Executive Summary
One of the major contemporary marketing challenges is centered around the understanding and assessment of return on investments (ROI) on a wide range of marketing activities. Marketing is critical in order to promote and boost sales of a product or service, but the sheer variety of marketing approaches makes it difficult to properly measure the ROI factor of these methods. Evidently, some marketing tools provide a higher degree of precision, such as digital marketing, where an advertiser can observe the number of clicks made through an ad-banner exposure on a website. However, these might predict direct sales, but they do not necessarily reflect the ROI factor because digital marketing campaigns are also designed to invoke word of mouth.
The aim and objective of the report are to shed light on marketing mix-based assessment methods, where customer equity, word-of-mouth, and other critical approaches are derived from the current literature with an emphasis on key differences between different marketing approaches. Therefore, properly and accurately measuring the ROI of marketing activities is a critical modern challenge, which can be navigated through strategic marketing methods.
Introduction
Often in companies with a large number of departments, there are disagreements about the mistakes made and different approaches to performing an ROI analysis. Basically, such conflicts are formed between the marketing and finance departments. The simplest solution is to have a high level of knowledge and skills among marketers in the field of finance and among financial experts in the field of marketing (Dietrich, Rundle-Thiele, and Kubacki, 2016).
However, it is simple only in its formulation but not in its implementation. Sometimes employees of the marketing department, perhaps because of their creative nature, come up with a huge number of interesting methods of product promotion, advertising, the purpose of conducting costly marketing research to analyze the consumer market or competitors, but the company’s budget cannot afford such costs and involves financial considerations. The aim and objective of this report are to illuminate marketing mix-based assessment methods, where customer equity, word-of-mouth, and other critical approaches are derived from the current literature with an emphasis on key differences between different marketing approaches.
The Marketing Issue
Challenge of ROI
The main marketing problem is manifested in the overall difficulty of understanding the ROI factor of marketing activities. Social media platforms, such as Facebook, open new methods of marketing approaches, where users are exposed to the ads on the basis of algorithms and preferences. It is stated that the integral essence of marketing is rooted in the notion of value (Fu, Phillips, and Phillips, 2018).
Another source claims: âthere is an evident and explicit research gap on associating investing in advanced and improving the front edge scientific foundations and frontiers of philosophical underpinnings of the marketing research process and tangible marketing performance outputs and deliverablesâ (Kortam and Gad, 2020, p. 153). In other words, there is a clear difficulty in understanding the ROI of marketing in terms of its overall value rather than arbitrary metrics, such as clicks. It is important to properly adjust marketing methods because there are reports that correctly executed social media content marketing measures can generate customer engagement with an ad up to 68% of all exposed individuals (Ahmad, Bakar, and Musa, 2017). In other words, ROI is directly tied to oneâs ability to market effectively.
The Problem of ROI Assessment
The problem of assessing ROI in marketing is also related to the fact that it is challenging to measure both monetary and non-monetary value-based returns. For instance, a social media marketing campaign can result in individual sales, which can be calculated in terms of monetary returns, but the latter does not provide a full value of the campaign there is a notion of networked ROI (Khan, Mohaisen, and Trier, 2019). The issue of ROI is also tied to the fact that technology is continuously advancing, and old marketing concepts might not hold true any longer (Todor, 2016). Another cause of the problem is due to that âthe technical difficulties of evaluating marketing efficiency that was found include contamination of data due to unstructured gathering of field data, unaligned definitions, and a high level of individual judgment when categorizing dataâ (Sandra and Vera, 2020, p. 278).
The ROI assessment is further complicated due to the constant emergence of new scientific methods and new platforms as well as changes in consumer behavior (Snyder and Garcia-Garcia, 2016). For example, in the case of the plastic surgery industry, social media marketing has a higher return on investment than email or other forms of digital marketing (Gould and Nazarian, 2017). However, although relative ROI can be analyzed, it is still difficult to accurately determine the individual ROI.
Dualistic Goals
It is important to pay close attention to the formation of the image and advertising of the products of a particular method, as is the case at present. For example, both B2C and B2B formats of marketing through SMM measures indicate that they do not prioritize the ROI aspect of these activities (Silva, Duarte, and Almeida, 2020). Large sums are spent to create the best brand positioning on the market, so the need for a constant calculation of the effectiveness of certain marketing costs is growing, but not every specialist in this area is able to provide the financial department with accurate indicators. From these data, it follows that between the two departments, there are interrelated tasks and functions that they must perform, working together, for the most efficient operation of the company.
For example, financial experts will never be able to develop measures to optimize production or interact with counterparties without bright and creative ideas from marketers. Indeed, without a deep analysis of the market, drawing up a further development strategy for the company, and without the correct positioning of the company’s brand, using various tools of the marketing concept, there can be no talk of any high profitability. Marketers simply will not be able to implement all their ideas without the correct and accurate calculation of financing, which is competently carried out by rational employees of the finance department.
The Potential Solutions
Marketing Mix
The main approach to solve the problem of marketing ROI is to implement strategic marketing methods, which combine a wide range of techniques for assessing the given metric on the basis of an array of different factors. The simplest but least reliable approach is to utilize a marketing mix, where each section of the concept is assessed individually by putting the highest emphasis on the most important elements for a particular business (Suarez and Estevez, 2016).
In regards to the non-monetary side of a digital marketing campaign, the feedback and customer engagement can be analyzed, such as comments and individual posts (Shay and Horst, 2019). In the case of email marketing, the goal is to reduce the investment amount by automating the marketing process because such a marketing technique can be considered as the simplest one, which is why high ROI is ensured by significantly decreasing the overall input (Dania, 2016). For larger companies with higher capital, the solution revolves around investing in marketing ROI analytics instruments, such as big data analysis (Johnson et al., 2019).
It is stated that ROI assessment needs to stem from value creation and customer relationship only, which why many arbitrary metrics need to be eliminated, if they do not promote these two objectives (Visser, Sikkenga, and Berry, 2018). In addition, a study suggests that: âthe results also showed that return on investment is the most common metric for evaluating the investments of online communication activities and that respondents expressed the highest level of confidence in this metric as wellâ (Krizanova et al., 2019, p. 7016). Therefore, the current marketing measures need to be analyzed on the basis of the marketing technique utilized, with a clear emphasis on the ROI metric.
However, the question is that it is difficult to evaluate the work of such abstract art as advertising and marketing in general if the effect of it is the number of hits with an unknown number of customers who actually bought a product or service. Different companies use absolutely unique formulas and systems for calculating the results of work for a certain period of time. Most often, in such cases, the ROI model is used, the only question is how to calculate it accurately. This indicator can be safely called a kind of compromise between the marketing and finance departments, since absolutely all employees understand perfectly well that advertising is the main engine of the product forward, right into the hands of a potential buyer.
It should also be said that the return on investment model makes it possible to spend on marketing ideas exactly as much as it will definitely come back and make a profit. However, before considering the methods for calculating this indicator, it is worth paying attention to the fact that the understanding of the term ROI itself differs among representatives of different departments. For the finance department, this indicator is defined absolutely clearly, that is, the funds invested in the company’s assets, the profitability of these assets, and, accordingly, the ROI indicator.
ROI Complexity
Navigating through the problem of ROI in marketing is also complicated by the sheer complexity and diversity of various key elements. It is stated: âsocial media ROI is understood as an umbrella concept, encompassing various different elements and other social media metrics, including reach, impressions and engagementâ (Michopoulou and Moisa, 2019, p. 308). Research advocates for utilization of customer lifetime value (CLV) methods because a company conducting continuous marketing attempts will most likely retain a customer for a long period of time, which means that lifetime value needs to be assessed as part of ROI (Nickell and Johnston, 2019).
In some industries, customer equity metrics can be an accurate measure of the ROI of marketing activities (Kim, Boo, and Qu, 2018). In the case of social media marketing campaigns with no specific product or service but an image, the emphasis should be out on the trending metrics because it indicates the exposure level of the measures (Misirlis and Vlachopoulou, 2018). For example, Nikeâs brand image promotion video on YouTube exhibited trending patterns, where people shared and facilitated the videoâs spread with no direct input from the company itself. Therefore, marketing ROI is a complex metric, which can combine a wide range of measurements, but the goal is to focus on each case individually.
From the point of view of marketers, the ROI is calculated in the same way, but the costs of marketing campaigns, in turn, are of an indirect nature, since they do not generate profits by themselves, but only affect a potential buyer who is not the fact that he will buy or will not buy the advertised product or service. After all, each person is individual in all personal aspects, so not everyone can be influenced by one or another psychological tactic of influence.
Consequently, the marketing activities in a company are responsible for expenses, not assets, and therefore do not have a clear financial definition. However, a detailed and correct calculation of this indicator gives the marketing department other advantages, namely a more accurate understanding of the work of the interacting departments of the company and the identification of potential competitive advantages through the analysis of the company’s indicators. In addition, it is important to identify strengths and weaknesses, features, opportunities, and threats in the development of further marketing activities.
Case Study: Coca Cola
One of the key examples of marketing ROI is Coca Cola Company, which is well-known for utilizing mass-scale and powerful marketing strategies to acquire competitive advantage over customer base due to the fact that the core product on itself is simplistic. It is fairly difficult to continuously improve soda drinks, unlike technology products, in order to gain competitive edge, which is why Coca Cola focuses on marketing in order to appeal and be more attractive to buyers.
Therefore, marketing is the main driver of the companyâs success, since the product itself offers little to no intrinsic value, such as improving health. It is stated that for every dollar spent on marketing for Coca Cola products, the ROI is $2.13 (Ghosh, 2016). In other words, marketing is the primary catalyzer of profit for the company. Thus, it is important to be able to properly estimate ROI on marketing measures, which can be complicated if the product or business model is more complex than Coca Colaâs soda drinks.
Conclusion
In conclusion, it is evident that marketing ROI is a major problem in marketing assessment due to continuous advancements in technology and changes in consumer behavior. The analysis of ROI can be conducted in a wide variety of ways, but the recommendation is based on emphasizing the critical prioritization of the given metric and adjusting the measurement techniques on the basis of marketing mix elements as well as in accordance with a particular marketing approach.
Reference List
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