Michael L. Perry (e) MLPerryNY@mac.com (t) @mlperryny (fb) www.facebook.com/mlperryny (LI) www.MLPerryNY.com (m) 973.229.4695 False Measure Published: 1 Oct 08, Direct Magazine http://directmag.com/roi/1001-romi-skews-calculations/ ROMI allows marketers to skew cost calculation

The quickest way for direct marketers to get into hot water is to allow themselves to be judged by a useless metric. The return on marketing investment (ROMI) measurement is just that type of metric.

Since business runs on dollars, marketers are always measuring something to justify the work they do. But when ROI falls short, they find themselves getting beaten up by the CFO.

What do some of them do when they're cornered? They reach into their bag of tricks and pull out ROMI. And occasionally the CFO is dumb enough to fall for it.

Unfortunately, ROMI is just as flawed as ROI — and neither measurement addresses marketing's fundamental mission: driving incremental response.

ROI is an “all-in” metric, meaning all investment costs are calculated against the profit. That's smart and right, but it's nothing more than a descriptive measure that offers few clues as to why something happened.

In short, it doesn't help a marketing team drive behavior.

Any CMO who proposes using ROMI is really saying, “I don't want to be judged by total cost, only by what the marketing costs are.” Here's an example that will illustrate this problem.

BMG Direct's marketing team used a modified version of ROMI in the late '90s. BMG was mailing a mini-catalog roughly every 2.5 weeks. Consumers ordered from it and ROI and ROMI were fairly aligned.

But things changed when the Internet became a viable sales channel for BMG. ROI dropped and ROMI looked better than ever. What was going on?

Only this — that the ROI included increased pick-and-pack and corrugated paper costs; ROMI did not.

In addition, there were more books to choose from online than in the mini-catalog, including obscure out-of-date titles. This helped skew the normal calculations.

Anyone who took ROMI at face value would think the marketing was working better than ever — the ratio of the dollars spent to profit was spectacular.

There was one problem, though: Sales weren't rising because of the marketing. Nobody planned this consumer behavior — it was a pleasant coincidence (although the marketing team was happy to take credit for it).

It's hard to duplicate a model like this, considering that there's no method to the madness.

THE RIGHT FOCUS

So what do you focus on if ROI and ROMI are flawed?

A direct marketing campaign can have four outcomes:

• The person is marketed to and takes no action. • The person exhibits a completely different behavior (unintended purchase behavior). • The person buys what the marketing team wanted them to (intended purchase behavior). • The person not only exhibits the intended behavior, but makes additional purchases (halo effect).

Two of these outcomes denote failure (no action and unintended behavior). But ROMI and ROI can be healthy because there are four potential scenarios.

Take the first result. It's business as usual. Just keep testing and trying to get people to respond.

Now examine the second. It may look like a success (hey, a sale's a sale, right?), but it's actually a failure. It means you didn't do your job, plain and simple. The customer did something other than what the company intended.

The third outcome is the intended consequence, although you might argue that the fourth one is even better.

Wouldn't all marketers love it if they found a segment that purchased more than they intended? Sure. But this shouldn't be just a pleasant surprise.

Instead, this group should be the “base business.” It should be the new target audience.

Your job? To identify new groups that will deliver multiple purchases.

Enough of those old metrics. Start examining collateral and trying to understand why consumers do something different than you intended. Ask if this is a new audience, and if your messaging platform is reaching it.

Start talking to your CFO in these terms and nobody will ever mention ROMI or ROI anymore.