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The Value of Marketing: A Critical Issue

Marketing is about values.

STEVE JOBS

Jessica was frustrated. For the first time since she was appointed as the chief marketing officer (CMO) of Midwest Brewing Company (MBC), she was feeling unsure about what she had been doing. Sipping from her coffee mug imprinted with the MBC logo, she could not help thinking about what had happened earlier this morning in the executive conference room. It was just last year that she had personally redesigned the company logo printed on the coffee mug; now she was wondering whether she should continue to work at MBC.

MBC was among the fast-growing brewing companies in the nation. The organization rode the wave of craft beer’s wild growth in the past decade and emerged as one of the market leaders in this lucrative industry. For two and a half years, Jessica had been working as the chief marketer for the company and been busy with launching a variety of marketing programs. From advertising and public relations to social media campaigns, Jessica believed these programs had advanced the organization’s marketing agenda. The feedback she received had been generally positive. She was convinced that everything was on the right track, until she met Andrew, the newly appointed CEO of MBC.

At the request of the new CEO, Jessica made a presentation to the executives this morning. She highlighted the variety of marketing activities her team had conducted in the past years. The marketing efforts included advertising campaigns on local TV and radio, in the newspaper, on billboards, and in direct mailing of coupons to the local communities. MBC marketing also utilized the company’s taprooms and restaurants to attract and engage customers by offering live music, family-friendly shows, and other events. In addition, MBC provided guided tours of the brewery daily and free beer schools on Saturdays and Sundays. The free tours and class sessions included a brief history of craft beer in local communities, showed how MBC brewed beer, and educated people on how to taste and fully appreciate the different flavors MBC offers. The initiative Jessica was most proud of was the annual two-day event called “Taste of Community Festival,” which attracted thousands of visitors last year.

Additionally, MBC sold half of its products through distribution channels. For this division, salespeople made calls to distributors, retailers, and bar owners to introduce new flavors and seasonal deals. Jessica understood the importance of professional selling, so as part of the internal marketing efforts, she hired brewery experts and invited beer aficionados to provide training courses to the sales team. Still, Jessica believed that more could be done. As most MBC target customers were savvy young professionals constantly on their phones, she understood the need for MBC to beef up its social media presence. Because of this, during this morning’s presentation, she discussed an enhanced digital and social media marketing plan that she and her team had put together.

The presentation generated mixed reactions. Andrew commented, “Jessica, you and your team certainly have conducted many activities, and I find some of the marketing activities very interesting and creative. My concern is that the focus of your presentation was on the activities conducted, not the value created. We can all identify with the issues and challenges facing our team, but I am curious about what specific value these activities have contributed to the company’s bottom line. Do you have a way of showing the success of these activities, the impact on the business, or even the ROI?”

Jessica replied, “We have improved sales, market share, and customer loyalty, and I’m sure these activities have made a difference. I have heard people talk about how much fun they had at the Taste of Community Festival. In addition, we have been collecting feedback from our customers every month. More than 80 percent of people surveyed said they are satisfied with our products.”

Andrew added, “Do we have anything more specific? You know, the total budget of marketing this year has exceeded 20 percent of company revenue. Although our business has been growing steadily in the past two years, it is nothing spectacular.”

Jessica quickly responded by saying, “I do know that the advertisements, guided tours, beer school, and sales force training cost money, but these efforts are critical to allow people inside and outside the community to know our brand, taste our beer, learn about our history, and get interested in our offerings. Our business could be worse if we had not engaged in these activities.”

Andrew sensed the defensive tone in Jessica’s voice and said, “I am not against these marketing activities, Jessica. I believe they have value. All I am asking is for you to calculate or estimate the value the marketing department generated and compare it with the expenses. The growth rate of our industry is beginning to slow down, and many companies are struggling. The Brewers Association reported this month that in the last year alone 97 craft breweries closed. If we are not generating enough growth and not careful with the budget, we may be the next organization to close. We have to understand the connection between our marketing projects and their impact on sales very clearly. We can no longer implement these campaigns and not know the results we achieve from them.”

Andrew concluded with some encouragement, saying, “Please understand that I am not opposed to your marketing efforts, Jessica. But when we have a significant proportion of the budget dedicated to marketing, we need to make sure the expenditure is successful and adding value to the company’s bottom line as expected by generating a positive ROI. We also need to make our marketing efforts more effective and efficient. I’ll give you time to research how to do this, and you can let me know your thoughts on these issues in about two weeks.”

Jessica was concerned about Andrew’s inquiries, particularly since he made several positive comments about her marketing activities. Why was he questioning the value of marketing projects? Why was he concerned about the costs and ROI? Was there really a way to measure and improve the marketing programs? What was the best way to do it? These questions began to frustrate Jessica as she reflected over her tenure at MBC and all the marketing programs she and her team had implemented. Jessica always thought her marketing campaigns and events were useful to the company. She believed sales and profits had improved as a result of the efforts, although there was no way of knowing for sure just how much. With some types of marketing, you may never know if they’ve added value, right? Still, Jessica was facing a challenge in her career. How should she respond to this request from the new CEO?

Pressure on Marketers to Show Value

On March 23, 2017, the Coca-Cola Company announced several new C-level leadership appointments and shook up its marketing team.¹ One notable change was consolidating the marketing function into a new chief growth officer (CGO) role as its chief marketing officer stepped down. To many CMOs, this news was not surprising. Coca-Cola was simply following the examples of other Fortune 100 companies, such as Hershey and Kellogg’s, that had appointed CGOs to revitalize their marketing functions in the past year. This trend continues into 2020 as more CMOs are under the pressure of “grow or go,” a term coined by CNBC to depict the situation that CMOs need to deliver growth or need to step aside.² There are multiple reasons leading to these changes. For many companies, growth is the number one priority for everyone in the marketing function. However, companies strive to grow not just to increase revenue and market share, but to translate that growth into positive customer experiences and solid financial returns.

As we will discuss in later chapters of this book, sales growth and return on investment are both indicators of value created by marketing. This news and the opening story of this chapter highlight the challenges faced by many marketing professionals: how to measure, demonstrate, and improve the value created by marketing programs. Similar conversations are frequently happening in the marketing departments of many large and small organizations across industries.³ Many marketing leaders share the same frustrations and concerns experienced by Jessica. As a matter of fact, according to surveys conducted in recent years, two-thirds of CMOs have felt pressure from their boards to prove their marketing department’s value.⁴

What’s Causing the Pressure?

One possible reason for this pressure is the increasing costs of marketing initiatives. Corporate America spends nearly $300 billion every year on advertising.⁵ The total amount on marketing could exceed $1,000 billion, if the expenditures on sales force management were included. As new product development and promotional campaigns become more and more expensive, marketing budgets have reached 11 percent of total company budgets on average, and some industries allocate nearly one-quarter of total budgets to marketing.⁶ However, as one study shows, seven in ten enterprise CEOs believe that they are wasting money on marketing initiatives.⁷

Half the money I spend on advertising is wasted; the trouble is I don’t know which half.

JOHN WANAMAKER

Failing to measure the success of marketing or show the value of marketing efforts causes serious consequences. Facing demanding customers and intense competition, CEOs and CFOs are increasingly concerned with sales growth and put marketers under pressure to demonstrate solid returns of their efforts.^8,9 If marketers fail to show the value of their initiatives, top management may not hesitate to slash the marketing budget, reduce funding, and shift support to other departments and teams that do show the value added. In fact, many companies have been doing just that. As shown in a CMO Spend Survey conducted by a research firm, marketing budgets slipped from 12.1 percent of company revenue in 2016 to 11.3 percent in 2017. Newly appointed CGOs in Fortune 100 companies such as Coca-Cola, Hershey, and Kellogg’s have taken over the marketing functions as their CMOs step down.¹⁰ Meanwhile, marketing giants like Procter & Gamble have been trimming advertising budgets and significantly reducing the number of marketing and media agencies they work with.¹¹

Value Embedded in Marketing

Marketing is an exciting field. For many people, when they think of marketing, it brings to mind images of catchy advertisements, eloquent salespeople, and famous brands endorsed by celebrities. They may also think of the telemarketing phone calls during their dinnertime, deals and coupons sent to their mailbox, and pop-ups and web banners when they surf the internet. Although these are indeed marketing, the truth of the matter is that they are only part of the activities of marketing. Marketing is all of that and beyond.

For business professionals and entrepreneurial minds, marketing serves as a critical function that links an organization’s vision and mission to its core focus, the customers. From small local firms to large multinational corporations, retail stores to nonprofit charities, marketing is an indispensable component of every organization. One thing that distinguishes marketing from other departments is that it is the one and only function that has frequent interactions with customers. Although other departments such as finance, accounting, research and development, and production are also important, what determines the organization’s future success and even survival is the extent to which an organization takes care of its target customers. Therefore, marketing performance, effectiveness, and efficiency are not only important to marketing professionals, but also relevant to stakeholders throughout the whole organization.

If you sincerely believe that “the customer is king,” then the second most important person in this kingdom must be the one who has a direct interaction on a daily basis with the king.

MICHEL BON

Because value is embedded in marketing, it is a disappointment that so many marketers are struggling to show the value of their work.

Basic Definitions

The American Marketing Association (AMA), a professional association for marketing professionals and educators, defines marketing as “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large” (emphasis added).¹² Although marketing engages in activities and processes, all activities and processes serve the same purpose: understanding, creating, communicating, delivering, and exchanging values. It stresses the importance of discovering and delivering genuine value in the offerings of products, services, and concepts to customers with the goal to achieve customer satisfaction and meet organizational goals at the same time.

Similarly, marketing management is defined as “the art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior value.”¹³ Once again, the focus of this definition is on creation, delivery, and communication of value. In fact, the whole process of marketing management is built around value. Marketers conduct marketing research and use marketing analytics to understand customers’ needs in order to determine value offerings. They segment the market, select target groups, and position the value offerings to fulfill customers’ needs. Good understanding of the value needed in the marketplace leads to the development of products and service packages. Marketers then set prices reflecting value and choose appropriate distribution channels to deliver the value offerings. A critical task of marketing is to promote the value offerings. The purposes of the promotions include building awareness about the value offerings, convincing customers to purchase the value offerings, and reminding customers of the benefits of these value offerings. No wonder Professor Michael Porter of Harvard Business School treats marketing and sales as one of the five primary functions of his value chain analysis.¹⁴

In addition to academicians and marketing practitioners, entrepreneurs also emphasize values in their marketing endeavors. In 1997, Steve Jobs made the following presentation to Apple employees:

To me, marketing is about values. This is a very complicated world; it’s a very noisy world. And we’re not going to get a chance to get people to remember much about us. No company is. And so, we have to be really clear on what we want them to know about us. Now, Apple fortunately is one of the half-a-dozen best brands in the whole world. Right up there with Nike, Disney, Coke, Sony, it is one of the greats of the greats. Not just in this country but all around the globe. And—but even a great brand needs investment and caring if it’s going to retain its relevance and vitality.¹⁵

In this presentation, Steve stated that marketing is not about the fancy features of your products or about comparing yourself with your competitors; it is about identifying the core values of your offerings and then being able to communicate those value propositions clearly, convincingly, and consistently to your target audience. Value gets people’s attention. Value enables you and your company to stand out in this complicated and noisy world. Value gives you the chance for people to learn and remember you. For employees at Apple, it was value that earned them the opportunity to succeed. At the end of the presentation, Steve introduced the now famous “Think different” TV commercial based on this value proposition and the core values of that proposition empowered Apple to come back, create an industry, and become the market leader.

Because the purpose of business is to create a customer, the business enterprise has two, and only two, basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.

PETER DRUCKER

Three Types of Marketing

Depending on the different types of target customers, marketing practices fall into three categories: consumer marketing, business marketing, and internal marketing. Value creation is the key for all three types of marketing activities, but the way marketers create value may slightly differ.

Consumer Marketing

Consumer marketing is the marketing of goods and services to end users. These individuals make day-to-day household purchasing decisions for their families or themselves. The purchases could be convenience goods, such as toothpaste, magazines, and groceries, or shopping goods, such as cars, smartphones, and jewelry. A typical example of a consumer marketing activity is promotion through advertising. Imagine that a consumer packaging goods manufacturer develops a new product that can make consumers’ lives more convenient and enjoyable. However, without knowing of the product’s benefits or even of this new product’s existence, consumers will not take any action to buy. Therefore, a new TV commercial designed to promote the new product will add value to this company’s bottom line by increasing sales revenue and profits, because it induces purchases, enhances sales revenue, and ensures new product success.

Business Marketing

Business marketing is the marketing of goods and services to companies, nonprofit organizations, and government agencies for use in the creation of goods and services they provide to others.¹⁶ Compared with their consumer marketing counterparts, business marketing professionals need to convince the purchasing managers and agents of manufacturers, retailers, charitable organizations, and government agencies to purchase their goods and services. The process tends to be complex, and multiple decision makers are typically involved. For example, the sales force of an industrial manufacturer sells a new service package to 100 distributors nationwide. As the salespeople successfully convince the purchasing agents of the distributors to take actions toward purchase, they add value to the manufacturer’s business outcomes.

Internal Marketing

Both consumer marketing and business marketing focus on external customers, which include individuals and organizations that are outside of the company. Internal marketing, on the other hand, is inward focused and treats company employees as internal customers. It refers to the process for promoting the company and its mission, values, brands, and objectives to the employees.¹⁷ Research shows that the attitudes of employees (for example, salespeople) toward a house brand are highly correlated with the attitudes of customers toward the brand. Indeed, when customers see the enthusiasm and loyalty of a company salesperson toward the brand, they are more likely to be convinced and place orders. An example of an internal marketing program could be an internal branding campaign. For instance, after merging with another firm, the executives of a company notice conflicts in the two organizational cultures and decide to run an internal branding campaign in order to enhance employee morale. The effort leads to reduced turnover rates, more satisfied customers, and superior financial outcomes—all indicators of the values created by the internal marketing campaign.

Different Ways to Measure Value

But what exactly is value? Before we can properly measure value, we need to clearly define it. The definition of value should use terms that most marketers can relate to and agree upon. Unfortunately, “value” is an ambiguous word, as it has various meanings to different people. Dictionary.com defines value as “the worth of something in terms of the amount of other things for which it can be exchanged or in terms of some medium of exchange.”¹⁸ For most people, value means the importance, worth, benefit, and usefulness of something. A more relevant question is what value means to you, the marketers. Contemporary marketing treats value as a ratio of the benefits compared with the costs. From the marketers’ perspective, the benefits refer to the contribution their marketing programs bring to the company, and the costs are the necessary expenditures to achieve the benefits. It remains unclear, however, what the benefits and costs really are.

To reflect on this issue, let’s work on an exercise. In Exercise 1.1, you will find six possible descriptions of value created by the marketing programs shown in Table 1.1. Please follow the steps to complete the exercise and determine the value of your marketing programs.

TABLE 1.1 What is the value of your marketing programs?

Answers to these questions reveal interesting information. This will show the kind of marketer you are when it comes to measuring value, determining the status of the measurement system of your marketing programs, and identifying the gaps between your current practices and your executives’ expectations. It also reveals the type of value you focus on and what type of value you are measuring.

Activity-Based Value

Consciously or unconsciously, some marketers choose option A. They measure the number of customers reached, new products launched, number of phone calls made, number of emails sent out, and number of tweets posted. Occasionally, they conduct surveys, facilitate focus group studies, and monitor the company website and social media to see customers’ reactions and attitudes to their marketing programs (which is option B). At other times, they collect data about customers’ knowledge of their programs, products, and services. This is usually the marketing message (option C). Still, at other times, they monitor the actions customers take, such as comparing ratings with other products’ ratings, requesting a sample, asking for a demonstration, or agreeing to a sales call (option D). Overall, marketers of this kind believe that the value of marketing resides in the effort itself. They focus on inputs, perceptions, and activities instead of outcomes and results. These input-oriented marketers argue that the outcome of their input is influenced by many external and internal environmental factors and that most of the factors are beyond their control. Therefore, they choose to focus on what is under their control, the design and launch of marketing programs.

These marketers are obsessed with the activities they conduct or the activities of the customers. Others simply enjoy and are proud of the activities they are conducting. They often boast about the large number of marketing programs they design, launch, and maintain. These marketers measure and show the value they create by counting the number of customers they are reaching. For example, in the advertising industry, agencies measure reach, frequency, and GRP (gross rating point) and report these numbers to clients as value creation. In marketing vocabulary, “reach” refers to the total number of individuals or households exposed, at least once, to a marketing program during a given period. A similar concept was developed for social media marketing. As an analytics metric, “social media reach” refers to the number of unique users who have come across particular content on a social platform such as Facebook, Instagram, or Twitter. Both are measures at the input level, similar to option A of our exercise.

A problem with this type of value measurement is that it does not align with executive expectations. As a study by the ROI Institute shows, 96 percent of CEOs want to see measures related to the business impact of marketing programs, especially the extent to which marketing programs help achieve growth of market share, revenue, and customer base. These measures correspond to option E of our exercise. Executives are least likely to care about the input and actually think these activities are a costly consumption of resources. Focusing on input and activities also contributes to the perception that marketing is all “fluff” and not a substantial contribution to real business results. It will hurt marketing’s credibility because it shows a lack of accountability and does not create the mindset that marketing should be treated as an investment instead of a cost.

Result-Based Value

Result-based marketers are at the other end of the spectrum. These marketers recognize that marketing is about results, from generating sales revenue to acquiring new customers. Therefore, they measure and demonstrate the value of their marketing programs at the business impact level (option E). This is one step closer to meeting executives’ expectations than the activity-based value demonstration. However, focusing only on results may create its own challenges, which include failure to show a chain of evidence and proof to support the claim that the financial and customer results are indeed due to the marketing effort. The business outcomes are inevitably under the influence of many factors, and most of these factors are beyond the control of the marketer. When there are multiple factors influencing the results simultaneously, the marketer needs to (1) show a chain of evidence and (2) isolate the effects of the marketing program (proof). Failing to do either will hurt the marketer’s credibility.

For some executives, the impact is not enough. They want to know if the marketing campaign is worth it. This requires the monetary benefits of the marketing campaign to be compared with the cost of the campaign. Most of the impacts have been converted to money. The cost of the campaign must include all costs—direct and indirect. This comparison is the financial ROI calculation. It’s the same way the CFO would calculate the ROI for a capital expenditure. This is option F in the exercise, and it’s a fast-growing metric for marketing activities, programs, events, and campaigns. Much of this book is devoted to measuring success at the impact and ROI levels.

The New Definition of Value

Both the external challenges and internal pressures demand a new definition of value, guiding marketers to measure, improve, and demonstrate the contribution of their effort. The new definition of value should not be a single number. Rather, the new definition should comprise a variety of data points along the chain of impact. The new definition of value should focus on the key consideration of marketing, the target customers. Instead of treating customers as a commodity, we respect them by analyzing and understanding their reactions, facilitating their learning about the product or service, and enabling them to take proper action on our marketing programs. Value should be balanced with both activities and the outcomes created by these activities. Neither activity nor outcome suffices as a measure of value. We need both. Similarly, we need to balance the value measurement with both quantitative and qualitative data. We should measure the value we are creating with both financial and nonfinancial perspectives. The value definition should reflect both the tactical aspects of marketing, such as activity, and the strategic aspects, such as financial impact.

Concerns About Current Models

Over the years, marketing practitioners and researchers have developed a variety of approaches and tools to measure the value of marketing. These approaches and tools have helped marketers to a certain extent. However, due to the changing market conditions, shifting customer preferences, and intensified competition, the current practices are struggling to step up and meet the high expectations of executives by falling short in multiple areas. We don’t mean to criticize any of the existing ROI models. They have served, and will continue to serve, useful purposes. But the economic climate, executive expectations, and funding formulas have changed. We must have an updated system to evaluate our marketing programs that deliver both financial and customer performance, serve multiple purposes, and contribute to organizational success in different ways. In this section, we will highlight several inadequacies of the existing ROI models.

The Current Models Define Value Too Narrowly

Many existing marketing ROI methodologies focus on profitability as the sole purpose of marketing efforts. Indeed, profitability is the lifeblood of company growth. However, as highlighted by Kaplan and Norton, financial measure itself is inadequate for guiding organizations through complex and competitive environments.¹⁹ Instead, a comprehensive framework is needed to ensure sustainable growth and long-term success. The authors proposed four perspectives in their balanced scorecard framework, namely, financial perspective, customer perspective, internal business process perspective, and learning and growth perspective. Similarly, Zoltners, Sinha, and Lorimer also defined marketing and sales organizational success on four dimensions: (1) company results, (2) customer results, (3) sales activities, and (4) salespeople.²⁰ The authors argue that instead of narrowly focusing on a single dimension, companies should take a balanced view by managing all four dimensions in order to maintain sustainable growth and long-term competitive advantages.

The Current Models Lack Customer Focus

Marketing, first and foremost, focuses on customers. However, some existing ROI models in marketing fail to recognize the importance of the customer. They either ignore the customer decision-making process completely in their methodology or take customer purchases for granted. Some models even treat customers as commodities that a company can easily acquire and discard. It is surprising and detrimental for marketers to adopt such a mindset. After all, it is the customer purchase that drives short-term financial performance, and companies rely on customer satisfaction, loyalty, and lifetime value to sustain future growth. In all marketing strategies and programs, we should put customers at the core of our consideration. Lack of customer focus can be costly. There are plenty of examples of failures and mistakes in the marketplace due to inadequate attention paid to customer needs and preferences.

The Current Models Ignore Internal Marketing and Communication

An important aspect ignored by many evaluation models of marketing programs is internal marketing, which refers to the application of marketing concepts and strategies inside an organization. This application includes the promotion of the organization’s objectives, products, and services to its employees, with the purpose of increasing employee job satisfaction, loyalty, and engagement with the organization’s mission and goals. Internal marketing provides organizations with a variety of benefits. Research has shown that marketing management can be more effective and successful if employees of an organization are knowledgeable about its mission, goals, and offerings, understand who the target customers are, and can articulate the branding messages to customers. Companies like Southwest Airlines, Nordstrom, and Ritz-Carlton have been relying on internal marketing to ensure superb customer service. Engaged and well-trained employees can be the best and most trusted organizational ambassadors and brand advocates. They can positively influence target customers by demonstrating knowledge, skill, pride, and enthusiasm in ways that nobody else can. However, most current evaluation models either ignore the internal customers and stakeholders or take their support for granted.

The Current Models Lack a Chain of Evidence to Justify Value

Another concern associated with existing models is that many of them simply assume marketing programs create value but fail to provide adequate justification. This notion may be applauded by marketers but probably will not pass the scrutiny of CEOs and CFOs. To win credibility and support for funding, marketers need to justify the value they have created by building a chain of evidence. Just as in legal contexts, when prosecutors must establish an unbroken chain of custody, this process involves chronological documentation of data and facts to record the sequence of collection, analysis, and disposition of physical and electronic evidence. Similarly, marketers should strive to show value by presenting a logical flow of data that come from marketing projects and programs.

Table 1.2 shows such a chain of value. As you will notice, the first column of this figure lists the options we worked on in the exercise. In fact, these options correspond to data collected at the different levels that can be used to build a chain of value created by the marketing programs. Input data, at Level 0, measure the investment side of a marketing program. The next three levels, Levels 1, 2, and 3, measure data reflecting customers’ decision-making process and can be used to demonstrate and justify the value creation process. Next, there is a consequence of that action, which is often a purchase. This is the business impact, Level 4. Finally, sometimes there is a need to see if the program is worth it, a comparison of the monetary benefits to the marketing program costs, the ROI, Level 5. By combining the data collected at the reaction, learning, action, and impact levels, we are able to build a chain of evidence to justify the value that our marketing programs create. Unfortunately, many of the existing models do not focus on the chain of value, which diminishes their ability to demonstrate the contributions of marketing programs.

TABLE 1.2. Chain of value based on six levels of data

The Current Models Lack an Emphasis on Attribution (Proof)

We implement external and internal marketing programs to improve performance measures such as sales revenue, profitability, market share, customer satisfaction, customer loyalty, and customer retention rates. Improvements of these important measures will certainly benefit the organizations that sponsor the marketing programs. One issue that almost always surfaces, however, is to show that an improvement is attributed to the marketing program, not something else. Marketing is a highly visible discipline. This means that the outcome data of many marketing programs are generally available to executives and stakeholders. However, because the outcomes of most marketing programs are influenced by many factors simultaneously and most of them are beyond our control, executives may have reasons to doubt the extent to which the marketing programs drive results. For example, three months after Gold’s Gym launched a social media campaign, membership applications nearly doubled in the month of January. Was the improvement caused by the social medial marketing program or other factors, such as New Year’s resolutions or the recent completion of a road construction project in front of the gym? Without a proper attribution process, the results will not be credible.

The Current Models Assume Perfect Information and Static Environments

Bold assumptions are made by some existing marketing ROI models. For example, that it’s possible to figure out most of the unknowns of a market in advance and marketers have all the information they need even before they actually execute the marketing program. These models also assume that business environments remain static as marketing programs are implemented and customers will behave exactly the same way for five to ten years. These assumptions probably held true some time ago, but not anymore, since the new reality of the business environment is far from static. More business leaders agree that we are operating in a world of VUCA, a term that originated in the US Army War College and stands for the volatility, uncertainty, complexity, and ambiguity of the world after the cold war. In many industries and sectors, the concept of VUCA is gaining popularity and relevance. All these factors mandate strategic and tactical changes to the current evaluation models of marketing programs.

The Current Models Lack a Focus on Process Improvement

Many evaluation efforts take place around the end of marketing programs, usually months or years after a marketing program is initiated. If the results show the program didn’t work or the ROI was below expectation, it’s too late to do anything about it. Therefore, every evaluation model should have a process improvement focus. When evaluation reveals disappointing results, the model should help marketers identify what changes need to be made. Even when results are satisfactory, the model should enable marketers to know how to improve the results. From marketing planning to implementation, the process can be lengthy and complex. Without a proper evaluation model, marketers will find it challenging to identify and address problematic areas. This focus on process improvement will also help overcome the greatest barrier to evaluation: the fear of the outcome. Marketers typically have a genuine and understandable fear that the program may not deliver the desired value and the shortcomings will be exposed at the evaluation stage. With process improvement as the focus for the model, marketers have the option to make necessary adjustments to deliver expected results before it is too late.

The Current Models Lack the Ability to Influence Investment and Funding

All marketing programs consume resources. No marketing initiative can succeed without adequate funding and support. It is in the marketers’ best interests to show that their marketing programs are a valuable investment of organizational resources in order to secure future funding. With potential rivalry among different functions within an organization, fighting for future investment funding can be a confusing and even controversial matter. The challenge is to help executives and stakeholders see the value so that they can continue to fund the program. Evaluation models need to provide marketing managers and professionals with the capability to influence future investment and make the case for adequate funding. Figure 1.1 shows a logical process flow from evaluation of the program, to optimization of results, and eventually to increased future allocation of funds. Specifically, marketers take proper measurements to reveal value and issues, optimize ROI to improve both the process and results, and then make a strong case to secure funding for marketing programs.

FIGURE 1.1 Evaluation, optimization, and allocation

The ROI Methodology

In this book, we introduce the ROI Methodology to marketing professionals, students, and researchers. This methodology, developed by ROI Institute, addresses the eight concerns with current evaluation models and helps marketers in demonstrating accountability and securing funding. ROI Institute is a global center of excellence that focuses exclusively on the ROI Methodology. Jack and Patti Phillips, two of the coauthors of this book, founded ROI Institute with the mission to evaluate the results of complex but “softer” noncapital programs. From talent management, to leadership development, to technology and innovation, the ROI Methodology has helped both practitioners and researchers demonstrate the value their programs created in order to win both financial and nonfinancial support from stakeholders. During the past 25 years, the methodology has been adopted in more than 6,000 organizations across the world, including 85 percent of Fortune 500 companies and the United Nations. Meanwhile, ROI Institute executives have published more than 100 books and more than 400 ROI case studies showing how the method can be used in various applications. The ROI Methodology has been continuously improved and frequently updated since its creation. The model introduced in this book is the most up-to-date version for marketers and is inspired by design thinking principles. It can be used by marketers with or without strong statistical and financial backgrounds, as the process is user-friendly, with simple, logical, and sequential steps. The methodology has a solid theoretical foundation and has been tested empirically through widespread use. We will provide an overview of the ROI Methodology in Chapter 2 and explain the details, steps, techniques, and tools in subsequent chapters.