Marketing Innovation, Shareholder Value and ROI

The objective of marketing strategy is to create shareholder value. For many, shareholder value and ROI are the same, but they are not. When you look at ROI, you simply look at how much you invested and how much you got back. If you spent $1.00 and received a $1.10, then you got a 10% return.  But that neither considers how risky the investment was, your cost of capital nor how many assets were required. If you are investing in emerging technologies, the risk may be very high as we are uncertain as to the return, which may also be very high or zero.

What’s important when considering making investments in marketing innovation is how it will drive shareholder value.Many marketers make the mistake of only looking at revenues e.g. how much did the ad or campaign cost and how much did it return. This is correct, but is limited. When web sites first emerged, many companies dismissed them because they did not sell directly to customers and outside of sales didn’t see a value in having a web site.  The same was true for e-mail and most recently social media platforms such as Twitter and Facebook.  You can’t look at emerging technologies only through the lens of, “How can I use this to sell?”  You need to look at marketing innovation opportunities through the lens of, “How can I use this to drive shareholder value?”

You can use new technologies to change any and all aspects of the marketing mix. You might get higher margins through dynamic pricing such as auctions, increase your distribution through online access and platforms, find new ways to promote and change the product through offline and online integration such as a product and its corresponding online community.

Marketing strategy, particularly marketing innovation strategy looks at shareholder value creation. You should look at investments in marketing innovation as a way to drive shareholder value. What drives shareholder value creation is growing revenues, increasing margin, improving asset utilization and lowering risk. So your marketing innovation efforts should look at the whole range of opportunities. For example, can a new technology help you make the marketing process more efficient or effective? Marketing automation tools are such an example.  Companies will look at how effective an ad or campaign is, but not how effective is the marketing department itself. So you might put some dollars that would otherwise go into a marketing campaign into tools to improve marketing processes, operations and analytics.

Look for ways to use technology to increase margin as opposed to simply raising prices or decreasing the product size.  Is there a way we can lower our cost to sell and service customers?  Companies that don’t sell online learned they could save money by making it possible for customers to serve themselves online e.g. check order status, availability, pricing, directions, etc.,  without having to go through a call center thus reducing both labor and assets and sometimes even customer satisfaction, depending upon the customer service experience.

Another way to drive shareholder value is by improving asset utilization. For example, if two companies generate the same amount of revenues, but one does it with less bricks and mortar i.e. assets, it will have a higher shareholder value.  So are there investments that will make our existing marketing assets more productive or help us use fewer assets?  There are a range of value based metrics such as economic value added or EVA, Return on Net Assets, RONA, and Cash Flow Return on Investment, or CFROI that look at how asset usage is driving shareholder value.

Finally, are their investments we can make that will increase the average life of our customers? Shareholder value is also measured by how risky a company’s cash flows are.  A company’s cash flows are most closely related to the future purchases of its customer base.  Will customers defect, will a company have to discount to sell to those customers, or will customers remain loyal even in difficult market and economic times?  The behavior of the customer base or customer asset determines the risk at which future cash flows should be discounted and thus the shareholder value of the company.

The main point is, when reviewing an emerging technology; don’t default to the criteria of sales. A new technology may be able to help you in some other part of the marketing mix and or be able to help you increase shareholder value through increasing revenue, margin, asset utilization and lowering risk.