Return on investment is a tricky concept. Many firms have a sense that their marketing campaigns generate a positive ROI; but when asked to prove it, they struggle.
They realize that their programs help generate sales, but they don't know how much. They realize that targeted direct media is more cost effective than mass media, but when and by what factor?
Marketing has evolved into a data-intensive discipline and is being charged with responding to changes in the marketplace related to widespread product proliferation, changing pricing structures, customized promotions, and multiple media and channel utilization options. There is no denying that automating marketing processes contributes to more efficient and effective working environments, but understanding the return on investment associated with technology initiatives is complex.
Organizations are increasingly pressured to use their data warehouses, databases and software applications to contribute to the bottom line. In fact, in many cases, marketing programs are the only way to leverage a generic technology such as data warehousing to produce revenue for the organization.
Organizations are struggling to justify technology investments using the traditional ROI measurements of cost/benefit analysis, net present value, weighted scoring and applied information economics. However, as the value of technology depends not only on quantifiable metrics but also on intangible benefits, measuring technology ROI becomes increasingly difficult.
The challenge for marketing organizations today is to justify their technology solutions as a strategic investment for the entire enterprise while realizing significant tactical value for marketing. By understanding both the strategic and tactical approaches to evaluating ROI, a firm can better align their resources and expectations about their technology investment.
Strategic Evaluations
* Parsing technology dollars effectively. Organizations are embarking on several technology initiatives which are viewed as mission critical. Marketing automation software is typically a late entrant onto the IT initiatives list, and must contend with a budget that may already be spent.
* Generating revenue and increasing shareholder value. The organization as a whole has an overriding objective of making money, not only for the continuance of the business but also to create greater value for shareholders. Technology investments must demonstrate an ability not just to reduce costs through greater efficiency and elimination of redundancy in processes, but also to generate revenue for the organization.
* Becoming customer-centric. Many organizations are beginning to recognize that a customer does not belong to a single group such as sales or marketing, but rather to the entire organization, and everyone has the responsibility for satisfying them. In other words, the organization owns the customer, individual departments own the interaction. Therefore, efforts are focused on integrating all aspects of the organization to center on the customer in order to portray a unified, single appearance. Marketing in particular is challenged with fostering customer relationships and guiding the rest of the organization in these efforts.
* Gaining competitive advantage. With product proliferation and lack of differentiation of offerings in the marketplace, organizations are continuously seeking ways to gain a competitive advantage. More and more, organizations are recognizing technology as a significant means for creating such an advantage. Many projects are justified because competitors are executing them.
Tactical Evaluations
* Optimizing operations. It is estimated that 70 percent of supply-chain costs are a result of oversupply coupled with inadequately forecasted demand. Marketing can play a significant integration role between back-office operations and front-office customer informational systems by implementing a solution to link the two systems.
* Retaining valuable customers. Until recently, marketing has been primarily concerned with customer satisfaction. However, satisfaction is only an element of building a customer relationship. Additionally, satisfaction is merely an indicator of the demeanor of a customer, and can be associated with profitable (valuable) and unprofitable customers. Automating marketing with campaign management software provides a method for segmenting customers based on information collected about their behavior, organizing them into valuable groups, and focusing efforts towards them.
* Improving promotional effectiveness. Marketing groups dedicate significant dollars toward promotional efforts through direct mail, advertising, telemarketing and merchandising, but most of these efforts have traditionally been more mass marketing related than customer specific. The result is lower-than-desired response rates. Marketing automation software provides both the ability to develop promotional campaigns using customer-specific information and incentives which will increase the effectiveness of the efforts by increasing the chances of responding as well as the ability to track response information to specific projects to evaluate actual effectiveness.
* Controlling marketing resources. Controlling business resources is a key function for all functional areas within an organization. Budget dollars, data, as well as human resources are valuable assets and each group seeks to protect them and utilize them as effectively as possible. Marketing, in particular, has faced challenges related to managing data sources together with human resources to produce timely, relevant and effective promotional campaigns, while reducing costs.
* Improving time to market. Providing the right offer at the right time to the right customers is a critical business issue for marketing groups. Information related to customer preferences for specific products or services and purchase channels has not been readily available to marketers. With the implementation of databases and data marts dedicated to marketing, the information is now available.
Aligning Strategic and Tactical Evaluations
In order for the marketing department to evaluate return on investment for its technology initiatives, it must align all of the overall strategic objectives defined at the enterprise level with the tactical objectives determined by marketing. The resulting consensus provides an understanding of the intangible benefits of the marketing automation technology, as well as the tangible costs of the technology investment. Ultimately, by aligning business value measures and processes with technological improvements, marketing is better able to make a compelling argument for implementation of campaign management applications.
