Sarah Vizard: Marketers need a better answer to the ROI question

No-one is suggesting it’s easy to prove ROI but if marketers want to be taken seriously in the board room it’s something that must be addressed.

Criticism is often levelled at marketers and marketing departments for their inability to speak the language of the boardroom and prove return on investment (ROI). The topic has been the subject of innumerable conferences, events and pieces of research as the industry desperately attempts to shake off its “weak and fluffy” reputation and prove real financial results.

Just in the past few months, two of the industry’s biggest advocates – the IPA and Thinkbox – have looked to bring the issue of ROI and effectiveness up the agenda.

At its second effectiveness conference, speakers took to the IPA stage to bemoan the fact that analysts and chief financial officers (CFOs) don’t understand the great work they are doing. And more recently Thinkbox, bored of all the questions over whether TV advertising actually works in the face of growing claims to the contrary from digital players, linked up with Gain Theory and Ebiquity to prove what it calls “profit ROI”.

READ MORE: Getting to the business case for advertising

By analysing hundreds of ad campaigns, it found that for every pound spent on advertising, profit ROI was an average of £3.24 over three years. So the industry knows it has a problem. And it is working to solve that problem. But it seems clear the message is not getting across.

A survey by Gartner of more than 350 marketing executives with $250m (£188m) or more in annual revenue found that the average share of revenue allocated to marketing budgets was 11.3% in 2017, down from 12.1% last year and a return to 2015 levels.

The risk is that CMOs are either being too nearsighted to be strategic or too visionary to deliver against marketing’s objectives.

Only 15% of those surveyed say they expect a significant increase in budget next year, with a third thinking their budgets will be cut or frozen. In some ways this should come as little surprise. This year has seen turmoil for companies – Brexit in the UK; Donald Trump in the US; natural disasters such as hurricanes Harvey and Irma; political issues in North Korea, Spain and Germany. And amid that backdrop there is also the challenge of digital disruption – whether in the guise of new businesses entering the market or big changes to how certain industries do business.

Yet Gartner does not believe these issues are to blame for the fall in marketing budgets. Ewan McIntyre, research director at Gartner, says the problem is that “weighty” expectations for returns from previous budget increases have not been met.

“The time has come for marketing to show its financial management credentials, proving it can deal with financial constraints, assume accountability for business performance, build budgets based on future returns rather than past assumptions, and grow the business while making hard choices,” he says.

That is a damning indictment of the position that marketing clearly still holds at many large businesses.

The suggestion is that marketers throw their toys out of the pram if they are asked to be more effective, don’t think their performance should be related to the business, are just guessing at what their budgets should be and are not making the difficult choices.

Specialist effectiveness units emerging

Clearly, this isn’t the case at all companies. The IPA, in its recent ‘Culture First’ report into marketing effectiveness, found that a third of the brands it spoke to have developed specialist marketing effectiveness units and three-quarters have increased the resource for this area.

Meanwhile, companies, particularly FMCG businesses such as Unilever and Coca-Cola, are increasingly turning to zero-based budgeting to decide annual spend.

READ MORE: Zero-based budgeting – Critical to growth or a distraction?

Nevertheless, most marketers are still unable to justify budget increases because, as McIntyre says, they are not using the metrics that matter. And they are either being too tactical or too visionary, he claims.

“The risk is that CMOs are either being too near-sighted to be strategic or too visionary to deliver against marketing’s objectives,” he adds. “The result is a lack of focus on the metrics that matter to CFOs and the business – how marketing activities deliver return on investment and profitability to the organisation.”

Yet this really shouldn’t be the case. Ebiquity and Gain Theory have shown that it is possible to quantify advertising’s profit ROI, even breaking it down by sector. Marketing mix modelling is hardly a new idea either. And yet research by the Lenskold Group in 2013 found 65% of marketers are using either no tracking at all or only single-channel attribution. Only 3% are using marketing mix modelling.

It is clear marketers are failing to find that happy medium between driving short-term sales and looking at long-term strategy that helps drive annual business growth. Perhaps marketers are looking for a silver bullet, but this doesn’t exist.

Getting to a place where you understand how budget should be spent, what is effective and how that drives business outcomes requires an astute mix of insight and analytics and an understanding of what the CFO wants – there are no shortcuts.

Proving ROI is hard work and expensive, but without it marketers are acting on gut instinct and feelings, not what actually works. And in the long run the job to convince the rest of the company of marketing’s worth will be even more difficult and costly.

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Comments
  • Leigh Simpson 21 Dec 2017 at 4:34 am

    ROI really needs to be taken seriously by Marketing Leaders. Perhaps this is the reason more resource is being spent on measurable activity via digital channels. Integration of CRM systems with website and social media enables sales to be tracked right back to initial engagement, validating marketing spend and crucially identifying tactics that work and those that don’t, to facilitate continuous improvement into marketing planning. Times are a changin’.

  • Huw Waters 22 Dec 2017 at 8:52 am

    Unfortunately in the “happy medium between driving short-term sales and looking at long-term strategy that helps drive annual business growth”, it is very often only the marketer that looks at the latter. And therein lies the problem. ROI is expected within the same financial year against that year’s budget. Fair enough. But as we marketers know, it doesn’t always work like that. The effort to deliver short-term tactics to drive immediate revenue and ROI needs to be matched with education for the rest of the business that marketing efforts in one year can sow the seeds for increased revenue and ROI in the next and beyond. But we still need the proof…

    • Ken Jones 1 Jan 2018 at 5:51 pm

      Thanks Huw – excellent comment.

  • Pete Austin 22 Dec 2017 at 3:55 pm

    This is our focus for next year at FreshRelevance.com

    BTW measuring ROI is even more important than this article suggests, because if you can’t do that, how can you optimize your marketing?

  • Mike Mahon 24 Dec 2017 at 12:59 pm

    “This year has seen turmoil for companies – Brexit in the UK; Donald Trump in the US”

    What an embarrassing thing to write. Has any fact checking been done? Purchasing Managers Index was plummeting from 2014 and post brexit has rocketed. RPI has continued increasing; GDP has been increasing. The much needed weakening pound – which the IMF explained needed to happen long before brexit happened – has benefitted trade. Considering most MW readers will be international and not domestic focussed, the marketing department should be seeing increased investment, not less. This is an opportunistic time.

    And over in the States, Trump delivered good on his word with one of the largest tax cuts in US history. This will increase internal investment. AT&T have just announced every employee is to receive a $1000 bonus because of the tax cut.

    A company that flush with cash will surely be investing in more things… Like marketing.

    There is no turmoil. Any “turmoil” among marketing departments is probably more to do with clueless marketers not measuring or analysing the right metrics and finance reducing their budget.

    But no, it’s actually because of Brexit, Trump and Russian hackers.

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