Return on marketing investment
Return on Marketing Investment (ROMI) and Marketing ROI are defined as the optimization of marketing spend for the short and long term in support of the brand strategy by building a market model using valid, objective marketing metrics. Improving ROMI leads to improved marketing effectiveness, increased revenue, profit and market share for the same amount of marketing spend.
Contents[hide] |
[edit] Introduction
Return on Marketing Investment is also used as a simple index measuring the dollars of revenue (or market share, contribution margin or other desired outputs) for every dollar of marketing spend. For example, if a company spends $100,000 on a direct mail piece and it delivers $500,000 in incremental revenue then the ROMI factor is 5.0. If the incremental contribution margin for that $500,000 in revenue is 60%, then the margin ROMI (the amount of incremental margin for each dollar of marketing spend is 3.0 (= 5.0 x 60%). In a similar way the ROMI concept can be used to determine other less tangible aspects of marketing effectiveness. For example, ROMI could be used to determine the incremental value of marketing as it pertains to increased brand awareness, consideration or purchase intent. In this way both the longer term value of marketing activities (incremental brand awareness, etc.) and the shorter term revenue and profit can be determined. The value of ROMI is in its simplicity. In most cases a simple determination of revenue per dollar spent for each marketing activity can be sufficient enough to help make important decisions to improve the entire marketing mix.
[edit] Criticism and defense of marketing effectiveness
Direct measures of ROMI are often criticized as only including the direct impact of marketing activities without including the long-term brand building value of any communication inserted into the market. ROMI as a tool to determine marketing effectiveness is used to help steer investments from less productive activities to those that are more productive. It is a simple tool to gauge the success of measurable marketing activities against various marketing objectives (e.g., incremental revenue, brand awareness or brand equity). With this knowledge, marketing investments can be redirected away from underperforming activities to better performing marketing media.
[edit] References
- Powell, Guy R., Return on Marketing Investment: Demand More From Your Marketing And Sales Investments (2003) RPI Press. ISBN 0971859817
- Lenskold, James, Marketing ROI: The Path to Campaign, Customer, and Corporate Profitability (2003) McGraw-Hill. ISBN 0071413634
- Farris, Paul W., Bendle, Neil T., Pfeifer, Phillip E. and Reibstein, David J., Marketing Metrics: 50+ Metrics Every Executive Should Master (2006) Wharton School Publishing. ISBN 0131873709
- Schultz, Don E., Measuring Brand Communication ROI (1997) Assn of Natl Advertisers. ISBN 1563180537
- Ambler, Tim., Marketing and the Bottom Line (2004) FT Press. ISBN 0273661949
- Aspatore Books Staff, Improving Marketing ROI: Leading CMOs on Adding Value, Calculating Return on Investments, and Creating a Financial Impact (2006) Aspatore Books. ISBN 1596224347
- Lilien, Gary L., Rangaswamy, Arvind, Marketing Engineering (2004) Trafford Publishing. ISBN 1412022525
- Briggs, Rex, Stuart, Greg, What Sticks: Why most advertising fails and how to guarantee yours succeeds (2006) Kaplan Publishing ISBN 1-4195-8433-2
- Kotler, Philip.; Kevin Lane Keller (2006). Marketing Management, 12th ed.. Pearson Prentice Hall. ISBN 0-13-145757-8.