Direct Approach: Let's ditch ROI

It's an irrelevant measuring device that can do more harm than good. But what can replace it?

OK, this might sound like heresy (particularly while we're in the grips of the worst recession of a generation) but return on investment isn't an irrelevant measure for communication campaigns? In the direct industry, we could be accused of grabbing an accountancy term to prove our measurability and hence our worth over our adland cousins.

At best, ROI is a measure of the effectiveness of incremental spend, providing you compare against the do-nothing scenario. Moreover, we are seeing clients increasingly assume that the easiest way to influence ROI is to cut production costs, hoping the same results will be delivered, only cheaper. But what effect does this have on our ability to positively engage with consumers over and above initial response? And does it then have a detrimental effect on recommendation, pass-ons, latent response and, indeed, brand reputation?

Too often, as direct marketers, we concentrate on the short term, ignoring the effect that our activity can have in the medium and long term. Much of our tracking on client e-mail campaigns, for example, shows high degrees of engagement, such as clicks and site visits, without purchasing, yet with a high degree of pass-on and responses of up to 90 days. To many, these are termed non-responders, although they have actually engaged with our communication, been influenced by it and will act some time in the future.

Unfortunately, ROI is never as simple as "results over spend = return". The reality is that there are far bigger influences at work. There are now so many consumer touchpoints in play on top of paid-for advertising. Brand/product reputation, convenience, topicality, relevance, as well as social media, word-of-mouth, consumer advocacy and user-generated content/media. Media influences are rapidly getting beyond our control. And no media is now an island, so how can we accurately claim an ROI? At best, it is an indicator of possible effectiveness. But it will not provide a true measure.

The real trouble with ROI is it keeps being made smaller and less important than it should be. Recent converts reduce it to a process. The slightly more sophisticated refer to it as a methodology. This leads to it being thought of in terms of a technique rather than a strategy of consumer engagement.

Should we turn to econometrics? Even econometricians working in FMCG, where the data is rich and modelling more commonplace, say these only give good directional information of effectiveness, primarily utilising past performance data and, as we all know from financial services advertising, "past performance is no indicator of future performance". It doesn't allow for the unexpected, something new, something different. Therefore, actual results don't match forecasts and so the investigation goes around again.

What to do then? We are currently trying to measure just the start point. Instead, we need to get smarter. We have to analyse and judge the impact of individual pieces of the marketing jigsaw. We should strive to measure the level of engagement and resonance we have achieved for our brands with our target market - to measure whether we have actually moved their predisposition to buy. To do this, we need to understand what role each channel can actually contribute to engagement and how they inter-relate and to determine how well we've been able to shift the dial accordingly.

In short, what we should be measuring for our marketing investment is the return on consumer engagement: so ROE not ROI.

How do we do this? We need to be as concerned with the 99 per cent who don't respond to a communication as those that do. In many ways, the 1 per cent who do are irrelevant; we have them on our database now and can learn lots about them with all our tried and tested techniques. There are already tracking tools to help understand some of the levels of engagement of non-responders and non-purchasers, eg. where they go and where they stop in the purchase funnel. This allows us to build up engagement profiles to identify who to follow up, with what message and, if online, in real time too. All great stuff, still somewhat tactical, but useful nonetheless in delivering a quick fix to ailing campaigns.

However, we believe the key is to understand first of all how engaged our target market is with the market, product, brand and, indeed, the offer we are selling. We must identify who will buy, who may buy, who can't buy, who isn't really bothered and who definitely won't buy regardless. This allows us to prioritise who to target in the short-, medium- and long-term, and with what message. It allows us to prioritise marketing investment into short, medium and long term returns. If we know that people will buy regardless, then let's save our budget for those who need more persuading, let's not spend our money on those that definitely won't and if the budget is tight, let us target fewer but those who are more positively disposed.

There's an interesting analogy of this in how political parties market themselves at election time. They don't target everyone to persuade them to vote. The Tories deliberately avoid Labour die-hards and vice versa. They target the floating voter and channel their spend accordingly, often only in the marginal seats where this will make a real difference. Imagine if we could do this for the markets we work in, only targeting those with the highest levels of engagement and most likely to buy our product. How efficient would spend be then?

To do this, we've recently developed a research and evaluation tool called Consumer Genealogy(Tm). It identifies the key tipping points in any category and evaluates the extent to which different communications and/or product and service factors will influence decision-making relative to peer group competitors. We can now more accurately weigh the impact of various channels and influences to help target and build enduring franchises with consumers. This means more meaningful and actionable measurement.

So maybe we should be bolder? Rather than steal an accountancy term that we can't accurately use, we must stand up and create our own more meaningful measure: return on engagement.

- Gary Sharpen is the executive creative director and Gavin Wheeler is the chief executive of WDMP