The Elasticity Of Marketing Return On Investment

Abstract

This paper demonstrates that the marketing return on investment (MROI) can be inversely related to profits in healthy, high performance firms. In light of this, the authors contend that MROI is a poor metric for evaluating profitable performance, because lower MROI is not always a sign of poor performance and higher MROI is not always a sign of higher performance. However, MROI can be converted into an elasticity of efficiency and used as a diagnostic tool to help marketing managers choose more profitable levels of promotion. MROI in the role of a diagnostic tool has stronger theoretical foundations than in its role as an evaluation metric. The paper presents the elasticity of MROI to changes in marketing expense as a practical tool for marketing managers to improve the profitability of marketing.