Critiquing ROMI Schools Thought

8/3/2019 Critiquing ROMI Schools Thought

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M I C A

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Prateek Chhillar 040A

A critique on the following schools of thought, namely:

1. Brand Equity School of thought

2. Customer Equity School of thought

3. ROMI school of thought

Return on

Marketing

Investment

Approaches An

Evaluative Paper


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Prateek Chhillar ROMI, Individual Assignment 040A

Introduction

At the most basic level, when we talk of marketing expenditure or investment, we can say that it canhave either or both of the two types of implications, namely

Short Term Impact Long Term Impact

If you look at Short term impact for any marketing spend, then the idea there is that any marketing

activity that has a spend gives its result instantaneously (defined within the reporting period of that

spend), and thus its contribution to the Returns or revenues are looked upon as short-term ROI.

Another affect could be similar to investment, i.e. we incur the expenditure now, but it pays us in

the long run i.e. outside of the reporting period of the spend itself. This could be because the nature

of the spend/activity is such that it doesnt really reflect in the sales/revenues immediately, but

rather builds slowly like waves often do and sometimes in multiple waves with a cascading or

lingering effect. Its contribution to the returns or revenues is looked upon as Long-term ROI.

In realistic terms, marketing expenditure is usually of dual nature, i.e. it can have both short term as

well as long term impact, therefore to completely analyse the effects of any marketing

expenditure/investment we need to look at various approaches to understand how this return is

accrued by the organization that decides to make this investment. We therefore take a look at a few

of the schools of thought in this direction and try to critique them to understand where they have

shortcomings and why not all approaches are universally applicable.

Brand Equity School of Thought

This school of thought looks upon companies and organizations as not just the economic metrics

that are represented in their sales reports and turnover figures and numbers in the profit/loss

accounts but as something beyond these numbers, and this something involves the association that

goes with the very sound/sight of the Brand that the organization is in the mind of its customers.

This association can be broken down via metrics to create a valuation that is known as brand equity.


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The specifics of measuring any organizations brand equity involve assessing the brand of that

company on several parameters, depending on which of those are more relevant given the industry

of the organization, the situation of the market etc. Some of these maybe of the types listed below:

Differentiation Perceived Quality Awareness Brand Personality Popularity Distribution CoverageDepending on the relevance to an organizations business there may be few others while a few of

these might be used or not. These are often assessed on both qualitative and quantitative levels

and means. Thus there are advantages to the method via which one can try to evaluate the

monetary value that each of these parameters contribute to the overall valuation of any

organization. But then again, these are merely associations that exist within consumers thought

process or set of beliefs. Here is why we need to think twice about this school of thought:

Validity of Parameters is not absolutely comparative: for example if one is to compareperceived quality for organization A in the eyes of consumer set X with the perceived

quality for organization B in the eyes of the same consumer set, just because that

segment of consumers views A as better than B by about 2 margin points on a scale of

10 (if we assume) that does not mean that the computed economic value will hold a

similar relationship. Thus this would suggest that A is merely better than B in the

consumers eyes but wont tell you by how much (if we try to look at it in the monetary

sense).

Measurability of emerging parameters : as far as established parameters go in existentmodels, there are accepted norms for measurement, be it qualitative of quantitative but

for newer parameters that are often added to models depending on the situation at

hand there is no clear rule towards analysis i.e. what may be acceptable across one

research body might not be easily validated across another research body, thus creating

an ambiguity in the measurement of that parameter and might not be able to assess the

overall impact that parameter might have.


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Thus, these are a few of the critiques of the brand equity school of thought, and they may not be

valid at all times, nonetheless they are an indicator of when we can be certain of this approach

completely and at other times when we need to perhaps not rely completely on the approach.

Customer Equity school of Thought

Stemming from the customer-centred approach to marketing, the customer equity school of thought

looks at the customer as the entity that defines the value of the organization. To put it in a simple

manner, the company is as much as the customer is capable of. Organizations like these rely

heavily on tools such as Customer Relationship Management and their main aim is to ensure that

their established set of customers stay and grow with them in a symbiotic relationship.

Organizations that adopt the related methodologies to this consider marketings effect on the

customer lifetime value namely the future profit/revenue streams and hold these effects as

accountable or measureable. They define customer equity as the sum of the customer lifetime

values of the firms current and future customers. From this perspective, the purpose ofany

marketing expenditure is to increase the firms customer equity, and any marketing expenditure that

does not improve customer equity is money wrongly spent.

The shortcomings one can see in this approach are:

The consumer might not know what they want: firms that utilize such models often spend asignificant effort towards understanding what the customer wants and what the customer

needs and try to address these to the best of their capabilities. But often, the customer

doesnt really know about certain need gaps in their lives that can be addressed by

something they didnt even think could exist. Innovation can often even surprise the

customer and create approaches and solutions that the customer didnt know they could

have. Thus firms might be losing out on potential revenue streams that they didnt know

could exist only because they were too focussed on providing to the customer what they

thought was required.

Analytical Models of the Consumer often betray: Time and time again, marketers haveextensively relied on the collected knowledge about the costumer, yet trends, attitudes,

behaviours often change, and thus as easy as it is to assign a monetary value to a customerin terms of the future expectancy, it is also possible that the customer does not follow the


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expected trajectory, therefore it often occurs that firms require high turnaround time to

address these changes in the customer psyche.

Thus this approach, although relied upon very popularly by firms in this day and age of the

consumer, can often fail companies if they are over-reliant on the same.

ROMI school of Thought

This school of thought primarily is to measure the degree to which marketing contributes to profits.

This school of thought has been pressed into action more and more lately due to the ever growing

call for accountability of marketing actions and initiatives to contribute to the bottom line of the

organization. Often in the past many activities have passed as marketing activities without really

being helpful towards increasing sales or any actual visible utility to an organization and it is out of

the need to streamline the haphazard approach of marketing that this school of thought arose.

The approach involves focus on the following 4 facets of the organization that contribute to the

bottom line reporting:

Sales (volume or numbers) Customer (numbers) Periodicity (more often) Value (of sales)

The importance of marketing metrics being highlighted by the ever changing diaphragm of

marketing activities that constitute the above mentioned factors helps understand how marketing

expenses trickle down towards lead generation, sales capturing and the likes. Often these are looked

at with such a keen eye that they are considered as the rule of thumb for the organization to drive

future activities.

The shortcomings that can arise out of an approach purely centred on the related methodologies

are:

Too much data being available without a clear drive towards what insights are required topush the organization towards a destination that is more favourable for its growth and


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sustenance. Often the above means marketers are looking at any combination of the

mentioned parameters without really knowing what are their goals? Namely

o Is the focus on short term vs long term?o Is the correct parameter being focussed on w.r.t the requirements?o Are we clear that we need to be looking at volume vs individual vales?

Over-specification of strategy on metrics: quite often the strategy in this approach reliesheavily on marketing metrics and doesnt leave enough room for various qualitative aspects

such as those discussed in earlier approaches, thus creating an overall mechanized approach

towards marketing also called automated marketing. Also this means reliance on past

experiences is rather binary than actual and often there can be overlooking of important

happenings merely because they failed to fit a condition or rule.

ROMI school of thought takes into account factors that will eventually drive ROMI itself, and these

are weighed into marketing plans and thereafter the system is meant to adhere to constraints

placed in these plans, which is quite suitable often for the short term benefit of the organization but

consistent tweaking of the overall approach is required in the longer duration and this requires

sensitivity towards other schools of marketing approach as well.

Conclusion

Thus we can see each of the above mentioned schools of thought have certain areas which are

meant for the marketer to understand when not to adopt a certain approach and what are the

associated perils with adopting a particular approach. It is eventually up to the marketer and the

strategy created to understand which of these schools of thought are a best fit and if not, what mix

of these is optimal to move ahead.

Documents

Critiquing ROMI Schools Thought