Brendan Read's Blog

ROE(2) Instead of ROI for Measuring Marketing Results by Accounting for Customer Experience

12 Mar 2015 | by Brendan Read
Share this:

I recently came across a thought-provoking article in AdAge that suggests replacing return on investment (ROI) with a new metric, ROE2 (return on experience x engagement) for measuring marketing results. The author, Andy Frawley, CEO of Epsilon, a global marketing company believes that the digital revolution has rendered ROI irrelevant because it has enabled new, powerful, and personal relationships between brands and consumers that did not exist before.

ROI simply measures short term marketing campaigns. But it does not take into account customers’ experiences with the brands. This is a critical shortcoming for as Frawley says: “there's a point at which a customer's positive or negative experience is so strong that it can transcend the rational aspects of a brand (e.g., quality, price, service).

Customers are engaged with brands, the Epsilon chief executive points out. Actions like downloading and using apps or referring others to brands “is evidence that the consumer has invited the brand to be a part of his or her life.”

The alternative and arguably more comprehensive ROE2 metric, Frawley says, “represents a longer-term, holistic measure of consumers' total brand experience and their level of engagement.”

Epsilon’s Frawley’s arguments make considerable sense. Marketing, and sales, have  treated customers like military objectives, like that 'hill to be taken', then moving on to the next one, and not looking back to what happens afterward. The glory, and the cash, lay in achieving in those goals.

As a result customer care and service, but too often product and service quality, was ‘someone else’s problem’. Little wonder that customer service and support teams and contact centers have been treated—corporate blandishments to the contrary—as the ‘rear’ in resources, respect, and career paths.

All well and good when there are limitless horizons of new customers to be ‘taken’. But at some point there will be declining numbers of fresh prospects, particularly in today’s slow growth era. Moreover, customers are much better ‘armed’, with the Internet and social media to uncover others’ experiences with companies before doing business with them.

Therefore, customer retention through customer delight and engagement has become paramount in this market environment. Smart companies’ marketing campaign strategies reflect that by targeting existing delighted customers who have expressed this opinion to contact center agents, in surveys, and on social media.

Even so, there are a few caveats to Frawley’s points. They also apply to the value of the Customer Experience and engagement in determining customer loyalty and repeat sales.

First, price, convenience, and necessity often outweigh product and service quality and in how customers are treated.

Customers will continue to buy even when the offerings are barely tolerable. These situations occurs when there is little elasticity in demand, few substitutes, high barriers to entry, there are a limited number of market players, and the players mimic each other i.e. if one gets away with lousy service to reduce costs, without seeing appreciable loss of sale, so will the others. Cases in point are the airlines and also utilities and certain large software vendors.

Second, the universe of customers where loyalty is valued has been shrinking as a result of accelerated income concentration in the socioeconomic elite.

For most products and services only the top 10% of the marketplace matters when it comes to focusing customer retention resources. That is why only they are being catered to, with the greatest choices and service quality.

Third, the Marketing and sales culture,rewards the aggressive achieving of results.

ROI is like the military 'taking the hill'. For many organizations turning marketing and salespeople into 'customer cultivators' is going to be difficult, though not impossible.

Caveats aside, changing the metrics, and by definition the goals, as Epsilon’s Frawley has proposed with ROE2   is an excellent potential route forward to shift Marketing and sales towards accounting for the Customer Experience in their strategies and campaigns. Companies should look at it and at other tools, such as giving more weight to customer referral value in assessing customer lifetime value, in shaping how they approach their markets and customers.