Marketing ROI Fallacy

Cynthia Williams, Director of Product Marketing, PBBI

A few days ago a customer of ours, who had  presented recently on our behalf at at this year’s InterACT  conference, sent me an interesting perspective on Marketing ROI.  While I understand this does not  directly tie into ‘Postal Updatess’ — it does come back to the key driver, the accuracy of customer address data.  Sure there are other ways companies communcate with their customers, but it remains a fact that when it comes to important customer communications  and  a growing marketing trend in highly targeted direct mail programs, it is no doubt that mail remains a focal point.    So when we hear of the recently announced losses the USPS is currently enduring, mail operations remain hectic.   I wanted to share Aaron’s overview with you and hope you will find it as insightful as I did.

 ROI Fallacy

Aaron Leibtag, Director, Financial Strategy Planning & Analysis  for Priszm LP

 It is, no doubt, an exciting time to be a marketer. Technology and the tools of the trade are changing at dizzying speeds.

 And yet, one concept is weighing heavily on everyone’s mind: ROI.  Attend any marketing conference today, and you’ll feel the buzz in the air – until the question is inevitably asked: What is the ROI?

 On a warm, sun-filled day in Chicago in front of a crowd of a few hundred marketers, social media specialists and executives, I took the stage, and recounted to the audience the details of a direct mail optimization initiative I’d executed with Pitney Bowes Business Insights. Being a Director of financial planning for a public company I discussed the dramatic increase in direct mail redemption thanks to the initiative, and I shared what I thought the greatest benefit of the project was: It gave us invaluable insights into our customers that rippled through the organization. As I wrapped up and opened the floor to questions, a hand shot straight up in the air. But the eager audience member didn’t need to open his mouth before I knew what he was going to ask. “But what was the ROI?”

 I’d clearly identified areas of opportunity within my business, illustrated step by step how we addressed these issues, in partnership with Pitney Bowes, to yield quantifiable results. However, I didn’t say those magic words – “It was X% ROI” – and so the question came. The question was a reflection of a larger problem: We are slavishly devoted to a misguided notion of ROI; it is the definitive metric of success, and viability, and as such, countless Innovative projects are quashed, and disastrous ones are approved, damaging businesses – and our own portfolios – in alarming ways.

 So, instead of responding to my eager questioner, I asked another question: “What is ROI?” The room was astonished. One person gathered enough courage to answer, “It’s the return on investment.”

True. But what is ROI, really? It is nothing more than a set of qualitative business assumptions quantified into cash flows, placed on a timeline and discounted back to present day. The end number might look good, but if the assumptions are wrong, the ROI will be inaccurate and therefore is likely not worth the paper it is printed on.

ROI should be about business thinking, disciplined tracking, and careful analysis during execution, after a selling cycle; it should not be about percentages, and certainly not slick PowerPoint presentations during a selling cycle. Ask any seasoned executive and they will tell you, the strongest ROIs come from great people working together in productive partnerships, focusing on a defined common goal, and utilizing good technology and processes and measuring its success. Unfortunately, today, we’ve lost site of this in a perfect storm of ROI insanity. So how did we get here?

Factor 1: The changing role of the CFO

Traditionally CFOs and finance departments have focused on accounting, reporting, and transaction management – basically, bean counting. They were not all that savvy to areas such as business development, marketing, and strategy. Today, however, they are being tasked with identifying high return opportunities and providing analysis to support strategic decisions. Once only focused on the balance sheets,, they now control departmental budgets and tracking associated ROI.

Factor 2: The financial crisis

The recent financial crisis was a wake up call for many companies, dramatically increasing expectations of financial accountability. For many, this has meant a knee jerk reaction, demanding that every penny spent is accounted for. This new reality comes down to three letters: ROI.

Factor 3: Technology

There have never been more spreadsheets, dashboards and tools available to slice, dice and analyze any facet of a business. Since information is so readily available, it has never been so easy, and so practical, to ask for an ROI.

The consequence of these three factors reminds me of a line in Robert Jackall’s book, Moral Mazes: “The good manager is always aware and always wary. He knows that he has to be able to point the finger at somebody when things go wrong and that someone can point the finger at him at any time. You have to be able to turn things around and point the finger at somebody when they come after you.” ROI is the newest way to point your finger. It has become about political control, not financial control.

How can we change this environment of ROI insanity?  Proposed are the following 5 steps:

Step 1: Responsibility over Accountability

Act as if it’s your money. Would you invest in the initiative you are championing? Would it increase your own wealth? Too many people working for companies today forget they work for businesses that need to constantly increase profitability and earnings.. If you cannot see a project connected to growing the bottom line in some way, forget it.

Step 2: Question Your Assumptions

An ROI is nothing more than a set of quantified business assumptions. Invest some time to ensure your assumptions are accurate ones. Let the ROI percentage calculate from there.

Step 3: Partner Partner Partner!

Partnering, both internally and externally, will not only enable you to build a better business case, but it will also generate buy-in and buzz within your organization. Plus, it will help you identify benefits you haven’t considered. If you are a vendor, try to meet with other departments at your client’s company to better understand their business.

Step 4: Invite the CFO

Bring finance into the process from the beginning.   They will be able to provide in-put and validation for your ROI model to ensure it incorporates all areas for accuracy.  Invite them before they invite themselves; it will be a win-win.

Step 5: Share the credit

Make it a team effort.

Leadership guru and Harvard Professor Ronald Hefeitz identifies two types of problems in the world, and two types of solutions: technical and adaptive. A technical challenge can be solved by an expert. You get sick, a doctor prescribes a pill and cures your ailment.. An adaptive problem, however, requires the agent to get involved: It’s a doctor telling you that to avoid a serious condition, you must change your lifestyle through healthy eating and exercise.

The issue with ROIs today is an adaptive problem, and we are the ones who have to fix it. To do that, we have to change the way we think about ROI, the way we approach it, and the way we communicate about it to all stakeholders The steps above, I believe, represent a framework that will allow this change to begin.