August 30, 2007

Return On Investment (ROI) In Direct Marketing

Click on the image to enlarge it.

We hear a lot of talk about ROI, or "Return On Investment", when evaluating direct marketing programs.

Catalogers know that paper drives more total sales, and more total profit, than any other form of direct marketing.

E-Mail marketers know that e-mail drives the best "ROI", measured as "total profit divided by total cost". E-Mail marketing has almost no cost associated with it, making it a tool marketers must use, and use properly.

Paid Search marketers know that they reach customers at a "time of need", thereby providing the most "efficient" form of advertising known to-date. No other form of advertising cuts out the waste of uninterested shoppers like paid search ... except I guess for natural search, which has no cost associated with it.

Portal marketers know that they make the brand known to customers who have not purchased previously. They know their investment is best measured on a "lifetime value" basis ... short-term metrics are not appropriate for portal advertising.

In the table attached to the top of this article, each form of advertising has various strengths and weaknesses. Your job is to evaluate your advertising objectives.

Objective: Drive large volume of sales/profit from existing customers.
Solution = Catalogs.

Objective: Precisely target merchandise to existing customers.
Solution = E-Mail, Paid Search.

Objective: Precisely target merchandise to customers in-need.
Solution = Paid Search.

Objective: Make your brand aware to potential customers.
Solution = Portal Advertising.

Objective: Acquire new customers.
Solution = Catalog, Portal Advertising, Paid Search

I didn't even talk about affiliate marketing or shopping comparison marketing, which also fit into this story.

Obviously, there are many different objectives and solutions, my list above is abbreviated and short. Strategically, consider what you want to accomplish, and allocate your advertising mix on the basis of total sales, total profit, and your objectives.

Don't be swayed by folks who tell you that one form of advertising is "better" than another. Each type of advertising has a purpose. Each type of advertising excels within one specific set of metrics.

3 comments:

  1. Kevin I find your posts some of the most thoughtful and honest takes on the marketing world. However, I take exception to this comment "E-Mail marketing has almost no cost associated with it, making it a tool marketers must use, and use properly."

    Email's perception is that it is a cheap platform (and it is compared to other mediums) but if you look at it without making the proper investments (creative services, strategy, campaign enhancements, outside agencies to optimize the program, list growth, testing, landing pages and I could go on) than your email campaigns will fall short of their potential.

    If you just look at it as it only costs me X to send y emails, than X needs to cover a lot more ground than just the deployment cost. Therefore, email becomes more expensive but more powerful as well.

    I hear you on the ROI vs sales abilities but let's not just pretend that email is a "send it and they will come tool."

    That is why so many companies (including most major retailers) underachieve and use email only as a sales tool and forget about the relationship side. This speaks nothing to the fact that most email campaigns are focused on the sender's needs and goals, as opposed to the recipients’ needs and what was promised to them when they opted in.

    I would be curious on your thoughts (maybe a future post?) on the missed opportunities of multi-channel marketers when evaluating their email campaigns based on best practices, strategy (or lack thereof) and other holes that exist due to the send now, review later philosophy that is practiced throughout much of the marketing world.

    Thanks.

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  2. No doubt that the costs you mention are real. I guess when I talk about cost, I'm talking about variable costs (the additional cost associated with sending the e-mail or catalog).

    Each marketing vehicle has fixed costs --- the kind of costs you mention. And those costs aren't cheap.

    I'll have to think about what I would say about missed opportunities with e-mail campaigns. The "client-side" of the world views e-mail very different than the vendor-side views e-mail.

    I once had an executive ask me why b2b folks don't also practice e-mail as a relationship building tool? That's an interesting question.

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  3. Mr. Jenkins, might there be an opportunity to share with my readers a few B2C and B2B e-mail programs that do a good job of meeting the needs of the recipient?

    I have a lot of B2C e-mail employees who read this blog who might benefit from seeing examples of programs that are beneficial to the recipient.

    Thanks for reading and offering your comments, I appreciate your thoughts!

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