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Keeping Score With Marketing ROI

Apr 8, 2008
Today, an increasing number of marketers and company executives see the need to determine marketing ROI for their marketing investments.

Marketing Return of Investment (ROI) or Return on Marketing Investment is a metric that would optimize marketing spending both short and long-term. It is widely acknowledged that higher ROMI or ROI would mean effectiveness of marketing strategy, increase in revenue and improved market and profit share. There are two types of ROMI that can be used, short-term ROMI and long-term ROMI. The first type is used as an index to measure revenue in terms of dollars, contribution margin, and market share against every dollar spent for marketing activities.

The determination of this type of ROMI is simple but it can be very useful in supporting decisions regarding the marketing mix. The long-term ROMI, on the other hand, can be used to assess certain intangible concerns of marketing effectiveness like increased purchase intent and increased brand awareness. ROMI is now used an important tool by some of the biggest corporations worldwide in balancing business operations and marketing investments. For these organizations, the ROMI metric is treated as a scientific basis of allocating budget and in making business priorities. The short-term ROMI, in particular, is used to identify and distinguish which investments are productive and which are unnecessary. Long-term ROMI, meanwhile, are commonly used by managers to support strategic plans and future marketing investments.

Measuring ROI in marketing spending is not as easy as it seems. For one, managers should be able to identify which data or information is needed to compute this metric. Fortunately, advancement of technology has paved way to the creation of various business intelligence tools that make such a task more convenient. Moreover, the cost of these tools is no longer as high as it once was. Affordable business intelligent tools, in fact, are already widely available for small-scale business organizations to use. These tools help company executives gain a more in-depth insight about how the target market and the customers respond to the marketing activities launched.

One of the primary reasons for the increasing use of ROMI or marketing ROI is the need of company executives to know just where they need to allocate their marketing and sales investments. For these people, this metric helps them identify the boundaries of both marketing and sales. Moreover, this sophisticated measure also helps company executives make decisions that would help them deal with tighter competition and slower industry growth as well as high customer creation or acquisition costs.

With these new ROI business tools, it becomes easier for company executives to provide marketing support where it is necessary. These tools function as scorecards that will quantify sales success through marketing activities and investments. Aside from tracking sales, marketing ROI tools can also be used to generate more excitement from the customer base as well as managers. One of the companies that have gained much benefit from using the marketing ROI or ROMI metric is Microsoft Corporation. With the use of certain ROI tools, company executives were able to assess the efficiency of their marketing arm, the McCann Worldgroup.
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