Efficiency versus effectiveness: Why marketers need to move beyond ROI
Too many marketers are using ROI as a key measure of success. In this new video, in association with Thinkbox, we speak to marketing effectiveness experts on the limitations of ROI and why brands need to think about total marketing effectiveness.
By Sarah Vizard
Return on investment (ROI) has become a key measure for businesses looking to determine the success of their marketing spend. And it can be a “sensible” measure of performance, according to marketing effectiveness consultant Peter Field.
However, there is a risk that by looking at ROI alone, marketers focus on marketing efficiency rather than marketing effectiveness. According to Mark Ritson, speaking in the next instalment of our video series on marketing effectiveness, created in partnership with Thinkbox, a focus on ROI isn’t “for the good of a company” in the long term.
“Campaigns are generally becoming less effective because of a growing focus on ROI,” he says.
Field also cautions against focusing too much on ROI, suggesting it leads marketers to “quick and easy wins” over long-term brand building and business outcomes. “If [ROI] becomes your guiding principle for decision-making it is insanely dangerous because it teaches you to go only for the low-hanging fruit.”
At Diageo, marketers try to see ROI simply as an input, a figure that will tell them the extent to which investment will pay back but not whether it will generate better gross profit.
“In the past, the conversation on marketing effectiveness has focused squarely on ROI and actually we’ve said, ‘yes, that’s important, but it’s important in service to driving more gross profit as an outcome’,” explains Diageo’s global head of consumer planning, Andrew Geoghegan.
“We’ve made it much more centred on the outcome and we’ve helped our marketing people think about the four or five measures that really matter most to the business and to their brands in driving that performance.”
Moving the conversation beyond ROI will also help marketers be heard in the boardroom, according to Direct Line CEO Paul Geddes. “Marketing using a currency that is different to the thing that is measured and makes money every week, that’s a problem,” he says.
For more insights into ROI and the efficiency versus effectiveness debate, watch the video above. And head here to watch the other videos in the series.
Ebiquity and Gain Theory’s report on making the business case for advertising can be downloaded here.
For decades I’ve said that “effectiveness” has to come before “efficiency”… if something doesn’t work it doesn’t matter how cheaply it doesn’t work. It still doesn’t work. Advertisers’ quest for ROI often reminds me of the joke about the drunkard who is searching for a lost key near a lamp post. Someone tries to help and asks the drunkard where he lost the key. “Over there” he says. “So why are you looking for the key here?” the other one asks. “Because this is where there is light”. Measuring ROI before even understanding what drives your business is just that. Public drunkenness.
Good comment Marcelo.
Is the issue with ROI that marketers – and organizations – misunderstand what ROI is? It is, by definition, a calculation of the return on any investment made. The definition does not include a fixed time period, e.g. ROI over 12 months. Some periods might be short, others long … think pensions, property portfolios.
However, I think the overriding issue is the demands of those at the top – particularly if they are bean counters who do not have a marketing background [don’t get me started]. Sadly, to keep their jobs, too many marketers are forced into short-term ROI.
Message to CEOs: think of a major brand. Like Rome, I guarantee it wasn’t built in a day.
As a footnote; it never ceases to amaze me just how many people do not realise that effective and efficient are actually different things.