base their marketing budgets in part on “historical spending,” and 28% on “gut instincts.” When it comes to specific marketing spending decisions, 21% are using financial metrics for little or none of those specific decisions, and 7% are making all or most of those spending decisions with no metrics at all.
Instead of marketing ROI, managers continue to use many traditional metrics such as recall, brand favorability, purchase intention, and willingness to recommend. Of those using some kind of universal metric, 22% make all or most of their marketing decisions with brand awareness alone.
What organizations are satisfied with their measurement of marketing ROI?
Overall, 45% of the organizations surveyed are satisfied with their ability to measure marketing ROI. Those most likely to be satisfied with their ability to measure marketing ROI are large organizations (55.5%) – sales of $25 billion or more – and service organizations (48.8%).
Only 33.1% of consumer product organizations and only 26.1% of industrial product organizations are satisfied with how they measure marketing ROI. Satisfaction depends on your viewpoint: 54% of CMO’s are satisfied with their ability to measure marketing ROI, but only 43% of those below the vice president level are satisfied – perhaps because they are closer to the problem of determining how to most effectively measure marketing ROI.
A call-out says, “37% of respondents did not include any mention of financial outcomes when asked to define what “marketing ROI” meant for their own organization.” The Advertising Age report of this study says, “…57% don’t establish their budgets according to ROI measures.”
The report goes on to say:
To what extent is marketing ROI used for decision-making?
Among the roughly half of marketers that are very or somewhat satisfied with their ability to measure marketing ROI, 57% use marketing ROI for their budget decisions and 59% use financial metrics to evaluate their marketing spend. 54% go as far as to say they consider it important to try to spend only when they have financial metrics.
Understanding what marketing ROI is
In the organizations surveyed, however, managers do not appear to have a consistent understanding of what marketing ROI is. When asked to define marketing ROI, 37% of the respondents did not mention financial effects and 82% did not mention that ROI consists of both financial return and spending. 31% think that just measuring the audience you reach is “marketing ROI.” Even when prompted, 19% do not think that “measuring the financial impact of our marketing” is marketing ROI.
In place of marketing ROI, many traditional measures are used. 37% of the respondents claimed that they used brand awareness as a universal metric to make marketing decisions. More troubling, of those using brand awareness, more than 60% said it was their only marketing ROI measure. To be useful, brand awareness must be coupled with some measure of brand perception. Brand awareness by itself is a lagging indicator of brand strength. Using it as the sole or main measure to make marketing decisions is truly managing by looking in the rear view mirror.
So, how do you have “ROI” without financial outcomes? You may have “return on something,” but it’s not ROI. (Think about your brokerage accounts. How would you like it if your stock portfolio adviser measured returns other than financial ones?) There are plenty of valid “returns” on marketing investments – things that can be measured, and thus managed. But don’t call them ROI.
I’ll report on how these corporate marketers are integrating digital and traditional marketing in a future post.