How to build accountability
CEOs and CFOs are demanding
that marketing become accountable and are looking to ROI Marketing to
link spending on marketing to financial outcomes. ROI Marketing
puts a dollar value on every program you field based on the number of
customers who purchase as a result of the program and the profits these
customers contribute to the business.
ROI Marketing is most useful in situations where the company fields
marketing programs and campaigns that target a group of customers or
prospects and require that the customers provide some form of behavior
in response. Almost all direct mailing, cataloging, email, and
interactive marketing campaigns fit this definition, which today
account for 40-50% of total spending on marketing. However, by
the year 2007, spending on these activities is expected to increase to
60-70% of budgets. Much of the shift in spending will happen as
companies start to put more and more dollars into marketing activities
where the return on the investment is known. The demand for a
measurable return is driving spending on interactive marketing alone up from 5% of budgets in 2001 to an expected 17% in 2007.10
A prerequisite for ROI Marketing is a certain amount of
infrastructure, to close the loop and do meaningful results
analysis. We find that most companies have some or all of the
infrastructure required. What is lacking are actionable ROI
Metrics that tie spending on marketing programs to growth in revenue
and profitability. The majority of senior executives agree with this
assessment. Indeed, one recent study found that 66% of senior executives cited “true ROI analytics” as marketing’s greatest need.11
Some people call ROI Metrics, “Return on Customer Investment”
(abbreviated ROCI or ROC) and for good reason. Creating true ROI
analytics comes down to understanding how much it costs you to serve
different types of customers and how much these customers bring to your
business in both the short term (on the initial sale) and long
(lifetime value). It takes a skill set in statistical marketing
to take the data and infrastructure you have and turn it into simple
yet realistic models of customer value you can use as inputs to your
ROI calculations. Yahoo recently spent 18 months and $5 million
building an in-house capacity in statistical marketing and analytics.12
For companies with less time and money, researchers at the Harvard
Business School suggest that outsourcing is the way to go, especially
when it comes to what it calls such left-brain analytic skills as
customer database management and analysis.13