Digital Marketing: 10 Essential Principles for Success [10][Principle 10] Start with MROI analysis to enhance marketing investment efficiency
This series commemorates the release of the book published by Dentsu Digital Inc., "10 Essential Strategies for Digital Marketing Success: Easy-to-Understand Keys to Creating Mechanisms That Keep Selling, " taught by Dentsu Digital Inc.'s top marketers.
Part 10features an excerpt fromKey Principle 10:"Start with MROI Analysisto Enhance Marketing Investment Efficiency."
What isMarketing ROI?
MarketingROI is expressed by the following formula:
Marketing ROI
= Return from Marketing Activities / Marketing Investment
As this formula shows, it represents how much return is generated from marketing activities for every 1 yen invested in marketing.
What constitutes this return? In most cases, it is defined as the incremental increase in sales or profit generated by marketing activities. Let's incorporate this into the formula.
Marketing ROI
= (Increase in Sales/Profit from Marketing Activities) / Marketing Expenses
For example,if a TV ad campaign costing ¥10 millionresulted in ¥30 million in increased sales,the Marketing ROI formula would be:
¥ 30 million / ¥10 million = 3.0
Originally,the concept of marketing ROI is said to have been developed for accountability to investors.It was to explain that investing 10 million yenin marketingwould yield greater returns for investorsthan paying out 10 million yen in dividends.
Using the previous example: sales increased by ¥30 million.Assuming a 30% cost ratio,this translates to an additional ¥21 million in profit.Subtracting the ¥10 million marketing investmentfrom this ¥21 million profit increasestill leaves ¥11 million in operating profit.This demonstrates a greater benefit for investors compared to paying out ¥10 million in dividends.
In other words,marketing ROI is a "common, easily understandable evaluation metric." Because it is calculated as a numerical value, it is easy to compare and facilitates shared understanding.
WhatMarketing ROI Can Do
WhileMarketingROI is an easily understandable evaluation metric for everyone, it is primarily used in three key scenarios.
①The PDCA Cyclefor ImprovingROI
For example, even for the same TV ad campaign, you can measure ROIfor each creative asset.By identifyingwhich assetshave higher ROI,you can determinewhich elementsto incorporate to more easily increase ROI (Figure 1).
Figure 1:Marketing ROIby TV Ad Material(Example)
By continuously measuring and accumulating Marketing ROIfor initiatives,you can plan and implement high-ROI strategies.
② Setting Marketing Budgets to Achieve Sales and Profit Targets (Negotiations with Management)
Understandingthe ROI of each marketing activityreveals the relationship between investment levels and the resulting increase in sales or profits.
This allows you to calculate the necessary marketing budget to achieve the allocated budget, enabling you to bring management's requests to the table for discussion based on scientific evidence and engage in constructive dialogue.
For example, you can simulate the required marketing budget amount ifthe field teamimproves ROI by 10%compared to last year.
In the case of Figure 2,if the sales target is 25.5 billion yen, the required marketing budgetwould be 1. 35 billion yen.
Figure 2: Relationship between Marketing Budget and Sales
③ Allocation of Budgets Across Brands, Regions, and Initiatives
By calculating themarketingROIfor each brand, you can determine the optimal budget allocation between brands.
For example, to maximize the combined sales of Brand A and Brand B, you can calculate the optimal ratio of marketing budget allocation for each. Furthermore,if the ROI foreachinitiative is calculated, optimal budget allocation per initiative becomes possible (Figure 3).
Figure 3: Budget Allocation Between Brands and Between Initiatives
Furthermore,ROI can also be calculated by region.For instance, determining whetherTV advertising ROIis higherin the Kanto or Kansai regionsenables optimal budget allocation by area. Such budget allocation proves most effective in global marketing management.
For example,ifBrand A's ROIis lowin Indonesia, you can globally manage budgets by shifting funds to Brand C in the US. Many leading companiesutilize ROI for global marketing management.
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Author
Hirofumi Hamaguchi
Dentsu Inc.
An expert who builds data ecosystems based on behavioral data (such as purchase behavior data and web browsing data), implements PDCA cycles, and continuously improves solutions. Within Dentsu Inc., serves as the on-site manager responsible for developing and operating the People Driven DMP, providing solutions. Also engages in developing new solutions not only using internal data but also through alliances with data partners. Director of DENTSU CROSS BRAIN INC. and Director of Data Artist Mongolia. Master of Engineering (Financial Engineering), Certified Management Consultant for Small and Medium Enterprises, Certified Personal Information Protection Specialist.
