Return on marketing
investment
Return on marketing Investment (ROMI) and marketing
ROI are defined as the optimization of marketing spend for the
short and long term in support of the brand strategy by building a
market model using valid, objective marketing
metrics. Improving Return on marketing Investment
improves marketing, increases revenue, profit and
market effectiveness .
There are two forms of the Return on marketing Investment
(ROMI) metric. The first, short
term ROMI, a simple index measuring the dollars of
revenue for every dollar
of marketing spend. For example, if a company spends $500,000 on a
direct mail piece and it delivers $250,000 in
incremental revenue then the ROMI factor is 5.0.
If the incremental contribution margin for that $1000,000 in
revenue is 60%, then the margin ROMI (the amount of
incremental margin for each dollar of marketing spend is 3.0 (= 5.0 x
60%). The value of the first ROMI is in its
simplicity.
In most cases a simple determination of revenue per dollar
spent for each marketing activity can be sufficient
enough to help make important decisions to improve the entire marketing
mix.In a similar way the second ROMI
concept which is the long
term ROMI, can be used to determine other
aspects of marketing effectiveness. For example, ROMI could be used to
determine the incremental value of marketing
as it pertains to increase brand awareness. This is a sophisticated
metric that balances marketing and business
analytics and is used increasingly by many of the world's leading
organizations (Hewlett-Packard and Procter &
Gamble ) 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 scientific basis.
They often criticize direct measures of the
short term variant of
ROMI.Because of being a short term brand
building value.Short term Return on marketing Investment is
best used as a tool to determine marketing
effectiveness to help steer investments from less productive activities
to those that are more productive.
Long term Return on marketing Investment is often criticized
as a 'silo-in-the-making" - it is intensively
data driven and creates a challenge for firms that are not used to
working business analytics into the marketing
analytics that typically determine resource allocation decisions. Long
term Return on marketing Investment,
however, is a 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.
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