'It pays to build brands'

PASSING THROUGH: Suresh Ramanathan

Suresh Ramanathan teaches consumer behavior and advanced marketing strategy at the Graduate School of Business, University of Chicago. Before leaving for the US 10 years ago, Ramanathan worked with advertising agencies such as HTA (now JWT), McCann-Erickson and Lintas. An alumnus of IIT, Delhi and IIM, Calcutta, he's now a consultant with media agency Zenith Optimedia. While in India, he spoke at a seminar on return on investment (RoI) in advertising and marketing, organised by Zenith. Ramanthan shared his views on the importance of RoI and its challenges with Shuchi Bansal.

What's your take on RoI in marketing?

There's an obsession among marketers to think about RoI in very standard terms borrowed from financial accounting principles. They look at the effect of marketing on sales and short-term profits. In the process, people lose sight of the basic purpose of advertising and marketing, which is, essentially, brand building.

No one is willing to put in the effort to think about the long-term effects of advertising. What you need is to invest in longitudinal data-gathering techniques to track customers. You need to see if they are staying with the brand or not. The worry is that there's a rush to get on to the RoI bandwagon, without thinking what we really mean.

What'sthe definition of RoI in marketing and advertising terms?

It's very nebulous. To one marketer, RoI could be incremental sales "" what do I get immediately. To another marketer, let's say in a mature market where you may not be able to generate incremental sales, the matrix could be "are we retaining our existing customers" or "are we managing them to advocate our brand to other people".

Is RoI new to this industry?

It's always been there. But everyone is now being held accountable. So far agencies could get away by saying that they were measuring GRPs (gross ratings points), or brand awareness. But those are soft matrix and have no meaning beyond what the agency or brand manager understands.

The CFO could not care less about brand awareness. Soft matrix are going out of the window. Multinational companies are coming here and saying we want accountability and we want results. But how do you define those results becomes an issue.

So who defines them?

From the academic research point of view, at least, we know what works. There's a way of modelling this information. There are tools available but marketers need to come up with data. It would require six or seven years of data-gathering before you can say anything meaningful. Does RoI vary at different stages of a product's life cycle?

In a growing market, you capture market share. As the market begins to mature, you start thinking whether you should acquire new customers or retain existing ones. Retaining customers is cheaper. Invest in customer loyalty. Get them to make emotional investment in the brand. It's better than trying to chase extra sales.

This must be done while the brand is in the growth stage. If you don't do that, when the market starts to taper off, someone else will take your customers away. Unless you invest in customer intimacy, in a mature market, any advantage that you may have had is not going to last you more than four to six months.

In India brands are into tactical advertising rather than brand building.

That's highly myopic. If you are only investing in tactical marketing, in the long run, it'll hurt the financial health of the brand. There is enough research to suggest that.

Then why do companies do it?

For two reasons. One, companies are obsessed with quarterly results. Two, marketing or brand managers have a life cycle of one year before they move to the next job. So who cares about the long run?