When You Should (and Shouldn't) Rely on Correlation

The march to data-driven marketing in recent years has been as relentless as the flow of lava down the sides of an erupting volcano.

The use of data in marketing is by no means new, but marketers now have access to a vast amount of data regarding customers and potential buyers. Equally important, they also have access to powerful and affordable analytics technologies.

Today, it's nearly impossible to find a marketer who doesn't think using the right data in the right ways can improve marketing performance.

Much of the heavy lifting in marketing data analysis involves correlation. In simple terms, correlation is a relationship between phenomena or things - "variables" in the lingo of math and statistics - that tend to vary or occur together in ways that aren't due to chance alone.

It's not surprising that correlation plays such a central role in marketing analytics. A single data point can provide useful information, but the real power of analytics is its ability to identify and quantify relationships between two or more "variables" in your marketing data. Understanding these relationships can enable marketers to make decisions that improve marketing performance.

Correlation ≠ Causation

One of the fundamental principles of data analysis is that correlation does not establish causation. In other words, data analysis may show that two events or conditions are strongly correlated statistically, but this alone doesn't prove that one of the events or conditions caused the other.

The following chart provides an illustrative example of why marketers must never forget the distinction between correlation and causation. It shows that from 1999 through 2009 there was a strong correlation ( r = 0.99789126 for you data geeks) between US spending on science, space, and technology, and the number of suicides by hanging, strangulation, and suffocation. (Note:  To see this and other nonsensical correlations take a look at Spurious Correlations.)

Source:  Tyler Vigen, Spurious Correlations

I doubt any of us would argue that there's a causal relationship between these two variables (despite the strong correlation) because they just don't have a plausible relationship. In marketing, however, it's easy to encounter events that are strongly correlated and have a plausible cause-and-effect relationship. The problem is, the causal relationship, while plausible, can be weak or nonexistent.

When To Rely On Correlation

It's preferable, of course, to base marketing decisions and actions on proven cause-and-effect relationships, but this may not always be realistic or even possible. Proving the existence of a causal relationship typically requires the use of a well-designed and tightly controlled experiment. In marketing, such experiments can be easy to conduct in some situations, but difficult, if not impossible, to run in others.

Under these circumstances, the real question is:  When should marketers act based on a correlation?

David Ritter with the Boston Consulting Group described a process for answering this question in an article published on the Harvard Business Review website a few years ago. I've used Ritter's process - with a couple of minor modifications - numerous times in my work with clients, and I've found it to be effective at focusing the attention of decision-makers on the right issues.

The diagram below is my adaptation of Ritter's framework.

Whether you should rely on a correlation depends primarily on two factors - your confidence in the correlation as an indicator of cause and effect, and the balance of risks and rewards.

Confidence in the correlation - The first factor is your level of confidence that the correlation points to a real cause-and-effect relationship. This factor is in turn a function of two things:

• How often the correlation has occurred in the past. The more frequently events have occurred together, the more likely it is they are causally related.

• The number of possible explanations for the effect under consideration. For example, your data may show a strong correlation between the number of marketing emails sent and revenue growth during a given period. But, if there are several plausible explanations for the increased revenue, you have less reason to think there's a causal connection between the number of emails sent and revenue growth.

The balance of risks and rewards - The second factor involved in determining whether you should rely on a correlation is an evaluation of risks and rewards. Any decision based on a correlation should include an assessment of the potential risks and benefits associated with the action.

The above diagram illustrates how these two factors are used together to help you decide whether you should act based on a correlation.

I need to make two points about using this framework. First, it's important to go through this analysis for each action you're considering. When you identify a correlation, there will probably be several ways you could act on that correlation. Each option should be evaluated separately because they will probably have different risk-reward profiles.

It's also important to consider the size of the "gap" between the potential risks and rewards. For example, if a potential action has huge potential benefits and very low risks, you may want to act even if your confidence that the correlation indicates a cause-and-effect relationship isn't very high.

Top image courtesy of Global Panorama via Flickr (CC).

[Book Review] An Insightful Guide to Customer Experience Innovation

Source:  BenBella Books, Inc.

Innovation has long been an important element of business success. For years, astute business leaders have looked for ways to improve the quality and value of the products or services they offer.

More recently, business leaders have recognized that delivering great customer experiences is vital to achieving competitive success.

A new book by Allen Adamson - Seeing the How:  Transforming What People Do, Not Buy, to Gain Market Advantage (Matt Holt, an imprint of BenBella Books, Inc., 2023) - brings innovation and customer experience together to describe a recipe for creating competitive advantage that some of today's most successful companies have adopted. 

Allen Adamson is a recognized expert in marketing and branding. He is currently a managing partner of Metaforce, a marketing consultancy that works with clients on strategy development, go-to-market planning, branding, creative, and activation. Prior to Metaforce, Adamson was the chairman of Landor Associates, a full-spectrum brand consultancy.

What's In the Book

The central focus of Seeing the How is experience innovation, which Adamson describes as reimagining how people could do the things they are already doing in ways that would make the experience faster, easier, and/or more satisfying.

An experience innovation that is profound enough to trigger a large-scale change in customer behavior can rightly be called a disruptive experience innovation.

Adamson argues that many businesses have achieved success and built competitive advantage by designing and delivering innovative experiences around everyday activities. He writes that these companies are finding success, ". . . not in making something new, not in creating new tech to do something, but in changing the experience of doing what we were going to do anyway." He calls it rethinking the how, not the what.

Most of Seeing the How is devoted to discussing eight "lenses" that entrepreneurial marketers and other business leaders can use to identify and seize opportunities to create innovative experiences. Adamson discusses each of these lenses in a separate chapter and includes several examples of companies that have used each lens to achieve success.

Here's a quick summary of the eight lenses.

Focus in and drill down - Identify a specific problem or friction point in the customer experience and find a way to solve that problem or reduce the friction. Examples:  1-800-Contacts, Calendly.

Customize and make it personal - Consider "how you can take what you do and know best and make it specific to the region, type, or personality of your customer." Examples:  Netflix, Stitch Fix.

Joining Forces - "Take what you do so well and work with someone else who does what they do well" to deliver an experience that neither organization could deliver on its own. Examples:  Casper (Target), Audible (Apple).

See like a concierge - Develop the expertise and ability "to solve problems better and faster than the average person can on their own, even after hours of research." Examples:  Apple (Genius Bar), Ford, Sodexo.

Go the rental route - Look for opportunities to "rent" a product or service for a particular period, thus eliminating the negative aspects of ownership. Examples:  Rent the Runway, United Rentals.

Approach things as a broker - Look for opportunities to create a two-sided marketplace. Examples:  Uber, Airbnb.

Explore virtual options - Identify opportunities to build a virtual business in a product or service category where virtual businesses don't exist. Examples:  Peleton, Coursehorse.

Getting close to the customer - Look for opportunities to eliminate the need to rely on intermediaries. Examples:  Apple (its retail stores), Warby Parker.

My Take

Seeing the How will be a valuable resource for anyone who has responsibility for driving revenue growth at their company. Allen Adamson argues that customer experiences are now responsible for more growth than product or service differentiation. Therefore, in today's business environment, delivering innovative customer experiences has become a strategic imperative for most companies.

Seeing the How is an enjoyable read because Adamson's writing style is engaging and because he devotes much of the book's content to stories about companies that have achieved dramatic success by creating innovative customer experiences. This narrative approach makes it easy to read the book in bite-sized portions.

The "lenses" Adamson discusses in the book constitute a useful and valuable framework that can help business leaders identify opportunities to innovate the customer experiences they provide. But Adamson also makes the point that you won't get the full benefit of using the lenses unless you have a deep understanding of the existing customer journey or journeys.

Adamson rightly observes that this level of understanding is hard to gain. One primary reason is that it's difficult for customers to describe an experience that does not yet exist, and yet creating a new experience is one of the requirements for a truly disruptive experience innovation.

[Research Round-Up] LinkedIn/Ipsos Survey Examines the State of B2B Marketing

Source:  LinkedIn and Ipsos

(This month's Research Round-Up discusses some of the significant findings from a recent global survey of B2B business and marketing leaders conducted by LinkedIn and Ipsos.)

This spring, LinkedIn and Ipsos conducted a significant survey of B2B business and marketing leaders located around the world. The B2B Marketing Benchmark survey used a sample of 1,954 B2B leaders from eight countries. Survey respondents were CFOs, CMOs, and senior-level marketers.

The survey included participants affiliated with companies of various sizes operating in a variety of industries. Survey data was collected from March 24 through May 5, 2023.

LinkedIn and Ipsos reported some survey findings for subsets of the total survey sample. In the survey report, the term B2B leaders refers to the full sample of survey respondents. The term B2B marketing leaders refers to CMOs and other senior marketers (81% of the total survey sample). The term C-suite refers to CMOs and CFOs (38% of the total survey sample).

The objective of this research was to examine several factors currently affecting B2B marketing, including the state of marketing budgets and spending priorities, and the strategies and tactics B2B marketers are using to drive growth. Here's a brief summary of some of the significant findings from this important survey.

Marketing Budgets and Spending Priorities

Despite the uncertain economic environment of the past several months, most respondents in this survey reported that their marketing budgets are in reasonably good shape. About 6 in 10 (59%) of the respondents said their marketing budget had increased over the past year. And two-thirds (67%) said they expect their marketing budget to increase over the next year.

LinkedIn and Ipsos asked survey respondents to rank four marketing objectives in terms of how much of their marketing budget would be allocated to each objective. The following table shows the percentage of survey respondents who ranked each objective as their top spending priority.

Unfortunately, the survey report doesn't include a definition of "Lead Generation" or "Demand Generation." So, it's impossible to determine how these objectives were defined in the survey, or whether they were defined at all. If they weren't defined in the survey instrument, it may be more accurate to combine the percentages shown for these objectives in the above table.

It's also somewhat surprising that only 15% of the survey respondents ranked account-based marketing as their top spending priority.

The LinkedIn/Ipsos survey clearly showed that survey respondents are primarily interested in acquiring new customers. Overall, about 70% of the respondents said their marketing budget is primarily focused on generating new business rather than on retaining existing customers.

Marketing Strategies and Techniques

LinkedIn and Ipsos also asked survey participants about their views on various marketing strategies and techniques.

The survey revealed that most B2B marketing leaders place significant importance on brand building.

• 70% said their team understands the importance of brand building and that they have the right creative skills on their team to support brand-building efforts.

• 60% said their company had increased spending on growing brand awareness in the past year.

• 59% said their C-suite had increased the importance of brand building given economic conditions.

The survey also asked B2B marketing leaders what marketing techniques they plan to use in the coming year. The three most frequently identified techniques were:

• In-person events (60%)

• Video (59%)

• Thought leadership content (57%)

The two marketing techniques deemed to be most effective by B2B marketing leaders were in-person events (21%) and thought leadership (20%).

The survey report contains many other valuable insights, including several findings about the evolution of the CMO role and the skills that are needed in marketing. And, like almost every other survey I've reviewed in the past several months, this one also has some interesting findings relating to artificial intelligence.

This is an important survey, and I encourage you to review the full 86-page report.

How to Take the "Vanity" Out of Marketing Metrics

Marketers are often told to avoid using "vanity metrics" to measure marketing performance. Vanity metrics have been described in several ways, but the term is frequently applied to social media and other types of "engagement" and "consumption" metrics - things such as impressions, "likes," shares, and page views.

The primary criticism of vanity metrics is that they don't have a measurable relationship to strategic business outcomes. So, for example, the number of shares or likes received by your social media content might have doubled over a given period, but there was no meaningful growth in your revenue or market share over that period.

The real problem with vanity metrics is not with the metrics themselves, but rather with the failure of marketers to place those metrics in the appropriate context. In fact, the need to provide context applies to all marketing metrics, not just those traditionally called vanity metrics.

Marketers need to take two essential steps to create an effective and credible marketing performance measurement system. First, they need to link each of their marketing activities to one or more specific objectives. And second, they need to link their marketing objectives directly or indirectly to one or more strategic business outcomes, typically revenue or market share growth.

These two steps are critical to building a marketing measurement system that will support better decision-making by marketers and produce data that will be credible to senior company leaders.

Objectives, Activities, and Metrics

The three core components of a well-designed marketing performance measurement system are objectives, activities, and metrics. The following diagram depicts a small portion of a marketing measurement system for a hypothetical B2B company. It illustrates how the three measurement components relate to each other.

Marketing Objectives

The foundation of any effective and credible marketing performance measurement system is a set of objectives that collectively describe a company's marketing strategy. At the most basic level, a marketing strategy is a growth hypothesis that states:  "If we achieve these objectives, we will drive revenue and/or market share growth and add value to our company."

The marketing objective shown in the above diagram is to increase brand/company awareness among potential buyers in the company's target market.

Marketing Activities

The second element of a marketing performance measurement system is the set of marketing activities a company chooses to perform to achieve its marketing objectives. In a well-designed system, each marketing objective is linked to one or more objectives. The logic of this linkage is:  "If we perform these activities well, we will achieve our marketing objective(s)."

The above diagram shows two marketing activities - publishing high-quality blog content and posting engaging content on selected social media networks. The arrows indicate that the company's marketers believe that performing these activities will increase brand awareness.

The arrow connecting "Social Media" to "Blog" indicates that the company's marketers plan to use some social media posts to promote their blog content, which they believe will improve the performance of the blog.

Marketing Metrics

Marketing metrics are the third component of a marketing performance measurement system. In our example, a part of the company's marketing strategy is based on the hypothesis that blogging and being active on social media will increase brand awareness. Metrics are used to test the validity of this hypothesis.

The role of metrics is to quantify the immediate results of performing an activity. Marketers then use those results to reveal the progress (or lack of progress) toward achieving a particular marketing objective. In our example, the company is using blog metrics (views, subscriptions, etc.) and social media metrics (likes, shares, etc.) to show the change in brand awareness.

Connecting Marketing Objectives to Strategic Business Outcomes

Linking marketing activities to marketing objectives, and then using metrics to quantify the immediate results produced by each activity is a fairly straightforward task. But, it's also important to link marketing objectives (and their related activities) to strategic business outcomes like revenue or market share growth.

Marketing creates business value through activities that operate at different stages of the value-creation process. However, many marketing activities contribute to business value only indirectly, and some will be several steps removed from the strategic business outcomes they affect. This makes it difficult for marketing leaders to show the value of such "remote" marketing activities.

I described how to address this issue in a detailed post several months ago, so I won't repeat all of that discussion here. However, the solution basically involves describing the "chain" of linked marketing objectives (and the related activities) that ultimately leads to a strategic business outcome.

The following diagram depicts a simplified version of one of these marketing value chains.

This diagram is based on the example I've been using in this post. It shows how our hypothetical company's marketers have connected blogging and social media involvement to the strategic revenue growth objective.

When the link between these marketing objectives and revenue growth is made explicit, blogging and social media metrics that might otherwise be viewed as vanity metrics become relevant and meaningful for measuring marketing performance.

Top image courtesy of ESO via Flickr (CC).