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Published: 12/17/03
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When Art Meets Science: The Challenge of ROI Marketing

Larcker, the Wharton accounting professor, agrees. “It’s very difficult for companies to figure out the return on anything — training, HR practices, marketing, innovation. If you do a marketing initiative and invest a certain amount of money in it, you need to figure out which portion of your cash flow is generated by that investment.” To come up with this metric, companies must be willing to spend the time and energy on special studies or projects that zero in on the problem, but few are willing to do so, Larcker says.

Wharton’s Fader says that companies should not be discouraged if they have not yet successfully adopted the concept of ROI marketing or if their early attempts at the process have been less than stellar. How to identify and use the right metrics is neither obvious nor simple. “Measurement is inherently more difficult in marketing,” Fader says. “If you want to figure out ROI on a new machine for production or mail sorting, it’s relatively easy to look at the incremental costs and revenues associated with that machine. With finance, it’s relatively easy to compartmentalize investments. But with marketing it’s messy. But that doesn’t mean you shouldn’t try it.”

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