Why measuring digital ROI stumps marketers

Proving ROI is not only a moving target in marketing, but also a major burden due to the time required to accurately report results. Globally, 75% of marketers face a problem when trying to calculate ROI and a common issue is connecting marketing activities to specific earnings generated.

These are the findings of a study by Teradata’s Data-Driven Marketing Survey 2013.

Teradata chart 1 ROI Teradata chart 1

The study says a singular focus on proving ROI can be risky because some marketing initiatives may be effective while others may fall short and those will carry a stigma as campaign result data is spread to other areas of the business.

To counter this, Teradata says marketers are appearing to be changing their focus to improve ROI, of which the analysis is likely to be more rapid and insightful.

But the overall target is clear: “Marketers must use data to determine which campaigns are driving revenue and which ones need to be ended before they cost too much money.

Marketing approached several marketers, but most were hesitant to speak on the subject. In fact, several of these marketers told Marketing that they usually turn to their agency partners to help resolve their issues on ROI.

However, Rahul Asthana, sector leader and marketing director, Baby and Child Care ASEAN, Kimberly-Clark Corporation said that ROI should be looked at as a ratio of net sales to marketing investment.

Sometimes marketers fall into the trap of looking at in-process measures such as ad impressions or the value of impressions.

“The biggest issue on ROI is that measurement that is robust is usually not real time – it looks to the past and the data does not come back soon enough to make course corrections to the plans. Also, it is occasionally difficult to identify whether the lift (or drop) in sales is a result of your marketing activity or something that happened in the category that was beyond your control.”

Confusion in the digital sphere

The digital sphere is obviously a greater cause for confusion when it comes to ROI, as marketers get overwhelmed by the options available.

While the focus is on digital, the trick is to keep a holistic view of the business instead of merely looking at the business results. The key issue highlighted by all the digital folks was that when measuring digital ROI, marketers need to have a more holistic view of the business rather than just the campaign results.

For example, when it comes to social media marketing, Ryan Lim, business director, Blugrapes explained that the ROI can seem to be under performing when compared to other digital mediums as it doesn’t have the final ‘click to sell’ option. Rather, it holds the ability to influence consumers at the pre-consideration stage of marketing, he added.

Another mistake that marketers often make is benchmarking “viral digital campaigns” for future campaigns without taking into consideration production costs. “Often when calculating the ROI of such a digital campaign, the cost of ideation, development and deployment are not included.  This then skews the ROI to make it seem like an extremely successful campaign as the cost of media was the only investment calculated,” Lim said.

Keith Timimi, chairman of VML Qais agrees that at a macro level, digital, mobile and social strategy, all need to be aligned to overall brand strategy. “To measure the ROI against this broader definition of strategy, we need to use a Balanced Scorecard approach to understand how we are contributing on all key metrics.”

Pointing out the case of paid digital media, Timimi explained that traditionally it has been a case of ‘the last click wins’.

But for most purchases, there have been a number of factors that contributed to a sale, including, banner ads, email newsletter, a social media page interaction, an organic search click and finally the paid search click that lead to the actual sale. Hence the pool of factors all ultimately need to be considered.

Using attribution modeling and a data management platform can help build a fuller picture of contributors to the final purchase and therefore measure the ROI of each digital activity more closely, said Timimi.

While digital is a fast paced environment, a fair amount of patience is needed. In reality, it takes several stages for a potential consumer to become a customer and marketers are often hungry to see quick results.

“Most definitions of ROI focus on the direct revenue impact of the activities/programmes that we have invested our resources and money into. Sadly, it doesn’t take into account the potential revenue impact as a factor,” Joanna Teo, associate analytics director, XM said.

As a result, many a times marketers only tend to focus on executing programmes that are more likely to involve closing a sale or having a conversion that is of a transactional nature. They forget that if a consumer has not even gone through the awareness and consideration stages of the purchase making journey, the likelihood is the consumer would not even be interested in a brand’s promotions.

Measuring ROI fairly

Activities or programmes need to be measured contextually, based on exactly what they are supposed to do, said Teo. In other words, marketers should not measure the performance of an awareness building programme by its ability to bring in sales.

One such mean is by measuring the completion rates of key actions such as visited the site, viewed a product page, made an enquiry, liked Facebook page, registered for a contest and/or made a transaction. These are must-haves to understand the response from the consumers to what we have done.

By giving each of these non-transactional actions a monetary value, that represents the potential revenue that it might bring to the business, agencies can also measure effectiveness in impacting business revenue indirectly, she added.

“Working out a formula that will estimate the potential revenue that a particular action a consumer has done in response to your programme would be what you should spend time thinking about because they do matter,” Teo said.

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