Having 10 Strikers Won’t Win You the World Cup

I recently came across an article on MarketingSherpa, in which David Kirkpatrick asks: is the emphasis on ROI actually hurting Marketing? The article is based on an interview with Menno Lijkendijk, director of the Dutch B2B marketing company Milestone Marketing, ‘Can the focus on ROI create problems?’, Lijkendijk was asked. It is a topic which has my full attention.

Let’s start with my short answer: no, the focus on ROI is not hurting Marketing. But the wrong ROI focus is likely to create problems, and no focus on ROI will definitely create problems.

Menno’s main point is that Return on Investment is a financial term that has a very specific meaning to the C-suite in general, and to the CFO in particular. His concern is that not only the actual ROI of some marketing activities is being overemphasized, the term itself is gathering too much marketing ’buzz’.

There are two statements in the article I would like to respond to and elaborate on.

Statement #1:

ROI makes us a little bit too narrow-minded. Because we are so eager to get a good ROI score, we tend to zoom in on those activities where we can actually get a good ROI score and try to prove a point. ROI is now starting to lead a life of its own, and is being used by email service providers to explain to their potential customers that doing business with them will give them great ROI on their marketing investment. Email providers are not alone in using this sales pitch and cited search marketers, social media markers and other agencies.

I fully agree.

In general I would say most marketers define and measure success based on short term media responses such as click rates, attendees and leads. They measure Media ROI and activities. Higher up in the organization, at the C-level, management is looking at how to create shareholder value in the long term. They want to see Marketing ROI and value creation. There is a massive gap between the two types of ROI, brilliantly explained in the book Marketing Due Diligence (don’t let the layout scare you away).

During an interview with a Brazilian company I was asked to explain this to a new audience. I used a football analogy. In football it is usually the striker who scores most goals, but having ten strikers in the field will not get you the best results. You need a team which allows the strikers to do their job. In Marketing, having a balanced team means having a balanced (‘effective’) media mix and a balanced (‘efficient’) organization.

In order to create balance and coherence you need a coach who can translate strategy into tactics and operations. The team players need to stick to this and be compliant. If you have the skills but don’t want to listen to the coach… you’re out. Media ROI measures the skills of individual players but does not guarantee a good team. The wrong ROI focus is likely to create problems because you will end up with ten strikers.

Statement # 2:

There is more than just ROI, and the real value of marketing may require a different metric, or a different scorecard, than just the financial one. Instead of looking at return-on-investment marketers should look at return-on-engagement.

I disagree.

There are other calculations besides ROI which can better capture the results of marketing . But they all have a financial metric. Business is about money. Marketing should facilitate sustainable value creation which is undeniably related to financial metrics.

But it definitely touches upon an interesting topic. In my experience, most marketers are still Project driven (they have a short term focus, i.e. on campaigns and media), instead of Process driven (with a long term focus, i.e. on customers and infrastructure).

ROI measurements are a viable option if you expect returns on the short term. They are less suitable for calculating value creation on the long term because they ignore risks and cashflows. At MRMLOGIQ, we recently published The Real Value of Operational Marketing Excellence which shows the concepts we use to calculate the value contribution of Marketing Operations. We use the Net Present Value (NPV) calculation instead of ROI.

I recently ended up in an e-mail conversation with a webinar attendee about Customer Lifetime Value. Where in our presentation the NPV calculation is applied to infrastructures, it can also be applied to customers. Customer Lifetime Value (CTV) is a NPV derivative and should be the financial metric to calculate the return-on-engagement in financial terms.
Besides that I am delighted to finally see ROI become a buzzword in Marketing. It is a topic which has been ignored for too long. But as Ingvar Kamprad, the founder of IKEA, says: we have a bright future, most things still remain to be done.
.
.
.

Tags: , , , , , , , , , ,

Author:Romek Jansen

Chief editor at MarketingGovernance.com. Founder of MRMLOGIQ.

Comments are closed.