On the thorny
matter of tracking ROI
Key to any media campaign is determining return on investment
By the Media Life staff
May 6, 2011
It's one of the biggest concerns for media people no matter what type of campaign they've run: Did the client get a sufficient return on investment?
But oftentimes the answer is difficult to pin down, especially when multiple media have been used in the same campaign.
ROI is the ultimate measure of success in any media plan; the challenge is always in how to track it to achieve meaningful results. There are many wrong ways to track ROI.
Everyone needs to agree on just what's being measured, whether it's sales or something else.
Unless everyone is clear on those issues, there's the risk of ending up with GIGO--garbage in, garbage out--a sea of data that either tells you nothing or tells you something that's plain wrong.
That is, in sum, the answer to the question posed in this week's edition of Media Life's new feature, Ask a Media Life expert.
The question:
"Is there a 'correct' way to calculate ROI? For example, a retailer is running a print and online campaign. Product is also available in-store and through other wholesalers. The conversion to sales post click and post impression were rather low. Is there any way to allocate in-stores sales growth to a particular medium?"
To address this question, we turned to the following authorities on the subject:
Jerry Courtney, senior vice president and executive media director at GSD&M;
Jack Poor, vice president of strategic planning at TVB;
Mark Lipsky, president and chief executive officer at the Radio Agency in Media, Pa.;
Jill Albert, president at Direct Results Advertising; and
Rex Briggs, founder and chief executive officer at Marketing Evolution.
But before giving you their answers we'd like to invite readers to submit questions they'd like to see answered by Media Life experts. We'd also like to invite readers who are interested to join our panel of experts.
To submit a question or volunteer to become a Media Life expert, follow this link:
http://www.surveymonkey.com/s/W6MK92H.
And if you'd like to weigh in on this question with your own opinion, you can do so in the comment box at the bottom of this story.
Now onto our experts.
Jerry Courtney, senior vice president and executive media director at GSD&M
Maybe the better question would be, is there NOT a correct way to calculate ROI? With the deluge of data available, making sure of its relevance to the business issues at hand is extremely important. Rules of thumb fall by the wayside since ROI and data is increasingly a personal thing, and what's good for one piece of business is not necessarily good for another.
In my experience, the most important key tenets are these:
1. Agreeing to and vetting methodology. I always think of the scene in "Apollo 13" when Tom Hanks is calculating the correct angles to get the crippled craft back on the right path. He gives Houston his results and immediately asks them to check his math. Same goes here. Whether internalizing or working with a partner, there has to be transparency and understanding into the math that crunches the data.
2. Agreeing to and vetting "sources of truth." Whether third-party or first-party, transparency to the inputs used is hugely important. There has to ultimately be one source of truth that everyone can rally around vs. competing sources of truth that can cause division.
Jack Poor, vice president of strategic planning at TVB
I do not believe that there is any one "correct" way to measure advertising to sales ROI. Clearly when only one media channel is used with only one creative and all other factors are the same, it is pretty easy to determine the cause and effect of different levels of ad spend.
However, this is hardly ever the case in the real world.
Direct-response advertisers, both online and off, have identified response via click rates, specific phone numbers and codes for different platforms, creatives and offers. But traditional retail is usually not DR and is using multiple media channels to create awareness, interest, store traffic and purchase.
Real-world results will create benchmarks that retailers will be able to develop to project the likely result of different media campaigns.
Another thought on ROI--it is not an end in itself. The end is the sales goal in absolute volume. The ROI helps you tell how efficiently you are in driving toward the goal.
Mark Lipsky, president and chief executive officer at The Radio Agency
in Media, Pa.
Without empirical sourcing and tracking, any attempt to credit a lift in retail sales to one medium over another is less than scientific.
One could apportion those incremental sales in line with the dollars spent by medium or by gross impressions generated. Still, you'll end up with fuzzy numbers in an arena where crystal clarity is required to optimize future buys. Forensically, there's not much that can be done to "un-ring the bell."
Going forward, one could set up tests in markets of comparable size and test different media combinations. For example, one might fund campaigns in Cleveland, Columbus and Cincinnati and run print and online in one market, radio and online in another market and just online in the third market. Then you'll have a clear A versus B versus C comparison in three markets of similar size in a common geography.
As owner of a "radio-only" advertising agency I tell clients that it'll be nice if we can impact your retail sales. But I don't expect you to give us credit for those sales. Radio--and our ability to source sales to the medium--must survive on its own to justify future investments. Sure, there's the intangible benefits of positive branding and "some" impact at retail. But the key is to measure, manage and then optimize your media spend against results.
In this case, where a retailer is shrugging, wondering where to attribute sales, any creative formula is going to be more "creative" than scientific "formula."
Figure out how to stagger your media buys by week, or by market, to assess their true impact on retail.
Jill Albert, president at Direct Results Advertising
ROI is measured most accurately on advertising unique offers on different media, consumer codes to drive sales or unique channels such as toll-free numbers or URLs. In lieu of these elements, ROI can be measured by simply using a baseline of the product sales revenue prior to the media and calculating the revenue increase while the media is running. The increase in sales revenue divided by your media spend is a fair and accurate ROI measurement.
Without a differentiation in offers, it is virtually impossible to calculate what each medium brought to the revenue table.
Sales will likely stay high a couple of weeks AFTER media is complete, so be sure to use the lift in sales two weeks after the last date of media run as part of your calculation.
Other sales figures to consider in the calculation are same-store sales revenue year to year for the time period in which your media is running.
Rex Briggs, founder and chief executive officer at Marketing Evolution
Yes, there is a right way to calculate ROI, and a lot of ways to get it wrong. Marketing Evolution's perspective is that the marketer start with four questions: 1. What is the strategic context -- in other words, what are the long-term competitive and other dynamics that should be taken into consideration? 2. What are the specific objectives of the marketing investment? 3. What are the economic dynamics, including marginal return? 4. Who will make what kind of decisions and when based on the ROI learning?
1. Let's start with strategic context. To provide a meaningful response, one needs to ask, "is the ad for the retailer selling a product they produce (Tommy Bahama advertising their new men's shirts) or is it the retailer promoting what another company produces, and is it sold throughout their retail channel, as well as through others (Best Buy advertising an iPad, for example)?"
The reason this question matters is that if you are the retailer, the selection of the products you promote should contribute not only to the immediate sell of your product, but should also be a "trip driver" so that the consumer that buys from you also buys other things too. And, finally, the product the retailer chooses to feature should also reinforce the retailer's brand strategy.
For example, when Marketing Evolution measured ad effectiveness of Wal-Mart ads promoting the quality of diamonds they sold through their dot.com, there was a disconnect between diamonds and Wal-Mart. Now, if Wal-Mart wanted to move upscale, promoting "surprise products" like this, it might make sense, even if the conversion rate is lower, because the long-term benefit of repositioning is promoted. In reality, Wal-Mart wasn't strategically advertising diamonds; it was a poor product choice to promote because the Wal-Mart brand hurt conversion rates for this product (but that is another story all together).
2. Now, let's look at the specific objectives for the marketing investment. If the objective is to return profit from the specific product being promoted from the marketing investment immediately, then that is a different calculation than to "drive trip traffic” to create profit from the overall "basket," or to recruit new customers profitably, considering the two-year "life time value (LTV)" time horizon. In sum, the point is to define the basis of "return."
3. The third consideration is the economic dynamics of profit. To calculate ROI properly a company should use the marginal rate of profit rather than the average profit margin, understanding capacity is often part of the overall ROI analysis for companies that also manufacture the advertised products. To the extent that advertising produces incremental sales, then the marginal profit rate (as opposed to average profit rate) should be used to calculate ROI.
4. The fourth consideration is really about applying the learning going forward; asking the question of who will take what action when based on different possible outcomes to the ROI learning should be discussed in advance of any reporting.
For example, what is the ROI level that would prompt repeating the program? What if the ROI is below this level -- will creative or targeting adjustments be made prior to the end of the campaign? Will a deeper analysis on consumer motivations be conducted if the campaign flops -- or will the organization simply move on and agree not to advertise the product, or similar products for the next year? It is not only useful to work out these scenarios, but it is also useful to have a simulator. At Marketing Evolution, we use a tool called Matterhorn to run different simulations and test different scenarios.
With the basis of return established, the next step is measurement. In this example, where both online and magazines are used, the proper analytic approach is attribution modeling, such as Marketing Evolution's ROMO (Return on Marketing Objective) methodology. This measurement approach uses a combination of time series and design of experiments to capture impact and calculate ROI. The ROMO method captures synergies and complementary effects. For example, in work with retailers we have found that the presence of magazine ads can increase the click-through and conversion rate for online ads. We've also found that online ads that are not clicked on can lead to offline sales, or navigating to the web site via search engines to make a purchase. It is important to have a measurement approach that is holistic.
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