Marketing Metrics – changing the way we define ROI

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Marketing Metrics Theory & Introduction

Mintz, O, & Currim, I (2013, p77) suggest practitioners for many years have advocated that, linking marketing-mix activities with financial metrics drives accountability for marketing activities. They continue, marketing scholars have responded in 3 ways; first, they have proposed metrics which are linked to the customer’s mindset, behaviour and brand loyalty etc.   (Ambler 2003; Farris et al. 2010; Lehmann and Reibstein 2006.) Second, marketing efforts have been linked to financial metrics, such as profit contribution and Return on Investment (ROI) (Srinivasan and Hanssens 2009.) Finally, Marketing based research has found that metric information influences profits (Abramson, Currim, and Sarin 2005) and shareholder value (Schulze, Skiera, and Wiesel 2012.) Mintz, O, & Currim, I (2013, p77), conclude that when managers use more metrics, it increases the quality of marketing-mix decisions.

I aim to focus on the heavily discussed financial metric – ROI. ROI historically, has had a tendency to be misconstrued for example, what do companies define as an investment? Dollars, people or time? Are there other factors outside of marketing that are contributing to the profit? Also, what about key areas that are not easily quantifiable such as; brand awareness & customer loyalty? It would seem these returns would over-looked when using pure financial-metrics.

 

Re-defining ROI

Susan Gunelius, Forbes Magazine writes, if you tracking ROI as the sole criteria to determine marketing success, theMarketingROICulturen you need to move to the 21st century. No longer the ‘I’ stand for Investment, it now includes ‘Impression’ – the number of people who see your ad, and its perception. Gunelious, includes ‘return on opportunity’ – which forces companies to evaluate the indirect marketing potential of their marketing investments and ‘return on engagement’ – a key area of performance analysis that focuses on social-media conversations, word-of-mouth marketing that drives the consumer interest of your brand.

It is apparent, when purely using quantitative marketing-metrics, there is no clear-cut way to evaluate ROI. As part of a successful marketing culture, a company must agree on a baseline strategy, this would involve; defining, agreeing on the criteria – Is it just dollars? Improved brand awareness? Customer-loyalty? Finally, they must be aligned on the methodology – time period and expected return.

 

 

 

Apples Incredible 5-year ROI Performance

As we all know, Apple is a company that has successfully invested significant dollars in various marketing campaigns. The hyperpopular ‘Apple: Get a Mac’ advertising-campaign, saw apple encourage the PC vs. Apple debate, explaining the benefits of the Apple Product in a comical but relatable way. Their investments in reaching the customers has also been profound, with the innovative concept of the Apple – Store where customers trial Apple products as part of an end-to-end customer experience.

 

Rodger J. Best from Market-based Management writes, from the period of 2007 to 2011market profitability Apples Sales have grown from 24 billion (2007) to 108 billion (2011), but how does this relate to the marketing dollars invested over the same time period? As shown in figure 1, Apples gross profits grew from 34% (2007) to 42% (2011), largely as a result of increased demand for high end products such as iPads, iPhone. Interestingly, during the same time period Apple was able to reduce its spend in marketing and sales from 9% (2007) to 5% (2011), allowing profits from sales to grow from 26% (2007) to 37% 2011.

Even though Apple’s Investments in advertising have been significant, they have proven that improved sales & marketing dollars spent it is not necessarily a direct relationship. A continued decrease in marketing spend, still resulted in an increase in sales showing that ROI is simply a component of their overall marketing strategy with area’s such as ‘customer loyalty’ and ‘brand awareness’ having a role to play in the overall marketing strategy.

 

 

 

 

 

 

 

 

References

  1. Abramson, Charles, Imran S. Currim, and Rakesh Sarin (2005), “An Experimental Investigation of the Impact of Information on Competitive Decision Making,” Management Science, 51 (2), 195–207.
  2. Ambler, Tim (2003), Marketing and the Bottom Line: The Marketing Metrics to Pump Up Cash Flow. London: FT Prentice Hall
  3. Mintz, O, & Currim, I 2013, ‘What Drives Managerial Use of Marketing and Financial Metrics and Does Metric Use Affect Performance of Marketing-Mix Activities?’, Journal of Marketing, 77, 2, pp. 17-40, Business Source Complete, EBSCOhost, viewed 20 May 2016
  4. Schulze, Christian, Bernd Skiera, and Thorsten Wiesel (2012), “Linking Customer and Financial Metrics to Shareholder Value: The Leverage Effect in Customer-Based Valuation,” Journal of Marketing, 76 (March), 17–32
  5. Srinivasan, Shuba and Dominique M. Hanssens (2009), “Marketing and Firm Value: Metrics, Methods, Findings, and Future Directions,” Journal of Marketing Research, 46 (June), 293–312.
  6. Forbes Welcome. 2016. Forbes Welcome. [ONLINE] Available at:http://www.forbes.com/sites/work-in-progress/2012/05/14/understanding-the-new-roi-of-marketing/#60cdea4722fe. [Accessed 21 May 2016].
  7. Apple’s Incredible 5-year Performance. 2016. » Blog Archive » Apple’s Incredible 5-year Performance. [ONLINE] Available at:http://www.rogerjbest.com/mbm6/blog/2012/02/apple%E2%80%99s-incredible-5-year-performance/. [Accessed 22 May 2016].

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