ROI: The emperors new clothes?

Looking back at the last few years in the digital signage industry there has been an increase in articles and a growing focus on ROI. ROI has become a buzzword for sales and marketing reps and the holy grail for some clients.

My position is head of marketing and analytics for ProntoTV (part of the ZetaDisplay Group), so I’ve used my share of ROI-slides in presentations. However, I would like to address a few issues that makes the traditional ROI focus wrong and could lead to a lot of bad decisions being made. A traditional ROI study would take into account all costs/investments (hardware, installation, licenses, content creation, training, infrastructure etc – alternative costs) and increased sales/return resulting in a ROI%. So far so good. Checking if a digital sign could increase the profit vs a status quo (let’s say a poster which is the normal case) is a good exercise, and I emphasize the word profit. Maximizing the ROI is not the same as maximizing profits. Les Binet and Peter Fields most recent work on the IPA Databank in UK showed ROI as one of the least important drivers for profit (see below table 1 from the IPA report “Media in Focus – Marketing effectiveness in the digital era”)

Table 1

Top drivers of profit	Correlation with profit (*=statistically significant)
Number of large business effects	84% *
Very large sales gain	40% *
Number of brand effects	23% *
Very large market share gain	23% *
Very large increase in penetration	21% *
Very large price effects	18% *
Very large gain in loyalty	17% *
Very large activation effects	15% *
Return on Investment	15% *

The most important driver for profit is business effects (sales, market share, penetration, loyalty and price sensitivity) and not ROI. The reason why ROI is a dangerous measure to use, is that you can end up only using sales activation mechanisms to get the highest possible ROI (see table 2 below). Sales activation mechanism is not an important driver for profit (see table 1). So maximizing the ROI is actually not maximizing your profits.

Table 2

Top drivers of ROI	Correlation with profit  (*=statistically significant)
Very large activation effects	23% *
Very large profit effects	15% *
Number of brand effects	8%
Very large sales gain	8%
Number of very large business effects	7%
Very large price effects	4%
Very large market share effects	1%
Very large loyalty effects	-1%
Very large penetration effects	-3%

Business effects are per definition long term, while sales activation is short term. In marketing a golden rule of thumb is a 60/40 split between long term brand building and short term sales activation. I’m not sure if this split is the right answer for all retailers, but the focus on ROI means that more and more businesses are shifting to a heavier short term sales activation focus. On the other side this years NRF focused on retail giving customers a reason to come to the stores. Since the price war is already lost to pure play online retailers (read amazon), it is about giving people an experience in a store. Looking at big discounts on a digital sign is not giving people an experience at the store.Obviously it is essential to understand the potential monetary effects that can be achieved with digital signage before investing, but be sure to also have a look at the long term effects and not just short term.