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February 8, 2006
What's so "scary" about ROI?

I find all this talk—at the ANA, the ARF and AAAA—about the "Scary Question" of measuring return on advertising communications investment to be puzzling and bordering on the ridiculous. In fact, it's remarkable that agencies that don't embrace this idea are still around in today's environment of accountability.

Simple to very sophisticated tools to measure advertising/integrated communications ROI have been around for a number of years. The approaches are straightforward, and when agencies partner with smart outside brand research firms, it's not scary at all to track ROI. In fact, it's often a client's inability to track results that is the biggest stumbling block to measuring ROI.

At our agency, the first step is to help clients identify what "job" the communications are intended to accomplish. Create a retail transaction? Capture competitive market share? Launch a new premium-priced, premium-performing brand into a crowded category? Reposition a client enterprise for the future? The list goes on...

The metrics can be different for each "job" you want to accomplish. For example:

  • One of our healthcare clients wanted to increase emergency room transactions by five percent. The advertising "job" was to capitalize on the circumstance of warm-weather minor injuries and to be treated quickly using the new ER "fast track." Visits increased by 11 percent. ROI was calculated by tracking not only the incremental revenue from the ER visit itself, but also the downstream revenue and profit from diagnostic procedures and visits to specialist physicians after the initial ER visit. The resulting ROI was five-to-one during the advertising period.

  • In the crowded consumer lawn-and-garden category, we helped our client launch a new premium-priced, premium-performing fire ant killer against well-known brands like Ortho and Amdro. After identifying the winning brand positioning, we used Millward-Brown's animatic "Link Copy Test™" to optimize our TV message. The agency then plugged the "Link" scores into our proprietary purchase discount model to forecast the first three years’ revenue and profit. As predicted, the first two years' advertising return on operating profit was negative. Year 3 was breakeven. By Year 4, advertising return on operating profit was two-to-one. 92% of sales came from markets receiving advertising. We also tracked profit contribution on a DMA basis using the "big box" retailer point-of-sale data.
  • Another client wanted to reposition itself from a two-community hospital organization to an integrated destination health system. Partnering with Millward-Brown again, we used multiple regression analysis to demonstrate the brand advertising campaign delivered a positive ROI by Year 2 and a seven-time ROI by Year 5.

The tools for ROI measurement are available. We encourage our clients to embrace them, and to ensure that metrics established at the onset of advertising can be delivered by the client organization. I encourage you to do so, too. Believe me, it's not a "scary" proposition. It's a matter of demonstrating an agency's value to "C-level" client management.

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Curt Ippensen is the leader of Rhea & Kaiser's strategic planning function and the agency's consumer and business-to-business accounts. He has been instrumental in successfully repositioning Rhea & Kaiser from a traditional advertising agency into an integrated communications agency. Prior to joining R&K in June 1990, Curt served as Senior Vice President/Group Director for Ogilvy & Mather in Chicago.
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