Market Investment

Market Investment

Introduction

There are two forms of the Return on Market Investment (ROMI) metric. 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 spend 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. In a similar way the second ROMI concept, long term ROMI, can be used to determine other less tangible aspects of marketing effectiveness. For example Market Investment, ROMI could be used to determine the incremental value of marketing as it pertains to increased brand awareness, consideration or purchase intent. In this way both the longer term value of Market Investment activities (incremental brand awareness, etc.) and the shorter term revenue and profit can be determined. This is a sophisticated metric that balances Market Investment 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 scientific basis.

Market Investment