Why Human Psychology Still Matters in B2B Marketing

 

                            Image Source:  The B2B Institute

Three topics have dominated much of the conversation in B2B marketing circles over the past few years - technology, data, and content. The explosive proliferation of marketing technologies has been well documented. For example, Scott Brinker's latest graphic of the marketing technology landscape includes 8,000 martech solutions. "Data analytics" has become one of the hottest buzzwords in marketing, and many companies are investing heavily in marketing analytics capabilities.

Meanwhile, content marketing has become nearly ubiquitous. The 2018 content marketing survey by the Content Marketing Institute and MarketingProfs, found that 91% of B2B companies were using content marketing. The adoption of content marketing is now so widespread that it is no longer specifically tracked in this research.

Technology, data, and content are all critical components of successful B2B marketing in a world of abundant information and empowered buyers. However, it's critical to remember that B2B buying decisions are made by human beings, and therefore it's never been more important for B2B marketers to understand how people make economic decisions and to incorporate psychological principles of human decision-making into their marketing strategy.

The Birth of Behavioral Economics

For decades, most economists have assumed that humans make economic decisions rationally. According to standard economic theory, they weigh the economic costs and benefits of their decisions, have relatively stable preferences, and they usually act to maximize their economic self interest. In the late 1970's, psychologists Daniel Kahneman (who later won the Nobel Prize for economics) and Amos Tversky began publishing a number of scientific papers that contradicted the rational view of human nature held by mainstream economists.

Kahneman and Tversky's work pioneered a new discipline that later came to be called behavioral economics. In 2008, two books - Predictably Irrational by Dan Ariely and Nudge by Richard Thaler and Cass Sunstein - raised popular awareness of behavioral economics and put it on the radar screens of business and marketing leaders.

The truth is, marketers have been using principles of behavioral economics for years, albeit largely unwittingly. A 2010 article in McKinsey Quarterly put it this way:  "Long before behavioral economics had a name, marketers were using it. 'Three for the price of two' offers and extended-payment layaway plans became widespread because they worked - not because marketers had run scientific studies showing that people prefer a supposedly free incentive to an equivalent price discount or that people often behave irrationally when thinking about future consequences."

Logic Isn't Everything

A white paper published this summer by The B2B Institute provides new insights on this topic. The B2B Institute is a think tank funded by LinkedIn that focuses on the future of B2B marketing and decision making. The paper was written by Rory Sutherland, who is the Vice Chairman of Ogilvy and a co-founder of Ogilvy's behavioral science practice.

The Objectivity Trap lays out Mr. Sutherland's views on the importance of using principles of the behavioral sciences (behavioral economics, psychology, etc.) in B2B marketing. B2C marketers have long recognized the importance of human psychology, but overall the topic has received less attention in the B2B marketing space. In this paper, Rory Sutherland forcefully argues that behavioral sciences should play a far more prominent role in B2B marketing.

It's impossible to adequately summarize The Objectivity Trap in a single blog post, but here are three of the paper's major themes.

Marketing tends to be undervalued in B2B companies because the conventional wisdom is that B2B buying decisions are made on a purely rational basis. In reality, human biases are present in every B2B buying decision, and "collective bias may be far more significant than individual bias."

Fear of blame is a major driver of business decision making, including B2B buying. "Fear of regret, which drives individual decisions, gives way to fear of blame:  a decision which is easy to defend, or one which delivers small but quantifiable incrementable [sic] improvements, will be preferred to one which overall is better for the health of the organization." Remember the old saying:  No one ever got fired for buying IBM.

Marketing that focuses exclusively on logic and rationality is not as effective as marketing that leverages both logic and principles of behavioral science. "[Marketing] is a mindset which is essential to understanding and solving certain issues and problems in business which have their origins not in engineering, logistics, or in the world of physics but in the more complex realm of human perception, cognition and in the fields of individual and social behaviour [sic] . . . The problem with logic is that it gets you to the same place as all your competitors."

The Objectivity Trap contains several important ideas that span many aspects of B2B marketing. I recommend it to all B2B marketers.

COVID Is Driving a Step-Change in E-Commerce - And That Also Means B2B

 

For the past several weeks, a chorus of business analysts and marketing pundits have been proclaiming that the COVID-19 pandemic is driving a substantial step-change in online shopping and buying. E-commerce sales have been growing rapidly for several years, but it's difficult to argue with the proposition that 2020 will turn out to be a major inflection point for online commerce.

If we want "hard" evidence regarding the pandemic-driven growth of e-commerce, we need look no further than the most recent quarterly earnings reports of five large U.S. retailers. All these enterprises reported astounding increases in e-commerce sales, compared to the same fiscal quarter of 2019:

• Lowes  - Lowes.com sales increased 135%
• Home Depot - Sales "leveraging" Home Depot's digital platforms increased 100%
• Target -  Digital sales increased 195%
• Walmart - U.S. e-commerce sales grew 97%
• Amazon - Online product sales increased 40%. (Note:  This does not include revenues from AWS, Amazon's cloud platform.)

It's important to note that these results are all comparisons with the same fiscal quarter of last year, and we also need to recognize that, with the obvious exception of Amazon, these retailers began their push into e-commerce fairly recently. Still, these e-commerce growth rates are compelling evidence of how much shopping behaviors have changed since the pandemic began.

Will the New Behaviors "Stick" After COVID-19?

The elephant-in-the-room issue for marketers is whether or to what extent the "new" online shopping and buying behaviors will "stick" after the COVID-19 pandemic ends. Some research is suggesting that the shopping behaviors triggered by the pandemic will be long lasting.

For example, in late July and early August, McKinsey & Company surveyed just over 2,000 U.S. consumers to assess how the pandemic had affected attitudes and behaviors across a wide range of economic issues and activities. Seventy-six percent of the survey respondents said they had used a new shopping method since the COVID-19 outbreak started, and 75% said they plan to continue using the new shopping methods after COVID-19 has subsided.

The McKinsey survey also asked participants about their online purchases in 20 product categories and found that respondents expected to increase their online purchases in all 20 categories.

While the results of the McKinsey survey are compelling, it's always a little dangerous to rely too much on survey results that purport to describe what respondents will do in the future. A survey can accurately capture what we intend to do at some point in the future, but whether those intended behaviors actually materialize is another story.

My view is that COVID-19 has produced a step-change in online shopping and buying, much of which will persist after the pandemic ends. If COVID-19 was a short-term event, new shopping behaviors might well be temporary. But we have already been living with COVID-19 for six months, and it seems likely that the trajectory of the pandemic will not change significantly for the next few months at least. Therefore, new shopping behaviors will have plenty of time to become habitual.

How Will the New Shopping Behaviors Affect B2B?

Most of the recent research regarding the shift to online shopping and buying has been focused on consumers. But there are indications that the COVID-19 pandemic is also driving significant growth of B2B e-commerce.

In April, Wunderman Thompson Commerce surveyed 200 B2B professionals in the United States. Survey respondents represented a range of job functions and seniority levels, including purchase managers, procurement managers, and C-level executives. This research found that B2B online purchasing had increased by 22% (on average) since last year. The survey respondents reported that they are now making 48% of their B2B purchases online, up from 38% before the COVID-19 outbreak began.

The Bottom Line

As marketers, we tend to underestimate the importance of convenience in buying decisions and behaviors. The COVID-19 pandemic has forced both consumers and business buyers to use online channels for purchases they previously made in other ways. From these experiences, many buyers have learned that it is easier and faster to shop for and buy many types of products online.

As humans, we tend to gravitate toward behaviors and practices that enable us to accomplish what we need to accomplish in the easiest and most convenient ways possible. When the pandemic subsides, some buyers will undoubtedly revert to in-person shopping and buying for some of their purchases, but a higher level of online shopping and buying will likely be a permanent fixture of the "next normal."

Image courtesy of Animated Heaven via Flickr (Public Domain).

How CMOs Can Build Strong Relationships With CFOs . . . And Why They Should

  Image Source:  The B2B Institute/IPA

For several years, marketing leaders have faced growing pressures from CEOs and other senior business leaders to prove the value of their activities and programs. To satisfy these growing demands, marketing leaders must address two distinct but related issues. First they need to develop measurement systems that will accurately capture the value marketing produces. And second, they need to effectively communicate the value of marketing to the CEO and other senior leaders.

Neither of these issues is easy to address. In the 2020 Marketing Measurement & Attribution Survey Report by Demand Gen Report, 54% of the surveyed marketers said their ability to measure and analyze marketing performance and impact needs improvement or is poor/inadequate. The comparable percentage was 58% in the 2019 edition of the survey, and 54% in the 2018 survey. 

Communicating the value of marketing is also challenging, but a new paper published by The B2B Institute provides several valuable insights on this important issue. The B2B Institute is a think tank funded by LinkedIn that focuses on the future of B2B marketing and decision making.

Marketing to the CFO:  The way back to VALUE for Marketers was published by The B2B Institute in association with The Institute of Practitioners in Advertising (IPA) in the UK. The report is based in part on 30 in-depth interviews with senior leaders of large B2B companies in the U.S., Europe, and Asia.

As the title suggests, one major point of this paper is that CMOs need to make a concerted effort to develop a strong relationship with their company's CFO. It argues that a solid CMO-CFO relationship is important for two reasons:

• First, CFOs have significant influence in many areas of the business that can impact marketing performance. CFOs have always played an important role in setting marketing budgets, but they're now involved in decisions regarding business strategy, technology spending, new product development, and pricing, as well as other business functions.
• And second, in many companies, most of the senior leaders don't have a thorough understanding or appreciation of how marketing creates value for the business. This lack of understanding can result in an under-investment in marketing and/or a misallocation of marketing budgets. Therefore, it's critical for CMOs to design and conduct an ongoing, evidence-based program to educate other senior leaders about how marketing "works" and how it creates value.

The VALUE Framework

The centerpiece of The B2B Institute/IPA report is the "VALUE" framework, which is depicted at the top of this post. The VALUE framework is designed to provide B2B CMOs and their teams a "practical roadmap" for building an effective relationship with the CFO and other financial colleagues.

The VALUE framework contains five components.

Value - The CMO and other marketers must have a clear understanding of now value is created within their company (structural sources of revenue, cost drivers, etc.) and how value is created for customers. This understanding helps the CMO and other marketing leaders to identify now marketing programs impact those levers of revenue growth and profit.

Accountability - CMOs should proactively and expressly accept accountability for those aspects of revenue growth and profitability that marketing can influence. A willingness to accept accountability will enhance the credibility of the CMO in the eyes of the CFO and other senior leaders.

Language - The CMO should avoid the use of marketing jargon when communicating with the CFO and other senior leaders. Instead, he or she should always seek to place marketing activities and programs in the context of desired business and financial outcomes.

Understanding - Because the value of marketing is often not well understood by non-marketers, it's important for the CMO to consistently communicate the value of marketing across and throughout the enterprise.

Evidence - CMOs should welcome the measurement of their activities and programs, and they need to work with the CFO to develop a measurement system that will accurately reflect the value that marketing creates for the business.

Marketing to the CFO provides worthwhile advice for enhancing the credibility of marketing among senior business leaders. B2B marketing leaders should take the time to review the full report.

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Is Your Company's CMO Really Just a CMCO?

 

In late February of this year, an article at the Harvard Business Review website made the provocative claim that the importance of chief marketing officers in larger companies had declined over the past two decades. Normally, this article would have generated a lively conversation in the marketing community. But within a couple of weeks after the article was published, marketers across the United States were completely focused on the COVID-19 pandemic.

The article's conclusion was based on an analysis of the compensation paid to the senior leaders of large companies between 1999 and 2017. The research identified the five highest paid executives of companies included in the S&P 500, S&P 400 MidCap, and S&P SmallCap 600 indexes. The authors used four job classifications in their analysis - marketing, technology, operations, and finance.

This analysis found that the number of CMOs who were among the five highest paid executives declined about 35% between 1999 and 2017. The authors contended that the results of their research supported their assessment in an earlier HBR article that "marketing as a function is less valued today than it once was." 

The conclusion contained in the HBR article stands in stark contrast with the prevailing view in the marketing community that the scope of marketing's responsibilities has expanded in recent years. But the article does raise an issue that should be concerning to CMOs and other senior marketing leaders.

Over the past several years, an increasing number of companies have appointed "chief revenue officers" or "chief growth officers." Some of these companies never had a CMO, while others created the new position to replace the CMO role. These organizational changes suggest that a growing number of CEOs and other senior business leaders don't believe their marketing function - and by extension the CMO - is maximizing growth opportunities.

I would argue that this perception is largely the result of how the marketing function has evolved over the past several decades. For the past 50 or 60 years, most marketers have been focused almost entirely on marketing communications and the technologies that support them. So as practiced in many companies, marketing came to mean marketing communications and not much more.

Marketing communications are certainly important, but leading marketing academics have long recognized that the marketing function has (or should have) other critical responsibilities. In the late 1940's, Neil H. Borden created a model of the "marketing mix" that included 12 distinct ingredients - product planning, pricing, branding, distribution channels, personal selling, advertising, promotion, packaging, display, servicing, physical handling, and fact finding and analysis. In his 1960 marketing textbook, E. Jerome McCarthy grouped these ingredients into the four categories that we know today as the 4P's of marketing - product, price, place, and promotion.

So marketing has long had a mandate that is broader than marketing communications. Unfortunately, many of these broader responsibilities have, over time, been transferred to other business functions, often with the acquiescence of marketing leaders. As a result, it's hard to argue that the influence of marketing has not been diminished. Recent research supports this view.

The CMO Survey

The February 2020 edition of The CMO Survey provides detailed information regarding the current scope of marketing's responsibilities. This survey generated a total of 265 responses from senior marketing leaders at U.S. companies, 65.6% of whom were affiliated with B2B companies. The detailed survey report makes it possible to isolate the responses from B2B marketers, and the following discussion is based on those responses. 

The survey asked participants to identify the activities that marketing is primarily responsible for in their company. The table below shows the activities that more than 50% of respondents (from either B2B product companies or B2B services companies) said marketing is primarily responsible for in their organization.

What activities didn't make the 50% cut? Those are shown in the following table.

These survey findings suggest that marketing's scope of responsibilities has not expanded much beyond marketing communications activities in most B2B companies. Seven of the 12 activities in the first table (shown in red) are centered primarily around communications. Also note that 3 of the 4P's - product, price, and place (distribution) - are completely absent from the first table.

If the importance of CMOs is declining, perhaps it's because most CMOs are actually CMCOs - chief marketing communications officers.

Illustration courtesy of OTA Photos (tradingacademy.com) via Flickr CC.

Charting the Course to Your COVID-19 Recovery

Two weeks ago, McKinsey & Company published an article discussing the steps that B2B company leaders should take to create an effective COVID-19 recovery plan. A post-COVID-19 commercial-recovery strategy for B2B companies identifies five components of a pandemic recovery strategy:

1. Identifying pockets of potential revenue growth
2. Adopting new go-to-market approaches to meet changed customer needs and expectations
3. Doubling down on e-commerce
4. Adapting pricing and/or offer configuration to suit customer needs
5. Introducing new and/or reengineered products or services

While all of these components are necessary (to some degree at least), I would argue that no component is more important for most companies than the first - identifying the most fertile sources of potential revenue growth.

As the authors of the McKinsey article point out, COVID-19 has "upended" demand patterns across all sectors of the economy. In some cases, the pandemic has substantially increased customer demand. Think mechanical ventilators, household cleaning products, and digital collaboration applications (e.g. Zoom). However, most B2B companies have seen demand for their products or services fall, at least temporarily.

Some recent economic indicators suggest that the bottom of the COVID-19 recession may have occurred in April. But the pandemic is far from over, as the recent surge of COVID-19 cases in several states demonstrates. And many public health authorities are still warning that we may face a "second wave" of COVID-19 in the coming fall and winter.

Because of the continuing impact of COVID-19, the economic recovery is likely to be uneven. Different industries and customer segments will recover at different speeds. Therefore, it's critical for business and marketing leaders to identify what revenue growth opportunities are (or can be) available to them and then determine which of those opportunities are most attractive under a range of economic scenarios.

While COVID-19 has dramatically affected demand patterns, it has not altered the structural sources of revenue growth that are always present, at least to some degree. The existence of these structural sources of growth isn't dependent on the economic or market conditions a company is facing at a particular moment in time. However, the volume of revenue that a company can realize from each source is greatly dependent on the economic and market environment. And for the next several months at least, economic and market conditions will be largely dictated by the trajectory of COVID-19, progress on the development of effective vaccines and/or therapeutics,  and the policy responses to the pandemic.

What COVID-19 Does - and Doesn't - Change

The diagram at the top of this post depicts the framework I use when working with clients to identify and evaluate revenue growth opportunities. The impacts of COVID-19 do not require the framework itself to be modified, but the pandemic does require a change in how the framework is used. In essence, COVID-19 requires company leaders to analyze sources of revenue at a more granular level. Here's a simple example of what I mean.

In the framework diagram, one of the two major sources of revenue is "Revenue from Existing Customers." In more "normal" economic times, we would map recent historical revenues to this source and use those historical revenues as the base for our projected future revenues. But in the COVID-19 economy, those historical revenues may not be helpful because, as noted earlier, different industries and customer segments will recover from the pandemic at different speeds.

In today's environment, business and marketing leaders need to segment their base of existing customers by industry, product usage, and perhaps by geographic market area, and then analyze which customer segments are likely to recover from COVID-19 first, and whether the demand from each segment will exceed or fall below pre-pandemic levels.

This type of analysis should be performed for every structural component of revenue, and the objective is to identify which customer segments, products, and geographic markets are likely to provide the greatest opportunities for growth over the next 6 to 12 months. The insights from this analysis will enable B2B marketers to target their marketing programs and investments where they are most likely to be productive.