The Missing Question in Every ROI Analysis
By Steve McKee
You can search high and low without finding a single CEO who is against the idea of measuring marketing ROI. There’s simply no way to argue with the practice of quantifying the bang you’re getting for your company’s buck. Most CEOs are properly focused on demanding more and better metrics from their marketing teams.
That’s all well and good. But it’s only half the picture. The most visionary corporate leaders intuitively grasp an equally (if not more) important concept: RONI—Return On Not Investing. Unfortunately, they’re in the minority. Consider this account from an airline president (who will remain unnamed):
“I was on a flight the other day and noticed there was one olive in the salad I was served. I asked our food service director what that olive cost, and was amazed to learn we spent $40,000 a year on having just one olive in each salad. Figuring that no customer would complain about one missing olive, I ordered it removed!”
That’s the kind of thinking anyone can be drawn into when focusing on ROI alone—especially in a highly-competitive, rapidly-commoditizing industry. But such thinking makes it too easy to consider the price of everything and the value of nothing. Sure, the olive in question cost several thousand dollars—but what was it worth? We’ll never know. The president of the airline has since moved on and the airline itself went into bankruptcy. Perhaps no customers ever did complain about the missing olive, but neither did they shed a tear for the airline’s fate.
That’s the problem with neglecting RONI analysis: Just because you can’t measure something doesn’t mean it’s not valuable. It’s easy to quantify the cost of olives but impossible to quantify their value. Stack enough “eliminate the olives” decisions on top of one another and pretty soon you’re left with a value proposition that’s been stripped of its value.
That’s not the path to sustainability. Why do Apple products command a premium price? Why do Lexus dealers provide free oil changes? Why do airlines that refuse to skimp on key items – think Virgin, JetBlue, and even low-frills Southwest (no baggage charges) – outperform their peers? They all have an intuitive (or formal) way of gauging RONI.
Branding is both art and science. The science part is straightforward and (fortunately) providing more insight every day. But no river of big data, no information visualization software, no return-on-invested-capital analysis is ever going to answer the question, “What happens if we don’t do this?” Only customers can answer that, only indirectly, and only over time.
That’s why it’s critical that every CEO guide his or her brand with a steady hand by its own north star, and ruthlessly resist any ideas – cost-saving or otherwise – that would compromise its value. If your brand is already on a good course, make sure that you ask the RONI question in the context of every ROI analysis. If it’s struggling, perhaps a lack of appreciation for RONI is the reason why. It may be time to start asking different questions.
Co-founder and author, Steve specializes in addressing the most meaningful problems. Call Steve when you want to change the world. He’ll have a thought (and some research) on that.
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