Fournaise CEO survey finds that agencies lack ROI metrics, but what should they measure?

Fournaise has previously released reports on CEOs telling their CMOs to get out of 'la-la land' and CEOs taking the blame for their ROI-challenged marketers. The group, which markets itself as a performance measurement and management company and has even registered the term ‘ROI Marketer’, may just have an agenda to push.

Which doesn’t mean that Fournaise doesn’t have a point, said Darren Woolley, founding partner and managing director of consultancy TrinityP3. “Fournaise is selling a service, but marketing and advertising does require a measurement of effectiveness and results,” he said. “The trouble is that many companies try to 'sell' an off-the-shelf solution to measuring ROI or ROMI [return on media/marketing investment]. And in our experience, every marketer, every brand and every market has different requirements.”

This latest paper by Fournaise is part of the firm’s 2013 Global Marketing Effectiveness Program, in which it regularly interviews more than 1,200 CEOs and other C-suite decision-makers in large corporations as well as small- and medium-sized business in North America, Europe, Asia and Australia.

The study found that 76 per cent of CEOs feel that their ad and media agencies are not business-pragmatic enough, are too inward looking and talk too much about “creativity as the saviour” without really being able to prove or quantify it. Around the same percentage (74 per cent) also think agencies are disconnected from the short- and medium-term business realities when they keep talking about “giving time to creativity to see the impact”.

The problem here, said Woolley, is the issue of risk and reward. When CEOs try to manage agencies by bringing procurement methods to bear, the agencies are then focused on reducing the costs of advertising rather than increasing its effectiveness. “This model will see the agency sacrifice 15 or 20 per cent profit for the chance of 'earning' five per cent more back. So it represents high risk and low reward,” he said.

The debate, therefore, is around appropriate metrics.

The CEOs surveyed told Fournaise that their agencies are “too quick to claim credit for business results that they were not able to unquestionably prove came directly from what they created (such as attributing year-on-year sales growth to their creative/media activities, when in fact growth came from product, sales force, channel, pricing and/or operation factors)".

This is true, and furthermore is counterproductive, said Tom Williams, author and founder of Ignition Consulting Group. “Most companies pay attention to the wrong metrics because they’re focused on rearview-mirror measures of performance—sales, market share, stock price, etc.—which are lagging indicators. After all, correlation is not the same thing as causation.”

To develop more meaningful indicators, clients and agencies need to define the chief value drivers, said Williams. “For example, while sales is the most common 'hard' metric of success, campaigns that focus on reducing price sensitivity are more effective than those that focus on volume. In other words, value is more important than volume, and value share more important than volume share.”

Sales and revenue are not the only measures, agreed Woolley. “There are metrics that are shown to contribute to sales and revenue," he said. "For a retailer, this may be store foot traffic. For an online retailer, it can be site visits. Likewise, there is brand tracking that can equate to changes in market share or share of wallet.  What I am saying is that if there is not a direct relationship between the advertising and sale (and often this is the case) then marketers and agency need to identify the metrics that the agency can contribute toward, and preferably metrics that equate to more financial metrics.”

But this is a large thing to demand of agencies, and to back it up, CEOs have to move their focus away from driving the cost of advertising down. In Fournaise’s paper, seven out of 10 CEOs surveyed felt that their agencies hide behind technicalities such as “not having enough budget or not being paid fast enough as a way to justify their inability to deliver the (real and P&L-quantifiable) business results expected of them”. This indicates that clients expect agencies to shoulder the risk of expenditure for clients that are budget-focused and may even be delaying payments, but are nevertheless expected to be focused entirely on the client's performance rather than their own survival, which seems a touch unreasonable. 

Rather than ‘technicalities’ these concerns are limiting the agency’s focus. According to Woolley, under the current preferred remuneration model, the problem is that the the agency is paid for the resources the agency provides and not what it produces or the value of those outcomes.

“The fact is that CEOs are right, agencies are not focused on delivery of performance metrics unless they are clearly identified and the agency incentivised for their delivery," Woolley said. "After all, if you are and agency getting paid just to do the job, why would you put guaranteed revenue at risk unless there is a significant upside?”

While the need for some sort of measurement is needed, the dominance of ROI is coming under question. Fournaise finds that 89 per cent of CEOs would trust their agencies more if they were willing to move to a ‘payment-by-result’ model. This will only work if both agency and client can agree on desired results and the metrics to measure them.

For its part, Fournaise is confident its study will be controversial. “There will be two different agency reactions,” said Jerome Fontaine, global CEO and chief tracker of Fournaise. “The ‘Pretenders’ will attack these findings, will question their accuracy and will make their voice as loud as possible in the media and blogs. The ‘Performers’ will smile, nod and will continue doing what they’ve been doing best: constantly tracking their creative/media performance and delivering (real and P&L-quantifiable) business results for their clients, week in, week out.”