Any brand manager with a pulse slices up their dollars based on some understanding of the return each dollar is generating. The most common tool to measure ROI is Market Mix Modeling. I’m going to assume you’re familiar with MMM and ROIs (if not, Wikipedia actually has a nice explanation here). ROIs have significantly influenced marketing thinking following the rise of MMM.
Brand managers who leverage ROIs now have detailed and historical information about the return their hard work is delivering. Every year when the new numbers come back from their smart agency friends, they pour over them so that they can fine-tune their plans for next year – getting just the right amount of support behind :15 TV copy. In many sophisticated companies ROIs now dictate much of the decision making. They’ll say, ‘if you can’t tell me the ROI, I’m not interested in doing it.’ The result is brand managers living and dying by ROI – obsessing over it.
But when you take a step away from comparing your TV ROI to online and look at how much volume your hard work drives, you’ll see that even if you spent zero marketing dollars you would keep the vast majority of your sales. MMM models measure base sales & incremental sales. Incremental Sales represents volume sold through measureable marketing efforts (e.g. TV GRPs), whereas Base Sales tracks volume sold if you did no advertising at all (i.e. how much you’d sell based on your long-term brand equity). Typically the base represents 60-75% of a brand volume and has no ROI assigned to it. So we’re left to obsess over the 25-40% that’s more short-term because it does have an ROI. The result is brands chasing short-term ROIs for stuff that only drives a fraction of volume. We’ve become slaves to our scorecards, ignoring what drives the most sales because there’s no ROI attached to it.
This may be the paragraph where you expect me to explain how Powerhouse can assign ROIs to stuff that’s gone unmeasured to date or how MMM work is a total waste. If so, you’ll be disappointed. I can’t offer the next generation of MMM, nor will I bash value of MMM. Instead, the lesson here is that brands need to remember that their ROIs represent something specific – a measured return on a specific activity over a specified time period. And if you live or die by a 2012 TV ROI, you’re not setting yourself up for success in 2015.
Also remember that you can influence your brand’s equity, even if it isn’t measured in an ROI every year. Strong equity is the long-term goal of brand building. I think of this as investing in sustainable ROI. Every consumer experience contributes to equity, which is why even the traditionally unmeasured tactics matter. Sustainable ROI is achieved through authentic interactions with your customers. In today’s world of connected consumers, the expectation is that you’re building a relationship with consumers, not just selling stuff to them. And you have to be “all in” for a relationship to succeed. A brand that thinks a ‘social presence’ is adequate is like a husband seeing his family once a week. And running a brand based on a short term ROI focus is like expecting a 50 year marriage because you got to second base on the first date.