BABASAHEB GAWADE INSTITUTE OF MANAGEMENT STUDIES

SEMESTER -3

SUBJECT: - MARKETING FINANCE.

PRESENTED TO: PROF. GANACHRI

Presented by: BHARTI CHAWLA VISHAL WAGHATE

Roll No 5 (PGDM) 119

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TOPICS
INTRODUCTION ON MARKETING INVESTMENT ANAYSIS Development of the Concept Meaning Of Return On Investment - ROI Process Of Return On Marketing Investment Metrics of return on marketing investment Return on Marketing Investment Results are Indispensable

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Criticism and defense of marketing effectiveness

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INTRODUCTION ON MARKETING INVESTMENT ANALYSIS. DEFINATION

Return on Marketing Investment (ROMI) and Marketing ROI are defined as the optimization of marketing spend for the short and long term in support of the brand strategy by building a market model using valid, objective marketing metrics. Improving ROMI leads to improved marketing effectiveness, increased revenue, profit and market share for the same amount of marketing spend. ROI analysis compares the magnitude and timing of investment gains directly with the magnitude and timing of investment costs. A high ROI means that investment gains compare favorably to investment costs. In the last few decades, ROI has become a central financial metric for asset purchase decisions (computer systems, factory machines, or service vehicles, for example), approval and funding decisions for projects and programs of all kinds (such as marketing programs, recruiting programs, and training programs), and more traditional investment decisions (such as the management of stock portfolios or the use of venture capital).

Development of the Concept

The concept first came to prominence in the 1990s through the work of Gary Lilien and Philip Kotler in their encyclopedic book Marketing Models (1992) and also Robert Shaw in Marketing Accountability (1997). The phrase "return on marketing investment" became more widespread in the next decade following the publication of two books Return on Marketing Investment by Guy Powell (2002) and Marketing ROI by James Lenskold (2003) Marketing is, and always will be, a creative endeavor. But it can also be a highly rigorous discipline. As marketing noise and media fragmentation continue to increase, marketers. A Marketing Investment Analysis Return helps the organization to analysis and understands the effectiveness of their marketing spending. The Return on marketing investment analysis examines business results in relation to each type of marketing activity as well as in relation to external variables (like economic indicator). Using a innovative suite of modeling tools, marketing activities and external variables are examined not only for direct effects on business results, but for positive and negative synergies between activities. The findings of ROMI analyses can help determine:
 Which marketing activities are most effective?  Which ones dont add value?  In what areas of marketing are spending levels too high?  How should funds be reallocated?  What external conditions (e.g. unemployment) affect marketings ability to generate results?  How should incremental funds be allocated?

Meaning Of Return On Investment - ROI

What Does Return On Investment - ROI Mean? ROI is a ratio of the money gained relative to the amount of money invested. A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio. The return on investment formula:

In the above formula "gains from investment", refers to the proceeds obtained from selling the investment of interest. Return on investment is a very popular metric because of its versatility and simplicity. That is, if an investment does not have a positive ROI, or if there are other opportunities with a higher ROI, then the investment should be not be undertaken. For example, a marketer may compare two different products by dividing the gross profit that each product has generated by its respective marketing expenses. A financial analyst, however, may compare the same two products using an entirely different ROI calculation, perhaps by dividing the net income of an investment by the total value of all resources that have been employed to make and sell the product.

Simple ROI is the most frequently used form of ROI and the most easily understood. With simple ROI, incremental gains from the investment are divided by investment costs. Simple ROI works well when both the gains and the costs of an investment are easily known and where they clearly result from the action. In complex business settings, however, it is not always easy to match specific returns (such as increased profits) with the specific costs that bring them (such as the costs of a marketing program), and this makes ROI less trustworthy as a guide for decision support. Simple ROI also becomes less trustworthy as a useful metric when the cost figures include allocated or indirect costs, which are probably not caused directly by the action or the investment.

Small advertisers on limited budgets cant compete dollar-for-dollar with large, media savvy, companies like UPS, Nike and Apple who can afford to produce and run new multi-million dollar advertisements over and over again until they find something that works. Every dollar a small business spends on advertising has to translate directly into profit, or it just doesnt work

Process Of Return On Marketing Investment

1) Set the Stage ROMIs begin with clear definitions of the goals and process.  What questions need to be addressed?  What is the likely action steps based on answers  Against what results will marketing activities be measured  What data is required to complete the analysis effectively?  What environmental variables are appropriate for the analysis? 2) Collect and Load the Data into a Database Collecting and cleaning the data is a shared process.  The first level is to identify and collect all the data available.  The second level is to clean and normalize the data to make certain the modeling and conclusions are based on accurate input.

3) Develop the Analysis A variety of techniques are utilized to discover relationships in the data. While general business processes may be similar across organizations, details there unique.  Interesting variables and interaction are discovered using  The GMAX, an evolutionary genetic computing tool.  Findings are explored with more traditional data mining techniques.

 Initial findings are refined in partnership with the organization.  Models are refined and tested. Latent variables are identified structural equations modeling (SEM). 4) Present the Results Findings and business implications of the analysis are reviewed in detail, usually with several audiences within the organization.  Goals identified at the beginning are addressed.  Every analysis has Ah ha moments where unexpected results are discovered and examined for implications.

Metrics of return on marketing investment

There are two forms of the Return on Marketing Investment (ROMI) metric.


Short term ROMI

Long term ROMI

Short term
The first, short term ROMI, is also used as a simple index measuring the dollars of revenue (or market share, contribution margin or other desired outputs) for every dollar of marketing spend. For example, if a company spends $100,000 on a direct mail piece and it delivers $500,000 in incremental revenue then the ROMI factor is 5.0. If the incremental contribution margin for that $500,000 in revenue is 60%, then the margin ROMI (the amount of incremental margin for each dollar of marketing spent is 3.0 (= 5.0 x 60%). The value of the first ROMI is in its simplicity. In most cases a simple determination of revenue per dollar spent for each marketing activity can be sufficient enough to help make important decisions to improve the entire marketing mix.

Long term
In a similar way the second ROMI concept, long term ROMI, can be used to determine other less tangible aspects of marketing effectiveness. In this way both the longer term value of marketing activities (incremental brand awareness, etc.) and the shorter term revenue and profit can be determined. This is a sophisticated metric that balances marketing and business analytics and is used increasingly by many of the world's leading organizations (Hewlett-Packard and Procter & Gamble to name two) to measure the economic (that is, cash-flow derived) benefits created by marketing investments. For many other organizations, this method offers a way to prioritize investments and allocate marketing and other resources on a formalized basis. For example, ROMI could be used to determine the incremental value of marketing as it pertains to increased brand awareness, consideration or purchase intent.

Return on Marketing Investment Results are Indispensable

Tracking return on marketing investment is an essential task to ensure you have an effective marketing and advertising program. Return on Investment (ROI) is the revenue generated for every dollar spent on advertising. Return on Investment (ROI) helps you to evaluate and improve your marketing strategy. There is absolutely no point undertaking any marketing or advertising campaign without measuring results. These results are best measured in terms of return on marketing investment. In many companies, the root of this problem is the lack of precise measurements. Marketing goals and strategies tend to be set at the corporate level, while resources get allocated and data get analyzed at the market or regional level by functional managers who have limited information about what others are attempting to do in the marketplace. In addition, each group has its own budgets and targets to meet, and it is complicated to coordinate with other internal groups. As a result companies experience dysfunction on several fronts: Senior management does not have good information about the underlying marketing drivers of financial and operational performance. That makes it difficult to justify additional investments or to identify redundant investments. Individual managers find it cumbersome to address differences in market opportunities and risks, so everyone winds up with a middle-of-the-road approach based on hunches. Managers rarely can directly tie observed metrics to specific marketing spend and are, therefore, unable to justify their marketing investments.

Criticism and defense of marketing effectiveness

One serious problem with using ROI as the sole basis for decision making, is that ROI by itself says nothing about the likelihood that expected returns and costs will appear as predicted. ROI by itself, that is, says nothing about the risk of an investment.

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Direct measures of the short term variant of ROMI are often criticized as only including the direct impact of marketing activities without including the long-term brand building value of any communication inserted into the market. Short term ROMI is best employed as a tool to determine marketing effectiveness to help steer investments from less productive activities to those that are more productive. It is a simple tool to gauge the success of measurable marketing activities against various marketing objectives (e.g., incremental revenue, brand awareness or brand equity). With this knowledge, marketing investments can be redirected away from under-performing activities to better performing marketing media. Long term ROMI is often criticized as a 'silo-in-the-making" - it is intensively data driven and creates a challenge for firms that are not used to working business analytics into the marketing analytics that typically determine resource allocation decisions. Long term ROMI, however, is a sophisticated measure used by a number of forward thinking firms interested in getting to the bottom of value for money challenges often posed by competing brand managers.

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