ROI: The Emperor’s New Clothes?

July 24, 2018 by guest author, sixteenninewpadmin

Guest Post: Jørn Olsen, ProntoTV

Looking back at the last few years in the digital signage industry, there has been an increase in articles and a growing focus on ROI. It has become a buzz phrase for sales and marketing reps, and a holy grail for clients.

I am a marketing manager for a digital signage company in Norway, so I’ve used my share of ROI slides in presentations. However, I would like to address a few issues that make the traditional ROI focus wrong, and could lead to a lot of bad decisions being made.

A traditional ROI study would take into account all costs/investments (hardware, installation, licenses, content creation, training, infrastructure etc – alternative costs) and increased sales/return resulting in a ROI%.

So far, so good.

Checking if a digital sign could increase the profit vs the status quo (let’s say a print poster, which is the normal case) is a good exercise, and I emphasize the word profit. Maximizing the ROI is not the same as maximizing profits.

Les Binet and Peter Field’s most recent work on the IPA Databank in UK showed ROI as one of the least important drivers for profit (IPA report “Media in Focus – Marketing effectiveness in the digital era”)

(*=statistically significant)
The most important driver for profit is business effects (sales, market share, penetration, loyalty and price sensitivity), and not ROI.

The reason why ROI is a dangerous measure to use, is that you can end up only using sales activation mechanisms to get the highest possible ROI (see table 2 below). Sales activation mechanism is not an important driver for profit (see table 1). So maximizing the ROI is actually not maximizing your profits.

(*=statistically significant)

Business effects are by definition long term, while sales activation is short term. In marketing, a golden rule of thumb is a 60/40 split between long-term brand building and short-term sales activation.

I’m not sure if that split is the right answer for all retailers, but the focus on ROI means that more and more businesses are shifting to a heavier, short-term sales activation focus.

On the other side, this year’s NRF show in New York focused on retail giving customers a reason to come to the stores. Since the price war is already lost to pure play online retailers (like Amazon), it is about giving people an experience in a store. Looking at big discounts on a digital sign is not giving people an experience at the store.

Obviously, it is essential to understand the potential monetary effects that can be achieved with digital signage before investing, but be sure to also have a look at the long-term effects and not just the short-term.