And what about PR. In my experience your name only needs to crop up once in
an article for the PR guys to claim the entire article at its EAV. To be fair to the PR
guys, when PR is done well the reader or viewer doesn’t even realise that it was
placed by the company so I do appreciate how difficult it sometimes is for them
to justify their existence.
So, what about traditional above the line advertising. Does that generate sales?
Within two years SA will spend R18 billion on ATL so, one would hope so. But
how few marketers have taken the time to prove the case. Some even go so far
as to say that that it is not the job of advertising to generate sales, hiding behind
that good old cliché of ‘it’s our job to build brand equity’.
What generally happens is that if sales, in general, are going up …marketing
will claim the victory for advertising. But any number of variables can account for
increased sales (e.g. a couple of years ago Cadbury gained significant MS at the
expense of Nestle because Nestle introduced a new SAP system that impacted
on its forecasting, production and distribution). Maybe I should just interrupt
myself to make it clear where I stand on advertising … or more accurately,
branding. Do consumers have relationships with brands? Of course they do. Do
consumers choose brands they like in preference to brands they don’t? Of course
they do. Do consumers trust their preferred brands more than brands they don’t
like? Of course they do. Does this help one brand to sell more than another? Of
course it does.
It’s the job of marketing via channels like advertising and increasingly social
media to tell their brand stories, to promote their USP, to communicate their
positioning. And YES, if done well, this helps to stimulate sales. But can you
quantify by how much. The answer is usually NO.
So, back to the topic in hand …. Let’s briefly chat about what we mean by ROI
and even more importantly marketing.
ROI = Return on Investment. If I spend R500 and generate R800 in sales I have
shown a profit of R300. Divide R300 by R500 and you have a 60 percent ROI.
Actually technically that is called a GMROI (Gross Margin Return on Investment).
The fact is that the R300 was income not profit. To get a better sense of return
you really need to ask yourself if you want to measure ROI using GP (Gross Profit),
NP (Net Profit), PBT (Profit Before Tax) or even PBTD (Profit Before Tax
and Depreciation)
It does, of course, get even more complicated when you start to factor in other
aspects like ‘embedded value’ and ‘discounted cash flow’.
Embedded value is related to the concept of LTV (Life Time Value). I can undertake
a marketing activity today and acquire a new customer who sticks around for two
or three or even five years. Now what is the ROI? Over what period, when you are
calculating ROI, do you claim the future value?
If that is not complex enough, we now need to think about DCF. I spend R1 today
at today’s value. This year the money the customer spends is worth roughly the
same R1. But next year, the R1 the customer spends, if we have 10 percent
inflation, is worth only 90 cents. And in year two that could be 81 cents.
No wonder marketers shy away from issues like this.
Why might this be important? It seems to me that if activity A delivers a better
ROI than activity B, I would be foolish not to invest more in activity A.
So, back to the topic at hand … how do we measure sales and other outcomes
from marketing activities?
You start from the premise that marketing has to be measurable and not just
an after-thought or some sort of granny flat (i.e. got added on at the bottom
of the garden).
If you are a B2B marketer it should be a walk in the park. Why, because you can
see all your customers and how they are transacting.
If you are a retailer who sells on credit, it should also be a walk in the park
because you can also see all your customers and how they are transacting.
If you are a retailer who doesn’t sell on credit (like Clicks or Woolworths) you
create a program to enable you to see your customers and how they
are transacting.
If you are a cinema chain you create a Club to enable you to see your customers
and how they are transacting.
If you are a casino you stop people playing with money to enable you to see your
customers and how they are transacting.
If you are an airline like SAA during the time that most tickets were sold via travel
agents you invent Voyager to enable you to see your customers and how they are
transacting. It’s questionable if you need it so badly now that many bookings are
made on line.
Before any-one thinks that I am suggesting that every company or brand needs
to have a loyalty program let me make it clear that I am not. Heck, I am in the
business and I am not sure what loyalty is. But what I am advocating is that if
it’s at all humanly possible you need to get to know who your customers are and
what they are doing and I don’t mean that in a general sense but on a one by
one basis.
That, of course, is the real reason to run a program of any kind. To get customers
to identify themselves.
So, what can we summarise in terms of the topic at hand?
• In the ‘old world’ of marketing it was indeed hard to measure the ROI
from marketing
• In the ‘new world’ of marketing it’s mandatory
• To quote Stephen Covey ‘Start with the end point in mind’ … don’t put the
cart before the horse
• Always ask the question … how will I measure the outcomes from my
marketing activities ?
• Be willing to do the hard yards
• Understand & optimise the power of data\information
Claude Hopkins in his book ‘Scientific Advertising’ said: ‘the purpose of
advertising is not to entertain’. Frederick Taylor many years ago said, ‘If you can’t
measure it, you can’t manage it.’ Now there’s a couple of thoughts for all those
guys spending millions on advertising without effectively measuring the impact!
Keith Wiser is the Managing Director of boutique DM Agency, 5th Dimension,
and a director of Inter-Net, South Africa’s largest and newest Integrated
Marketing Agency. He can be reached at
or
Tel.:
011 080 8500
www.
nexmedia
.co.za
48
Nex Media • ROI ON MARKETING SPEND IMPOSSIBLE TO MEASURE?
