Great ROI Alone Leads to Disaster

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?

Posted on July 27, 2012 and filed under Direct Marketing Strategy.