Commentary
Don't Fall Into The ROI Trap
- by Steve Baldwin , November 2, 2009
Ubiquity Has Value
Advertising and marketing both have an offensive and defensive component. Yes, you're trying to get your message into people's minds -- but you're also trying to block your competitors from infiltrating them as well.
But nobody quantifies how much it's worth to block competitors from gaining mindshare on SERPs, even though being able to do so has enormous (albeit intangible) value to organizations. Nor have we heard much recently about the role of text ads in terms of brand lift (the IAB studied this back in 2004, with results affirming that text ads lift brand awareness significantly).
Marketers tend to squawk about having to run text ads for listings that may have excellent organic positioning, just to prevent competitors from stealing the traffic they've generated from non-search media. Still, establishing brands in the public's mind and fiercely defending this position is an age-old practice. Ubiquity has value, must be paid for, and should be factored into budgets irrespective of ROI.
advertisement
advertisement
Increasing Market Share Has Value
Successful marketers long ago came to the realization that you can't let short-term ROI fluctuations drive budget allocation decisions. If your product or service has genuine value, you don't want to under-support it, especially in lean times when your competitors have pared their own marketing spend.
Sooner or later, we'll all crawl out of this economic hole, and you want your brand to be first then. Furthermore, media -- even search --- is cheap today compared to where it will be when times improve. Unfortunately, this kind of macro-level view is often overshadowed by the continual need to explain, defend, and react to fleeting micro-phenomena ("our CTR rate is down 0.2 percent last week: WTF is going on?") The fact that SEM is so measurable is as much a curse as a blessing, because it leads people to focus on what was important yesterday, not what's going to be important in the year ahead: of course, increasing market share, which has never been and never will be cheap.
Data Has Value
One can truly know a man or woman by his/her query steam. No, it's not a complete picture, but we're now seeing search engines fill in the missing pieces. For example, Google's new social search will overlay the social graph of its users on its historical record of its users' queries. Of course, we don't live in a world in which the search engines give away this data to marketers. One must buy it, and everybody who buys search ads gets, along with clicks, orders (hopefully), and brand lift, the benefit of powerful insights on their potential clients. I often wonder how many marketers are taking full advantage of these insights to inform both their online and offline media buys. Paid search is a terrific way to gain such insights, but the "ROI trap" stunts such efforts.
The most important step you can take to break your organization out of this mental straightjacket is to redefine your understanding of what a click is worth. Instead of viewing it as a step toward an order, view it as an insight that can guide you toward better marketing overall.
ROI RIP?
ROI is a great and wondrous thing, and I hope you're getting plenty of it. But don't think for a moment that ROI is going to keep your organization safe in these tumultuous times. Because ROI is so easy to quantify, and cash is such a compelling stimulant, it's easy to be suckered into the ROI trap. Your job is to think past this trap, making your way to the greater rewards that lie beyond.
Excellent points made here. As I tell our customers: if you're not showing your ad first, your competitor will be. It's not just a matter counting clicks and conversions.
The comments on the role of ubiquity as a strategy are appreciated.
Just a gentle grammar reminder: The word data is a plural noun (datum is the singular noun) and as such should have a plural verb, as in Data Have Value.
I agree with every point in the article wholeheartedly and use many of the to justify points on ad spends in search campaigns to clients.
I will emphasize that these points are campaign specific and sometimes it is only conversions that matter and sometimes the margin on increasing a spot in the rankings on a SERP or increasing a placement from 2 to 1, or 3 to 2, doesn't justify the increased spend. Using ROI numbers to make those decisions is necessary thus your final comments despite the misleading RIP title are pertinent.
The last paragraph of this article states "Because ROI is so easy to quantify".
I think ROI (or the "R" part at least) is actually difficult / impossible to measure. And the article even lists some reasons why measuring return (or quantifying the returned "value" is complex).
I guess counting clicks is easy though.
Ubiquity has value, but ROI is a good measure of whether you're being ubiquitous in the right places and for the right terms :)
Let's assume that many of your online ad buys already pass the ROI test. It's the marginal ones you need to defend. Can we measure an overall lift paid for by the "ubiquity," ubiquity that was good for you but didn't produce an initial sale? Call it brand awareness. The value of brand awareness could be estimated very roughly, year-over-year, in a couple ways:
1) Brand-name searches and Direct traffic. These are qualified visitors who now know you by name. Do these move in direct relationship to last-year's total ad spend?
2) Lifetime value - If your SEM isn't producing ROI on ther first order, is it turning positive when reorders (sparked by cheaper media like your house email list, or brand-name searches) are factored in?
3) Click-through rate on your ads. If you're benefitting from a ubiquitous online brand, your CTR should go up and your CPC down. In an ideal world, right? Unfortunately, advertiser competition and click price inflation are probably going to skew the numbers.
Regarding the ROI article, I can not comment on the online accountability but I can certainly express my opinion relative to the spending of Broadcast Media and Tracking. An Ad Agency must set proper expectations. You can't provide accurate ROI on a 3 month buy. But, an Agency whom manages an account and track sales for 6 years ensuring that all cylinders are hitting, then it can and should be done. If a Ad Agency is SO integrated into the account where you know that out of 100 stores, 10 are bringing the comps down, yet we have 20 bring the market comps up...then you bring in operations. You have to go very deep into the account to be able to perform this kind of service. In this day and age, should an agency not be that 'hands on', they shouldn't have the business where they are dealing with now only CMO's but CFO and COO's. Then and only then can it be done. I could shared a case study of 6 years positive comps in 5 different markets in the QSR category. That is NOT the norm in this economy. Had we not been functioning from top level down to what the customers experience was, then sure, it can't be down. Yet, any Ad Agency that warrants million dollar budgets, should have departments set up to go that deep into the client operations
I realize that I did not properly close off my parentheses...my post should read:
I think ROI (or the "R" part at least) is actually difficult / impossible to measure. And the article even lists some reasons why measuring return (or quantifying the returned "value") is complex.
I guess counting clicks is easy though.
Sorry Buddy, but this is not a perfect world and ROI still remains really important. It will also remain important as long as businesses concentrate on the bottom line -- PROFITS.
Actually because online marketing is so easy -- yet sophisticated and intricate -- anyone can get into the business, and thus, there are too many amatures that give SEM professionals and this industry a luke warm reputation.