The never-ending argument for companies and their marketing management team is measuring true ROI (Return on Investment). The marketing department likes to think of money spent as an investment, while other divisions of the corporation might consider these expenditures as "expenses" with a more negative connotation. So is marketing an “Investment” or an “Expense”? What about the value of "soft metrics" versus the more recognized "hard metrics"?
ROI can usually be calculated more accurately with digital marketing that provides detailed actionable analytics in the ever-changing world of digital media. When it comes to the more traditional communication mediums like TV, radio, print media (Newspaper, Magazines) and street advertising it can sometimes get a little more complicated. In the short and long term you can record increases in leads and sales spikes to measure the effectiveness, but that doesn't always give you the full picture. For example, a radio campaign might air for a month and increase inquiries and sales a moderate amount over that time period. However, additional leads and sales can trickle in for months or longer afterwards. Some of these new customers may become lucrative long-term clients and ideally strong referrals for increases in sales. All of a sudden, those expensive radio (or print or television) spots end up being a strong investment and instead of a major expense and risk.
I am not suggesting giving complete credit to the marketing department but then who decides how much percentage to give to the product reputation itself, which we sometimes call brand equity. At this stage of the argument, it will help if we go back to our original topic “Calculating ROI’’ but now we have the dilemma of “how to calculate” and what factors should be included in the calculation. In order to make some sense, let’s consider a different scenario. Banks offer several loans (Housing, education, investment, etc.) and almost all banks offer these loans more or less at the same interest rate. So the question arises what do they actually compete on – services, payment options? If so, how do banks communicate it? They promote and communicate it through various Marketing tools. Do they market it out of passion for Marketing? Of course not. After all we assume banks to be one of the best in the class in calculating ROI’s. It is this communication that creates the edge over competitors and hence a transaction takes place. Is this conversion taken into account while calculating the ROI? And if yes, how? The answer is simply no but hard for many companies to accept. The role of marketing can never be discounted or ignored.
Another example that I always find very interesting is that of two rival soft drink conglomerates. Countless stories have been written on wars and strategies of these two soda giants with very similar actual products. But I want to specifically talk about only one aspect of their marketing ammunition which is their advertising budget and strategy. So why do these beverage behemoths spend such a large amount on advertising or other mediums and how do they calculate their ROI? Obviously the management in these companies knows better but one thing is almost sure that they cannot come up with an exact figure on the return versus the money they spent on a particular billboard at a prime location (to use one particular example). So the logical question that arises is why do they still do it? The answer may be simple yet difficult for several companies to accept. They do it to keep their brand relevant and fresh in the minds of consumer and to avoid fading into oblivion. This fresh brand image most companies try to maintain is often considered "soft metrics".
Marketing plays one of the most important roles in the life cycle of a product; any Marketing mistake done at any stage of the product life cycle can have far reaching effect on the brand. The damage may even be irreversible in some cases. Companies must understand that there is something called “Hard metrics” and “Soft metrics” and both of them are important for the success of the brand but not necessarily at the same time.
Both these metrics play a very important role and are like the two railway tracks that exist but may not cross each other all of the time. The conclusion for companies should be to calculate the ROI where it is possible but not neglect the mediums where it is not possible to calculate in terms of dollars and cents. The benefits of soft metrics will eventually affect the hard metrics on a long run.
Article submitted by Kamran Khan VP of Marketing and edited by Michael J Schiemer.
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Best Of Luck In Business To You All!
Michael J. Schiemer of Schiemer Consulting
Enthusiastic Entrepreneur & Owner of Frugal Business
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