ROI= Return on Investment (used in marketing and other business disciplines to determine how much revenue an specific capital outlay returned)
RBI= Runs Batted In (used in baseball as a measure of how many times a player drove a score when batting, either on his own or from a runner on base)
Other than the fact that they both are statistical measures, there is seemingly very little in common between these two metrics. Well, let me try and build a bridge for you…
The Oakland Athletics are a Major League Baseball team that won more games in the 2000-2002 seasons than most other teams of the era, an accomplishment that’s even more astounding when one realizes their team salaries at the time was a mere $41MM (miniscule, considering the Yankees and the Red Sox were spending over $100MM the same period). How did they do it? With a process call Sabermetrics: understanding the real drivers of performance and applying those drivers to achieve an objective. (Hint: That is your “Bridge” between ROI and RBI).
In the case of the Oakland Athletics, Billy Beane, the general manager-along with his statisticians-looked at all the common elements of winning games and winning teams over several years. In the process, he discovered that drivers such as “on base percentage” were actually more indicative of a good offensive strategy than the number of home runs, or RBIs. What Billy essentially discovered is that while the latter two examples are more glamorous stats that may make a player more expensive, they do not necessarily make a team more likely to earn a “W” in the revered “Win/Loss” statistic. Billy’s understanding of the correct drivers to a winning team – and then find the talent that can deliver those drivers, and more impressively at a low cost-made him a legend in modern baseball. His process of Sabermetrics is now commonplace to the game. However, this column is about marketing, not about baseball, so those wishing to learn more can get the book “Moneyball” by Michael Lewis. Let’s go back to Marketing….
As stated earlier, the Number 1 question we get about Co-op/MDF programs in specific (and channel programs in general) is “how do I know if it’s driving ROI?” Well, one way to find out is to use POS data, create segments of your channel population clustered by common characteristics, and separate each cluster into two equal size groups between those who do use Co-op/MDF (the test cell), and those that don’t (the control cell). We’ll bet that the ones who use their allowances have demonstrated higher levels of growth with less volatility over time. However, this statistical approach may be impractical for many as a true measure of ROI for a variety of reasons.
Alternatively, using an approach more common to the Oakland A’s example, begin by identifying all the correct channel sales/marketing behaviors that are common to a “winning reseller” and be sure to direct your program to reward resellers for those behaviors. For example: Early in my career I was the Advertising Services Manager for a major floor covering manufacturer. And while large, we were #2 in the industry. We were looking for ways to help make our Co-op program more effective in driving sales (better ROI if you will). So this is what we observed within our industry:
Seasonality was skewed to Spring (home remodel season) and fall (pre-holiday)
Major promotions from all manufacturers were often directed toward these times.
Consumers were more likely to “trade up” during promotions to a higher grade of floor covering than at other times.
Our share of voice as an advertiser was dramatically lower than competition during that period because we didn’t have the budget that the #1 guys did.
How did we have applied Billy Beane’s approach to achieve our goal? By:
–Offering incentives to Dealers to concentrate their Co-op spending during these periods.
–Focusing the spending to promote high-end products, and to use certain media types that helped to reinforce our branding and share of voice (magazines, broadcast, and other high impact intrusive media).
–Assuring that all channel advertising was “on message” with branding
The result? We achieved record sales figures during these critical periods-with less spending in national advertising through more “focus” of co-op expenditures. While it may or may not be difficult to correlate co-op spending to sales to “prove” ROI, we can easily measure the contributing drivers:
–Share of voice
These then became the key metrics that were considered the success components of ROI-or, if you will, our version of Billy Beane’s “On Base Percentage”. Like Billy, we looked at these, and other contributing metrics, and continually strived to improve them season after season. With this somewhat obscure comparison between marketing and America’s pastime, I urge you to evaluate the ROI of your own program by reviewing the success drivers of your business, then focus your program components to reward partners for performing these activities. After doing so, you and your partners will be laughing all the way to the bank, and you’ll have clear, defensible metrics that will substantiate the ROI in your program.