Return-on-investment marketing: methods for measuring your market success.

It's no secret that every business wants higher profit margins, the ability to sell more products and the opportunity to communicate with customers more efficiently and more often. The mystery is how to achieve all of this without a great expenditure of time and resources. Additionally, businesspeople want to be able to measure the effectiveness of the money, time and resources that are used. One way to accomplish all of this is by "return-on-investment marketing," or ROI marketing.

Marketing means something different to everyone, depending on who you ask. The American Marketing Association's (AMA's) definition of marketing stresses what the marketing process achieves as well as what it docs: "Marketing is the process of planning the conception, pricing, promotion and distribution of goods and services to create exchanges that satisfy individual and organizational objectives." My favorite definition is found in Guerilla Marketing, a book by Jay Levinson: "Marketing is everything you do to promote your business, from the moment you conceive of it to the point at which customers buy your product or service and begin to patronize your business on a regular basis."

Bottom-line marketing ... integrated marketing ... targeted marketing ... account-specific marketing. Call them what you will, marketing efforts at every company are being challenged and put under closer scrutiny than ever before. The key is to show a quantitative return on investment in marketing activities and programs.

ROI marketing is a way to find the right tools and optimize their use to ensure the success of marketing activities and programs that arc designed to increase the bottom line and keep sales goals on target. The overriding need to be quantitative and measurable should drive all of our marketing efforts. Only by tracking the results can we begin to improve our efforts and limit our expenditures to those that arc successful and enhance our profitability.

It may seem odd to begin a marketing discussion at the end of the process (tracking results) rather than the beginning. However, if you don't know how you will track your results, you may not be able to answer the critical question: "Was it a success?"

Not all marketing and promotional activities can be measured and quantified. Many marketing activities are actually more "image"-oriented than targeted toward profitability and sales goals. Aside from the obvious need to maintain your facilities, your equipment and the appearance of your employees, many of these physical items can impact your customers' impressions of you daily. Company facility maintenance, delivery employee uniforms, stationery, delivery truck maintenance and appearance are all image-related enough to be considered marketing activities. While they are obviously needed to conduct business, their degree of contribution can be arguable. Although these image efforts do have an impact on your business, it is difficult to put them in quantitative form. However, do not minimize the effect of these "image" efforts on your profitability and sales. They are a critical part of your overall success.

Reaching marketing goals

The marketing process involves several important steps to reach your target of increased sales and profitability. These traditional steps are:

* Know your customer.

* Plan your marketing effort.

* Execute your marketing plan.

* Measure your results and adjust your efforts.

When you know your customers, you know what products or service features and benefits are most important to them as well as what triggers or influences their buying decisions. One excellent exercise is to profile your top 10 customers. Get your entire organization involved, and address both the personal and professional characteristics of your customers. It's interesting to hear what's important to the customer from the shop employee as well as from the sales employee. Once you have identified the characteristics and the profiles of your best customers, target your efforts to find new customers that are similar, and target your major marketing activities to this audience.

Once you know who to target, you can start to develop your marketing plan and its component activities. This is where you decide the specifics of your marketing efforts and how to reach your targeted customer. Your marketing plan should include an integrated combination of several different activities. They may include many of the activities listed in Table 1 (page 14).

When you've completed your analysis and decided on your marketing activities, you're ready.to execute your plan. You'll need to prioritize your activities based on which offer the biggest payback. Then develop a calendar of when each activity will occur. Develop budgets, and assign responsibility to staff members for each activity. Setting priorities is especially important if resources become limited because you are more likely to start with the activities that have the biggest payback.

Tracking the results of your marketing activity is the next item on your list. Only by tracking these results can you improve your marketing and sales efforts. By applying ROI marketing, you have quantitative results to measure your marketing efforts. This ROI will give you the information you need to make better decisions and improve your efforts next time. You'll need to measure the response, profile respondents and plan any changes or cancellations.

Measuring results

Let's take a look at how ROI marketing is applied to various marketing activities. It is a good idea to measure space advertising against advertiser response. You might advertise a "special offer" in the body of an ad, include a return coupon, or print a dedicated telephone number for answering response calls. By taking the total cost of an advertisement and dividing by the total number of responses, you calculate a cost per response. This cost per response can help you decide if this space advertisement was a success by comparing it with other advertisements and alternative marketing activities. Additionally, all leads and responses should bc entered into a database by the responding company's "Standard Industrial Classification" (SIC) number. This database of SIC codes can be used for other direct marketing activities in the future.

Internet websites are fast becoming a popular way to advertise and promote business goods and services. In addition to the cost of website development, there are also charges for the cost of the server host and an e-mail address. However, most server hosts have the ability to give you extensive "hit reports" on your website. These reports can tell you how many visitors you had, which files they visited, at what hour of the day they visited, and what day and date of the week the visits occurred. Again, taking the total cost of the website and dividing by the number of monthly hits will give you a cost per response.

Telemarketing efforts can be measured by the number of completed calls, number of new customers, or the number of new products purchased by existing customers. It has been our experience that a business-to-business telemarketing campaign is more likely to be successful if it is preceded by a direct mailer.

One distributor developed a series of four individual brochures that introduced his company to new prospective customers and also introduced new products and services. The first brochure introduced the company and the products and services it provided. A cover letter from the distributor's general manager informed the target customer that a salesperson would follow up via telephone. A telemarketing script was prepared, and the telephone calls were made exactly three days after the mailing by office employees. Prospective customers were offered additional product or service literature, quotation assistance, or an in-person visit by their local distributor salesperson. These low-pressure follow-up calls were well-received by the target customers. At the first customer objection, that prospective customer was taken off the list for future mailings and telephone calls.

The final activity in an ROI marketing environment is to make adjustments to your marketing efforts. If a marketing activity does not produce the desired result, consider adjusting, changing or dropping the activity completely. By using ROI marketing, the organization can make informed and intelligent decisions. By thinking about how you will measure the success of your marketing efforts, you will keep your focus on marketing programs designed to increase the bottom line and keep sales goals on target.

Table 1.

Activities Involved in a Comprehensive Marketing Effort

Advertising Vehicles:

Company brochure Company catalog Direct mail Literature & materials Signs/billboards Trade journal News releases Newspaper Telephone on-hold ads Internet website Video/point-of-purchase Radio advertising Testimonials

Events:

Open house Traveling demos Seminars/product training Trade shows Golf outing Public relations/charities

Business Strategies:

Direct sales Showroom Telemarketing Database marketing Relationship marketing Mail-order business