|Photo Illustration: Ray Bartkus|
|In today's multichannel world, it's virtually impossible to run an effective campaign or build a strong brand across diverse customer touch points without serious analytical efforts.|
That's our conclusion after more than two years of research on firms that are turning analytics into a competitive weapon, research distilled in our new book, "Competing on Analytics: The New Science of Winning," from Harvard Business School Press. Analytics -- the extensive use of data, statistical and quantitative analysis, explanatory and predictive modeling, and fact-based decision making -- are taking center stage and quietly transforming marketing from an art to a science.
Statistical analysis is not new to marketing. Successful marketing executives know what advertising is working and what is not. Companies can quantify lift from advertising and the effect of promotions on sales. In today's multichannel world, it's virtually impossible to run an effective campaign or build a strong brand across diverse customer touch points without serious analytical efforts.
Only the beginning
Moreover, we're only at the beginning of this trend. As the internet fully matures and joins mass-market advertising, direct mail and outbound call centers as a valid way to reach customers, companies will have to devote even more effort to achieving integrated and optimized campaigns across channels.
Marketing leaders are increasingly adopting advanced predictive analytics to determine tactics and place big strategic bets. Joe Ennen, VP-innovation and growth brands at Frito-Lay North America, uses analytics as both a tactical and a strategic tool to optimize marketing investment across brands and businesses. "At some level, everything we are doing is analytics," Mr. Ennen says.
Leading companies with indirect channels to customers have capabilities that enable them to efficiently design and execute highly effective multichannel marketing campaigns, measure the results and continually improve future campaigns. Many are using econometric modeling and scenario planning to predict performance outcomes, depending on overall budget levels or the amount spent in different channels. They then use campaign management and statistical software to guide the flow of activity and resources to particular channels. In many cases, they have to pull together data from a wide variety of sources to pull this off.
Consider the challenge Samsung faced in 1999. At the time, the company sold 14 product categories in more than 200 countries in a total of 476 category-country combinations. Amid that complexity, the company struggled to allocate marketing resources effectively. It collected data sporadically and unsystematically and analyzed it only at the country level. Further, its definitions of data, collection procedures and reporting conventions were not standardized, so inter-regional analysis was impractical, if not impossible.
This was the situation awaiting Eric Kim when he joined Samsung in 1999 as exec VP-global marketing. With a worldwide marketing budget of $1 billion, Kim launched an 18-month project to gather detailed information on those 476 combinations; assemble and integrate country-level data on a single, easy-to-use site accessible from Samsung marketers' desktops; use brand data to better set marketing objectives by country and product; and employ the analytical power of software to predict the impact of different resource allocations.
The project resulted in the development of a system called M-Net that houses reams of data as well as the analytic tools needed to make sense of it. Now Samsung managers can assess primary marketing objectives, analyze the results of recent marketing investments around the globe, and build predictive models and what-if scenarios to test future investments. M-Net has saved the company millions of dollars by revealing mismatches between some of the company's marketing investments and the maximum returns those investments could ever yield. Today Samsung allocates marketing resources after systematic analysis of product or geographic-market potential, not historical performance.
Integrating and optimizing
Samsung's marketing mix focuses primarily on indirect channels such as print and TV advertising. Consumer-product firms routinely analyze trade promotions and other indirect channels as well. Of course, more direct or "addressable" approaches to reaching customers are gaining in popularity among sophisticated marketers. These approaches, including direct mail, e-mail and search-engine marketing, provide for the possibility of "closed-loop" marketing, in which campaigns' effectiveness can be directly tracked. Many firms are becoming adept at using one of these closed-loop channels, but effective multichannel marketing means integrating and optimizing across all of them.
Evidence shows that customers addressed through multiple channels tend to be more profitable. For now, the feeling among both marketers and customers seems to be "more is better." In the future, however, marketers are likely to want to cut costs by eliminating some channels as they add others. As Jeff Zabin of Fair Isaac describes it, companies must eventually achieve the "four Rs: right customer, right message, right channel and right time." This simply can't be done without the key resources of extensive mathematical and statistical analysis, a "test-and-learn" approach to experimental marketing, and customer data and software integration.
Experimentation will be one of the most important resources in understanding the optimal action for any given customer, channel and time combination. Statistical sampling remains an important tool. What cannot be accomplished with shortcuts is the development of a test-and-learn culture. Gary Loveman, CEO of Harrah's, for example, says he will fire an employee as readily for not using a control group as for stealing from the company.
Collecting customer data
Another key requirement for integrated multichannel marketing is to pull together a substantial repository of customer data. Marketers such as Capital One built their customer databases over time through refinement and testing of purchased lists. Firms with loyalty programs, however, can build a customer database very effectively. Airlines in the U.S., of course, pioneered this, and have begun to employ addressable channels extensively. Tesco, the U.K.-based grocery retailer, adopted its ClubCard loyalty program in 1995, and rapidly became the largest retailer in the U.K. through effective marketing to loyalty-card members. It now sends out close to 10 million different and targeted offers to customers each quarter. The company moved into the multichannel era in 2000 and began to offer not only marketing offers but also groceries over the internet. The store areas it selected and the customers it approached for internet shopping were those targeted as being most likely to succeed. Tesco has become the world's largest internet grocer.
Some companies embarked upon customer-loyalty programs as a means of providing discounts to "members" and charged for the privilege. However, the benefits of addressability for a large customer set have led retailers such as Best Buy and Borders Books to abandon charges for their loyalty programs; others likely will follow.
Optimizing a precision-marketing approach across multiple channels requires integrated systems and data, substantial process redesign and a culture that can collaborate easily across traditional marketing-organization boundaries. Campaign-management and customer-relationship-management applications must be complemented by a best-of-breed approach for the information-integration, analytical and campaign-management tasks necessary to implement their strategies.
Qualified analysts rare
Also critical: highly skilled analysts with an encyclopedic knowledge of a broad range of statistical techniques. Such experts remain a scarce -- and highly prized -- resource. Independent analysts can avoid the bias that comes from having a vested interest in the outcome. Finally, organizations need analytically literate managers to interpret analyses, ask hard questions and ensure that recommendations are implemented properly.
High-performing companies are successfully addressing all of these challenges to compete -- and win -- with analytics. As Jeffrey Merrihue, CEO of Accenture Marketing Sciences, says, "The future of marketing is all about getting the right blend of art and science" in order to maximize long-term profitability and growth. Marketing executives have more information at hand about their customers and markets than ever before. Analytics give marketers a potent competitive tool that allows them to use that information to consistently "out-think" and "out-execute" their rivals.