The importance of C-ROI

Effectiveness of Advertising
"The importance of C-ROI"
Article No. 5 (by Hideaki Koizumi)

In some of my previous articles, I explained that analysis based on media contact rates is not sufficient to judge advertising effectiveness. So, this may lead you to ask, 'then how can we comprehensively evaluate advertising effectiveness?' Various scholars have been trying to find the best way, but there has been no consensus reached on just one best method. But here, I'll introduce the method SPI thinks is best. SPI considers qualitative information and analysis to be very important. But moreover, SPI's is strong in the field of analyzing quantitative data related to marketing and advertising communications. Just as ROI (Return On Investment) is important to the field of management, the Accenture consulting company proposed a concept of 'M-ROI' as ROI for the field of Marketing. Don Shultz, who is famous in the field of IMC (Integrated Marketing Communications), proposed the concept of 'B-ROI', which is how much profit can be generate from investments in a brand. As such, SPI, now proposes the concept of the importance of 'C-ROI' (Communications ROI). In short, C-ROI is how much actual sales are generated from advertising investments. For instance, if advertisers spend JPY1 million on advertising, how much actual sales will be generated? We can not only think about of a short-term sales increase as the objective, but also just maintaining sales can be significant under the current severe business environment. In other words, communications (advertising) should be evaluated by the role it plays within the marketing activities, not from of an 'art' perspective (of the Creative). The objective of communications/advertising should be contained within the marketing strategy, which is often to lead to sales growth. Up till now, the issue was that people had not raised this matter when arguing about the effectiveness of advertising. We cannot ignore completely basic indicators, such as 'advertising awareness', 'likeability of the advertising', etc., which used to be treated as the objectives for communications. However, what we should do is always to try to think about the final objective (i.e., sales growth) when dealing with these indicators. So, we need to specify a 'KPI' (Key Performance Indicator) among these basic indexes that drives achievement of the final objective. If we don't clarify a KPI which leads to the achievement of the final objective, we'll end up blindly analyzing many indexes. And in the end, we'll find some indexes which prove our favored result but not the result from pure analysis. What we need to do is keep our minds focused on the final objective of our marketing activities, and what is the most effective factor for this final objective. Then, how do we find the key factor? We need data so that it is possible to do the analyses to find it. But even without data, you don't have to give up. The important thing is to try to specify the key factor in your mind. In practice, SPI identified a KPI with statistical analysis techniques using brand and competitive sales data, time-series brand awareness data and time-series communications volume data. In my next article, I will explain our analysis approach in greater detail.

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