MarketingStrategyChapter09

RobertPalmatier,1,MarketingStrategy:ImplementingMarketingPrinciplesandDataAnalytics,AllCustomersDiffer,AllCompetitorsReact,AllResourcesareLimited,AllCustomersChange,ManagingCustomerHeterogeneity,ManagingCompetitiveSustainableAdvantage,ManagingResourceTradeoffs,ManagingCustomerDynamics,Agenda,IntroductionOverviewofMarketingPrinciplesProblemsandSolutionSynergisticIntegrationoftheFourMarketingPrinciplesTemporalInterconnectionsMicro-MacroDualityBuildingMarketingAnalyticsCapabilitiesDataCapabilitiesMethodologicalCapabilitiesExecutingMarketingStrategiesCustomer-CentricApproachContinuouslyIteratingandImprovingExecutingaMarketingStrategyUsingFirstPrinciplesandData-AnalyticsTakeaways,2,Palmatier,MarketingisBecomingMoreComplex,Themarketingdisciplineanditsapproachtomarketingstrategyhasevolveddramaticallyoverthelastsixdecades,frombeingaperipheralfunctionthatmanageddiscretionaryspendingandoutsidevendors,toakeycomponentofafirmsoverallbusinessstrategyresponsibleforbilliondollarbudgetsAsaresult,eachandeverymarketingdecisionhasbecomemorecomplexThesedevelopmentspointtoanexcitingfutureandmanyopportunitiesforthefieldofmarketingYet,thisexponentialriseofapproachesandtechniquesalsopresentsadilemmatomanagerssinceitisveryhardtoknowwhatapproachormethodisapplicableinaspecificsituation,Palmatier,3,1,1970sand1980s,1990sand2000s,2010sandbeyond,DataAvailability,Limited,AnalyticTechniques,Complex,Expansive,Simple,ScannerdataSurveypaneldata,CRMDataSyndicateddatabyindustryInternetsearchClickstreamdata,MobiledataCustomerjourneydata,TargetingApproaches,Narrow,Broad,ClusteranalysisPositioningmethodsChoicemodels,BayesianmodelsCLVmodelSearchengineoptimization,Mobiletargeting,DirectmarketingTargetingthroughmassmedia,OnlinetargetingandretargetingMicrotargetingonmassmedia,EngagementmarketingGeo-targeting,EvolutionofMarketingData,AnalyticTechniques,andTargetingApproaches,Palmatier,4,TrendsIncreasingtheImportanceoftheFirstPrincipleApproach,Including,Firmsarefocusingonsmallerandsmallercustomersegmentsintheirmovetowards1-to-1customermarketing,whichisexploitingthenaturaldifferencesincustomersneedsCustomer,products,andmarketingarechangingfasterthaninthepast,whichrequiresmanagerstoidentifyandrespondquicklytothesedynamicchangesCompetitiverivalryisincreasingduetomoreglobalization,easyofreachingcustomersviaInternet,andtheentryofmanynewfirmsfromemergingmarkets,whichismakingitmorecriticaltohaveSCAstomaintainingaleadershippositionTheincreaseintheamountofdataacrossallaspectsofthebusinessaswellastheeasyofmakingdatadrivendecisions,whichisincreasingtheviabilityandimpactofdata-analyticsover“gut”basedmarketingdecisions,Palmatier,5,ExampleofSuccessfulUseofthisApproach:KeytradeBank,KeytradeBankhadthefirstBelgianonlineinvestmentwebsiteHighNetPromoterScore:55%ofitscustomersscoreitata9or10Createdloyaltyprogramcalled“MemberGetMember”(MGM)whichrewardedcustomerswhoreferrednewcustomerswithacashincentiveof30paidouttotherecommenderandthenewcustomer.Foryears,thissystemwasworkingwellforKeytradeBank,keepingtheacquisitioncostofnewcustomerslowMorerecently,Keytradeimplementedanewcustomerrelationshipmanagement(CRM)systemthathelpeditcapturenearlyeverycustomeraction.ThroughtheuseofacustomCRMtool,KeytradeBankwasabletosendpersonalizedreminderemails,integrateintocustomersaddressbookstoeasereferring,spreadthrougheasysocialmediaintegration,andautomatetherewardsprocessingsystemWithawell-builtCRM,KeytradeBanksMGMprogramwasabletoachieve35%growthandattractover5,000newcustomers,Palmatier,6,Agenda,IntroductionOverviewofMarketingPrinciplesProblemsandSolutionSynergisticIntegrationoftheFourMarketingPrinciplesTemporalInterconnectionsMicro-MacroDualityBuildingMarketingAnalyticsCapabilitiesDataCapabilitiesMethodologicalCapabilitiesExecutingMarketingStrategiesCustomer-CentricApproachContinuouslyIteratingandImprovingExecutingaMarketingStrategyUsingFirstPrinciplesandData-AnalyticsTakeaways,Palmatier,7,MP#1:AllCustomersDifferManagingCustomerHeterogeneity,TheproblemthatlieswithinthefirstmarketingprincipleisthatallcustomersdifferCustomerneedsemergefromavarietyofsources:Basic,personaldifferencesVaryinglifeexperiencesUniquefunctionalneedsfortheproductDistinctaspirationalself-identitiesPreviouspersuasion-basedactivitiesfocusedonchangingtheirpreferencesThesolutiontothemanagingcustomerheterogeneityliesinselectingaspecificsegmentofcustomerswhosepreferencesmatchverycloselywiththefirmsselectedsetofofferings,andtargetingthembypositioningtheselectedofferinginawaythathighlightswhyitisthebestsolutionforasub-segment,Palmatier,8,MP#2:AllCustomersChangeManagingCustomerDynamics,TheproblemsthatcomesfromthesecondmarketingprincipleisthatallcustomerschangeCustomerschangingneedsarisefromseveralsources:DiscretelifeeventsTypicallifecyclechoicesLearningeffectsProductlifecycleeffectsChangingenvironmentalcontextsThesolutiontothemanagingcustomerdynamicsliesinapplyingSTPsolutionstoacustomerdynamicproblem,i.e.segmentingafirmsexistingcustomersaccordingtosimilaritiesinmigrationpatterns,anddevelopcustomizedstrategiesfordifferingmigrationpatterns,Palmatier,9,MP#3:AllCompetitorsReactManagingSustainableCompetitiveAdvantage,TheproblemthatarisesfromthirdmarketingprincipleisthefactthatallcompetitorsreactFirmscanseetheircompetitorattackfromseveralsources:ThroughtechnicalinnovationsthatmakeafocalfirmsproductsandservicesobsoleteCultural,environmental,orrandomfactorsthatsuddenlyswaycustomersfrombeingloyaltoonefirmtoseekingoutanotherfirmsproductsTheentrepreneurshipandcreativityofdiverseactorsthatdisruptthenatureofbusinessinafocalfirmsindustryThesolutiontothemanagingcompetitorreactionliesinbuildingandmaintainingstrongbarrierstowithstandcompetitiveattacks,Palmatier,10,MP#4:AllResourcesareLimitedManagingResourceTradeoffs,ThefourthandfinalMarketingPrinciplefocusesondealingwiththeissuethatallresourcesarelimitedResourceconstraintscanemergefromdifferentsources:AfirmsresourceslackThechangesinthecompositionofafirmssegmentsChangesinthecompetitivenessofafirmsproductportfolioandlandscapeThechangesintheeffectivenessofafirmscurrentmarketingactivitiesThesolutiontomanagingresourcetradeoffsliesinunderstandingthemarginalbenefitandcostofeveryincrementaldollartoasegmentorproduct,suchthattheultimateallocationdecisionmadebythefirmisinproportionaltothemarginalbenefitandcosttradeoffassociatedwitheachsegmentorproduct,Palmatier,11,Palmatier,SummaryofFirstPrinciples,Solutions,andSupportingAnalyticalTechniques,12,Agenda,IntroductionOverviewofMarketingPrinciplesProblemsandSolutionSynergisticIntegrationoftheFourMarketingPrinciplesTemporalInterconnectionsMicro-MacroDualityBuildingMarketingAnalyticsCapabilitiesDataCapabilitiesMethodologicalCapabilitiesExecutingMarketingStrategiesCustomer-CentricApproachContinuouslyIteratingandImprovingExecutingaMarketingStrategyUsingFirstPrinciplesandData-AnalyticsTakeaways,Palmatier,13,SynergisticIntegrationoftheFourMarketingPrinciples,AprecursortosuccessfullyimplementingthefourMarketingPrinciplesisunderstandinghowtheyfittogethersothatthecollectivelearningfromthefourMarketingPrinciplesisgreaterthanthelearningfromeachindividuallyTwokeywaysthattheMarketingPrinciplesworktogethertosynergisticallyimprovetheeffectivenessofamarketingstrategy:TemporalinterconnectionswhichallowsanoutputofoneMPtoprovidekeyinputdatatoanotherMPMicro-Macrodualitywhichallowsdeepunderstandingofcustomersatmicrolevelsandsupportsstrategicandresourcedecisionsatmacrolevels,Palmatier,14,TemporalInterconnections,OnenoteworthyfeatureaboutthisapproachisthehierarchicalnatureofthefourmarketingprinciplesThus,todevelopaneffectivemarketingstrategyrequirestheunderstandingthateachofthefourMarketingPrinciplesareinter-connectedinanaturalsequenceStartingfromtheoverallmarketinMP#1,thentothefirmsowncustomerbaseinMP#2,andnexttobuildingabarrieraroundthesesegmentsandcustomersusingBORstrategies(MP3#)OnlywhentheoutputsofthesethreeMPsareknowncanafirmthenallocatetheirresourcesinanefficientmanner(MP#4),Palmatier,15,ManagingSustainableCompetitiveAdvantageSCAsBORequitystackBrand/relationshipmgt.InnovationprocessesConjoint/choicemodels,ManagingResourceTrade-OffsHeuristicapproachAttributionapproachResponsemodelsExperimentalmodels,AERpositioningandstrategies,BORmarketingstrategies,ManagingCustomerDynamicsLifecyclesAERbathtubsLostcustomerCLVanalysis,ManagingCustomerHeterogeneitySTPPerceptualmapsCustomercentricityClusteranalysis,SCAsnowandinthefuture,Plans,budgets,andmetrics,Positioningstatement,AllCustomersDiffer,AllCompetitorsReact,AllCustomersChange,AllResourcesAreLimited,MP#1,MP#3,MP#2,MP#4,IntegratingtheFourMarketingPrinciples,Palmatier,16,Micro-MacroDuality,Amicro-macrodualityidentifiesinsightsatthemicrolevelwhilesupportingmacro-levelmarketingdecisionsThisprocessisimportantsinceifafirmonlyaveragesdataandstudiesdataatthemacrolevelthenmanydeeperinsightsandtrendswillbeoverlookedAmicro-macrodualityiskeytoMP#3wheretheAERStrategyGridcapturestheacquisition,expansion,andretentionstrategies(i.e.,microanalysisofcustomerdynamics)acrossafirmscustomerpersonas(i.e.,microanalysisofcustomerheterogeneity),Palmatier,17,Agenda,IntroductionOverviewofMarketingPrinciplesProblemsandSolutionSynergisticIntegrationoftheFourMarketingPrinciplesTemporalInterconnectionsMicro-MacroDualityBuildingMarketingAnalyticsCapabilitiesDataCapabilitiesMethodologicalCapabilitiesExecutingMarketingStrategiesCustomer-CentricApproachContinuouslyIteratingandImprovingExecutingaMarketingStrategyUsingFirstPrinciplesandData-AnalyticsTakeaways,Palmatier,18,BuildingMarketingAnalyticsCapabilities,AnotherprecursortosuccessfullyimplementingthefourprinciplesframeworkisforafirmtodevelopcustomeranalyticscapabilitiesCustomeranalyticscouldbebroadlydefinedasatechnology-enabledandmodel-supportedapproachtoharnesscustomerandmarketdatatobetterunderstandandservecustomersFirmsdeployinganalyticsareshowntoperformbetterthanthosewhodonotemploysuchpractices,sincesuchfirmsarebetterpreparedtounderstandwhatcustomerswant,andreacttochangesincustomerandenvironmentaltrendsIn2009only10%offirmsregularlyemployedcustomeranalytics,thenumbergrewtoover80%in2013,withfirmsspending21%oftheirmarketingbudgetoncustomeranalyticsprojectsVendormarketforcustomeranalyticsisburgeoning;forexample,theworldwidecustomeranalyticssoftwaremarket,consistingofdatawarehousingsoftwareandanalyticstools,grew8.7%toreach$34.9billionin2012,withaprojectedgrowthrateof9.7%through2017,Palmatier,19,Example:Anomaly(Australia),AnomalyisaboutiqueconsultingcompanyinAustraliaTaskedwithenhancingacquisitionefficienciesforamajorentertainmentretailer,whileincreasingitsmarketshareLeveragedtheclientscustomerdataandconductedaseriesofdetailedprofilingandsegmentationanalyses,itwasabletoachieve34%savingsinthecostperacquisitionanda14%declineincustomerchurnrateDrivenbytheanalyticsdata,hot/coldmapsofcustomertrafficwerecreatedfortheclientslocalmarketing,Palmatier,20,DataCapabilities,Afirmcanbuilddatacapabilitiesbybuildingdatabasesthatimprove:EconomicintelligenceCustomerintelligenceCompetitiveintelligenceDataspecifictoeachoftheseareasarebecomingmorewidelyavailable,withfirmsbeginningtoinvestininternaldatabasestolinkmarketingeffortstofinancialoutcomesDatasourcescanbeclassifiedaseitherstructuredorunstructureddataStructureddataincludesinformationoncustomersidentity,purchasehistory,andpreferences,whicharetypicallyavailableinafirmscustomerrelationshipmanagement(CRM)databaseUnstructureddataincludesdatathatisbeyondthecustomer-firmexchangeincludingmessagesthatcustomerspostonsocialmedia,informationaboutfriendswithsimilartastes,Palmatier,21,MethodologicalCapabilities,AfirmcanbuildmethodologicalcapabilitiesbymasteringtheanalyticaltoolsthatwedescribeintheprocessboxesofeachofthefourmarketingprinciplesThreemainpurposesfortheanalysesdescribedinthisbook:SimplificationthrudatareductionLinkingvariablestooutcomesthruidentificationofcausalityFindingtradeoffsamongvariablesthruresourceoptimizationAnumberofanalysistoolsareavailabletohelpastudentorfirmadvancetheirmethodologicalcapabilitiesMEXLSPSSSASR,Palmatier,22,BuildingMethodologicalCapabilitiesacrossThreeKeyPurposes,Palmatier,23,MEXL:UsingDataAnalyticstoImplementMarketingPrinciples,MarketingEngineering(MEXL),anadd-ontoMicrosoftExcel,containsmathematicaltoolsthatenabledata-analyticimplementationofthefourMarketingPrinciples.,DAT9.1,Description,HowItWorks,Software:,Marketingengineering,accessibleonlineforafee(/business-users/software/marketing-engineering-for-excel),TopracticeimplementingthefourMarketingPrinciplestodevelopeffectivemarketingstrategies.Toenabledata-analytictechniquestorevealinsightsaboutmarketingstrategicchoices,beforeactualimplementation.,WhentoUse,WepresentanoverviewoftheanalysesassociatedwitheachoftheMarketingPrinciplesdetailedinthisbook,andtheMEXLmodelsthatenabletheseanalyticprocesses.Asshownbelow,MEXLcontainsalmostalltheanalyseswerecommendinourinput-process-outputapproachtoeachMarketingPrinciple.,MP#1:Targetproductstomeettheneedsofdifferentcustomersegmentsandmanagecustomerheterogeneity.,MP#2:Adjuststrategiesovertimetoadapttochangingcustomerneeds.,MP#3:Introducenewproductstocreateasustainablecompetitiveadvantage(SCA)asabarriertootherfirmsattackingyourposition.,MP#4:Managelimitedresourcesbymakingresourcetrade-offsamongmarketingmixcategoriesandbrands.,Palmatier,24,Agenda,IntroductionOverviewofMarketingPrinciplesProblemsandSolutionSynergisticIntegrationoftheFourMarketingPrinciplesTemporalInterconnectionsMicro-MacroDualityBuildingMarketingAnalyticsCapabilitiesDataCapabilitiesMethodologicalCapabilitiesExecutingMarketingStrategiesCustomer-CentricApproachContinuouslyIteratingandImprovingExecutingaMarketingStrategyUsingFirstPrinciplesandData-AnalyticsTakeaways,Palmatier,25,ExecutingMarketingStrategies,ToyieldthebenefitsfromfollowingtheFirstPrincipleapproachalsorequireseffectiveexecutionofthemarketingstrategyBuildingthedataandmethodologicalcapabilitiesarecriticalfirststepstohavetheprerequisitetoolboxtoconductmanyoftheresearchprocessesandanalyticalmodelscriticaltomakingdata-baseddecisionsTherearetwootherfactorsshowntoimprovetheeffectivenessofimplementingafirmmarketingstrategy:Institutingacustomer-centricapproachacrosstheorganizationtoprovideacustomerfocustodecisionsandtomotivateemployeetowardssatisfyingcustomersneedsContinuouslyiteratingandimprovingeachaspectofthemarketingstrategyinrecognitionthataneffectivemarketingstrategyismoreofaprocessthenanexactendpointandrequiresongoingadaption,Palmatier,26,Customer-CentricApproach,Thecustomer-centricapproachisacompany-widephilosophythatplacescustomersneedsatthecenterofanorganizationsstrategicprocessandusestheresultantinsightstomakedecisionsBeingcustomercentricrequiresafirmtoalignmultipleaspectsofitsorganizationtobeconsistentwiththisperspective,suchasleadership,structure,culture,metrics,processes,andstrategySuccessfulcustomercentricitydependsonastrongmarketorientation,or“theorganization-widegenerationofmarketintelligence,disseminationoftheintelligenceacrossdepartmentsandorganization-wideresponsivenesstoit”Customercentricitygrantsanorganizationdeepknowledgeaboutandcommitmenttotheirfocalcustomers,supportingfasterdetectionandresponsestochangingmarketconditions,Palmatier,27,ContinuouslyIteratingandImproving,FirmsneedaniterativeapproachtointegrateandexecutetheprinciplesAnidealsolutionwouldoptimizealltheFirstPrinciplessimultaneously,butfirmslikelylacktherequiredtime,resources,andskillstoimplementanidealsolutionInstead,theycangraduallyimprovetheiroverallmarketingfunctionsbyimprovingoneprincipleatatime,maintaininganexisting(evenifsuboptimal)approachtotheotherthreemarketingprinciples,Palmatier,28,ExampleMP#1:ExecutingaMarketingStrategyUsingFirstPrinciplesandData-Analytics,BestBuy:MP#1:AllCustomersDifferManagingCustomerHeterogeneityIn2001,BestBuywasstilladominantelectronicsretailer,butitwasstartingtoseeslowergrowthinbusinessandprofitabilitydropsduetospecialtyretailersande-commerceStuckinthe“unprofitablemiddle”:notgoodenoughtocatertospecialtyshopperswithhighmargins,ortolow-marginvalueshopperswhoprovidedhighvolumeSolution:BestBuyassimilatedadatabaseofmorethan500millionsalestransactionsacrossitsstoresandbegantoanalyzeshoppingpatterns.Classifiedshoppersinfivesegments,withspecificnames:upperincomemen,suburbanmothers,small-businessowners,youngfamilymen,andtechnologyenthusiastsDesignatedeachofitsstoresaccordingtotheoneortwosegmentsitcateredto.Thus,itcouldeliminateredundantinventory,savecosts,trainstafftoidentifyshoppersbysegmentsTheseeffortsimprovedprofitabilityandenabledBestBuytopositioneachofitsstoresaccordingtothetargetmarketinthatgeographicarea,Palmatier,29,ExampleMP#2:ExecutingaMarketingStrategyUsingFirstPrinciplesandData-Analytics,BestBuy:MP#2:AllCustomersChangeManagingCustomerDynamicsBy2004,BestBuyrealizedthatitscompetitorsallwereadoptingsimilarstrategies,andtargetconsumerspreferenceswereevolvingtoexpecteverystoreintheirgeographicareatocaterspecificallytotheirtastesBestBuyassimilatedlongitudinaldataabouteachcustomerstransactionhistory,thenbuiltmodelstoestimatethelifetimevalueofeachcustomer.ThisexercisehelpedthecompanytakeitssegmentationstrategytotheindividuallevelCouldtailormarketingcommunicationmessagesspecificallytoeachcustomerinageographicarea,aswellasmailpromotionalcouponstocustomersaccordingtotheirforecastedprofitabilityWiththisapproach,BestBuycouldtrack,manage,andmaximizeprofitabilityatthecustomerlevel,stayingaheadofcompetitorsthatcontinuedtomanagetheirbusinessesatthestorelevel.,Palmatier,30,ExampleMP#3:ExecutingaMarketingStrategyUsingFirstPrinciplesandData-Analytics,BestBuy:MP#3:AllCompetitorsReactManagingSustainableCompetitiveAdvantageBetween2008and2010,asonlineandmobileretailingexpandedexponentially,firmssuchasAppleandAmazonbegantocutintoBestBuysprofits.Onlineretailershavelowerinventorycosts,andtheycancapitalizeonlowerprices,nosalestax,andconvenientorderingandreturnpoliciesBestBuylaunchedadataanalytics-driven“RenewBlue”strategytobuildonBestBuysstrengthsauniquebricks-and-mortarshoppingenvironment,helpfulservicestaff,andtheconvenienceoftouchingandfeelingproductswhilealsomaintaininglowinventorycostsTheprogramfirstgathere