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

Introduction
!here are t"o forms of the Return on Marketing Investment (ROMI) metric !he first, short term ROMI, is also used as a simple inde# measuring the dollars of revenue (or market share, contribution margin or other desired outputs) for every dollar of marketing spend $or e#ample, if a company spends %&'',''' on a direct mail piece and it delivers %('',''' in incremental revenue then the ROMI factor is ( ' If the incremental contribution margin for that %('',''' in revenue is )'*, then the margin ROMI (the amount of incremental margin for each dollar of marketing spend is + ' (, ( ' # )'*) !he value of the first 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 mi# In a similar "ay the second ROMI concept, long term ROMI, can be used to determine other less tangible aspects of marketing effectiveness $or e#ample, ROMI could be used to determine the incremental value of marketing as it pertains to increased brand a"areness, consideration or purchase intent In this "ay both the longer term value of marketing activities (incremental brand a"areness, etc ) and the shorter term revenue and profit can be determined !his is a sophisticated metric that balances marketing and business analytics and is used increasingly by many of the "orld-s leading organizations (.e"lett/ 0ackard and 0rocter 1 2amble to name t"o) to measure the economic (that is, cash/flo" derived) benefits created by marketing investments $or many other organizations, this method offers a "ay to prioritize investments and allocate marketing and other resources on a scientific basis

Criticism and defense of marketing effectiveness

3irect measures of the short term variant of ROMI are often criticized as only including the direct impact of marketing activities "ithout including the long/term brand building value of any communication inserted into the market 4hort term ROMI is best employed as a tool to determine marketing effectiveness 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 a"areness or brand e5uity) 6ith this kno"ledge, marketing investments can be redirected a"ay from under/performing activities to better performing marketing media 7ong term ROMI is often criticized as a -silo/in/the/making8 / it is intensively data driven and creates a challenge for firms that are not used to "orking business analytics into the marketing analytics that typically determine resource allocation decisions 7ong term ROMI, ho"ever, is

a sophisticated measure used by a number of for"ard thinking firms interested in getting to the bottom of value for money challenges often posed by competing brand managers

References

0o"ell, 2uy R , Return on Marketing Investment: Demand More From Your Marketing And Sales Investments (9''+) R0I 0ress I4:; '<=&>(<>&= 7enskold, ?ames, Marketing ROI: The Path to Campaign Customer and Corporate Pro!ita"ilit# (9''+) Mc2ra"/.ill I4:; ''=&@&+)+@ $arris, 0aul 6 , :endle, ;eil ! , 0feifer, 0hillip A and Reibstein, 3avid ? , Marketing Metri$s: %&' Metri$s (ver# ()e$utive Should Master (9'')) 6harton 4chool 0ublishing I4:; '&+&>=+='< 4chultz, 3on A , Measuring *rand Communi$ation ROI (&<<=) Bssn of ;atl Bdvertisers I4:; &()+&>'(+= Bmbler, !im , Marketing and the *ottom +ine (9''@) $! 0ress I4:; '9=+))&<@< Bspatore :ooks 4taff, Improving Marketing ROI: +eading CMOs on Adding ,alue Cal$ulating Return on Investments and Creating a Finan$ial Impa$t (9'')) Bspatore :ooks I4:; &(<)99@+@= 7ilien, 2ary 7 , Rangas"amy, Brvind, Marketing (ngineering (9''@) !rafford 0ublishing I4:; &@&9'99(9( :riggs, Re#, 4tuart, 2reg, -hat Sti$ks: -h# most advertising !ails and ho. to guarantee #ours su$$eeds (9'')) Caplan 0ublishing I4:; &/@&<(/>@++/9 Cotler, 0hilip D Cevin 7ane Celler (9'')) Marketing Management, &9th ed 0earson 0rentice .all I4:; '/&+/&@(=(=/> 4e#smith, ?oseph R 8B $resh 4tartE Improving Marcom Affectiveness8 (9'')) ;e" 0aradigm 7earning Forporation