Return on marketing investment isn’t telling you the whole truth
Marketing organisations are very focused on connecting the dots between the individual stages of the marketing activity and the company’s overall business objectives. And rightly so because the ready ability to make those connections holds the key to unleashing the strategic potential of the marketing effort.
In unleashing that potential it is also very important for the marketing process to collect and store relevant information from every single customer interaction. Marketers must equip themselves with the means to know, for example – When did we communicate with this customer? What communication channel was used? What treatment did we expose that customer to? And what was the customer’s response? Just as importantly, what was or could have been the reaction of the customers with whom we might have communicated but – for whatever reason – didn’t on this occasion?
These are all valuable details that we need to continuously canvass and assemble throughout the organisation’s journey with the customer in order to be able to learn and adapt, and create efficient and superior customer experiences in the future. After all the customer is the one that brings money to the table.
Marketing has long elected to persuade the organisation of the overall value creation of its efforts by means of its Return of Marketing Investment (ROMI) model and while there is nothing wrong with ROMI in principle, its adoption is invariably backward looking, assessing historical values and often on a very short time horizon.
While understanding the conversion rates of the campaign that was launched a month ago is obviously important – as are other insights from that recent past such as the average revenue generated per customer and the campaign’s bottom line profitability – this level of understanding fails to disclose the extent to which you are tapping the full potential of your customer base.
And remember, the potential of your customer portfolio is very closely linked to the value of the company.
So if ROMI can’t give us the whole truth, let me introduce Customer Equity as the ultimate KPI. Customer Equity is defined as the customer’s historical value to the organisation plus future potential value. Working consistently with the Customer Equity model over time will provide a new and more precise value perspective on how marketing activities are connected to the overall company objectives. This way, when we launch a retention campaign, for example – we can start to understand if we are simply retaining the customers that used to be valuable to us in the past but have been only marginal of late and ask if that is sustainable in the longer term? Similarly, when we sold this particular product to this particular customer, were we actually adding costs to our future customer service operations, for limited short term gain?
The way most organisations are structured today often works against any developments in this direction. Many organisations are structured on a brand/product management basis and with managers that are less concerned about the customer’s potential throughout the entire lifecycle than about the short term results on which they are often incentivised..
It takes a consistent commitment to collect information from each customer interaction and it takes analytical capabilities and organisational courage. But the Customer Equity approach will give you a more detailed picture of the impact of your marketing activities and that is what will elevate the Head of Marketing to the broader Chief Customer Officer (CCO) role that everybody is now talking about.