Communications ROI tool

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Question - how do I assess the (likely) ROI of my communications campaign?

Answer - we recommend that you consider two modes of return - capturing new customers for your product or service, and enhancing underlying customer loyalty.

Key action points

This tool is designed to help you calculate the ROI (return on investment) of your communications/brand loyalty development programs.

Our model assumes that communications are primarily geared to two different roles:

1. Acquiring new customers, and therefore being directly measurable against the communications program
2. Maintaining and building the relationship with existing customers, enhancing loyalty effects. The loyalty effects themselves can be measured, as can sales and profits, but the inter-relationship between the two is very complex, and is not attempted in this model

We are therefore proposing two calculations:

1. The non-user conversion calculation - acquiring new customers for that category of products or service
2. The existing user calculation - gaining more sales and/or profitability from existing customers, which can only sustainably be achieved through loyalty effects

The non-user conversion calculation

The non-user conversion model is where you are seeking to assess how many new customers you can get, either by:

1. persuading people who have never bought this category of goods and services to do so
2. persuading customers of your competitors to try you out, and hopefully to become your customers

The existing user calculation

It has been estimated that 20% of your customers make you a profit, 60% are profit-neutral, and 20% cost you money every time you serve them.

It has also been estimated in very many markets by Bain & Co. that attitudinally brand loyal customers become increasingly profitable to your company the longer you keep them loyal (they buy additional products/services from you, they are cheaper to serve, they recommend you to other people, and they will probably pay a price premium.

It is therefore critical to differentiate between attitudinal and behavioural brand loyalty:

1. attitudinal brand loyalty - where people want to be associated with your brand - it is this attitude that makes them profitable
2. behavioural brand loyalty - where your customers carry on buying from you without feeling especially favourable to you. These people are not necessarily profitable for you, and may be very costly for you if people are forced to buy under duress

The ideal is therefore to gain "greater share of wallet" from attitudinally brand loyal customers, and to lose those customers who are unprofitable to you to competition.

You could therefore lose customers year-on-year, and become increasingly profitable on the basis of sales to attitudinally loyal customers.

This calculation does not attempt to link measures of attitudinal brand loyalty to consequent sales and profits.

What it does instead is to allow you to explore how much sales and how much profits you are likely to make under specific circumstances, and how much of your sales force is being occupied "playing catch-up" - trying to gain new customers in order to replace lost ones.

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