Marketing ROI
Are Marketing Budgets Like Water Through A Sieve?
By Lenny Nganga
We in the marketing world know the power of marketing, but with few exceptions, we do not track the return on investment marketing delivers to demonstrate what good marketing achieves. In my 30 years in the Industry I have heard the phrase“ these marketing people just spend our money” time and time again, in many different companies, a result of our inability to definitively prove the business metrics marketing delivers on, and made worse by the fact that approximately 55 % of CEO’ s are from a finance background.
Lets start to turn around this narrative by understanding the short term and long term effects of marketing done well. Findings from the World Advertising Research Council( WARC) have shown that existing demand i. e. people in the market who are ready to buy is normally between 5 % to 15 % of your potential market, long term or future demand i. e. people who will be in the market to buy in the future is between 85 % to 95 % of your potential market.
In the short term, marketing campaigns tap into current demand and create sales spikes, attract new buyers to the product or service, raise awareness, maintain brand equity, and defend market share. These are relatively easy metrics to measure if we set out a measurement framework with each marketing campaign, and the budget holders will readily understand the contribution marketing makes.
In measuring short term ROI, there are two main ways to calculate it, Profit based ROI( usually measured per campaign) where Incremental profit minus campaign
04 MAL65 / 25 ISSUE cost gives you the ROI. From WARC findings compiled over thousands of campaigns, the median profit ROI is 1.9 to 1, meaning you get back 1.9 shillings for every shilling you invest.
The second method is Revenue based ROI( Usually longer term and combines a number of campaigns and aggregates all marketing efforts) which is Incremental revenue minus the costs of marketing. The median revenue ROI from the WARC database is 3.86 to 1, high impact right?
In the long-term marketing delivers higher brand equity, increased brand value, strong pricing power, increased market share, as you can surmise, the long-term effects are more profound than the short term. A case in point is Apple( I can see some people rolling their eyes) the brand value of Apple at USD 489 Billion is 10X the total value of their physical assets, but what you may not know is Apple’ s journey began during the 1984 Superbowl …. 41 years ago! Closer home we can cite the rise of Ariel detergent from its launch in Kenya in 2009 to becoming the market leader in 8 years, investing ahead of its market revenue with this long-term goal in mind.
I experienced a clear-cut case of pricing power sitting outside a kiosk in Kilimambogo when an old lady came up to the kiosk window and asked for a Coca-Cola, the shopkeeper tried to entice her to buy a Softa soda for which she could have two for the price of one Coke, and she flatly refused, stating that she knew her treat of enjoying a nice soda was guaranteed with the Coke. Without all the marketing Coca-Cola had put behind Coke, they would easily have lost that sale, and maybe many other subsequent ones.
Brandfinance, a firm that measures brand value is now in Kenya and this year will publish their third evaluation and ranking survey, this gives monetary value to the brands we as marketers build, this survey is one we should be paying keen attention to every year. Things will get more interesting once the ongoing discussion on accounting standards for evaluating brand value on company balance sheets is finalized.
So where to start? The first step is detailing and evaluating what metrics drive your business, second step is to assess their measurability, for the third step list the data that would need to be collected to track these metrics and create a data collection framework. Fourth step is to project the data processing, storage and privacy needs, and the fifth step is to create a data analysis and insight generation programme. All of this will need to be supported by a budget, and we as Saracen Marketing group recommend setting aside 5 % to 10 % of your marketing budget to set up and drive ROI measurement and show the business impact of marketing factually.
For measuring long term effects, invest in price elasticity research, brand equity research, and market share tracking.
Let’ s turn the so called“ Marketing Spend” into“ Marketing Investment”, and at the Saracen Marketing group we have the processes, tools and knowledge to build your marketing ROI tracking and optimization programme. Let’ s chat!
Lenny Nganga is the Chief Executive Officer of Saracen Marketing Group. You can commune with him via email at: Lenny @ saracen-media. com.