babasaheb gawade institute of management studies

8/6/2019 Babasaheb Gawade Institute of Management Studies

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SR.NO TOPICS PAGE. N

1 INTRODUCTION ON MARKETING

INVESTMENT ANAYSIS

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2 Development of the Concept 4

3 Meaning Of Return On Investment - ROI 5

4 Process Of Return On Marketing Investment 7

5 Metrics of return on marketing investment 9

6 Return on Marketing Investment Results are

Indispensable

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7 Criticism and defense of marketing effectiveness 10



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INTRODUCTION ON MARKETING INVESTMENT ANALYSIS.

DEFINATION

Return on Marketing Investment (ROMI) and Marketing ROI are defined as the optimization omarketing spend for the short and long term in support of the brand strategy by building amarket model using valid, objective marketing metrics. Improving ROMI leads to improvedmarketing effectiveness, increased revenue, profit and market share for the same amount of marketing spend.

ROI analysis compares the magnitude and timing of investment gains directly with themagnitude and timing of investment costs. A high ROI means that investment gains comparefavorably to investment costs.

In the last few decades, ROI has become a central financial metric for asset purchase decisions(computer systems, factory machines, or service vehicles, for example), approval andfunding decisions for projects and programs of all kinds (such as marketing programs, recruitin

programs, and training programs), and more traditional investment decisions (such as themanagement of stock portfolios or the use of venture capital).



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Development of the Concept

The concept first came to prominence in the 1990s through the work of Gary Lilien and PhilipKotler in their encyclopedic book Marketing Models (1992) and also Robert Shaw in MarketinAccountability (1997). The phrase "return on marketing investment" became more widespreadin the next decade following the publication of two books Return on Marketing Investment byGuy Powell (2002) and Marketing ROI by James Lenskold (2003)

Marketing is, and always will be, a creative endeavor. But it can also be a highly rigorousdiscipline. As marketing noise and media fragmentation continue to increase, marketers.

A Marketing Investment Analysis Return helps the organization to analysis and understands theffectiveness of their marketing spending. The Return on marketing investment analysisexamines business results in relation to each type of marketing activity as well as in relation to

external variables (like economic indicator). Using a innovative suite of modeling tools,marketing activities and external variables are examined not only for direct effects on businessresults, but for positive and negative synergies between activities.

The findings of ROMI analyses can help determine:

Which marketing activities are most effective?

Which ones don¶t add value?

In what areas of marketing are spending levels too high?

How should funds be reallocated?

What external conditions (e.g. unemployment) affect marketing¶s ability to generate results?

How should incremental funds be allocated?



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Meaning Of Return On Investment - ROI

What Does Return On Investment - ROI Mean?

ROI is a ratio of the money gained relative to the amount of money invested. A performancemeasure used to evaluate the efficiency of an investment or to compare the efficiency of anumber of different investments. To calculate ROI, the benefit (return) of an investment is

divided by the cost of the investment; the result is expressed as a percentage or a ratio.

The return on investment formula:

In the above formula "gains from investment", refers to the proceeds obtained from selling theinvestment of interest. Return on investment is a very popular metric because of itsversatility and simplicity. That is, if an investment does not have a positive ROI, or if there areother opportunities with a higher ROI, then the investment should be not be undertaken.

For example, a marketer may compare two different products by dividing the gross profit that

each product has generated by its respective marketing expenses. A financial analyst, however

may compare the same two products using an entirely different ROI calculation, perhaps

by dividing the net income of an investment by the total value of all resources that have beenemployed to make and sell the product.

Simple ROI is the most frequently used form of ROI and the most easily understood. Withsimple ROI, incremental gains from the investment are divided by investment costs.

Simple ROI works well when both the gains and the costs of an investment are easily known awhere they clearly result from the action. In complex business settings, however, it is not alwa

easy to match specific returns (such as increased profits) with the specific costs that bring them(such as the costs of a marketing program), and this makes ROI less trustworthy as a guide for decision support. Simple ROI also becomes less trustworthy as a useful metric when the costfigures include allocated or indirect costs, which are probably not caused directly by the actionor the investment.



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Small advertisers on limited budgets can¶t compete dollar-for-dollar with large, media savvy,

companies like UPS, Nike and Apple who can afford to produce and run new multi-million

dollar advertisements over and over again until they find something that works. Every dollar a

small business spends on advertising has to translate directly into profit, or it just doesn¶t work



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Process Of Return On Marketing Investment

1) Set the Stage

ROMI¶s begin with clear definitions of the goals and process.

What questions need to be addressed?

What is the likely action steps based on answers

Against what results will marketing activities be measured

What data is required to complete the analysis effectively?

What environmental variables are appropriate for the analysis?

2) Collect and Load the Data into a Database

Collecting and cleaning the data is a shared process.

The first level is to identify and collect all the data available.

The second level is to clean and normalize the data to make certain the modeling andconclusions are based on accurate input.

3) Develop the Analysis

A variety of techniques are utilized to discover relationships in the data. While general business processes may be similar across organizations, details there unique.

Interesting variables and interaction are discovered using

The GMAX�, an evolutionary ³genetic´ computing tool.

Findings are explored with more traditional data mining techniques.



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Initial findings are refined in partnership with the organization.

Models are refined and tested. Latent variables are identified structural equationsmodeling (SEM).

4) Present the Results

Findings and business implications of the analysis are reviewed in detail, usually withseveral audiences within the organization.

Goals identified at the beginning are addressed.

Every analysis has ³Ah ha´ moments where unexpected results are discovered andexamined for implications.



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Metrics of return on marketing investment

There are two forms of the Return on Marketing Investment (ROMI) metric.

Short term ROMI

Long term ROMI

Short term

The first, short term ROMI, is also used as a simple index measuring the dollars of revenue (ormarket share, contribution margin or other desired outputs) for every dollar of marketing spend

For example, if a company spends $100,000 on a direct mail piece and it delivers $500,000 inincremental revenue then the ROMI factor is 5.0. If the incremental contribution margin for tha$500,000 in revenue is 60%, then the margin ROMI (the amount of incremental margin for eacdollar of marketing spent is 3.0 (= 5.0 x 60%).

The value of the first ROMI is in its simplicity. In most cases a simple determination of revenu per dollar spent for each marketing activity can be sufficient enough to help make importantdecisions to improve the entire marketing mix.

Long term

In a similar way the second ROMI concept, long term ROMI, can be used to determine other

less tangible aspects of marketing effectiveness. In this way both the longer term value of

marketing activities (incremental brand awareness, etc.) and the shorter term revenue and profi

can be determined. This is a sophisticated metric that balances marketing and business analytic

and is used increasingly by many of the world's leading organizations (Hewlett-Packard and

Procter & Gamble to name two) to measure the economic (that is, cash-flow derived) benefits

created by marketing investments. For many other organizations, this method offers a way to

prioritize investments and allocate marketing and other resources on a formalized basis.

For example, ROMI could be used to determine the incremental value of marketing as it pertai

to increased brand awareness, consideration or purchase intent.



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Return on Marketing Investment Results are Indispensable

Tracking return on marketing investment is an essential task to ensure you have an effectivemarketing and advertising program. Return on Investment (ROI) is the revenue generated for

every dollar spent on advertising. Return on Investment (ROI) helps you to evaluate andimprove your marketing strategy. There is absolutely no point undertaking any marketing or advertising campaign without measuring results. These results are best measured in terms of return on marketing investment.

In many companies, the root of this problem is the lack of precise measurements. Marketinggoals and strategies tend to be set at the corporate level, while resources get allocated and dataget analyzed at the market or regional level by functional managers who have limitedinformation about what others are attempting to do in the marketplace. In addition, each group

has its own budgets and targets to meet, and it is complicated to coordinate with other internalgroups. As a result companies experience dysfunction on several fronts:

Senior management does not have good information about the underlying marketing drivers ofinancial and operational performance. That makes it difficult to justify additional investments

to identify redundant investments. Individual managers find it cumbersome to addressdifferences in market opportunities and risks, so everyone winds up with a middle-of-the-roadapproach based on hunches. Managers rarely can directly tie observed metrics to specificmarketing spend and are, therefore, unable to justify their marketing investments.

Criticism and defense of marketing effectiveness

One serious problem with using ROI as the sole basis for decision making, is that ROI by itself

says nothing about the likelihood that expected returns and costs will appear as predicted. ROI

by itself, that is, says nothing about the risk of an investment.



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Direct measures of the short term variant of ROMI are often criticized as only including the

direct impact of marketing activities without including the long-term brand building value of acommunication inserted into the market.

Short term ROMI is best employed as a tool to determine marketing effectiveness to help steerinvestments from less productive activities to those that are more productive. It is a simple tooto gauge the success of measurable marketing activities against various marketing objectives(e.g., incremental revenue, brand awareness or brand equity). With this knowledge, marketinginvestments can be redirected away from under-performing activities to better performingmarketing media.

Long term ROMI is often criticized as a 'silo-in-the-making" - it is intensively data driven andcreates a challenge for firms that are not used to working business analytics into the marketing

analytics that typically determine resource allocation decisions. Long term ROMI, however, is

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

babasaheb gawade institute of management studies

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