It amazes me how the word “ROI” can have so many definitions and meaning within a retail organization. Some are familiar with the term, though never consistently utilize it to gain a competitive advantage. Others use it consistently, using metrics that they are familiar and comfortable with. Either way, formal ROI metrics for evaluating marketing effectiveness should be utilized by all retail marketing professionals.
Gone are the days of running expensive, inefficient mass media campaigns that focused on “hope” that customers would come running in to buy your product. If sales were healthy, the marketing team accepted much of the credit for driving sales. If sales were marginal, marketing was the first one to line up at the chopping block. In either case, there were too many variables involved to know what really happened.
Today, it’s all about quantifying each investment opportunity. Every CMO should require his or her managers to perform an ROI analysis on each proposed campaign. The analysis might be different between organizations due to different levels of selling costs, gross margins and whether fixed costs are pro-rated. It’s amazing how many “great” ideas came across my desk, but after performing an ROI analysis, determined it wasn’t financially possible.
I’ve become a big believer in revenue-sharing marketing programs, where we don’t pay unless a sale occurs. Program costs and markdown dollars can be easily projected and budgeted for, and assigned to the correct expense center. I tested a “Gives Back” cause-marketing program recently that provided a 5% donation with every qualified purchase and a fixed percentage operating cost. I signed a six month contract and established a revenue break-even target that I needed to hit, minimally. As the program progressed, we were able to establish trends that indicated whether the program was operating ahead or behind plan. Due to the quantifiable success of the program, we were able to allocate additional advertising dollars to the program to drive even more sales. In this case, you are shifting higher opportunity marketing dollars AWAY from underperforming programs – a good thing!
Even mass media campaigns should have an ROI target established, thought using different metrics. One proven way to do this is to establish a control group (or better yet – several), which could include specific customer segments or markets; as well as analyze trend changes in affected markets vs. control markets. You need to be careful to ensure you are filtering out as many variables as you can such as local events, weather, market size and cultural variances. At the end of the campaign, you should be able to have a good feel as to how your investment dollars were spent. You should always have a target or goal established to measure how close you were to meeting your target. This process will force you to become a smarter allocator of marketing funds.
Direct marketing, affiliate programs, affinity marketing, search, online, loyalty and coupons are terrific programs that are easily tracked by retail partners and don’t require a lot of up-front spend and rolling the dice. I had a lot of success with these types of programs over the past couple of years and I’m working to help retailers incorporate more of these proven and quantifiable programs into their marketing matrix.
Always keep an open mind to new ideas. Just make sure you do your homework before you take the plunge.
Bryan Kipp is President of CMO Retail Solutions, LLC. He provides interim CMO services and focuses on identifying and executing ROI-centric marketing programs for retail clients. Visit http://www.cmoretailsolutions.com/
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