Return on Investment (ROI) is a calculation that integrators and technology decision makers both make to justify the cost of installing a new technology. The idea is that the long term benefits of installing the system will eventually outweigh the initial cost of procurement. It isn’t just about dollar signs when calculating return on investment. Streamlining business practices, accelerating operations, and creating easier ways for people to work all contribute to the return a company gets from new technology. We’ve written about the ways to calculate ROI in the past.
Andy Frawley is the CEO of Epsilon, and recently wrote an opinion piece on Ad Age about the death of ROI. His contention is that the digital revolution over the past 15 years has contributed to the demise of ROI. He believes a new metric is required in today’s digital age, one that takes customer experience and customer engagement into account.
Andy offers a new equation: Return on Experience x Engagement, or ROE². Experiences, such as service, quality of products, and amenities, help shape the way consumers feel about brands. Engagement involves the way customers are interacting with a brand; visiting websites, posting reviews, opening emails, clicking ads, sharing information about the brand, and interacting on social media sites. Marketers want to know about how their marketing is impacting customer relationships, and when installing new technologies they want to know how the new tech is going to help meet that end.
Andy gives the examples of Starbucks and Whole Foods. The former understands engagement, utilizing mobile app rewards and leveraging iTunes to allow customers to download songs using Starbucks codes. The latter understands experience, with pleasant shopping and quality products that customers will pay more money for than they would at other chains. Whether they realize it or not, these businesses use ROE² to help boost sales.
Emotions play a large role in purchase behavior for consumers. Customers are more likely to visit a store or business that they have a positive impression of. They are more likely to forego visiting a store that they have had unpleasant experiences with, even if the price is better than other stores they could visit. In today’s digital age, companies should be as concerned with presenting a positive image to consumers as they are with providing quality products, good prices, and sufficient service. As Frawley puts it:
There’s a point at which a customer’s positive or negative experience is so strong that it can transcend the rational aspects of a brand (e.g., quality, price, service). That’s why creating and guiding the customer experience is so important. Experience creates emotion, emotion fuels engagement and both together impact brand and business outcomes.
Whether ROI is dead or not remains to be seen, but taking customer experience and engagement into account when calculating ROI is a good idea.