Promotion Decisions

8. Cost Effectiveness

Promotional cost is measured in several different ways though the most useful are measured in terms of cost-per-impression (CPI), cost-per-targeted impression (CPTI), and cost-per-action (CPA).  The CPI metric (also measured in terms of cost-per-thousand impressions or CPM) relates to how many people are exposed to a promotion in relation to the cost of the promotion.  A national or international television advertisement, while expensive to create and broadcast, actually produces a very low CPI given how many people are exposed to the ad.  Yet, a low CPI can be misleading if a large percentage of the promotion’s audience is not within the marketer’s target market, in which case the CPTI may be a better metric for gauging promotion effectiveness.  The CPTI approach looks at what percentage of an audience is within the marketer’s customer group and, thus, legitimate targets for the promotion.  Clearly, CPTI is higher than CPI, but it offers a better indication of how much promotion is reaching targeted customers.

An even more effective way to evaluate promotional costs is through the cost-per-action metric.  With CPA the marketer evaluates how many people actually respond to a promotion.  Response may be measured by examining purchase activity, number of phone inquiries, website traffic, clicks on advertisements, and other means within a short time after the promotional message was delivered.  Unfortunately, measuring CPA is not always easy and tying it directly to a specific promotion can also be difficult.  For example, a customer who purchases a snack product may have first learned about the snack product several weeks before from a television advertisement.  The fact that it took the customer several weeks to make the purchase does not mean the advertisement was not effective in generating sales, though if the CPA was measured within a day or two after the ad was broadcast this person’s action would not have been counted.. 

With the growing trend to more targeted promotions, especially those delivered through the Internet, combined with the development of sophisticated customer tracking techniques, the ability to compare promotion to actual customer activity is bound to one day be the dominant method for measuring promotional effectiveness.