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Finding the right ways to measure marketing ROI

Results of marketing efforts can—and should—be calculated in a variety of ways.

By Carolyn Heinze

John Wanamaker once said, “I know that half of my marketing budget is wasted, but I don’t know which half that is.” For many marketers, Wanamaker—considered the father of modern advertising and marketing—was on the mark. While it’s easy to spend money on marketing campaigns, the same can’t always be said for determining ROI—or can it? For Robert Robicheaux, chair of marketing in the Industrial Distribution and Economics program at the UAB School of Business in Birmingham, Ala., measuring marketing ROI needn’t be a guessing game. “It’s too easy to say that marketing is a fuzzy area and you can’t measure the results,” he said. “But the fact is that results can be, and should be, measured in a variety of ways.”

While it may not always be possible to measure marketing ROI in terms of dollars and percentages, it can be related to specific goals.

The most popular method for measuring marketing effectiveness is, of course, looking at sales. However, this may not be the best way to do it, according to Matthew Schall, a specialist in analytics and measurement at Catalysis Corporation (catalysis.com ), a Seattle-headquartered consulting firm.

“A product or service sales organization can gauge spending based on sales targets, but that doesn’t mean that the spending is necessarily effective,” he noted. “There are companies that spend a lot—say, 30% of their profits—on marketing, but they could accomplish the same number of sales with half of that.”

If the correlation between sales and marketing is the only factor guiding how much of a company’s budget should be allocated to marketing, it can also lead organizations to make poor marketing decisions.

“When spending more on marketing doesn’t continue to increase sales, it might be time to back off on marketing spend, but that is usually too simple an approach,” Schall said. He cited the mobile phone industry as an example: A mobile operator comes out with a new model and sales increase, but then drop off after three months because most of the consumers who wanted one have already bought one. Should we stop marketing? “If we do, given how fast the mobile phone market is evolving, people will have forgotten about our brand by the time we introduce our next phone,” he said, adding that the marketing spend must be ongoing, even if there is no direct impact on sales.

This means that before making a significant investment in a marketing campaign, marketers should ask themselves: What am I expecting to happen as a result of this effort? Increased brand awareness? A boost in sales? Making headway in a new territory? And then: How am I going to determine whether or not the campaign worked?

“The real focus needs to be on stating quantifiable objectives for each major marketing thrust, and then establishing the benchmarks that one can measure month by month, quarter by quarter, to see whether the firm is in fact receiving the benefit for those expenditures that they expected to get,” Robicheaux said.

While it shouldn’t be the only way, one way of achieving this is by working with your salespeople—a vital source of market information, Robicheaux added.

“The people in the field are the most directly involved and have the best information about what is happening locally. That’s got to be factored in at the corporate level if you are going to understand why a marketing effort was successful in some regions and not in others.” Salespeople can also help you determine whether a boost in sales was the direct result of a marketing campaign or perhaps instead tied to something else, such as a big contract that the company recently brought in.

A close relationship with the sales department is paramount at Springfield Electric Supply, headquartered in Springfield, Ill. Alan Baum, vice president of marketing, explained that this helps when it comes to deciding what marketing tools—such as direct mail, radio commercials, or even advertising in the Yellow Pages—work best in which locations.

“Our company makes a pretty thorough review of what works in a particular market, and each of our branches is unique,” he said. “You have to figure out what works, based on customer input and input from the salespeople, as to what kind of marketing efforts make sense for that location.”

Technology is also a great help, especially since most distributors now send out regular e-newsletters. Pamela Nation, marketing communications coordinator at Springfield Electric, can track interest in new product announcements that are listed in the company’s monthly e-newsletter by reporting on the number of customers who actually opened the email, and then what links they clicked on once they did. “Then we can create a follow-up list for our salespeople,” she explained.

It’s also important that ongoing marketing campaigns—such as those focused on maintaining and/or increasing brand awareness—are regularly updated, Baum noted. “It really shouldn’t have a start and an end. What you have to make sure of is that you are sending a consistent message out and that it gets  freshened up once in a while,” he said. This requires that visuals and copy—either in print or online—should be tweaked every so often. “It needs to be freshened up and revitalized on a regular basis.”

Baum pointed out that while distributors need to invest in marketing, there still remains the potential to obtain some assistance from vendors.

“Frankly, what we allocate on a budgeted out-of-pocket expense for true advertising and promotion is still matched in a co-op amount from our supplier partners, and that’s an equal amount,” he said. “While some may say that co-op is going away—and I’d say that, yes, it’s a little more difficult to obtain—it’s still available if you have a plan. If your plan consists of primarily spending it all at the end of the year on whatever, you will likely be challenged by many of your supplier partners. However, if you’ve got a plan and you communicate that plan, that co-op money is still available.”

Carolyn Heinze is a freelance writer and editor. She can be reached at carolynheinze@free.fr.

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