ROI Is Dead. A New Metric Is Needed for Customer Relationships
The concept of return on investment came to prominence in the mid-20th century when marketers entered the age of mass media and large campaigns, and they began demanding to know the impact their ads were having on awareness and sales.
We are well into the second decade of the 21st century, and I would suggest that the era of ROI has come and gone, primarily because of the digital revolution that launched some 15 years ago. Through digital channels, we have powerful tools that can create highly personalized and emotive relationships between a brand and a consumer.
Marketers want to know even more about how effective their marketing is and its impact on customer relationships. A new metric is required in today's complex ecosystem. I call it ROE2 (return on experience x engagement). ROI is a short-term measure of specific, individual campaigns. The more comprehensive ROE2 represents a longer-term, holistic measure of consumers' total brand experience and their level of engagement.
Experiences shape how consumers feel about brands, including factors such as service, quality of products and amenities.
Engagement involves actions the consumer takes: visiting a website, posting an online review, opening a marketing email, referring the brand to friends and family, clicking an ad or downloading a brand's mobile app. These are not one-off actions -- especially downloading a brand app, which is evidence that the consumer has invited the brand to be a part of his or her life.
Starbucks is a perfect example of a brand that understands ROE2 and uses technology to enhance the in-store experience and drive customer engagement and loyalty. Enabling customers to accumulate rewards via a mobile app or loyalty card and cash them in for a free drink of their choice is a brilliant use of ROE,2 as is the coffee retailer's tie-in with iTunes in which any customer can use a Starbucks code to download a song for free. Still, Starbucks' in-store experience is its foremost appeal.
Legacy retailers like Radio Shack have had to play catch up. With big-box stores such as Walmart
Advertising has always needed to appeal to consumers' emotions as the most rudimentary form of engagement, and that has not changed. In fact, its importance increases in driving brand and business outcomes using the ROE2 equation.
Emotions actually play a more significant role in purchase behavior than price and convenience, especially in the grocery aisle. Think about it: The prospect of going to a Whole Foods or Trader Joe's has made grocery shopping an engaging and even enjoyable experience, in which price is not likely to be a primary driver of customer engagement.
ROE2 is especially relevant to the hotel and hospitality industry. We analyzed thousands of data points for 3,000 personal and business travelers. In this consumer category, how a hotel aligned with a customer's personal values was the most important factor in brand loyalty (as well as loyalty programs) and the key driver of profits.
When customers had high, positive responses to a hotel brand's experiential attributes, such as how well they thought properties and guest rooms were maintained, quality of bed and pillows, ease of check-in and friendly and responsive staff, the lift to that brand and business equity exceeded 100%, regardless of the price of a room. Using insights from customer data, a hotel brand would be wise to invest in experiences that will drive the highest emotional response. But it's important to have well-designed measurement programs in place to produce key diagnostic information to guide those investment decisions.
There's a point at which a customer's positive or negative experience is so strong that it can transcend the rational aspects of a brand (e.g., quality, price, service). That's why creating and guiding the customer experience is so important. Experience creates emotion, emotion fuels engagement and both together impact brand and business outcomes.
That's why ROI is dead. Long live ROE2.