ROI of Branding

Jim answers questions from fellow Drillers
(More questions with answers here, Work Overview here, Index of concepts here)

Topic Overview

Hi again folks, Jim Novo here.

Speaking of questions, you folks are starting to toss in some real zingers. We’ve moved on from the “How do I calculate Lifetime Value” type of stuff to some real mind benders, and this month’s featured question is a heck of an example. Speaking of questions, I always hide the identities of any organizations or people involved, so don’t be afraid to send them on in. Help yourself, and help others as well!

Branding is a much misunderstood topic and it’s beat to death in the forums and trades. I pretty much run in the other direction when it comes up, because I’m a numbers kind of guy and the branders out there never seem to have any numbers to back up their position. That said, there are ways to numerically quantify the value of branding …

Q. Jim, I send a monthly corporate custom-published magazine (content mix of product and broader lifestyle interests) via email to my house e-mail list – how do I measure ROI on what is a purely brand loyalty vehicle?

A: Thanks for sending in such an easy question – Geesh Louise, doesn’t anybody have easy ones any more? I assume you believe over the longer run, those receiving the magazine will either convert to customers, increase their level of business with you, or bring business to you through referrals.

If you have new business “source tracking” in place (where did the business come from?), it should be fairly easy to determine if the business came from someone who is receiving the magazine, or from someone not on the magazine list. Assuming you are also able to track where the non-magazine business comes from, you can look at expenses versus business generated and find out if the magazine is at least as efficient as other ways of generating business.

Hot links to product offers would be a perfect way to do this, and you can test varying offers by Recency to maximize the profit of different customer segments. Under this scenario, the magazine is not only branding, but selling merchandise. So you don’t have to worry about the “ROI of Branding,” the ROI comes from sales and you can easily quantify the ROI using merchandise profit versus the cost of the magazine.

If you are looking for “hard numbers” on the pure branding issue, the only way to accomplish this is to use a control group; that is, a random sample of people on the list are intentionally not mailed the magazine. This group can be different each time you mail. If you think branding is a long term effect, you would want to exclude the same people repeatedly over time; shorter term, rotate the control group. Then you compare the business coming from people in the control group with the rest of the list and determine if the cost of the magazine is justified based on investment return.

If you were to find the control group (no magazine) generates $1 in profit per person and those receiving the magazine also generate $1 in profit per person, then the magazine is “dead cost,” meaning it has no effect one way or the other – the “branding” is ineffective, from an ROI perspective. You also might find the magazine actually depresses sales, by aggravating or annoying the customer. If this scenario is true, then a survey seems appropriate to re-focus the magazine in another direction more desirable to the customer.

If you generate $1.50 profit per person from those receiving the magazine and only $1 profit per person from the control group, and the magazine costs $.25 to produce and mail, you have a profit of $.25 per person on an investment of $.25 per person for an ROI of 100%.

On a per person basis:

$1.50 in profit from magazine subs

  • $1.00 in profit from control group (no magazine)
    = $0.50 incremental “lift” in profit due to “branding”
  • $0.25 cost of magazine
    = $0.25 net profit / $0.25 in investment (cost of magazine)
    = 100% ROI per issue

If creating a “pure” control group is not practical because everyone must get a magazine, you can create two versions of the magazine and use one as control. This would essentially be a “copy test,” where one magazine, in branding lingo, would be more strongly branded, whatever that means, and the other magazine would have “weak branding” or no branding at all. Success measurement would follow the formula above, except control now gets the “weak” magazine.

This test won’t prove the magazine in and of itself has a positive ROI, but you can assume if the “strongly branded magazine” beats the “weakly branded magazine” in ROI, you have proven the creative approach does matter and branding works.

If there is no difference or negative ROI on the “branded magazine,” then the magazine itself is probably generating a “contact effect.” In other words, simply reminding subscribers of your business through any contact generates positive revenue effects – the creative approach used doesn’t really matter. This would imply (but not prove) negative ROI for any magazine which costs more to produce and fulfill than a simple contact e-mail sent with the same frequency as the magazine.

That’s the way I would look at it, because I come from the database marketing world where everything has a quantifiable ROI, and you put your money where the ROI is highest. Branding people probably see the mags as effective and would measure ROI as they normally do, typically through surveys. Are we gaining mindshare? How much is 1 point of mindshare worth? Where is likelihood to buy or recommend to friends trending when you survey customers who get the magazine versus customers who don’t? These are the kinds of ideas branding people work with.

Somewhere in the middle of a nuts and bolts database marketing approach and a “pure branding” approach would be analysis of open rates and click-through on the magazine, if applicable.

I would think the fact customers actually want to interact would be quite telling by itself. A high open rate would be evidence of this. You could also apply survey techniques to try and link these “click-through” type of ideas to actual behavior. In other words, survey the openers and non-openers, clickers and non-clickers about brand attitude and actual purchase behavior, and attempt to make a link. Do the non-clickers buy less frequently, have they switched brands recently, etc. versus the clickers? Then you could make statements like “clickers are 40% more brand loyal than non-clickers, who are 20% more brand loyal than the average customer not receiving the magazine.”

I might also try to design a tracking survey (let’s say 10% of the magazine group) that you execute every 6 months and attempt to quantify the ongoing purchase behavior of clickers and non-clickers, and compare to some baseline info about the “average customer.” Just track over time and see if brand loyalty, likelihood to purchase, self-reported purchase volume, etc. grows over time. I would think this information would be very powerful for a branding oriented company who has never worked with real customer interaction data before.

I can tell you for a fact customer lifestyle magazines can be profitable in a retailing environment, having run such a magazine (2.5 million “free” subs, 6x per year) for Home Shopping Network. The mag had 23 different customer versions and generated a 60 day ROI of about 200% (profits = 3x the cost) on a regular basis. This was direct mail, not e-mail.

The versioning was done as a matrix of product affinity and RFM score; customers who appeared to be defecting were given larger incentives to try and nudge them into starting another purchase LifeCycle in a known cross-over category (lapsing jewelry buyers encouraged to buy fashion, for example). This works like a charm; you already know there is a tendency to cross-over and you are just giving the customer a gentle push to get started before they defect completely.

Hope this was helpful; if you have additional questions or would like to supply more information, feel free to reply. Some people might ght want to make sure

Have a good day!


P.S. Some people reading this might want to make sure to specially define Branding as it relates to your company in order to set up realistic budgets and goals. If that’s you, see here.

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