Tuesday, July 12, 2005

The ROI Fan Dance

It took Forester, the ANA and MMA to figure out that half of all marketers can’t figure out how to measure ROI. Come on guys. Who is kidding who?

The “incessant” search for ROI is the biggest bogus issue in marketing today. It is a continuation of John Wannamaker’s lament that half of his ad money is wasted but he didn’t know which half and is a facet of the protracted battle between big idea brand guys and corporate bean counters over how much dough should it cost to create brands and drive demand.

The short answer, for the ADHD crowd, is that there are many credible ways to measure ROI. They have been documented and tested extensively. There is no need for a single universal formula. Anyone with an Internet browser can find them. And anyone with any persuasive skill can select a formula, apply it and use it to make credible marketing and advertising investment decisions. Surely if we can calculate the value of Pi, we can figure out which ads pay off and which don’t.

The endless search for illusive ROI is a shell game played by corporate marketers reluctant to impose the discipline of business processes on the way they plan and spend. The search for the perfect definition of ROI is an attempt to wiggle out of accountability for grand “visions” and parry the relentless demands of CFOs by engaging in fake epistemology.

Why would anyone go to the trouble, you ask?

Three reasons:

1. It is a function of who they are. CMOs generally come from the ranks of either brand marketers or PR guys. They see themselves as big picture players, stewards of an aesthetic and a magical thing called a “brand”. Their self-image is based on a big idea, executed in big media. They don’t see themselves in the same way as the suits that run Operations, Strategy, Manufacturing or other corporate functions. Their peers are at Cannes, running big agencies and hiring the latest darling director. Idea guys, strategists, visionaries and keepers of the flame don’t mess with the details.

2. It is below the line. The messy details of marketing are, in the minds of too many CMOs, below the line and beyond the pale -- lost in the mysteries of telemarketing, fulfillment, direct marketing, response rates and the ever changing and frustrating Internet. Data is always conflicting. There are few clear answers. Everything is a test. And there is much too much math. Plus there is peril in the messy details. If the average CMO lasts 22 months, there is absolutely no percentage in calculating an ROI that can get you fired even faster.

3. It is not what they watch. Savvy CMOs manage upward and orient their political game to stave off the inevitable attacks from sales leadership. Few pay much attention to the key indicators of the business. A study by the Strativity Group entitled “The Economics of Relationships” found that more than 80 percent of senior executives didn’t know the cost to acquire a customer, the annual spending per customer, the cost of a customer complaint or the value of resolving a complaint. Sixty percent didn’t know the customer retention rate. If you don’t know the fundamentals of a business, how can you possibly know how much to spend to grow it or maintain share or profitability?

Too many CMOs still think the job is about the images not about the business. Many have been successful in eluding process reengineering that has taken the ego and bravado out of finance, logistics, supply chain, manufacturing and other corporate functions in favor of a rational look at who does what, when and how much it costs and nets.

Rather than endlessly debate the definition of ROI or the number of fairies dancing on the head of a pin, more CMOs should simply embrace an existing definition, apply them and make a case for how smart marketers can truly build brands and drive the growth of businesses at every level. This will require a risk, but if you are dancing to beat a 22 month death sentence, what have you got to lose?


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