My friend Dan was in town recently. Our friendship goes back to our university days at McGill, which is another way of saying we’ve known each other for a very long time. Of course, we’ve both aged quite gracefully. We get together when we can, and when Dan had to be in town for meetings a couple of weeks ago, we made plans for Saturday night.
Dan and I decided to get caught up while watching a rare live performance of their Paul McCartney tribute called ‘Getting Better’ by my musician friends, The Weber Brothers. The guys delivered a great performance, as always, with a set list that included ‘Yesterday’, ‘Let It Be’ and ‘Maybe I’m Amazed‘. I was also thankful that Ryan and Sam Weber chose not to perform ‘Silly Love Songs’.
Whenever we get together, Dan and I usually pass some of our time updating each other on our business endeavours. I always enjoy hearing Dan’s perspective and he usually asks great questions that help me to focus on the right issues.
As we discussed my marketing measurement work, Dan questioned whether I measure Return On Investment (ROI), which is a natural question and one I’m commonly asked. My answer went something like this.
As we sat at the bar, I looked down at the clear glass bottle in my right hand. I said, “Let’s use my Corona as an example. I don’t remember what marketing program caused me to try it years ago for the first time, I can’t tell you why it’s among the half dozen or so brands that I tend to order, and I don’t know what caused me to order it tonight.”
Let’s suppose Molson-Coors made $0.50 profit on the sale of my one bottle. To calculate the ROI on their marketing for this transaction, they’d have to understand which marketing investments influenced my buying decision, and by how much. Here are some thoughts on their marketing programs that I can recall:
- I know I like watching their commercials
- I’m sure I’ve seen several print ads, and the image of their clear glass bottle sparkling in the sun and a wedge of lime lingers in my mind
- Not too long ago, I noticed a contest to win a bar fridge
- I remember a great poolside bar promotion while vacationing at an all-inclusive a few years back that likely still influences my purchases.
Those are the ones I can recall, but I’m sure there are others I don’t remember that have influenced me. Here’s where calculating ROI gets more complicated.
- I have no idea which of these marketing investments influenced me most, or least, nor how much of the $0.50 profit to attribute to each.
- I can’t begin to consider how to account for the combined impact of all those marketing investments that somehow accumulate within me over the years to influence my buying decisions.
The key point is, if I can’t do the profit allocation for my own buying decision, even if Molson-Coors could somehow get inside my head and have a good look around (it wouldn’t take long…) they wouldn’t figure it out either. To further complicate things, all their other customers each have their own influences and reasons for buying.
We humans each make our own very complex buying decisions, often influenced by factors outside the marketers’ control, in ways we may not consciously understand. It’s extremely difficult and costly to isolate all the variables involved to truly and accurately measure financial return on investment of marketing spending. We end up having to make too many assumptions, or guesses at allocations.
However, this doesn’t mean we shouldn’t measure something. Instead of ROI, I focus on measuring how effective marketing is at meeting objectives, using metrics that involve as few assumptions as possible. Here are a few thoughts on metrics:
- Rather than trying to focus on one killer metric, like ROI, select a group of metrics that together give you a balanced view of whether a specific marketing program drove value in your business.
- Assemble your various metrics in a scorecard that allows you to evaluate each metric against its objectives.
- Decide which metrics you want to use before you launch your marketing program in case you need to gather data while the program is in market.
- Just because I’m letting you off the hook on measuring ROI, it doesn’t mean you should ignore financial metrics. Your scorecard should definitely include financial metrics, such as revenue, and average transaction value, which tends to be a good indicator of profit.
I’m not comfortable making decisions or recommendations supported by numbers that are based on a lot of assumptions or guesses. Build your marketing measurement process on as many facts and clean data as you can find.
Oh, and one more thought. My Return On Corona (ROC) a couple of Saturdays ago was exceptional, given my objectives to hang out with a great friend and to be entertained by talented musicians!