Measuring marketing success by examining return on investment
In an economic context, marketing and advertising efforts reside at the center of a grand catch-22: When revenues are down, marketing resources are often among the first on the chopping block as organizations strive to maintain their bottom line while still meeting consumer demand. Conversely, investment in marketing resources is often the best solution toward increasing profitability and gaining market share, as advertising can boost product awareness, differentiate new products in the marketplace and reinvigorate brand loyalty.
Balancing cost containment with the need to increase revenues leads to an ebb and flow in marketing resources. Firms, in turn, need to accurately demonstrate their return on marketing and advertising investment in order to stabilize these resources for long-term strategic planning. However, with a number of competing factors affecting profitability, how can an organization directly attribute increased profits to marketing and advertising efforts?
"Demonstrating the true return on marketing investment, how much of the increased profits were in fact due to advertising, requires examining a number of factors that may also be affecting sales," said John Crespi, professor and director of graduate studies in the Department of Agricultural Economics at Kansas State University.
Crespi, who partnered with additional K-State faculty, as well as Michael Boland, professor and director of the Food Industry Center at the University of Minnesota, conducted an analytical study of Sunsweet Ones, a product recently launched in the competitive snack food market. Utilizing a unique cost-benefit model derived specifically for their study, they assessed Sunsweet's return on advertising investment during the product's launch into the marketplace.
"Sunsweet Growers, the cooperative behind the Ones product, spent a considerable amount of time and money advertising and promoting this new product," Crespi said. "And it paid off. Accounting for other influences that affected returns, we estimated that their increase in sales due to advertising alone outweighed their advertising investment somewhere between 1.26-to-1 and 4.35-to-1."
The method used to reveal Sunsweet's desirable return on investment also has application among other branded products.
"All businesses marketing branded products try to identify the impact of advertising on their sales, and the methodology we used in the Sunsweet Ones study can allow them to do just that," Crespi said.
To learn more about this research study and insights into assessing return on marketing and advertising investment, download the executive summary offered through the Arthur Capper Cooperative Center's fact sheet series at http://www.accc.ksu.edu/ACCCFactSheetSeries_SunsweetMarketingSeptember2012.pdf.