12 Jan 2017
Understanding digital marketing ROI – with Arnold Schwarzenegger
Digital marketing is an interesting business.
The worldwide proliferation of smart devices and the explosion of social media websites and apps has caused a massive shift in the way the world accesses and consumes information, entertains itself and interacts with advertising (and even brands themselves).
This unprecedented shift happened very quickly and left the advertising and marketing world scrambling to catch up. But the debate over whether digital marketing is worth brands investing in is over and the answer is clear: From a “branding” perspective, there are no traditional advertising channels with the same reach and influence (particularly among audiences born after 1980) as digital channels.
As the digital age quickly picked up steam, the question of how to best exploit its myriad platforms has occupied the minds of the advertising marketplace for the greater part of the last two decades. By most accounts, this question is something yet to be answered definitively.
The advertising, marketing, and branding world has grown into an unrivaled economic force in the modern economy. But many in the industry are still attempting to bridge the gaping chasm between traditional and digital marketing channels.
While the basic tenets of the “branding” marketing model have not changed to any significant degree in the digital age, the way that brands must reach consumers has.
An increasingly saturated, informed and cynical public than that of previous generations has, in many ways, become much more difficult for brands to reach out to and connect with (which is counter-intuitive, considering the increased access the digital lifestyle theoretically should offer them). This dissonance has created a gap in the digital marketing industry that many startups have been more than eager to try and fill.
The marketing industry’s clumsy attempts to cram online communities with as much advertising as they have done with the physical world has been met with resistance and indifference from digital audiences. As a result, online advertising has yielded nearly universally disappointing results thus far.
The evidence? ROI (return on investment).
In theory, every penny spent on marketing should generate more revenue than it costs. This is the founding principle that justifies the cost of advertising, branding and marketing. It is the very principle that fills our letterboxes with flyers and coupons, that makes television networks profitable, and that supplies our roadways with unsightly billboards.
Identifying which marketing channels generate the best ROI drives corporate decisions regarding where advertising should be placed, which channels should be used, and how much to pay Arnold Schwarzenegger to eat noodles.
Yes, ROI is an influential marketing force indeed.
But what exactly does it look like when we begin measuring the ROI of digital marketing and how does it stack up against that of more traditional marketing channels?
Let’s take a look…
Understanding digital marketing ROI
When measuring the ROI of any kind of marketing, digital or otherwise, we must first be aware that our returns can come in two different forms: quantitative returns and qualitative returns.
Quantitative returns, such as sales resulting from a direct marketing campaign (like a direct sales marketing email or a discount coupon) are quite easy to calculate. We simply measure the revenue from purchases made by recipients of our email or users of our coupon against the amount of money it cost us to produce and distribute the email or coupon in the first place. In the case of quantitative returns, the only true key performance indicator (KPI) lies in the direct sales revenue a campaign generates.
Qualitative returns, on the other hand, are calculated through a much more convoluted process involving much deeper insight, as such returns are far less tangible. It is in measuring qualitative returns that we must consider the psychology and importance of effective branding. As a result, qualitative key performance indicators (KPI) for a campaign are varied and must be identified based on the original goals of the campaign.
According to Socialnomics.net, only 18% of traditional television advertising generates a positive ROI, yet most major brands still make use of it on a regular basis. This is because a lot of people watch television and brand impressions matter.
While the benefits of such impressions are not nearly as clear as those of direct sales returns, they are nonetheless of huge importance when developing an effective overall marketing strategy. The reason? Every impression is designed to be a cognitive cue to lead our prospects toward taking some desired action later on. And in the digital age, where we are constantly collecting data, it has become easier to try and quantify these qualitative returns.
When measuring the qualitative returns of a digital marketing campaign, there are several different KPIs we may wish to measure:
- Total website traffic / page views generated
- Total number of people reached
- Number of leads generated
- Clicks through rate
- Conversion rates
- Social network “likes”, “favourites” and “shares”
In the case of each of these qualitative return KPIs, there is certainly value., That value will become more apparent as the brand/customer relationship develops, ideally leading further down the sales funnel toward a conversion or sale.
The difficulty with qualitative returns on digital marketing investment is in identifying precisely which KPIs lead us to the eventual generation of revenue in each case.
If we were able to break down our annual noodle sales to identify exactly which customers made a purchase because of Arnold Schwarzenegger’s involvement (he does make them look pretty tasty, BTW) we could accurately identify the precise revenue return on the money we paid him to chow down.
*** Note: another intangible return in this case would be meeting and hanging out with Arnold Schwarzenegger, and can you really put a price on that? ***
Sadly, calculating such numbers is impossible to do accurately, and the only option left to us is to measure an Arnold Schwarzenegger advertising year/month/week against a non-Arnold Schwarzenegger advertising year/month/week and see how much extra revenue we acquired with Arnie on board.
And so it is with all qualitative returns on digital marketing investment.
We know that companies that market their brands digitally perform better than companies that don’t Just like we know that companies that advertise on television perform better than companies that don’t. The key in both cases is getting the right advertisement in front of the right consumers at the right time.
In digital marketing we call this “relevance”.
The KPIs we mentioned above serve to identify how effectively our digital marketing placements/timings are reaching our audience which in turn help us keep our digital marketing efforts/strategy as relevant as possible.
If we can optimise our digital marketing’s relevance, revenue is sure to follow.
And, at the end of the day, revenue is what ROI is all about.