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RETURN ON MARKETING INVESTMENT

Return on Marketing Investment(ROMI) and Marketing ROI are defined as theoptimization of marketing spend for the short and long term in support of the brand strategy

by building a market modelusing valid, objective marketing metrics Improving ROMI leadsto improved marketing effectiveness, increased revenue, profit and market share for the sameamount of marketing spend

Introduction

!here are t"o forms of the Return on Marketing Investment (ROMI) metric !he first, shortterm ROMI, is also used as a simple inde# measuring the dollars of revenue (or market share,contribution margin or other desired outputs) for every dollar of marketing spend $ore#ample, if a company spends %&'',''' on a direct mail piece and it delivers %'',''' inincremental revenue then the ROMI factor is ' If the incremental contribution margin forthat %'',''' in revenue is '*, then the margin ROMI (the amount of incremental marginfor each dollar of marketing spend is +' ( ' # '*) !he value of the first ROMI is in itssimplicity In most cases a simple determination of revenue per dollar spent for eachmarketing activity can be sufficient enough to help make important decisions to improve theentire marketing mi# In a similar "ay the second ROMI concept, long term ROMI, can beused to determine other less tangible aspects of marketing effectiveness $or e#ample, ROMIcould be used to determine the incremental value of marketing as it pertains to increased

brand a"areness, consideration or purchase intent In this "ay both the longer term value ofmarketing activities (incremental brand a"areness, etc) and the shorter term revenue andprofit can be determined !his is a sophisticated metric that balances marketing and businessanalytics and is used increasingly by many of the "orld-s leading organizations (.e"lett/0ackard and 0rocter 1 2amble to name t"o) to measure the economic (that is, cash/flo"derived) benefits created by marketing investments $or many other organizations, thismethod offers a "ay to prioritize investments and allocate marketing and other resources on ascientific basis

Criticism and defense of marketing effectiveness

3irect measures of the short term variant of ROMI are often criticized as only including thedirect impact of marketing activities "ithout including the long/term brand building value ofany communication inserted into the market 4hort term ROMI is best employed as a tool todetermine marketing effectiveness to help steer investments from less productive activities tothose that are more productive It is a simple tool to gauge the success of measurablemarketing activities against various marketing objectives (eg, incremental revenue, branda"areness or brand e5uity) 6ith this kno"ledge, marketing investments can be redirecteda"ay from under/performing activities to better performing marketing media 7ong termROMI is often criticized as a -silo/in/the/making8 / it is intensively data driven and creates achallenge for firms that are not used to "orking business analytics into the marketing

analytics that typically determine resource allocation decisions 7ong term ROMI, ho"ever, is

http://en.wikipedia.org/wiki/Marketing_Mix_Modelinghttp://en.wikipedia.org/wiki/Marketing_effectivenesshttp://en.wikipedia.org/wiki/Marketing_Mix_Modelinghttp://en.wikipedia.org/wiki/Marketing_effectiveness

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a sophisticated measure used by a number of for"ard thinking firms interested in getting tothe bottom of value for money challenges often posed by competing brand managers

References

0o"ell, 2uy R,Return on Marketing Investment: Demand More From Your

Marketing And Sales Investments(9''+) R0I 0ress I4:; '&= 7enskold, ?ames,Marketing ROI: The Path to Campaign Customer and Corporate

Pro!ita"ilit#(9''+) Mc2ra"/.ill I4:; ''=&@&++@ $arris, 0aul 6, :endle, ;eil !, 0feifer, 0hillip A and Reibstein, 3avid ?,Marketing

Metri$s: %&' Metri$s (ver# ()e$utive Should Master(9'') 6harton 4chool0ublishing I4:; '&+&>=+='