via HBS Working Knowledge

Businesses rely on solid marketing strategies to boost sales—yet the tools used to evaluate these strategies often provide misleading results, leaving managers with the inability to accurately measure how they can get the best bang for their marketing buck.

"Companies really need to pay attention to the effectiveness of their marketing instruments"

Thomas J. Steenburgh, an associate professor in the Marketing Unit at Harvard Business School, has developed a new analytical tool that more accurately measures the effectiveness of various marketing efforts. He created the model with Qiang Liu, an assistant professor of marketing at Purdue University, and Sachin Gupta, the Henrietta Johnson Louis Professor of Management and professor of marketing at Cornell University.

Steenburgh believes that the model could help brand managers determine which marketing strategies work best to invest in.

"Companies really need to pay attention to the effectiveness of their marketing instruments," Steenburgh says. "They need to look at whether they're creating new customers or whether they're just drawing customers away from competitors. It's a fundamental question in the field, and this model helps measure that."

The ideal mix

When planning marketing campaigns, brand managers have a wide portfolio of weapons to draw on, including in-store merchandising, advertising, coupons and sweepstakes, trade promotions, prices, and deployment of a direct sales force. The key is crafting the right mix between them—the ideal brew needed to achieve sales and market share goals.

The trick is that each marketing effort affects consumer behavior in different ways, and also prompts different types of responses from competitors. Some activities result in expanding demand across an entire category of products. Take for example the "Got Milk" advertising campaign, which is intended to increase demand for a category of products, milk. In contrast, an advertisement that points out how one brand is better than a competitor's brand has the goal of encouraging consumers to switch products within a particular category.

If a business seeks to grow demand for a category of products, the effort may not elicit much of a reaction from its competitors; after all, if the entire category grows the rising tide lifts all boats. But a competitor's reaction is typically quite different when a company attempts to move in on its market share, perhaps by offering price discounts. Since this strategy is viewed as more threatening, the competitor can be expected to retaliate with prejudice—often by firing off a campaign to win back many more customers than it lost.

"We know that retaliation happens and that companies worry about that," Steenburgh says. "But nobody benefits when both companies are retaliating. One effort just offsets the other."

Measuring the different effects of these marketing strategies can help brand managers make the right decisions about which strategies to use in their marketing mix. Steenburgh, Liu, and Gupta argue that the tools that have been used in the past to analyze the effectiveness of different marketing activities—called discrete choice models—can skew the results and misguide brand managers.

Traditional discrete choice models—logit, nested logit, and probit, for example—are flawed because they make it appear as if all marketing activities produce the same results, the researchers contend. In reality, differences between various marketing instruments are often significant. The cause of these flawed results comes from what is called the Invariant Proportion of Substitution (IPS) property, which implies that the proportion of demand generated by taking business away from a competitor is the same, no matter which marketing activity is used.

"These models get run all the time in academics," Steenburgh says. "There has been some talk at conferences where there seems to be an understanding that these models are too restrictive."

Widening the view

So the professors created a new discrete choice model called Flexible Substitution Logit (FSL), described in their working paper The Flexible Substitution Logit: Uncovering Category Expansion and Share Impacts of Marketing Instruments. The model relaxes the IPS property and allows a wider variety of results to be analyzed when studying the effects of different marketing instruments. By doing so, "the FSL allows a wider variety of individual-level choice behavior to be recovered from the data," according to the researchers.

The team tested the new model by looking at the marketing of prescription drugs, namely, statins, used to lower cholesterol levels in people at risk for cardiovascular disease. Using data from 2002 to 2004, they studied the three primary ways these drugs were marketed by Pfizer, Merk, Bristol-Myers Squibb, and AstraZeneca: "detailing," in which drug firm representatives personally visit physicians to sell the drug; at professional meetings and events (M&E) sponsored by the pharmaceutical firms; and by using direct-to-consumer advertising (DTCA).

First, they employed the complex mathematical formulas of traditional models to study different marketing strategies used by the drug companies. They found that the IPS property created counterintuitive estimates of demand gains attributable to these marketing investments. Although logically the researchers expected detailing to generate greater demand for the products than either direct-to-consumer advertising or meetings and events, the traditional models would not allow them to discover this because of the IPS.

When they applied their FSL model, however, the results provided much greater detail about the potential effects of different marketing investments. For example, the model predicted that sales gains from DTCA and M&E would come primarily through category expansion (87.4 percent and 70.2 percent, respectively), whereas gains from detailing would come at the expense of competing drugs (84 percent). By contrast, the random coefficient logit model predicted that gains from DTCA, M&E, and detailing would come largely from competing drugs.

"The FSL model is very useful if you want to predict consumer demand," Steenburgh says. "This model gives you a better way to do that."

Figuring in payback

With results that provide a better analysis of how different marketing instruments work, brand managers can now decide how to best invest their marketing dollars. For example, if a brand manager is concerned about retaliation from competitors, the best decision may be to limit investment in detailing and instead put more emphasis on direct-to-consumer advertising or on sponsoring meetings and events, both of which are more likely to expand the category.

Steenburgh notes that future research is needed to find alternative models that overcome the IPS, and he hopes that the FSL model will be applied in other studies that examine the effectiveness of marketing instruments.

"It would be interesting to apply the FSL model in a lot of other situations to see which ones expand the pie and which ones threaten other actions," he says. 

The biggest enemy of top-line growth is analysis and its best friend is appreciation. Sure, in a small minority of companies and industries, like the smartphone business these days, there is explosive growth, and if an analysis is done of past trends, it shows lots of opportunity for top-line growth.

But in the majority of businesses, if the available data are crunched, it shows a slowly growing industry — one growing with GDP or population. That generally convinces the company in question that there aren't really opportunities for top-line growth, and that in turn becomes a self-fulfilling prophecy.

The fundamental reason is that analysis of data is all about the past. Data analysis crunches the past and extrapolates it into the future. And the past does not include opportunities that exist but have not yet happened. So, analysis conspicuously excludes ways to serve customers that have not been tried or imagined or ways to turn non-customers into customers.

Thus the more we rely on data analysis, the more it will tell a dour story on top-line growth — and not give particularly useful insights. The data analysis of P&G's home care business — hard surface cleaners, dish and dishwater detergents — would have indicated that there weren't many opportunities for top-line growth circa 2000. These categories were growing at something between population growth and GDP growth, clearly candidates for harvesting or maybe sale.

If instead, the core tool is not analysis but rather appreciation —deep appreciation of the consumer's life — what makes it hard or easy; what makes her (in this category) happy or sad — there is the opportunity to imagine possibilities that do not exist.

For instance, suppose your consumers have to clean floors. It's easy enough to appreciate that mopping a floor is a fairly miserable task. Think about what it involves: getting out and filling a bucket, dragging the bucket around and repeatedly jamming the mop in and out of it, and then dumping out and cleaning the bucket. If you appreciate your floor-cleaning customers, you'll be looking to help them avoid having to go through this experience every time they have to clean a floor — because not every floor will need such a heavy-duty approach. It was out of this appreciation-triggered insight that the electrostatic Swiffer anti-mop was born and produced massive top-line growth, approaching $1 billion in sales in a decade.

A similar thing happened with Febreze.

There was a slowly growing market for air fresheners that masked odors emanating from hard-to-clean household items like furniture, drapes, and carpets. However, odor masking was hardly an optimal solution for the consumer. Appreciation of the consumer's feelings would have revealed that genuine odor elimination was the underlying desire.

Out of that appreciation came Febreze, which captures and eliminates the odor molecules in fabrics. Not surprisingly, it also produced spectacular top-line growth where the conventional analysis showed that there wasn't much to be had.

Organizationally and behaviorally, analysis and appreciation are two very different things. Analysis is distant, done in office towers far from the consumer. It requires lots of quantitative proficiency but very little experience in the business in question. It depends on data-mining: finding data sources to crunch, often from data suppliers to the industry. Appreciation is intimate, done in close proximity to the consumer. It requires qualitative proficiency and deeper experience in the business. It requires the manufacture of unique data, rather than the use of data that already exists.

In my experience, most organizations have more of the former capabilities and behaviors than of the latter and hence most struggle with top-line growth. The biggest issue isn't the absence of top-line growth opportunities but rather the lack of belief that they exist. And that is driven by the dominance of analysis over appreciation.

 

 

Naming is an art... I feel pretty fortunate to have been involved with some very clever and creating people at the birth of my last few ventures.  We selected Click Forensics, OPTIMAL iQ and Max Deal.  Each meets the criteria outlined below in this excellent post by Martin Zwilling.

Ten Keys to a Killer Name for Your Company

First things first – your startup needs a name! This may seem a silly and frivolous task, but it may be the most important decision you make. The name of your business has a tremendous impact on how customers and investors view you, and in today’s small world, it’s a world-wide decision.

Please don’t send me any more business plans with TBD or NewCo in the title position. Right or wrong, the name you choose, or don’t choose, speaks volumes about your business savvy and understanding of the world you are about to enter. Here are some key things I look for in the name, with some help from Alex Frankel and others:

1. Unique and unforgettable. In the trade, this is called “stickiness.” But the issue of stickiness turns out to be kind of, well, sticky. Every company wants a name that stands out from the crowd, a catchy handle that will remain fresh and memorable over time. That’s a challenge because naming trends change, often year by year, making timeless names hard to find (remember the dot.coms). 

2. Avoid unusual spellings. When creating a name, stay with words that can easily be spelled by customers. Some startup founders try unusual word spellings to make their business stand out, but this can be trouble when customers ‘Google’ your business to find you, or try to refer you to others. Stay with traditional word spelling, and avoid those catchy words that you love to explain at cocktail parties. 

3. Easy to pronounce and remember. Forget made-up words and nonsense phrases. Make your business name one that customers can pronounce and remember easily. Skip the acronyms, which mean nothing to most people. When choosing an identity for a company or a product, simple and straightforward are back in style, and cost less to brand. 

4. Keep it simple. The shorter in length, the better. Limit it to two syllables. Avoid using hyphens and other special characters. Since certain algorithms and directory listings work alphabetically, pick a name closer to A than Z. These days, it even helps if the name can easily be turned into a verb, like Google me. 

5. Make some sense. Occasionally, business owners will choose names that are nonsense words. Quirky words (Yahoo, Google, Fogdog) or trademark-proof names concocted from scratch (Novartis, Aventis, Lycos) are a big risk. Always check the international implications. More than one company has been embarrassed by a new name that had negative and even obscene connotations in another language. 

6. Give a clue. Try to adopt a business name that provides some information about what your business does. Calling your landscaping business “Lawn and Order” is appropriate, but the same name would not do well for a handyman business. Your business name should match your business in order to remind customers what services you provide. 

7. Make sure the name is available. This may sound obvious, but a miss here will cost you dearly. Your company name and Internet domain name should probably be the same, so check out your preferred names with your State Incorporationsite, Network Solutions for the domain name, and the U.S. Patent Office for Trademarks. 

8. Favor common suffixes. Everyone will assume that your company name is your domain name minus the suffix “.com” or the standard suffix for your country. If these suffixes are not available for the name you prefer, pick a new name rather than settling for an alternate suffix like “.net” or “.info.” Get all three suffixes if you can. 

9. Don't box yourself in. Avoid picking names that don't allow your business to move around or add to its product line. This means avoiding geographic locations or product categories to your business name. With these specifics, customers will be confused if you expand your business to different locations or add on to your product line. 

10. Sample potential customers. Come up with a few different name choices and try them out on potential customers, investors, and co-workers. Skip your family and friends who know too much. Ask questions about the names to see if they give off the impression you desire.

If you are still unsure of yourself, you should know that there are many dedicated firms, like Igor and A Hundred Monkeys, that can relieve you of $1M of your hard-earned funds to come up with just the right appellation. Hmmm. I wonder how much they spent on their own names?

Marty Zwilling

MARTIN ZWILLING

CEO & Founder of Startup Professionals, Inc.; Callaman Ventures Board Member and Executive in Residence; Advisory Board Member for multiple startups; Arizona Angels Selection Committee; Entrepreneur in Residence at ASU and Thunderbird School of Global Management. See me on Twitter as StartupPro, and on LinkedIn and Facebook by name. Published on Forbes, Harvard Business Review, and Business Insider.

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There are a few things I know something about, running a "platform" play is one of them.  The Platform Play comes from the book titled, "The Marketing Playbook".  It describes how a small somewhat obscure company can try to get everyone to the table for the good of the eco-system.  It's not easy to pull of, but when done correctly can ensure sustaining success for the company and potentially, the entire eco-system.  Tippr is the latest example to give it a shot.  The problem they will face is there are no "angry farmers", those who are beaing hurt but not having a standard in place.  

However, I am for the underdog, especially those who red the same books as I do!  Good luck Tippr...

Tippr, which provides white-label services for group buying, is proposing a new potential technology standard for the group buying industry today, dubbed the “Open Deal Format” or ODF. The company is inviting interested parties, which include group buying service providers, publishers and social networks, to a meeting in Seattle next month.

It will then formally propose the standard to its peers, once it has finished beta testing ODF with publishers in its PoweredByTippr network, the company adds.

Ultimately, its goal is to have an industry spec published by the end of this year, Tippr says.

Here’s what Tippr is proposing: a specification that streamlines the open exchange of group deal information between deal parties (merchants, group buying services, publishers, aggregators etc.), essentially enabling advertisers to promote deals across multiple platforms with multiple audiences. An open standard would make it easier for publishers to “select, run and financially reconcile” group commerce offers, Tippr believes.

Martin Tobias, founder and CEO of Tippr’s parent company Kashless, which is backed by $5 million in venture capital, comments:

“Publishers launching group buying sites need access to the richest set of national, local and online offers to augment their own sales efforts. Similarly, deal sourcers selling directly to local merchants need to maximize the revenue potential of their sales effort by widening their distribution potential.

The problem is everyone uses a different format to submit their deal information. This makes it extremely difficult and time intensive to exchange information between these parties, resulting in slower time to market and, often, more redemption errors.”

Once there is a standard in place, a merchant would be able to submit its offer to any group buying site (including Groupon, LivingSocial, and of course, Tippr) if they adopt the standard, without too much effort. The group buying service provider would, in turn, be able to quickly add the deal to its offer pipeline, and provide its audience a larger breadth of deals.

Tippr has invited representatives from AOL, Microsoft, Google, Facebook, Yipit, Groupon, LivingSocial, DealPop and TravelZoo, among others, to its December meeting.

It will interesting to see how much attention they get from industry players across the board, and if the group can reach an agreement on an open standard. It would certainly make things much more interesting than they already are in the red hot space.

Website:	tippr.com
Location:	Seattle, Washington, United States
Founded:	February, 2010