Use the data to make the difference How marketing analytics can

predictably transform business

performance

February 2014

About ScanmarQED

ScanmarQED gives marketing departments the tools to analyse and fine-

tune the Marketing mix, based on their own data and drawing on their

own intimate industry knowledge.

Sophisticated modelling, using PC software that is no harder to handle

than a spreadsheet, makes budgeting, planning and forecasting quick,

accurate and practical. Devising the best marketing mix no longer depends

on hunches and guesstimates. Past performance can be analysed and

future performance predicted, with answers available within hours, rather

than weeks.

www.ScanmarQED.com

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February 2017

Use the data to make the difference How marketing analytics can

predictably transform business

performance

ScanmarQED

Use the data to make the difference

3

For marketers, sensible planning must always assume a broadly stable

environment, if only because random, unpredictable catastrophes are, by

definition, beyond the control of business leaders. Marketing analytics

works because like it or not, we’re lucky enough to be selling to the same

species – the consumer, if you like – about which we already have lots of

accumulated data. And what makes that data yield its secrets, especially in

the area of marketing, is the use of sophisticated analytics.

Knowing is nothing – doing is all

There are many advantages a business can derive from great marketing

analytics. But there is only one that really matters.

Analytics can help you change what you do and improve your

performance.

Knowledge is helpful, but knowing does not change the world. It is how

companies act on their knowledge that makes the difference.

At every level, from the grand strategic thrust to the day-to-day campaign

work, marketing analytics can provide the clues and evidence that prompt

better business decisions. The earlier you get to this information, the

greater the difference you can make, in key areas such as pricing,

promotions and advertising.

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KNOWLEDGE-POINT

5% uplift across the business

If you haven’t come across the latest research into Data-Driven

Decision-Making, published in 2011, you may be in for a surprise.

Using data works. We all knew that, even if we have often failed to act

on it. But this research project†, by a team led by Erik Brynjolfsson of

MIT, actually quantified the advantage companies gained by making a

conscious shift towards Data-Driven Decision-Making (DDD).

Brynjolfsson and his team studied 179 US corporations, examining the

difference in performance between those that had adopted DDD and

those that hadn’t.

The results were clear cut, and startling. Comparing like for like, those

companies that used data to drive decisions, rather than relying on

what Brynjolfsson called “experience and intuition”, were showing

productivity gains 5% to 6% higher than their peers.

They were also showing similar advantages when assessed in terms of

return on equity and asset utilization. And these results were assessed,

in each case, across the entire company. Since the impact of better

decision-making would often be far more decisive in the marketing

department than in, say, production or distribution, the research points

to the potential for considerably higher gains in the marketing arena.

† Strength in Numbers: How Does Data-Driven Decision-Making Affect Firm

Performance? – Erik Brynjolfsson and Heekyung Hellen Kim (Massachussetts

Institute of Technology) and Lorin M Hutt (Wharton School, University of

Pennsylvania). Available at Social Science Research Network: bit.ly/Brynjolfsson

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Analytics prompts better decisions

Most companies face big strategic marketing decisions a few times every

year. Some mature businesses tick over with just one or two. Once the

broad outlines of how budgets and resource allocation have been

decided, a pattern is often set that will not be disturbed until consumer

habits change, innovators disrupt the market or media fragmentation

changes the landscape. Younger businesses in less mature markets usually

operate with a quicker pulse, a higher clock speed and a greater sense of

urgency, starting new projects, changing direction and launching new

ventures far more often.

But mature companies need to get their big decisions right. And the

energetic youngsters will be wasting their efforts and endangering their

future if they rush round like headless chickens, doing the wrong things

with the right intentions.

If great analytics did nothing more than help large firms avoid putting

their budgets in the wrong places and restrain smaller firms from doing

too much, too soon, with too little idea of what to expect, the case for

investing in knowledge would be unanswerable (see 5% Uplift Across The

Business).

A €4 million payback for getting it right

But the job of analytics is not just to impose defensive discipline and

restraint. Analytics can add positive benefits, too. Analytics can unveil

insights that dramatically improve campaign ROI, underpin aggressive

pricing strategies or even allow you to identify and reach completely new

market segments.

One manufacturing company we work with was recently able to introduce

a bold and profitable price increase that few of its peers would have

dared to consider.

It was a Thursday afternoon when the telephone rang and a senior

executive from a major Spanish supermarket group made this

manufacturer an unexpected offer.

“We have decided we’d be happy to support a higher price for X [the manufacturer’s

key product], starting on Monday morning,” said the caller. “We’ll back you if that’s

what you want to do. But you’ll have to let us know within the next few hours, or we

won’t have time to implement the change across our whole chain.”

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In earlier times, such a snap decision would have had to be made on the

basis of intuition, hunch or experience. But, in this case, the

manufacturer’s own marketing team was able to use the recently acquired

desktop marketing analytics software, crunch the numbers and come up

with an unambiguous recommendation to go ahead. The analysis strongly

backed the change and suggested that there were extra profits to be won

that the manufacturer would otherwise not have captured, and the price

increase went ahead.

It proved to be a textbook example of the power of quick, topical

analytics. The manufacturer estimated later that being able to exploit that

unforeseen tactical opportunity had earned it a cool €4 million in

additional profits in the next few months.

KNOWLEDGE-POINT

8 out of 9 marketers prefer guesswork

“Marketers depend on data for just 11% of all customer-related

decisions,” according to a study reported recently in the Harvard

Business Review.

The research, carried out by the Corporate Executive Board’s Patrick

Spenner and Anna Bird, was featured in a Harvard Business Review

blog‡ in August 2012. After studying 800 marketers with major

corporations, Spenner and Bird concluded that assumptions (“Older

consumers don’t use Facebook or send text messages”) and “gut-

based decision-making” comfortably outscored data when it came to

influencing marketers’ decisions.

This tendency to ignore data, however, may not be all bad. The

Corporate Executive Board research also found that when the

marketers were asked five questions on statistics – graded from basic

to intermediate – almost half got four out of five answers wrong.

Based on that evidence, relying on guesswork and gut decisions might

be seen as safer than tangling with the data.

‡ Marketers Flunk the Big Data Test – Patrick Spenner and Anna Bird. Harvard

Business Review, 16 August 2012.

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Compound gains for real-time business

Modern fast-changing business environments now demand quick answers

since speed is of the essence. Before the arrival of in-house desktop

analytics, even companies that could afford the services of specialist

consultancies would have required weeks to answer even a simple

question - even when they required answers in hours.

Why was this?

Traditional marketing analytics and forecasting delivered by external

consultancies typically needed days or weeks of analysts’ time spent

identifying and collecting data and getting familiar with the dynamics that

were driving the business. Then, after taking the data away for yet further

intensive analysis, results were finally returned to the client – perhaps at a

day-long presentation – several weeks later. There are still situations

where this kind of process can be worthwhile, but the time and money

required for such a process means it can only be done a few times a year.

Decisions, however, need to happen every day.

If you think about how often choices have to be made which could

potentially be informed by smart analytics or relevant forecasts, it is clear

that there is room for a different approach. Ideally, this would tap into the

industry knowledge of people working in the client company’s marketing

team. It would also generate results fast enough for these insights to be

exploited immediately and profitably.

There are always many more day-to-day or week-to-week tactical choices

to be made in the course of the marketing year than big, blockbuster

strategy decisions. Introducing logic, facts and insightful analysis into

these many smaller decisions, 52 weeks a year, can bring repeated

incremental improvements that will compound to transform a company’s

performance.

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Spotting what’s really going on

One time-honoured mantra within marketing analytics is the phrase “No

guessing.” In fact, in its fuller form, it is “No guessing, no surprises.” This

simply means that, as far as it is possible to ground your decisions in fact,

in the data generated from previous activity, that should always be

preferred to anybody’s hunch or gut feeling (see The Illusion of Expertise).

Sometimes there will be no data at all that seems to be relevant. If

someone decides to run a television campaign and the company has never

done one of those before, or anything that seems like a reasonable proxy,

then maybe there really will be no usable data.

But the launch of a new product, for example, is unlikely to have to be

undertaken without some insights derived from past performance data.

What happened to the last launch? And the one before that? There may be

allowances to be made for some obvious differences of product type, price

point, geography – any number of different factors. But if those differences

are identified and taken into account, there is always likely to be some

value to be derived from the analytics.

Thanks to the use of desktop marketing analytics, one UK client achieved a

surprising and useful insight into the unexpectedly subtle relationship

between its online and offline enquiries and sales. This financial services

company had always assumed that customers were divided between

telephone enquirers and potential online buyers. The assumption was that

those who telephoned the call centre were simply trying to find out a price

for their service.

But what the analytics helped to flush out was the fact that many of those

who called, ostensibly making their first contact, to make an enquiry and

get a quote, had already checked online. They knew fairly accurately – often

from using so-called online aggregator websites like LowerMyBills.com,

comparethemarket.com or moneysupermarket.com – what this company,

and, indeed, its rivals, would normally charge. The real point of the call, it

turned out, was people asking themselves: “Is there a chance I can get a

better price if I talk to a human being?”

The company had actually been behaving as if there were three discrete

sets of potential customers: those who phone the call centre, those who go

direct to the company’s website and those who go to the aggregators. The

assumption had been that anyone who called up didn’t know the price. But

the analytics proved that these were not three separate populations.

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Use the data to make the difference

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The way to persuade more people to come and buy direct, via the phone

or the website, was, paradoxically, to lower the price quoted online. Our

client could avoid paying out so much in referral fees to the aggregator

sites, if it chose to, by lowering the prices quoted to customers via the

online aggregators. This would stimulate more calls to the call centre and

more direct sales.

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KNOWLEDGE-POINT

The illusion of expertise

Humans are fallible. Even compared with quite crude and simple

in his international bestseller, Thinking, Fast and Slow, Nobel Prize-

winning psychologist Daniel Kahneman takes a pitiless look at the

judgment and performance of experts in various fields when

compared with relatively simple algorithms or rule-based systems.

Kahneman doesn’t single out CMOs and marketing directors. He

focuses on consultant physicians, investment advisers and CEOs.

But what emerges from a wide body of research is that all these

highly trained experts are vastly overconfident of their own

predictive and diagnostic skills.

In the case of doctors, for example, he notes that more than 200

research projects have compared clinical and statistical predictions.

In 60% of these studies, the algorithms beat the humans. In the

other 40%, the result was a draw.

But the humans beat the algorithms in exactly 0% of these 200

tests.

Unless one accepts the unlikely proposition that marketing

specialists are likely to be better at their jobs than medical

consultants are at theirs, there is a definite clue here to the reasons

behind the rapid growth of “rational marketing”.

Understanding creates opportunities

This was an interesting and important insight. If you think of it solely in

terms of correlation versus causation, why would there ever be a

correlation between the price offered and the number of calls to the call

centre?

If lowering the price quoted online reliably induces more people to call, it

can only be because these people who pick up the phone know what the

online price is. If they didn’t, then changing that price could not affect

their behaviour.

This was an insight that had never been part of the company’s thinking,

and it gave the CMO an option that had not been considered before. It

enabled the marketing team to put forward a sound business case,

strongly supported by the data, in favour of cutting prices across all

channels to generate increased volumes and higher profits.

The in-house marketers were certainly not expecting this result. But it was

a clear example of the way valuable nuggets can sometimes fall out of

the data, when a pattern emerges that no one was predicting.

For the company involved, which had been experiencing difficult market

conditions, the insight provided by the analytics had created a completely

new marketing and business opportunity. Yet, because it was based on an

apparently risky and counterintuitive strategy – cutting prices to make

more money – it could easily have been overlooked or dismissed.

Experienced marketers looked at the figures and shook their heads, but

the modelling showed there was every likelihood of success. A decision

needed to be taken, and the CMO steeled himself and decided to test the

price-cutting strategy suggested by the analytics. The results were

positive, the company seized the opportunity with both hands, and the

result has been a swift and substantial improvement in performance.

The familiar tendency to rely on hunches, traditions and past habits in

marketing – vividly highlighted in Glenn Granger’s 2013 book,

Raindancing: Why Ritual Beats Rational – is pervasive and hard to shake.

Without the tools to provide a practical alternative, marketers had little

option, in the past. Rational marketing was only a pipedream until those

tools became accessible, affordable and fast enough to use in quick-

moving business situations. Now that great analytics is potentially

available to all, we are seeing the positive difference it can make in every

type of business, from SMEs to global multinationals.

ScanmarQED

Use the data to make the difference

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