Marketing. Every company does it. But, few can measure or quantify its
results. Despite the high profile of marketing, the glitzy ads, the catchy
slogans, and the big budgets, it remains one of the softer, more
difficult-to-measure business disciplines. But, a new approach called Marketing
Return on Investment (MROI) is shedding much needed light on the subject,
enabling executives to manage marketing activities and spending much like they
manage capital investment.
  For years, marketing professionals had to make do with
proximate measures of spending efficiency and rely on soft numbers, such as
awareness, to gauge success. However, these measurements can, and often do,
lead to misguided decisions that result in sub-par performance.
Compounding the problem are two opposing objectives that
marketers have been trying to reconcile for years: the need to align marketing
investment with a company's high growth opportunities, while at the same time
cutting or eliminating ineffective spending to free up scarce marketing
resources. This has been an age-old problem, even expressed by John Wanamaker,
the 19th century retail and advertising innovator, who said, “I know half the
money I spend on advertising is wasted … I just don’t know which half!”
Marketing Return on Investment Marketing Return on Investment analysis is finally “lifting
the fog” around marketing spend. MROI unveils, in highly quantifiable terms, a
strategy and approach to maximize the return of marketing resources. It
exploits a blend of econometrics, marketing strategy, and industry insight to
give executives a detailed look at marketing effectiveness. Specifically,
Marketing ROI consists of two powerful and complimentary components: 1)
Strategic Marketing Allocation, and 2) Marketing Mix Analysis.
Strategic Marketing Allocation analyzes
future revenue and profit potential to utilize as the primary drivers for
allocating marketing resources. This includes an analysis to understand and
project changes in category growth, market share, and profit margin. Anchored
in fact-based insight, this analysis helps executives determine what decisions
and realignment of marketing spend must be made today to
maximize future opportunities across geographies, brands,
and product categories.
Marketing Mix Analysis cleanly
disaggregates elements of the marketing mix so individual components can be
analyzed to quantify their effectiveness. This analysis quantifies the impact
and benefit, expressed as incremental unit sales, of each marketing mix
element, such as advertising, promotions, pricing, distribution, and product
innovation. This result is a measurable understanding of the net return on
investment for each marketing mix element. In turn, these individual ROI
numbers guide future marketing investment decisions and make each marketing
activity fully accountable.
Marketing mix analysis also provides a clear understanding
of the marketing strengths and weaknesses of competitors. The benefit is
obvious – it provides a company with the intelligence to formulate specific
strategies and tactics that exploit competitors’ weaknesses. At the same time,
it helps companies to conserve energy and resources by avoiding activities that
play into their competitor’s market strengths.
Payback Time For companies wondering if it's worth the time, energy, and
effort to undertake a marketing ROI program, the evidence is compelling. A
typical company can expect benefits in the range of 5 to 20 percent, expressed
as either increased revenues, reduced/realigned marketing spend, or a
combination of both. MROI can also help companies decide where to cut budgets
without sacrificing market presence or growth rates. It can help companies in
down markets redistribute resources to maintain velocity and bolster market
share. It can help shuffle the marketing mix deck for higher impact campaigns.
And, it can help shape optimal launch strategies based on prior product
innovation results.
One case in point is a global consumer electronics company,
which spends close to US$1 billion each year on marketing. It applied MROI to
its global operations across several product categories. The result? By
reallocating spending to better reflect the future potential of each product
category and geography, the company identified specific marketing reallocation
actions to address several hundreds of millions of dollars in additional profit
potential, without spending a penny more!
Perhaps the biggest surprise surfaced in the area of pricing
strategies. The company had traditionally competed heavily on price in many
categories. However, in many cases consumers perceived low prices to imply low
quality. By following long-standing internal precedent rather than market
preference, the company was potentially leaving millions of dollars in profit
on the table. MROI analysis uncovered specific markets where, by prudently
raising prices, both market share and profits could increase with little or no
downside impact. In addition, this strategy could yield a powerful increase in
product quality perception.
A Holistic Approach On the surface, marketing ROI analysis may appear to be
simply about crunching numbers. In practice, however, its reach is far more
extensive and holistic. MROI can generate powerful results in sales and
service, or suggest product innovation and feature changes impacting product
development. Armed with quantified insights, it also broadens the view of the
competitive environment and helps companies formulate the strategies and
actions to seize growth in the most profitable markets, products, and services
About the Authors: Greg Andrews
is a partner in Electronics & High Tech and is the MROI offering lead for
Accenture’s Communications & High Tech market unit. Jeffrey Merrihue is a
partner in Accenture's Customer Relationship Management service line and is the
global lead for the MROI offering.
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