Marketing ROI: 20 Years in the Making

By Patrick LaPointe
Expanded from an article originally published Feb. 9, 2004, in BtoB magazine

The marketing community is abuzz about marketing ROI. Vendors are creating "Enterprise Marketing Management" software to measure it; publishing houses are cranking up the presses; trade associations are booking hotel conference rooms from Miami to Seattle; and consultants are rubbing their hands in joyous anticipation. Is it the latest fad, or does it have staying power?

A Long Time Coming
It would be easy to blame this heightened interest on the recent accounting scandals and the resulting push for more transparency, but that's just the latest grain of sand in an already cultivating oyster. Some have suggested that the call to measure marketing may even emanate from budget-envy by peers on the executive committee who enjoy seeing marketers squirm to cost-justify programs in areas such as brand development and community relations. Maybe this has a little something to do with it, but it's still too simplistic a reason to be explanatory.

The real drive is blatant, naked, and totally justifiable self-interest on behalf of CEOs, CFOs, and other shareholding members of the executive committee who want a greater sense of confidence that the significant percentage of selling, general, and administrative expenses going to marketing is being well spent, not just spent. It's a preservation instinct that has surfaced before.

Viewed from 30,000 feet, marketing ROI is really the current step on a 20-year evolution of business philosophy and practice. In the 1980s, an accounting innovation called Activity-Based Costing ("ABC") helped the accounting folks realize that they could really allocate fixed costs to individual corporate departments, initiatives, and products. Right there, the genie was uncontrollably out of the bottle. Total Quality Management (TQM) then came along and fed the genie, seeding the importance of measurement and metrics in all customer/supplier relationships both within and outside the organization. Business Process Re-engineering (BPR) in the early '90s put the measurements to use, deliberately upsetting the apple cart, followed by Six Sigma, which taught us the benefits of a more rigorous process for rearranging the apples and monitoring their path efficiency from tree to customer. Then most recently, as if sensing a void in our Outlook calendars, Customer Relationship Management (CRM) came along and helped us personalize the apple-eating experience with customer-specific efforts drawing marketing and IT together (which creates the need to cost-justify IT expenditures).

In short, we're only at the very beginning of the computerization of marketing. The more we digitize, the more we can and will measure.

What's Next?
It's hard to argue that this trend has been anything but good for the organization as a whole. However, like most good things, too much of it can be bad. In this particular case, not often will managers choose to make decisions with less data when more is available. Increased flow of information in financial markets creates demand for more and more tangible metrics. Even if your company isn't public, senior managers can hardly resist the media-driven push for greater measurement and accountability. So undoubtedly you will occasionally get caught up in temporary bouts of measuring for measurement's sake.

Once you start, there's no stopping. And today, not starting is NOT an option. Resistance is futile.

As with previous leaps in business practice, the winners in this next stage of evolution will be those who embrace it hard enough to burst the cloud of theory and find the pragmatic benefits. Companies who recognize the competitive power inherent in greater marketing insight will invest in improving the skills of their marketing staff, enhancing the marketing decision processes, developing the simple tools to be effective, and measuring the return they derive in both dollars and market power.