Sunday, October 30, 2022

Why a Cautious Approach to Marketing Analytics Makes Sense

Fueled by the exponential growth of online communications and commerce, marketers now have access to an immense amount of data regarding customers and potential buyers. Marketers have recognized that this vast sea of data can be a rich source of insights they can use to improve marketing performance and drive business growth.

The use of data in marketing has a long history, but it's been one of the hottest topics in marketing circles for the past several years. The benefits of "data-driven marketing" have been touted so frequently by so many industry analysts, consultants and technology providers that leveraging data is now viewed as essential for effective marketing. As a result, many marketers have made substantial investments in data collection and analytics capabilities.

The Real-World Use of Marketing Analytics

Despite the abundance of data and the increasing power and sophistication of data-related technologies, the actual use of data analytics in marketing isn't as pervasive as all the hype would suggest. In the September 2022 edition of The CMO Survey, respondents reported that marketing analytics is used in 48.9% of projects 

A survey of marketing analytics users conducted by Gartner earlier this year produced similar findings. In that research, respondents said marketing analytics influences just over half (53%) of marketing decisions.

When Gartner asked survey participants why analytics isn't used to support more marketing decisions, the two most frequently cited reasons related to data quality and management - "data are inconsistent across sources" and "data are difficult to access."

However, Gartner's survey also found that the practices of business decision makers are impacting the use of marketing analytics. For example, a third of the respondents said decision makers tend to use the output of analytics when it supports the action they've already decided to take and to ignore such output when it points to a contrary action. Hello, confirmation bias!

In addition, about a fourth of the survey respondents said decision makers don't review the information provided by marketing analytics, reject the recommendations provided by marketing analytics, or decide to rely on gut instincts to make their decisions.

Satisfaction With Marketing Analytics is Mixed

Research has also found that satisfaction with the impact of marketing analytics is mixed. For example, the September edition of The CMO Survey asked participants to rate the contribution of marketing analytics to company performance using a 7-point scale, where 1 = "Not at all" and 7 = "Very highly." 

Fifty-eight percent of the survey respondents rated the contribution of marketing analytics at 5 or above, indicating a relatively high level of satisfaction with the impact of analytics.

But in earlier research by Gartner, 54% of the surveyed senior marketing leaders - CMOs and VPs of marketing - said marketing analytics had not produced the impact on their organization they had expected.

Some industry analysts have suggested that underutilization and the perceived lack of business impact may cause some company leaders to reduce their investment in analytics capabilities. 

Commenting on the findings of Gartner's 2022 survey, Joseph Enever, a Senior Research Director in the Gartner marketing practice, said, "By 2023, Gartner expects 60% of CMOs will slash the size of their marketing analytics department in half because of failed promised improvements."

A Cautious Approach to Analytics May Be Wise

But is it altogether bad for marketing leaders to approach the use of marketing analytics with a healthy amount of caution? I don't think so, and here's why.

Marketing analytics can fail to deliver the expected benefits for several reasons. First, the hype surrounding the use of data and analytics in marketing has raised the expectations marketers and other business leaders to inflated levels. And second, marketers are still learning how to generate insights from data and analytics that will make meaningful contributions to business performance.

It's also becoming clear that the data most marketers are relying on, and how they are using that data, can produce "blind spots" that lead to less-than-expected results. An October 2020 article in the Journal of Marketing identified four of these potential blind spots.

  1. "First, marketing data may result in prioritizing short-term growth ahead of long-term growth."
  2. "Second, marketers may overly rely on historical, internal data at the expense of forward-looking, external growth opportunities."
  3. "Third, marketing data may create a preference for more easily measured digital touchpoints at the expense of offline channels."
  4. "Finally, marketers may rely on available data in lieu of representative or predictive data."
(Emphasis in original)
The fourth blind spot cited in the Journal of Marketing article alludes to a broader issue relating to the use of marketing analytics and also points to an important limitation of data-driven marketing.
As I noted earlier, marketers now have access to a huge amount of data regarding their customers and potential buyers. But the data most marketers are using to fuel analytics, while vast, is not comprehensive. It doesn't provide a complete picture of the wants, needs or mindset of a potential buyer. Therefore, the recommendations produced by analytics are not always as accurate as we often assume, and this partially explains why analytics doesn't always deliver the expected results.
Given this limitation, business leaders (including marketing leaders) should view the outputs of marketing analytics with a critical eye and not become overconfident in the accuracy of those outputs or the business impact they will produce.
Like all humans, we marketers have a strong tendency to base our decisions on the evidence that's readily available, and we tend to ignore the issue of what evidence may be missing. Daniel Kahneman, winner of the 2002 Nobel Prize in Economic Sciences, has a great way to describe this powerful human tendency. He uses the acronym WYSIATI, which stands for what you see is all there is
The vast amount of data at our fingertips and the seductive capabilities of marketing analytics technologies can easily lead us to believe that the data we collect and analyze is the only thing that matters, and that simply isn't true.
I'm not arguing that marketers should not use data, analytics and data-driven marketing. These tools and techniques can be immensely powerful. The key is to use them wisely and to remember they're neither complete nor perfect.

Image courtesy of Rick B via Flickr (Public Domain).

Sunday, October 23, 2022

Having a Plan Does NOT Mean You Have a Strategy

With the fourth quarter of the year now underway, many business and marketing leaders have already begun their planning for 2023. Over the next few weeks, they will be evaluating how well their business performed in 2022 and looking for ways to improve performance next year.

This annual ritual is usually called strategic planning, and the output of the process - in larger companies at least - is often a lengthy document that  describes what company leaders hope to accomplish in the coming year and what actions they intend to take. Most strategic plans also include a detailed description of where the company will invest in new or existing assets and capabilities.

In fact, the annual planning process is often dominated by budgeting issues. Roger Martin, the well-regarded strategy guru, has this to say about the predominant emphasis on budgeting:  "The vast majority of strategic plans that I have seen over 30 years of working in the strategy realm are simply budgets with lots of explanatory words attached."

The problem is, many business and marketing leaders confuse strategy with planning. They assume that the development of a business or marketing plan is equivalent to the formulation of a business or marketing strategy.

But in reality, formulating strategy and developing plans are fundamentally different tasks. They require leaders to address different issues, and more importantly, they demand different types of thinking.

Most Plans Have Three Components

In the course of my career, I've reviewed dozens of business and marketing plans, and I've found that most have three major components.

Goals/Objectives - Most business and marketing plans contain a set of goals and objectives that leaders hope to achieve in the coming year (or other planning period). Most of these goals and objectives are expressed in quantitative terms (increase revenue by X%, increase market share by X percentage points, etc.).

Initiatives - The second major component is a description of the initiatives that company leaders intend to implement (or continue) in pursuit of their identified goals and objectives. This is usually the longest part of a business or marketing plan. For example, a marketing plan for a B2B company will usually address several initiatives, such as:

  • What marketing campaigns or programs will be run
  • What marketing channels will be used
  • What events (trade shows, etc.) will be attended or conducted
  • What technology tools will be acquired, updated or replaced
Budgets - The third element of most business and marketing plans is a revenue projection and budget. As I indicated earlier, the annual planning process is often dominated by budgeting issues, so this part of the plan usually receives the greatest scrutiny from company leaders.
What Makes Strategy Different
The formulation of a business or marketing strategy requires leaders to address a very different set of issues from those covered in a typical planning process.
Strategy has been described in a variety of ways over the years. In Playing to Win:  How Strategy Really Works, A.G. Lafley and Roger Martin proposed a five-part framework that captures the essence of strategy very well. Lafley and Martin say that strategy consists of an integrated set of choices that answer five fundamental questions.
  1. What is our winning aspiration? (What does success look like?)
  2. Where will we play? (In which markets, with which types of customers, in what channels, in which product categories, and at which vertical stage or stages of the industry will we compete?)
  3. How will we win? (What will enable us "to create unique value and sustainably deliver that value to customers in a way that is distinct from [our] competitors?")
  4. What capabilities do we need to have in place in order to win in our chosen field of play?
  5. What management systems do we need to institute in order to create, review, communicate about, and manage our strategy?
While all of these questions are important, questions 2 and 3 ("Where will we play" and "How will we win?") are the two that are most crucial for developing an effective strategy. Lafley and Martin wrote, "These two choices, which are tightly bound up with one another, form the very heart of strategy and are the two most critical questions in strategy formulation."
Strategy Must Come First
Success in business and in marketing requires both a sound strategy and a thorough plan, but strategy formulation should always precede planning. That's because the plan should be based on (and designed to support) the choices that define the company's strategy.
For example, a company's strategy will include choices about what types of customers the company will seek to serve and how the company will create value for those target customers. It's impossible to develop a sensible marketing plan until those strategic choices have been made.
Having a strategy in place actually makes planning easier because the strategy provides "guardrails" for the planning process. The content of the strategy enables company leaders to more easily determine which initiatives are most essential for the strategy to work and therefore are most likely to produce the desired outcomes.

Image courtesy of Kyle Van Horn via Flicker (CC).

Sunday, October 16, 2022

[Book Review] A Behavioral Science Road Map for Marketers

Source:  Kogan Page

Data science and behavioral science have emerged as the twin pillars of marketing success in the twenty-first century. They have become, in essence, the yin and yang of consistent, high-performance marketing.

These disciplines are both essential because together they enable marketers to develop a more complete understanding of their customers and potential buyers. Data science (which includes the technologies that enable the collection and processing of data) can give marketers a rich picture of buyer behaviors. Behavioral science (primarily in the form of behavioral economics) provides a set of principles that enable marketers to better understand how people process information and make decisions. 

Data science has received a huge amount of attention in marketing circles over the past several years. For example, the use of artificial intelligence in marketing has recently been one of the hottest topics in the industry. The use of behavioral science in marketing has received somewhat less attention even though it has a longer history of use by marketers.

The reality 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 . . ."

A new book by Nancy Harhut - Using Behavioral Science in Marketing:  Drive Customer Action and Loyalty by Prompting Instinctive Responses (Kogan Page, 2022) - is a timely and much needed resource for marketers who want to leverage the power of human psychology in their marketing efforts.

Nancy Harhut is a seasoned marketing professional who has extensive experience with using behavioral science in marketing. In 2017, she cofounded HBT Marketing, a consultancy that specializes in applying principles of behavioral science to marketing. Prior to HBT, Nancy held senior creative management positions at several agencies, including Hill Holiday, Mullen and Digitas.

What's In the Book

Nancy Harhut refers to Using Behavioral Science in Marketing as a "hands-on handbook," and that is an apt description of her book. She clearly wrote Using Behavioral Science in Marketing primarily for hands-on marketing practitioners.

While Ms. Harhut provides clear and concise descriptions of the behavioral science principles covered in the book and includes ample citations to the research relating to those principles, her primary focus is on how marketers can apply those principles. She wrote, "In fact, you'll find I go short on the scientific research and longer on the way to use it."

Ms. Harhut devotes one chapter to an overview of the emotional and rational elements of human decision making. The remaining sixteen chapters discuss specific behavioral science principles that can be leveraged in marketing.

One of the strengths of the book is that it includes real-world examples and case studies in every chapter. Many chapters also include call-out boxes that describe "mistakes" that marketers can make by ignoring or misapplying behavioral science principles.

The book covers many of the most popular principles of behavioral science including loss aversion and the endowment effect (Chapter 2), the scarcity principle (Chapter 3), social proof (Chapter 5) and choice architecture and the status quo bias (Chapter 11).

However, Ms. Harhut also addresses principles that aren't discussed as frequently in the popular behavioral science literature. These include the consistency principle and the Zeigarnik effect (Chapter 8), automatic compliance triggers (Chapter 13) and literary devices that can increase the impact of marketing messaging (Chapter 14).

My Take

Using Behavioral Science in Marketing is a great resource for marketers who want to incorporate principles of behavioral science in their marketing programs, and it's a book that should be on every marketer's reading list.

Nancy Harhut's writing style is informal and engaging - which isn't surprising given her professional background - and she does an admirable job of making a complex topic accessible to marketers. However, it's vital for marketers to remember that while many behavioral science principles are relatively easy to understand, it takes skill and experience to use those principles effectively.

Ms. Harhut acknowledges this in the Introduction of the book. She describes the tactics discussed in the book as "easy to apply," but she also writes:  "These are proven approaches that you can take to influence your targets' decisions, to increase the likelihood they'll do exactly what you want them to. No, there is no magic bullet that will work for everyone, every time. But by skillfully applying the principles of human behavior to your marketing messages, you can gain a competitive advantage." (Emphasis added)

Human decision making is a complex phenomenon that encompasses multiple rational and non-rational elements. To achieve consistent marketing success, marketers must become adept at applying well-established principles of human psychology in their marketing efforts. Nancy Harhut's book is a valuable resource for marketers who want to better understand the basics of human thinking and behavior.

Sunday, October 9, 2022

[Research Round-Up] B2B Highlights from "The CMO Survey" - The Impact of Marketing Analytics and "Working from Home"

Source:  "The CMO Survey" (Christine Moorman, 2022)

(This month's Research Round-Up continues my review of selected B2B findings from the September 2022 edition of "The CMO Survey." In this post, I'm discussing what the survey found pertaining to the growth and impact of marketing analytics and "working from home" in B2B marketing.)

In last month's Research Round-Up post, I discussed some of the major findings in the latest edition of "The CMO Survey." "The CMO Survey" is directed by Dr. Christine Moorman and is sponsored by Deloitte LLP, Duke University's Fuqua School of Business and the American Marketing Association.

This research has been conducted semi-annually since 2008, and it consistently provides a wealth of information about marketing trends, spending and practices. I provided a detailed description of the survey in my earlier post, so I won't repeat that here.

In this post, I'll cover two more findings from the survey that I found particularly interesting. As in my earlier post, I'll be discussing the responses of B2B marketers exclusively unless otherwise indicated. The percentages and other numerical values in this post are the mean of applicable survey responses, also unless otherwise indicated.

The Growth and Impact of Marketing Analytics

"The CMO Survey" asked participants several questions relating to their investment in, and use of, marketing analytics. Respondents with B2B product companies said they currently spend about 10% of their marketing budget on analytics, while those with B2B services companies said they devote about 7% of their budget to analytics.

Spending on marketing analytics appears poised to increase. Respondents with B2B product companies said they expect to spend just over 15% of their marketing budget on analytics in the next three years, while those respondents with B2B services companies expect to spend about 13% of their budget on analytics in the same time period.

The survey also asked participants to rate the contribution of marketing analytics to their company's performance using a 7-point scale, where 1 = "not at all" and 7 = "very highly." Just over two-thirds of the B2B marketer respondents (67.6% of respondents with B2B product companies and 67.3% of those with B2B services companies) rated the contribution of marketing analytics at 4 or above.

These findings indicate that the B2B survey respondents had a generally favorable opinion of marketing analytics. However, other research paints a different picture.

For example, a survey conducted earlier this year by Gartner found that analytics only influences 53% of marketing decisions. Commenting on the survey findings, Joseph Enever, a Senior Research Director in the Gartner marketing practice, said, "By 2023, Gartner expects 60% of CMOs will slash the size of their marketing analytics department in half because of failed promised improvements."

The Extent and Impact of "Working From Home"

One of the most profound effects of the COVID-19 pandemic on business organizations has been the proliferation of remote work - a/k/a "working from home."

When the pandemic began in early 2020, many companies quickly enabled most of their administrative employees to work exclusively from home. Nearly three years later, many companies are using a "hybrid" model of work. While the specifics vary, they typically require employees to be "in the office" some number of days each week, but allow them to work remotely on the other days.

Remote/hybrid work and "return to the office" have been hot topics in the business media for the past several months, but most of the coverage has focused on these topics at the company or industry level. "The CMO Survey" provides several important insights about the extent of remote work in marketing and the impact of working from home on the marketing function.

Remote work appears to be fairly widespread in B2B marketing. In the September edition of the survey, respondents with B2B product companies reported that more than half of the people in their marketing organization are working from home all or part of the time. Respondents with B2B services companies reported that 57% of their marketing employees are working remotely all the time, and 49% are working from home some of the time.

"The CMO Survey" also asked participants about the impact of remote work on five attributes of their marketing organization. The following table summarizes how survey respondents described the impacts.

As this table shows, most of the surveyed B2B marketers do not think remote work has made their marketing organization less productive. In fact, significant percentages of the respondents reported that working from home has improved their organization's productivity.
The table also shows, however, that B2B marketers are concerned that remote work is having a negative impact on the culture of their marketing organization and on their ability to properly socialize younger team members.

Saturday, October 1, 2022

What Marketing Leaders Should Do NOW to Prepare for a (Possible) Recession

B2B marketers have faced a parade of unprecedented challenges since COVID-19 reared its head in early 2020, and it now appears that 2023 will bring a new round of challenges. Faced with the highest level of inflation in four decades, the U.S. Federal Reserve has dramatically tightened monetary policy in an effort to cool an overheated economy.

The Fed's Open Market Committee has already raised the target federal funds interest rate 3 percentage points this year, and it's likely we'll see more interest rate hikes by the end of this year. The Fed is also reducing the size of its balance sheet, which effectively tightens financial conditions.

As a result of the Federal Reserve's restrictive monetary policy, fears that the U.S. economy is heading for a recession have increased substantially. Some economists fear that the Fed will tighten too much or keep the restrictive policy in effect for too long and thus fail to engineer a "soft landing" for the economy. Others believe that inflation will be so stubborn that the Fed will have no choice but to tighten monetary conditions so much that a recession becomes inevitable.

Growing fears of an economic downturn have dominated the business media for the past several months, and these concerns have also spawned a boatload of articles and blog posts about how companies should manage marketing in a recession. A Google search yesterday using the term marketing in a recession produced more than 4 million results even when I limited the search to the past three months.

Many of the recently published articles have emphasized the importance of continuing to market and advertise during a recession. This line of reasoning isn't new. In fact, multiple studies dating back to the early years of the last century have repeatedly shown that companies that maintain their spending on marketing and advertising during an economic downturn outperform those that slash their marketing and advertising budgets.

The results of these studies are compelling, but they are also counterintuitive. Most business leaders instinctively believe it's necessary to reduce spending in a recession. Smaller companies may have to reduce costs in order to conserve cash, and large, public companies often reduce expenses in an effort to preserve margins and earnings per share, both of which have a substantial impact on stock prices.

These are powerful motivations, and marketing leaders are unlikely to convince CEOs and other senior company leaders to maintain marketing budgets simply by citing the studies referred to above.

What Marketers Can Do Now

So, what should marketing leaders do now to prepare for the possibility of a recession? The first critical step is to conduct a thorough and objective assessment of how a recession would be likely to impact their company. This step is essential for two reasons.

First, recessions are not one-size-fits-all even at the macro level. They can differ substantially in both intensity and duration. For example, the "Great Recession of 2008-2009" is widely regarded as the worst economic downturn since the Great Depression of the 1930's. GDP fell as much as 2.6%, the national unemployment rate reached 10%, and the downturn lasted 18 months.

In contrast, the so-called "Dot-Com Recession of 2001" was relatively mild and short. GDP fell by 0.95%, the unemployment rate reached 5.5%, and it lasted only eight months.

No one can know, of course, what the next recession will be like. Many economists believe that if the U.S. economy goes into a recession later this year or in 2023, it's likely to be relatively mild.

Marketing leaders must also remember that a recession will not impact all types of businesses equally. This was dramatically illustrated during the COVID-19 recession of 2020. Public health measures instituted to combat the pandemic essentially cratered business conditions for companies in the travel and hospitality industry, while online retailers such as Amazon and other companies with strong ecommerce operations saw their revenue and profits grow explosively. The COVID-19 recession was unusual in several ways, but unequal impacts have been seen in virtually all recessions.

To assess how a recession could affect their company, marketing leaders must analyze how it is likely to impact their company's customers, and perhaps their customers' customers. This is a bottom-up analysis, but the specific approach will vary depending on the structure of the company's customer base.

If, for example, a company derives a significant percentage of its total revenue from a small number of large customers, marketing leaders should assess the impact of a recession on these customers individually. For smaller customers, the best approach is to group customers based on type of business and evaluate the potential impact of the recession on each of these customer groups or clusters.

The objective of this assessment is to enable marketing leaders to forecast how a potential recession would affect the demand for their company's products or services and thus their revenue. The critical point here is that this assessment needs to be done before company leaders make decisions about whether or how to change marketing strategy, tactics or spending during a recession.

Marketing during an economic downturn will never be easy. The best approach can require company leaders to go against their instincts and conventional business wisdom. Recessions can create substantial economic challenges for some companies, but recessions don't equally affect all types of businesses. For many companies, a recession is not the time to stop spending money on marketing, but it can be the time to change how marketing dollars are spent.

The best way to market during a recession will always be company specific, and the best way to discover the right approach to marketing for your company is to begin with a thorough and objective evaluation of how the recession is likely to impact your customers.

Image courtesy of via Flickr (CC).