We need to create a new world order with zero tolerance for improvements in ROI without improvements in effectiveness!
Let’s be honest, as analysts, how many times have we been asked to calculate Return-On-Investment (ROI) of an initiative? If I had a dollar for every time I was asked to do this I would be a millionaire by now! Don’t get me wrong, the motivation of this is completely justified. If we did not enforce this discipline of focusing on what the “pay out” is then I would argue that we would be in perennial ideation mode and nothing of real value would ever be created. However, being mindful of how much we rely on ROI to invest or not to invest in growth initiatives is the issue I want to discuss here. Cost and effectiveness are the two components of ROI and in my experience and research I have found that in the thick of doing business there is an overwhelming tendency to improve ROI via reduction in costs vs. improving effectiveness. This “Easy Button” approach is when well-meaning teams are willing to follow ROI off the cliff! Don’t be that team.
In my research I came across a 2017 article by Julie Fleischer, about marketers facing a paradox, i.e., the fact that in spite of having better intelligence and tools for driving growth than ever before ROI is going up but long-term sales are declining. The article focuses on measuring advertising spend ROI, but I think that her postulation that popular ROI analytics are fundamentally flawed applies more broadly. The obsession with quantifying financial return at any cost (no pun intended) is impeding long term growth. It unfairly imposes short-term decisions on long-term results; never a good sequence when it comes to driving sustainable growth. Simply put, we are missing the forest for the trees (US idiom: ‘to not understand or appreciate a larger situation, problem, etc., because one is considering only a few parts of it’) every time we use this calculus. There needs to be an overcorrection to get ‘effectiveness’ metrics and measurement more front and center. We need to create a new world order with zero tolerance for improvements in ROI without improvements in effectiveness.
Listen, the basic fact remains this; there are only three ways a business can grow profitably – the first is to bring new consumers to the franchise, the second is to convince existing consumers of the franchise to buy more and the third is a combination of the above. This is it – there is no other way! So, the next time you are asked to measure ROI ask how this initiative will drive those three things listed above and second hold yourself accountable to quantifying these and then, only then, set out to understand the efficiency angle.
Good luck!
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