The Fallacy of Return on Investment in Marketing

Return on investment in marketing cannot be measured accurately. We are fooling ourselves if we think it can. The main reason ROI in marketing is virtually impossible to measure is that most actions from marketing are not instant and many actions from marketing are caused by a cummulation of impact over a period of time.

Do you buy a Nike shoes because it is on the billboard; because you saw the ad on television; because you saw the billboard; because you like the Just Do It slogan; or because the store clerk suggested them? Was it the ad this month or last? Or was it the ad you saw when you were 12? Or is it the recommendation of a friend who had been impacted by Nike marketing?

The answer is - you probably don't know exactly why you buy the shoes at the particular time that you do. It is a combination of all these factors that make up marketing that cause the consumer to take action.Most likely the purchase was made due to a combination of factors. That is why all marketers preach multiple medias and multiple frequencies. Marketing effect happens over time.

Marketing is the battle for perception. Good marketing can create the perception needed to cause purchasers to buy. It can also create the warm feeling towards the company or product that prompts the purchase.

The only type of product that can have an instant return on investment in marketing is something that is truly commoditized.

If you are selling water and there is no perception that your water is any different than anyone else's water, then if you do a marketing campaign or a promotion or a price reduction, you can shift share from a competitor. Most manufacturers should actually be spending their marketing dollars differentiating their product. It is much easier to sell "Clean Glacier" water over "bottled city" water if Clean Glacier can sell the refreshment and health benefits of their brand. Even water is not a commodity.

The only companies that should want to commoditize their markets are ones that are truly the lowest cost to produce (not to be confused with lowest price). To sell at the lowest price without the lowest cost is a recipe for failure.

Because of the difficulty in measuring ROI, some companies will just stop marketing. This is great news for those that keep marketing. In time share will shift to those that continue to invest.

Just because ROI in marketing is impossible to measure accurately does not mean marketing has no value. Just because we desperately want to know how to measure ROI in marketing does not mean it can be done. And just because the measurement is not accurate does not mean we should not try to measure it.


Jim Estill
CEO, Danby Appliances

5 Comments

  • BSV said

    Yes, yes, yes! Come on, go ahead and say it. ROI is mostly BS for most marketing channels. I agree with the post above that points out its efficacy in some channels--like DM and web. But unfortunately, many companies are migrating to those channels solely for the measurement aspect and ignoring the power of channels that aren't as measurable.This is a huge mistake that will be realized more and more as brand awareness and loyalty become weaker for those focusing too much on ROI. Thank you for putting this out there. I've been meaning to blog on the same topic for a month or so now--maybe I will do so and link back here.

  • Robin Whalen said

    Really interesting perspective. I agree and disagree. I will be very surprised if you don't have a few responses from the Direct Marketers out there who make a living from tracking ad to action. It's not a perfect science, but I think there are channels out there that offer some degree of measurability. In fact, I'm sure of it. There may not be a straight line from the media to the consumer behaviour...but in many cases, the dotted line absolutely exists. My 2 cents.

  • Gregor Anton said

    Great site and article. I also agree and disagree. When you're not getting any ROI then you need to re-think your strategy. Chances are your marketing plan needs changing. Many small business owners think tactical and when one tactic doesn't work just switch to another. This can be dangerous. If a newspaper ad doesn't work, then why would a more expensive medium suddenly work. The part I totally agree with is that most small business owners make the mistake of cutting their marketing budget... You're right, that's great news... for the competition! Lets face it, Marketing makes the phone ring and it takes a great marketing plan, strategy, tracking conversions, and ongoing testing and measuring to get ROI. I've got a Marketing Webinar coming up, visit my website, blog, or just google my name for details!

  • Richard A Meyer said

    Today marketers are being asked to quantify all their marketing and that includes providing metrics that clearly show that their efforts are meeting brand objectives. Gone are the days of "building awareness" or other soft metrics like "engagement". Today it's about what are we getting for the money

  • Randy Joy Epstein said

    Jim I found your argument that marketing is a good investment even though it cannot always be measured very valuable. I believe the best marketing a company can do is align the entire team and customers to where the company is going for each employee and customer can change the markets perception rapidly with our open world and social media networks.

Tell Us What You Think
  1. If you haven't left a comment here before, you may need to be approved by CMA before your comment will appear. Until then, it won't appear on the entry.
    Thanks for waiting. View CMA's Blogging Policy.

Tags: Get it off your chest