Great ROI Alone Leads to Disaster

Written By Ted Grigg
DMCG Results

As a Key Performance Indicator (KPI), Return on Investment ranks high on the list. But High performing ROI campaigns must balance with other critical performance requirements.

The DMA just released their new 2012 Response Rate Report that illustrates how response rates, and even ROI does not meet all of the requirements for evaluating the effectiveness of the marketing program for most businesses.

Here's one quote from the summary.

Email had the highest ROI (28.5), compared with 7.00 for direct mail.

Yes, email produces great results either as a solo or integrated channel. But that is hardly the whole story.

Here's another quote from the report.

...response rates for direct mail to an existing customer average 3.40 percent, compared with 0.12 percent for email, which is roughly a 30-fold difference.

This demonstrates how ROI alone will not make up for low volumes.

Put another way, would you rather double your money on a $10,000 investment, or make 20% on a one million dollar investment? Assuming the advertiser wants to scale their small successful tests into large businesses, then the 20% on one million dollars wins out every time.

The majority of business plans are far more interested in making a $200,000 profit than a $10,000 profit even though the ROI on the $10,000 looks more attractive when viewed as a single Performance Indicator.

In other words, some channels show great promise as an ROI engine, but alone they rarely build large businesses.

Does this mean that email should not be a part of the media plan? Of course not. But it does mean that reliance on ROI without scalability should induce marketers to test other channels (and channel integration) on an ongoing basis.

Let me conclude with a last quote from the report summary.

Costs [for direct mail] are also higher, which translates to roughly equivalent costs-per-sale/lead for direct mail, email, and paid search. "Even though direct mail is less effective in driving response than it was a decade ago, it still is among the best media for generating overall response,” says Wurmser. “This points to its likely continued role as an important medium in the marketing mix, even as the cost effectiveness of digital channels suggests that they will continue to gain budget share.”

What are your perspectives as they relate to channel integration, channel use and an overall penetration strategy?

Ted Grigg

Ted Grigg is a direct response strategist who helps growth-focused companies reduce risk by identifying weak assumptions before they become costly mistakes.

Over the course of his career, Ted has evaluated several hundred million dollars in direct response testing across direct mail, digital, print, television, telephone, and other channels. His work combines direct response strategy, acquisition economics, customer analysis, creative evaluation, offer development, and disciplined testing.

Ted has worked on both the client and agency sides of the business. That experience gives him a practical understanding of the pressures facing executives, marketing teams, agencies, and service providers—and of the problems that arise when activity, media volume, or creative preference replaces a clear economic objective.

His consulting work helps organizations examine such questions as:

  • Are acquisition goals economically realistic?

  • Is the allowable Cost Per Sale supported by customer value?

  • Are targeting, offers, creative, media, and response paths working together?

  • Are tests structured to produce reliable business decisions?

  • Are unproven assumptions being treated as facts?

  • Is the organization measuring sales outcomes rather than convenient proxies?

Ted’s experience includes the development of direct mail and multichannel acquisition programs for insurance, healthcare, financial services, technology, nonprofit, manufacturing, retail, transportation, communications, government, and business-to-business organizations.

For a national direct-to-consumer insurance company, he developed a direct mail format that defeated established controls and helped expand the productive use of compiled prospect lists from less than 10 percent to more than 30 percent of total direct mail circulation within one year. He also planned Medicare lead-generation programs for more than 60 regional and national HMO and PPO organizations, with some programs exceeding sales projections by as much as 60 percent.

Ted founded Wyse Direct, a direct marketing division of Wyse Advertising in Cleveland, where he developed acquisition programs and helped launch a new technology product for Seiko Instruments by generating a predictable flow of qualified sales leads for its national sales organization. As vice president of new business development for the Grizzard Agency, he helped broaden the agency’s strategic capabilities and pursue new commercial and fundraising opportunities.

He is the author of The HMO/PPO Marketing Plan—A Step-by-Step Guide, published by Executive Enterprises, and has written numerous articles and conducted webinars on direct response strategy, testing, creative development, and marketing economics.

Ted earned a Bachelor of Arts degree from Abilene Christian University and completed two years of graduate study at Texas Tech University. He is the founder of DMCG, LLC.

http://www.dmcgresults.com
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