Return on investment (ROI) has become a key measure for businesses looking to determine the success of their marketing spend. And it can be a “sensible” measure of performance, according to marketing effectiveness consultant Peter Field.
However, there is a risk that by looking at ROI alone, marketers focus on marketing efficiency rather than marketing effectiveness. According to Mark Ritson, speaking in the next instalment of our video series on marketing effectiveness, created in partnership with Thinkbox, a focus on ROI isn’t “for the good of a company” in the long term.
“Campaigns are generally becoming less effective because of a growing focus on ROI,” he says.
Field also cautions against focusing too much on ROI, suggesting it leads marketers to “quick and easy wins” over long-term brand building and business outcomes. “If [ROI] becomes your guiding principle for decision-making it is insanely dangerous because it teaches you to go only for the low-hanging fruit.”
At Diageo, marketers try to see ROI simply as an input, a figure that will tell them the extent to which investment will pay back but not whether it will generate better gross profit.
“In the past, the conversation on marketing effectiveness has focused squarely on ROI and actually we’ve said, ‘yes, that’s important, but it’s important in service to driving more gross profit as an outcome’,” explains Diageo’s global head of consumer planning, Andrew Geoghegan.
“We’ve made it much more centred on the outcome and we’ve helped our marketing people think about the four or five measures that really matter most to the business and to their brands in driving that performance.”
Moving the conversation beyond ROI will also help marketers be heard in the boardroom, according to Direct Line CEO Paul Geddes. “Marketing using a currency that is different to the thing that is measured and makes money every week, that’s a problem,” he says.
For more insights into ROI and the efficiency versus effectiveness debate, watch the video above. And head here to watch the other videos in the series.
Ebiquity and Gain Theory’s report on making the business case for advertising can be downloaded here.