ROI Alone Cannot Win the Day

The reality is that evaluating marketing efforts on Return On Investment alone guarantees its destruction.

This sounds like an irrational statement -- especially coming from a direct marketer who makes a living making money by using accountable advertising.

But hear me out.

The flow chart (below) lays out a past test. Of the four test cells (in purple) representing 200,000 prospect names each, can you guess which cell won on ROI?

Flowchart showing test program with 4 tests (includes 1 control cell)

It was the holdout cell number 1, of course. By not spending money, the client had far fewer contracts, but it costs him nothing to acquire the customers who came in without the benefit of advertising support.

When cutting the budget to zero, there is an immediate increase in profitability.

But it comes at the expense of loosing market share and revenue volume. Customers still come in for awhile based on the company's past branding and promotional efforts. But creaming the business in this manner comes at the expense of longterm growth.

This shows why client management with a short timeframe mentality so readily targets the marketing budgets for cuts when the pressure is on.

Even though the observations here may be obvious to some. It clearly illustrates the need to look beyond ROI alone when developing marketing budgets. It also emphasizes the need to look beyond 1 year, 3 months or even 30 days when establishing the marketing investment.

We need leaders (and followers) who see the value of the long term marketing strategy.

What experiences have you had with this underlying weakness in many US businesses today? In your opinion, has this mentality taken over much of America today?

Posted on August 7, 2009 and filed under Direct Marketing Strategy.