The Post-ROI Marketing World

It was never about you. It's about them.

ROI, or return on investment, is a financial metric, designed to calculate the short term benefit of investments with similar time horizons.

It's use was promoted by and for financial executives making financial decisions. And with the advent of the economy's financialization in the 1980s, it became apparent that finance called the shots inside most corporations. Marketing types are nothing if not sensitive to shifts in power, so one of them had an idea. Let's demonstrate the ROI of investments in marketing. Who cares if brand-building and reputation can take years, if not decades, to establish. We're as good as those guys and we'll prove it.

The thing about financial guys, however - as maybe the general populace has begun to notice over the past four or five years - is that they dont have a lot of respect for non-financial types. It's a facility-with-numbers, closeness-to-the-source-of-money thing. If business is a priesthood, they think they're highest on the altar. And let's face it, a lot of intelligent, creative, competent marketing and advertising professionals entered the field because they hated high school math.

So when all these eager marketing types tried to demonstrate just how totally they got this whole financial thing, well, it didnt quite work out like they planned. The financial guys hit them with a ton of arcana about the cost of capital, Black-Scholes options pricing models and associated hoo-hah.

Oh, and when business got a little soft, and ROI began to sag, the financial guys asked how the marketing guys planned to meet their numbers. 'We'll get back to you' was not an option. 'If sales can't grow due to exogenous factors, how about cutting the denominator in the ROI equation,' asked the financial guys? 'Uh...,' was the probable response.

And that's when the marketing guys learned that the denominator was them.

Marketing is about impact. And until marketers figure out how to effectively measure the impact, which is to say, the outcomes of their efforts, they will continue to be the denominator in the business equation. JL

Greg Satell comments in Innovation Excellence:

Marketing used to be about two things: Creating a big idea and executing it as cheaply and efficiently as possible without sacrificing quality. We looked for large audiences and negotiated tough deals.

That’s evolved somewhat in recent years, as both agencies and clients recognized that too much emphasis was being put on outputs and not enough on outcomes.
Just because you reach a lot of people doesn’t mean that you’ve driven the business forward.

The ROI movement sought to more closely align tactics with business goals. It has been highly successful. So successful, in fact, that most of the important problems have largely been solved. What remains involves computational resources and integration. Therefore, we are now entering a post-ROI world of innovation, open brands and co-creation.

The Rise of Marketing ROI
The post-war economy was an era of mass media. There was a limited amount of TV stations and programming was geared to mass audiences. Advertising pioneers such as David Ogilvy and Leo Burnett developed powerful brand images that transformed the landscape of commerce. Great creative work combined with mass audiences evolved brands into consumer icons.

Then, in the 80’s and 90’s, cable and satellite technology revoltionized media and fragmented audiences. No longer could you be sure that your target consumer would see your message no matter how big the idea was. The central question became “where is our consumer.” Media buyers became masters of optimizing reach and frequency.

More recently, digital media created a host of new ways to target and re-target consumers. Google and Facebook showed that advertising was more than just reaching people with messages, but also driving sales and getting people to share brand messages. In order to manage all of the various data, a new industry of advertising technology has arisen.

Where we used to think merely in terms of demographic targeting, now we have a host of targeting methodologies to choose from. The result has been a lot more flexibility and better outcomes, optimized in real time.

Outcomes, Not Outputs
While all of the technology is impressive, ROI is about a whole lot more than metrics and KPI’s, it’s about moving the business forward. That requires more than delivering impressions and clicks, but understanding specific brand needs. A “one size fits all” approach is no longer considered efficient.

As I’ve written before, we have entered a post-promotional paradigm. Consequently, path-to-purchase models, which are basically expanded versions of the chart below, have come into widespread use and have played an important role in aligning marketing strategy with brand objectives.

Some brands are well known, but fail at the point of purchase. Others have strong sales, but consumers are unwilling to recommend them to their friends. Still others, have a devoted following, but suffer because most people don’t know about them. Those are very different problems which require vastly different solutions.

The combination of better technology along with a better understanding of brand objectives has proved to be a powerful combination. We are no longer treating all brands the same way and simply trying to reach as many people as possible, but are efficiently deploying resources to where they will have maximum impact.

However, for marketing communications professionals, ROI efforts are becoming a victim of their own success and we will increasingly have to go beyond ROI in order to produce superior results.

The Curious Case of Logistics
To understand the fate of ROI techniques, it’s instructive to look at another core business function: Logistics.

Wal-Mart, for example, has invested for decades in their logistics systems, with outstanding results. At the heart of these systems are algorithms designed around the age-old traveling salesman problem, one of the most difficult conundrums in mathematics. So difficult, in fact, that it has never been fully solved.

However, the perfect doesn’t need to be the enemy of the good and computer scientists have invented ingenious self organizing techniques such as genetic and swarm intelligence algorithms that can closely approximate a solution. The more processing power you use, the better your answer will be. You can essentially choose your level of efficiency.

Nowadays, a business get the benefit of the decades of investment in logistic algorithms by simply calling up UPS and many companies do.

A Question of Competency
Advertising technology is approaching a similar situation. Much of the work is now done by machine intelligence rather than by humans. Many of the biggest problems have largely been solved, it’s mostly a matter of processing power which, by the way, is getting cheaper and more plentiful all the time.

That’s not to say that there isn’t room for innovation. Natural language processing, for instance, has a lot of untapped potential and companies like Networked Insights and Open Amplify are beginning to harness it. Other areas, like Big Data, are developing quickly and attracting a ton of investment.

However, and this is a crucial point, none of these technologies are specific to the marketing services industry and, to be honest, the industry has very little competence in developing advanced techniques. That means that it’s going to be harder for practitioners to differentiate themselves based on them.

Competing on the basis of which third party providers you choose is no way to achieve a sustainable competitive advantage. Without that, how can you win?

Creating Efficiency and Creating Value
The ROI movement has been enormously successful and will continue to evolve and advance. However, it doesn’t take much imagination to see that in the future we will see more and more computational power chasing fewer and fewer efficiencies. What’s required is a change in emphasis from creating efficiency to creating value.

Let’s assume it took Edison 1000 tries to invent the lightbulb, how would we calculate the ROI of the first 999? Does it matter? On what basis would a corporation evaluate launching the next Pinterest or Instagram? In much the same way, calculating ROI, as important as it is, does not create great brands, big ideas do.

And that’s where things really get exciting. Digital technology, after all, does a whole lot more than calculate things. It allows us to dream, simulate and experiment. We can choose our scale, evaluate in real time and run with what works. We can open up our brands and co-create with consumers and partners.

The future of marketing services is to become effective API’s for open brands. In the post-ROI world, the only limit is that of our imaginations.