Kotler's New Metrics for Return on Marketing Investment (ROMI)

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Shubhi Kotiya
CxO / Board, Germany

Kotler's New Metrics for Return on Marketing Investment (ROMI)

Kotler et al have introduced new metrics for better measurement of the Return on Marketing Investment (ROMI).
In line with Five A's of the customer journey in the connected era namely Aware (A1), Appeal (A2), Ask (A3), Act (A4), And Advocate (A5), they suggest2 ratios as valuable metrics:
- Purchase Action Ratio (PAR), and
- Brand Advocacy Ratio (BAR).

WHAT ARE THE PAR AND BAR RATIO? DEFINITION
  • PURCHASE ACTION RATIO: How well companies convert brand awareness into the brand purchase. An essential matrix to track the customer journey from the A1(Aware) to the A4 (Act) stage. PAR = Purchase Action / Spontaneous Brand Awareness.
  • BRAND ADVOCACY RATIO: How well companies convert brand awareness into brand advocacy. An essential matrix to track the customer journey from the A1(Aware) to the A5 (Advocate) stage. BAR=Spontaneous Advocacy / Spontaneous brand Awareness.
EXAMPLE
From a population of 100 people in the market, Brand Y is spontaneously recalled by 90 people. So the Brand Awareness is 90 / 100 = 0.9. But only 20 people end up purchasing the brand. Then the PAR ratio would be 20/90 = 0.22.
But only 9 people advocate the brand or recommend the brand spontaneously. Then the BAR ratio is 9 / 90 = 0.1.
While Brand Y looks promising on the surface, because its brand awareness is 0.9, it fails to convert 78% of its high brand awareness to sales.

⇒ Do you think the ROMI ratios provide a lot of added value?
Sources:
Philip Kotler, Hermavan Kartajaya, Iwan Setiawan, (2017). "Marketing 4.0: Moving from Traditional to Digital", pp. 74-75

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