What's the ROI of Putting Your Pants on in the Morning?
The Dilemma of Measurement and Accountability
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| Phil Johnson | |
Listen to the agency buzz, and we're all masters of measurement and analytics. Every agency worth its salt claims to not only solve its client's business problems but has the data and case studies to back it up. By the same token, CMOs cite producing measurable results as their No. 1 priority.
That's all great. CMOs want results and agencies deliver. Shouldn't everybody be happy? Not so fast. The other buzz out there is that agencies are getting killed on price and are frequently viewed as a commodity service. That's no way to treat someone who helps drive your business success. Maybe agencies are not measuring enough, or measuring the right variables? Maybe the measurement is fine, but the results just aren't good enough? In any case, there's a gap between what agencies are saying about the ROI of their programs and how they're valued in the market.
Direct agencies can argue that they have solved this problem, and digital agencies get high marks for raising the bar on analytics. But right now everybody suffers from the same price erosion and competitive pressure. While we debate the merits of one approach over another, billions of dollars are gushing straight to Google and contextual advertising. According to Ken Auletta in his recent article in the New Yorker about Google, they "provide an answer to the adman's legendary line: I know half of my advertising works, I just don't know which half."
The cold reality is that lots of money that used to go to agencies of every persuasion, now goes somewhere else. This shift has also led to the market devaluation of many of the attributes that agencies use to differentiate themselves, such as creativity, planning, service -- and, yes, even measurement. In a buyer's market, even the most specialized qualities become a commodity.
The only way out of this dilemma is for agencies to take the next step and conclusively prove beyond any doubt that they contribute to a client's business results. There's no faking it. You'll know you have succeeded because clients will happily pay premium pricing for an agency that's indispensable.
There is no secret formula. But after staring out the window for a good while, I'm convinced that agencies need to attack this problem from three specific directions: the client relationship, the resource allocation and the agency methodology.
To get credit for influencing business results, the agency's work has to be tied to a specific visible goal that the client management team really cares about and plans to measure. Then the agency can align its own measurement strategy around initiatives in which the client is fully vested. To enforce this alignment, the most senior people on the agency side need to stay fully engaged in the day-to-day strategy and management of the business. For the record, I think this is incredibly hard to achieve and depends on a near-perfect client-agency relationship.
Agencies also have to flip the financial equation. Too often the story goes, "Here's how much money I have; tell me what you can do." You wouldn't want a carpenter to take your money, but only fix half the roof. Agencies need better data to understand what it costs to achieve specific business results so that they have the resources to succeed.
The most important shift may be the need for agencies to reorient their culture and processes. We've read a lot about empowering everyone in an agency to be part of the creative process. Now we have to train and empower everyone to measure their contributions against the business results that we want to produce. The discussion can't stop with one sentence in the creative brief but has to track through every step in the agency methodology.
Just like putting on your pants in the morning, agencies deliver a lot of intangible value. That's why they will always have a place at the table. Business results, however, will guarantee their rightful place at the top of the business food chain.
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You can follow Phil Johnson on Twitter: @philjohnson
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Chris, I love your business model. And I would never tell you what kind of pants to wear.
- Phil Johnson agencypja.com
Excellent post as always. You seem to have your focus on some of the most important issues affecting agency/client relations. I just wanted to point out one area of your post where you said "agencies need to flip the financial equation." This is an extremely difficult and delicate task, and I'm not sure agencies really get it - your carpenter analogy is perfect.
You wrote: 'Too often the story goes, "Here's how much money I have; tell me what you can do." ' Generally speaking, this is how agencies are selected, reviewed and even dropped - by their ability to answer that question.
But I do think there should be more of a dialogue between agencies and marketers, (read: marketers need to do more of the talking,) and here are maybe some of the questions agencies should be asking when they send back RFPs:
What do you WANT us to do? (Make you look cool? Move the sales needle? Build a brand? All of the above?)
How, then, will WE really be measured?
What's the most important business problem that needs to get solved? (Sometimes, it's operational and has nothing to do with the agency - but it's good to get that out in the open.)
Phil, can you think of any others?
Nader Ashway
Blog: www.markethingthingy.wordpress.com
Twitter: @nashway
Getting back to the carpenter
One more
Jimmy Gilmore
jimmy-gilmore.com
@jimmygilmore
"There is an occasion for everything, and time for every activity under heaven" - and there is a time for using ROI metrics, of course. But too many of us are being lulled into incrementalism and monkey-see, monkey-do by the siren song of ROI.
We spend a lot of time and effort agonizing about the methods of measuring countless metrics with precision and granularity. Every activity has a code, every action has a number, and all the data is dutifully collected. But these numbers are subject to human interactions, influence, and associated imperfections.
While measurement is certainly valuable, many companies and agencies push well beyond diminishing returns in the persuit of unerring accuracy, and begin justifying measurement for it's own sake.
Jim
As a corporate marketing guy for decades many agencies lose track of one thing when they work with metrics and measurements. The companies I've been at are there to make money that's the bottom line. The agencies I've employed bring all kinds of numbers and measurements to meetings but every time the missing part is "how are we buying pants after paying for the socks".
Not that I don't like the metrics of a good campaign. I love crunching the numbers of how good that program did among 20 somethings and other groups. But when it come down to corporate its all about how much did the socks cost and how many pants can I buy with the left over.
When I have been asked to track and trend ROI it comes down to one simple measurement, did the plan positively effect the income of the company. The presidents and board of directors I have worked with do not care how they get there or what I have worn just that the income is more then the cost of the socks.
One issue: Many agencies think that if they demonstrate a financial payout beyond a shadow of a doubt, then there is no use creating a case study. Not true. There are lots of creative ways to prove to a client that delivered value (e.g., testimonials, social media exposure, shelf presence, etc.).
http://www.TellYourClientsWhereToGo.com
While that is well and good, and something agencies should bring to the table. And yes, agencies need to know what the big metric is and have agreement with the client on its measurement and what would be deemed success.
But, the number one job of CMOs has always been brand management. How are they different than the competion and what is marketing doing to ensure that brand grows. I saw a poll recently of CMOs top concerns. They are were all things like ROI, tracking this, tracking that. But, of their list of concerns, there was no mention of supporting their brand and ensuring that they maintain what is different about them. That could be a reason why their turnover is so high, they have the numbers and results, but they have lost track of job number one.
No wonder fewer and fewer consumers perceive that there are really a handful of different and unique brands on the market. And no wonder everyone is getting pushed into a commodity state. Agencies, even with stressing the numbers and analytics still need to maintain the brand as job number one.
I believe that agencies need to build stronger relationships with their clients so they have a seat at the table and a more vested interest in the brand's success. ROI concerns will not go away anytime soon, but the end result of a successful strategy should be evident on its own.
www.formula-13.com
Clearly marketers should put their pants on before they catch the train to work each day. Otherwise they'll wind up in jail. But a lot of marketers invest their company's money in a way that, with any other discipline, would also wind them up in jail -- right next to the over-exposed commuter.
With the marketing discipline, it's not unusual, to invest $100MM+ dollars a year for a company -- and not know - year after year - 'was the marketing return positive, i.e. more than the $100MM invested?' 'less?' 'how much less?' Too often, the tired answer from marketers: 'We don't even know if we're close to break-even -- but we showed excellent judgment and risk-taking, so the company should keep giving us the $100MM/year.'
That type of answer has gotten leniency from corporate judges in the past, but it's going to be convicted in the future.
Look at any other discipline for a contrast. For example, imagine that your company hired an investment manager, and entrusted to him or her $100MM/year. And imagine if this investment manager said after a few years: 'We don't know if we're close to break-even -- but we showed excellent judgment and risk-taking, so the company should keep giving us the $100MM/year.'
What would happen?
You got it, Club Fed.
Marketers need to stop holding on to the past, when the 'supply side' ruled, and the marketing discipline was managed as a luxury, a cost. Marketing is now on the front-edge of the demand-side economy, and it's an investment, with a calculable return. Marketing needs to pay out, i.e. return more than it invests -- just like any other investment.
And what bothers me the most - this is a time when marketers don't need to hold on to outdated notions. Marketers have increasing advantages and importance in generating profit and growth for their companies.
OK, in summary, to show that I still have plenty of empathy with my marketing colleagues, I will officially here join their chorus and say -- the marketing discipline excels in qualities like 'judgment and risk-taking.' Agreed.
But where I disagree, strongly, is that marketers can keep leaning on qualities like judgment and risk-taking -- as an excuse -- for not even knowing if they're near break-even with their investments! That's a crime.
Greg Banks
President
Javelin Marketing Group
http://www.redshiftagency.com/