New metrics needed to measure ROI

29 April 2010

NEW YORK: Marketing budgets are starting to rise in the US, but changing consumer habits and preferences mean new processes are required to measure return on investment accurately.

In a survey of leading executives conducted in February this year, Forrester, the research firm, found that 37% of participants were planning to boost their spending levels this year.

A further 35% of the sample expected to maintain their communications expenditure in line with 2009, while 27% had experienced a reduction in funding over the same period.

More broadly, Forrester suggested that the main challenge facing brand owners at present was not determining their overall adspend levels but allocating resources in the most effective way.

The shift to digital platforms and other types of emerging technology is also requiring increased collaboration between marketing, IT and finance departments.

As such, companies need to ensure they invest in the latest tools allowing for "media mix optimisation" to replace out-dated systems which were put in place prior to the digital age, Forrester said.

Procter & Gamble, General Mills and other FMCG manufacturers originally pioneered this approach, which then spread to almost every major product category during the last decade.

However, the explosion of social media and the rise of mobile devices such as smartphones had provided another major "input" which now must be considered.

More specifically, one key metric which should be attracting the attention of marketers is Customer Lifetime Value, or the revenues generated over the typical duration of a brand's relationship with an individual customer.

This is often separate from a customer's Brand Value, as typically ascertained by a range of more traditional metrics.

While the advent of new software should allow more accurate tracking in all of these areas, it is incumbent on industry professionals to ensure they drive this process.

"The economy has reset expectations for all of us in our personal and professional lives," said Chad Mitchell, an analyst at Forrester.

"The idea of doing more with less is now a long-term business strategy versus a short-term mandate."

Data sourced from Forrester; additional content by Warc staff