Ok, its not ALWAYS stupid — but more often than not its stupid to measure ROI in marketing and social media. That’s not to say that you should ignore the numbers, but you have to measure the right things.
Why its Stupid to Measure ROI
First, and foremost, ROI only addresses the profit motives of the business.
But, we know businesses have other motives. The important thing is to recognize these other motives often help the business succeed in the long run. Businesses want to give back to their employees and communities, they want to be ethical, and they want to do specific things that they do well. That’s why businesses often fail when they seek to increase profits by doing something they don’t know such as when Coke bought Columbia Pictures. Other than maybe enjoying a Coke at the movies, the 2 companies had nothing in common and later split.
ROI is very short term focused
So, the corollary to it being stupid to measure ROI because its profit motivated is that its short term. This is very short term focus as we ignore doing things that contribute to sales IN THE LONG RUN. For example, having good customer service contributes to increased sales over the long run and, in fact, creates competitive advantage because its so difficult to copy. We KNOW good customer service impacts sales because we know WE don’t go places where the customer service is BAD.
ROI ignores processes leading to increased ROI
In marketing we talk about a hierarchy of effects from awareness to purchase — now, I personally think this model a little simplistic, but the basic concept is true. Consumers buy products they know about and are interested in — and creating awareness and interest don’t figure into many ROI calculations where only sales matter. Marketing and social media invite people down the hierarchy toward purchase rather than directly generating purchases. A big part of this process is building strong brand perceptions. Another big part of the process is building trusting relationships and social media is an excellent vehicle for building relationships. Engagement also figures prominently in creating future purchases.
ROI measures commonly ignore secondary transmission
In social media, this is an especially important oversight from a single-minded focus on ROI. Because much of the value of social media relies on customer-to-customer interactions, engaging in activities that motive customers to share your message can be very valuable, but are often ignored in assessing ROI.
Its difficult to tease out the effects of any one activity
Assessments of ROI assume a cause-effect relationship between the actions and revenue. In marketing, tracing these cause-effect relationships is difficult, unless you’re doing some type of direct marketing. Even using direct marketing, unless that’s the only promotion running, you’ll never be sure what caused buying behavior.
They’re talking even if you’re not listening
For instance, firms use unmeasurable or untraceable improvements in ROI as an excuse not to do social media. The problem is that people are still talking about you in social media even if you’re not listening. It is only prudent to listen to what they’re saying and counter negative comments with facts and positive comments. Negative word of mouth travels farther and faster than positive, so you need to be quick to counter negative word of mouth.
Overemphasis on ROI stifles innovation
New products are inherently risky and the more innovative the product the riskier it is. Ignoring innovation, however, is a sure way to fail — at least in the long run. No firm can survive forever without new products that meet customer needs better. If you don’t create these new products yourself, your competitors will and, soon, demand for your products will plummet.
Just because measuring ROI is stupid doesn’t mean you should just run the business by the seat of your pants.
You just have to work harder to assess how you’re doing and go beyond looking at your accounting records. Here are some ways you can determine whether your marketing efforts are paying off:
- Assess process improvement –
- awareness
- brand perceptions
- interest
- loyalty
- Track sentiments
- positive mentions
- negative mentions
- Engagement
- how many people engage with you across social networks, ie ReTweets, comments, sharing posts, etc.
- influence of those engaged with you
- number of coupons redeemed
- Innovations
- number of new products
- investment in new product development
- time spent seeking innovative ideas
Very shortly this website will be famous among all blogging people, due to it’s nice posts
Wow, wonderful blog layout! How lengthy have you been blogging for?
you made blogging glance easy. The entire glance of your site is excellent, as neatly as the content material!
Hi there to every one, for the reason that I
am genuinely eager of reading this weblog’s post to be updated on a regular basis. It contains good stuff.
I have read so many articles or reviews concerning the blogger lovers however this
piece of writing is truly a fastidious post, keep it up.
While calculating ROI in marketing and social may sometimes be unnecessary, measuring ROI is useful in having an efficient business. By definition, ROI is a “performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. In other words, ROI used to determine whether an investment a company made was based of correct assumptions. To calculate ROI, the return of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.”
Sometimes, due to the situation, the calculation for the return on investment and its
definition can be modified. It depends on what it is included as returns and costs. According to Investopedia, The results attempt to measure the profitability of an investment therefore there is not one right calculation. “For instance, marketers may decide to compare two different products by dividing the gross profit that each product has generated by its respective marketing expenses. A financial analyst, however, may compare the same two products using an entirely different ROI calculation, perhaps by dividing the net income of an investment by the total value of all resources that have been employed to make and sell the product.”
While the flexibility of calculating ROI is an advantage, it can be a downfall. These calculations can be easily manipulated and expressed in many different aspects. If the right elements are not included as costs and/or returns numbers can be expressed in the wrong manner. When using this metric, make sure you understand what inputs are being used. Calculating the ROI might give you the exact answer but it is still a effective estimation.
Richard, don’t get me wrong. Measuring ROI is important, just not when applied to marketing. The rationale is the effective marketing is long-term oriented (and ROI is not) and marketing is focused on doing things that build customer relationships (and ROI is not). The problem occurs when focus on ROI means not doing the right things to build relationships and creating long-term customer benefit because the ROI of such activities is low or can’t be measured accurately.
While calculating ROI in marketing and social may sometimes be unnecessary, measuring ROI is useful in having an efficient business. By definition, ROI is a “performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. In other words, ROI used to determine whether an investment a company made was based of correct assumptions. To calculate ROI, the return of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.”
Sometimes, due to the situation, the calculation for the return on investment and its definition can be modified. It depends on what it is included as returns and costs. According to Investopedia, The results attempt to measure the profitability of an investment therefore there is not one right calculation. “For instance, marketers may decide to compare two different products by dividing the gross profit that each product has generated by its respective marketing expenses. A financial analyst, however, may compare the same two products using an entirely different ROI calculation, perhaps by dividing the net income of an investment by the total value of all resources that have been employed to make and sell the product.”
While the flexibility of calculating ROI is an advantage, it can be a downfall. These calculations can be easily manipulated and expressed in many different aspects. If the right elements are not included as costs and/or returns numbers can be expressed in the wrong manner. When using this metric, make sure you understand what inputs are being used. Calculating the ROI might give you the exact answer but it is still a effective estimation.
Richard, thanks for your thoughts. I totally agree.
While I am no marketing expert both agree and disagree with your analysis of ROI and how it deal with Marketing. For one to completely understand why companies put so much emphasis on the ROI is because, in essence, “women lie, men lie, numbers don’t”. When a company asks a group of 10 people what they think of they’re product, 4 out of those 6 will go with what the rest of the group, 2 will abstain, 2 will state their opinion, and the other 2 will disagree with the 2 that state their opinion “just because”. these opinions on they’re product can literally be taken with a grain of salt.
As marketing experts in a company, I think it is of the utmost importance for them to make the “numbers people” understand how ROI and marketing correlate. The number people are only concerned with time, it is up to the marketing people to express that while time is of the essence, a successful marketing strategy cannot be rushed. Many marketing strategies like surveys, promotional items & feedback take time. They take time not only to do, but also to research. Social media is even harder to measure, due to the fact that it does, as stated, never stop and a company can stop listening while the customer is still talking. It all remains on the basic understanding of the correlation between the two.
You make some valid points and, in fact, many would agree with you. I agree that asking people what they will do is problematic, but using sales is even more problematic and you don’t solve one problem by create another. Using sales a surrogate for success in marketing and social media also has the problem that it leads to poor decision-making with there is little correlation between sales figures and your marketing actions.
Excellent arguements presented. Especially liked “hierarchy of effects” correllation. Well presented, logically oriented.
Thanks. I find this topic very interesting and am open to other ideas and discussion related to ROI, especially in social media.