Return on Marketing Investment Approaches An Evaluative Paper

Prateek Chhillar 040A

A critique on the following schools of thought, namely: 1. Brand Equity School of thought 2. Customer Equity School of thought 3. ROMI school of thought

MICA 1/5/2012

Prateek Chhillar

ROMI, Individual Assignment

040A

Introduction
At the most basic level, when we talk of marketing expenditure or investment, we can say that it can have either or both of the two types of implications, namely Short Term Impact Long Term Impact

If you look at Short term impact for any marketing spend, then the idea there is that any marketing activity that has a spend gives its result instantaneously (defined within the reporting period of that spend), and thus its contribution to the Returns or revenues are looked upon as short-term ROI. Another affect could be similar to investment, i.e. we incur the expenditure now, but it pays us in the long run i.e. outside of the reporting period of the spend itself. This could be because the nature of the spend/activity is such that it doesnt really reflect in the sales/revenues immediately, but rather builds slowly like waves often do and sometimes in multiple waves with a cascading or lingering effect. Its contribution to the returns or revenues is looked upon as Long-term ROI. In realistic terms, marketing expenditure is usually of dual nature, i.e. it can have both short term as well as long term impact, therefore to completely analyse the effects of any marketing expenditure/investment we need to look at various approaches to understand how this return is accrued by the organization that decides to make this investment. We therefore take a look at a few of the schools of thought in this direction and try to critique them to understand where they have shortcomings and why not all approaches are universally applicable.

Brand Equity School of Thought

This school of thought looks upon companies and organizations as not just the economic metrics that are represented in their sales reports and turnover figures and numbers in the profit/loss accounts but as something beyond these numbers, and this something involves the association that goes with the very sound/sight of the Brand that the organization is in the mind of its customers. This association can be broken down via metrics to create a valuation that is known as brand equity.

Prateek Chhillar

ROMI, Individual Assignment

040A

The specifics of measuring any organizations brand equity involve assessing the brand of that company on several parameters, depending on which of those are more relevant given the industry of the organization, the situation of the market etc. Some of these maybe of the types listed below: Differentiation Perceived Quality Awareness Brand Personality Popularity Distribution Coverage

Depending on the relevance to an organizations business there may be few others while a few of these might be used or not. These are often assessed on both qualitative and quantitative levels and means. Thus there are advantages to the method via which one can try to evaluate the monetary value that each of these parameters contribute to the overall valuation of any organization. But then again, these are merely associations that exist within consumers thought process or set of beliefs. Here is why we need to think twice about this school of thought: Validity of Parameters is not absolutely comparative: for example if one is to compare perceived quality for organization A in the eyes of consumer set X with the perceived quality for organization B in the eyes of the same consumer set, just because that segment of consumers views A as better than B by about 2 margin points on a scale of 10 (if we assume) that does not mean that the computed economic value will hold a similar relationship. Thus this would suggest that A is merely better than B in the consumers eyes but wont tell you by how much (if we try to look at it in the monetary sense). Measurability of emerging parameters : as far as established parameters go in existent models, there are accepted norms for measurement, be it qualitative of quantitative but for newer parameters that are often added to models depending on the situation at hand there is no clear rule towards analysis i.e. what may be acceptable across one research body might not be easily validated across another research body, thus creating an ambiguity in the measurement of that parameter and might not be able to assess the overall impact that parameter might have.

Prateek Chhillar

ROMI, Individual Assignment

040A

Thus, these are a few of the critiques of the brand equity school of thought, and they may not be valid at all times, nonetheless they are an indicator of when we can be certain of this approach completely and at other times when we need to perhaps not rely completely on the approach.

Customer Equity school of Thought

Stemming from the customer-centred approach to marketing, the customer equity school of thought looks at the customer as the entity that defines the value of the organization. To put it in a simple manner, the company is as much as the customer is capable of. Organizations like these rely heavily on tools such as Customer Relationship Management and their main aim is to ensure that their established set of customers stay and grow with them in a symbiotic relationship. Organizations that adopt the related methodologies to this consider marketings effect on the customer lifetime value namely the future profit/revenue streams and hold these effects as accountable or measureable. They define customer equity as the sum of the customer lifetime values of the firms current and future customers. From this perspective, the purpose of any marketing expenditure is to increase the firms customer equity, and any marketing expenditure that does not improve customer equity is money wrongly spent. The shortcomings one can see in this approach are: The consumer might not know what they want: firms that utilize such models often spend a significant effort towards understanding what the customer wants and what the customer needs and try to address these to the best of their capabilities. But often, the customer doesnt really know about certain need gaps in their lives that can be addressed by something they didnt even think could exist. Innovation can often even surprise the customer and create approaches and solutions that the customer didnt know they could have. Thus firms might be losing out on potential revenue streams that they didnt know could exist only because they were too focussed on providing to the customer what they thought was required. Analytical Models of the Consumer often betray: Time and time again, marketers have extensively relied on the collected knowledge about the costumer, yet trends, attitudes, behaviours often change, and thus as easy as it is to assign a monetary value to a customer in terms of the future expectancy, it is also possible that the customer does not follow the

Prateek Chhillar

ROMI, Individual Assignment

040A

expected trajectory, therefore it often occurs that firms require high turnaround time to address these changes in the customer psyche. Thus this approach, although relied upon very popularly by firms in this day and age of the consumer, can often fail companies if they are over-reliant on the same.

ROMI school of Thought

This school of thought primarily is to measure the degree to which marketing contributes to profits. This school of thought has been pressed into action more and more lately due to the ever growing call for accountability of marketing actions and initiatives to contribute to the bottom line of the organization. Often in the past many activities have passed as marketing activities without really being helpful towards increasing sales or any actual visible utility to an organization and it is out of the need to streamline the haphazard approach of marketing that this school of thought arose. The approach involves focus on the following 4 facets of the organization that contribute to the bottom line reporting: Sales (volume or numbers) Customer (numbers) Periodicity (more often) Value (of sales)

The importance of marketing metrics being highlighted by the ever changing diaphragm of marketing activities that constitute the above mentioned factors helps understand how marketing expenses trickle down towards lead generation, sales capturing and the likes. Often these are looked at with such a keen eye that they are considered as the rule of thumb for the organization to drive future activities. The shortcomings that can arise out of an approach purely centred on the related methodologies are: Too much data being available without a clear drive towards what insights are required to push the organization towards a destination that is more favourable for its growth and

Prateek Chhillar

ROMI, Individual Assignment

040A

sustenance. Often the above means marketers are looking at any combination of the mentioned parameters without really knowing what are their goals? Namely o o o Is the focus on short term vs long term? Is the correct parameter being focussed on w.r.t the requirements? Are we clear that we need to be looking at volume vs individual vales?

Over-specification of strategy on metrics: quite often the strategy in this approach relies heavily on marketing metrics and doesnt leave enough room for various qualitative aspects such as those discussed in earlier approaches, thus creating an overall mechanized approach towards marketing also called automated marketing. Also this means reliance on past experiences is rather binary than actual and often there can be overlooking of important happenings merely because they failed to fit a condition or rule.

ROMI school of thought takes into account factors that will eventually drive ROMI itself, and these are weighed into marketing plans and thereafter the system is meant to adhere to constraints placed in these plans, which is quite suitable often for the short term benefit of the organization but consistent tweaking of the overall approach is required in the longer duration and this requires sensitivity towards other schools of marketing approach as well.

Conclusion
Thus we can see each of the above mentioned schools of thought have certain areas which are meant for the marketer to understand when not to adopt a certain approach and what are the associated perils with adopting a particular approach. It is eventually up to the marketer and the strategy created to understand which of these schools of thought are a best fit and if not, what mix of these is optimal to move ahead.