Marketing Analytics – Summary of Session 1

We started the second trimester today at ESSEC’s Singapore campus. I am teaching Marketing Analytics (Engineering) to two sections of 50 students each. In my first lecture I introduced the fundamental problem in front of marketers – how to justify their decisions to others who control the budget. Gone are the days when people could simply use experience, gut feel, intuition, etc. as valid criteria for selecting marketing strategies. Now nobody wants to bet even $1 on speculative marketing managers. Data driven marketing is the new norm. My course is an introduction to this new reality. In any marketing course, ‘brand positioning’, ‘segmentation’, ‘targeting’, ‘media planning’, etc. are common terminologies. Professors and students know what these concepts mean. Yet, given a real life business situation how many students will be able to actually come up with a strategic solution? Very few indeed.

Our Course Text – Principles of Marketing Engineering

Over the next five weeks, we will take a two-step approach. First, we will clarify a certain marketing concept, for e.g., positioning. We will then understand what type of information needs to be collected to plot a perceptual map showing the brand positioning on 2 or 3 dimensional space. Next we will use SPSS to do the data analysis using statistical techniques such as factor analysis. Finally, based on the perceptual maps, students will recommend actions. There will be hard numbers involved. For example, when the students suggest launching a new brand to exploit potential gap in the market, they will need to justify that by projecting the changes in the market shares. They will have to account for cannibalization of any existing brands from the same company that is supposed to launch a new brand. This will be a complex but fun exercise!

The other topics include decisions on segmentation using probability models, salesforce allocation, and conjoint analysis. As we started working with SPSS today, I used a dataset consisting of accounting information on several US firms over 2010 and 2011. The students’ first task is to build a sales response model and test it using the data. To what extent do the sales respond to advertising? The response model will not be very complicated yet we may end up using a logit-type curve (ADBUDG model), who knows?

I believe that modeling the data is not the most important thing. It’s just a small component of decision making. The critical parts are to read the analysis, interpret it, and then recommend a decision path. I don’t like blind data mining of millions of data points to come up with patterns that everyone believes are true. Unfortunately this is exactly what’s happening in the analytics area. Data mining coupled with intelligent experiments is the way to go. (More on this later). Bringing intuition to this party is like inviting Michael Lohan to speak at a conference on responsible parenting!

How Fashion Brands Should Use Facebook

This post doesn’t list my opinions. Instead check out the embedded video below where Tracy Yaverbaun, Director of Retail, Luxury & Fashion Partnerships at Facebook shares her experiences. Start watching from 4 minutes mark.

Update: Watch it from 18 minutes mark for more relevant discussion on luxury and fashion

When Should Luxury Brands Use Social Media?

In my earlier post on social media use by luxury brands, I highlighted the dilemma faced by such brands. Exclusivity is one of the key aspects of luxury while social media are open to everyone. Many luxury brands are unsure about whether the costs of social media outweigh their benefits.

In this post, I am going to argue that luxury brands should use social media only when they are dealing with a certain type of customers. Social media presence dilutes brand equity of luxury brands among certain consumers by making the brand more accessible to everyone. As such luxury brands are likely to lose their perceived exclusivity and lose those customers. However, another segment of luxury consumers desire the increased awareness of luxury brands.

I organize the discussion around the categorization of consumers based on wealth and need for status (Han, Nunes, and Dreze 2010). The diagram below shows the four groups of consumers, out of which I will use only the two depicted in the top row: Patricians and Parvenus. (Ignore the black and white arrows.)

Patricians are consumers who are rich, perhaps for multiple generations, and who exhibit low need for status. They use brands that are not over the top. Only the other Patricians truly understand their worth and thus, Patricians signal their status only to each other. I believe that this has been the traditional target consumer segment of luxury brands. From the original paper, here is the description of a Patrician –

Ms. K lives in Boston. She is a lawyer and partner at a firm begun by her great grandfather. She cut her hair short after she became tired of the knots and tangles caused by driving with the top down in her convertible. She likes to take ski vacations whenever she gets a chance and owns a chalet in Aspen. Her favorite brand is Chanel and her favorite purse is the iconic Chanel 2.55 bag, which was introduced in 1955. She collects modern art and sits on the board of directors for several museums and galleries. She finds ostentatious products that have the brand plastered on them offensive and the nouveaux riches completely gauche.

Parvenus are also rich like Patricians. However, in contrast to Patricians they exhibit a high need for status. They want to use expensive brands with loud design, which clearly conveys everyone around them Parvenus are rich. These are the people who like to use the leather bags with big (and ugly!) ‘LV’ signage on them. Parvenus are also known as ‘nouveau riche.’ From the original paper Parvenus are like this –

Ms. A owns a family-run restaurant in Chicago. She started as a prep cook at a small local restaurant and worked as a waitress, bartender, and manager. With her experience in local restaurants, she started up her own contract catering business, which was a big success and led to opening her own restaurant. She now lives in Oak Park, Illinois, where she remodeled her house to look as if it were designed by Frank Lloyd Wright. She often shops at Bloomingdale’s and drives a Lexus ES. She loves Prada but only wishes the emblems on the products were bigger so everyone could see she wears Prada.

Traditionally, Patricians are more concentrated in the European countries as these nations have been wealthy for some time now (in comparison with Asian nations, where European countries set up their colonies and extracted much of their wealth). In the last 3-4 decades, the wealth levels in Asia have risen dramatically, creating several multimillionnaires in countries like China, India, Malaysia, and Indonesia. These newly rich people in Asia are more likely to be Parvenus flaunting their wealth to people around them (I know I’m speculating so please write your comments below). Five years ago whereas luxury brands generated most of their revenues from Europe and the US, many of these brands are now growing at a tremendous pace in Asia, and in particular China. For many luxury brands, the revenue from Asia-Pacific regions may exceed those from other markets. As such, Parvenus are now at least as much critical to luxury brands as Patricians.

When a luxury brand increases its presence on social media, garnering millions of Facebook fans, Twitter followers, and YouTube views, very few of these people are likely to be their target consumers. By making the luxury brand more accessible to these people, who are most likely ‘have-nots,’ luxury brands face the risk of alienating Patricians, who prefer subtle signals. Yet, by not being on social media and keeping a low level of awareness among have-nots, luxury brands risk alienating Parvenus. Recall that Parvenus want to show off to the people around them, irrespective of whether they are haves or have-nots. Therefore, smaller the number of people who are aware of an expensive brand, lower is the value that Parvenus derive from consuming those brands. As such, luxury brands should be on social media in order to create a high level of awareness among have-nots.

Luckily for luxury brands, Patricians and Parvenus are currently concentrated in different geographies. Therefore, they can selectively use social media in different markets. Even better, in China the social media platforms are entirely different from the rest of the world. Thus, there is likely to be no spillover from luxury brand’s social media presence in China to Europe and the US.

Targeting Eligible “Indians” – A Poll

In the screenshot below, you will see an ad for Indian Dating website appearing next to an article about native Americans, i.e., the mislabeled “Indians”! Please take the poll at the end of this post. The poll asks who you think is responsible for this misplacement of the advertisement.

Indian dating website’s ad was shown next to an article about native Americans

IBM CMO Study

Last year IBM conducted a study interviewing 1,700 CMOs across the globe. Some key finding from the report -

“Our interviews reveal that CMOs see four challenges as pervasive,universal game-changers: the data explosion, social media, proliferation of channels and devices, and shifting consumer demographics. But CMOs from outperforming organizations address these challenges differently from other CMOs”

I was curious to know what the successful CMOs do different. And lo and behold, there are three things that we keep on teaching to our students all the time and still many never seem to appreciate them -

1. The most proactive CMOs are trying to understand individuals as well as markets

2. CMOs in the most successful enterprises are focusing on relationships, not just transactions

3. The outperformers are committed to developing a clear “corporate character”

Finally, something my marketing analytics students will appreciate -

“Our research shows the measures used to evaluate marketing are changing. Nearly two-thirds of CMOs think return on marketing investment will be the primary measure of their effectiveness by 2015. But proving that value is difficult. Even among the most successful enterprises, half of all CMOs feel insufficiently prepared to provide hard numbers.”

Read the full report here -

View this document on Scribd

iPad 2 Prices Across the World

I was a bit bored yesterday. So I put together these slides comparing iPad 2 prices in 35 different countries. You may find this on other websites and perhaps with more details. But I am including the screenshots of the Apple Store webpages. Note that all the prices are for the base iPad 2 model.

Application of Facebook to Local Marketing

I found this video on this blog. It is interesting because Dennis Yu works in the local application of Facebook marketing. I think there is a tremendous need for even workshops for such things. I have designed one, in fact. But I don’t think my b-school will ever offer it! Essec is a premium brand. Anyways, enjoy!

Marketing Quotes 2011

Valeria Maltoni created this presentation with some of the nice quotes about marketing made in 2011 so far. When you see the slides, an ad might show up at the bottom. Just close it and watch the presentation in piece!

Coupon Vampire – How Groupon and Likes are Sucking Small Businesses Dry

Price promotions are perhaps as old as the markets. The main objective of discounts is to attract customers in the hope that they will return and pay the full price for subsequent purchases. Let’s say that every business has product/service quality that is unobservable to customers without trying the product once. After the first use, however, the customers can determine the true quality. The customers are not aware of all the businesses either. Therefore, some businesses create this awareness by advertising while others do it by offering lower prices for trials. As a special case when all the businesses have the same quality, they will select their marketing strategy that results in the least possible costs.

Several marketing and economics models are built around this simple notion (see this excellent summary of the literature). In practice many businesses use some combination of different strategies. For example, they advertise their price promotions on local TV channels or radio stations. Although price promotions draw customers, it is perceived as an inferior marketing strategy. Marketing researchers have found that it actually erodes brand equity in the long term (e.g., see here, here, and here).

However, we now have an entire business in Groupon that is based purely on price promotions. There is nothing path-breaking about the business model for the small businesses. I think at Techcrunch Rocky Agarwal has done a great deal of analysis of Groupon’s ponzi scheme and how it is harming small businesses. In this post I am not going in those details. My objective is to highlight a rarely discussed issue about Groupon which small businesses are perhaps overlooking.

A major objection about Groupon model is that it brings in customers that are just looking for the deals and they will not repeat the purchases at full price. This is a very valid argument and I don’t think Groupon or any of its supporters have presented any rigorous data refuting this claim.  In this discussion, however, most of us tend to forget the impact of these deep discounts on the existing customers of the small businesses.

Imagine that you are a loyal customer of a diner. You eat 3-4 breakfasts at this diner every week and really enjoy the experience. The diner decides to run a Groupon deal to attract more customers like you. There is a very good chance that you—the existing loyal customer—will use that coupon, which is a waste from the diner’s point of view because you are already a loyal customer. However, more importantly, now you may start thinking that your breakfast at the diner is worth only that discounted price! This actually changes how you perceive the diner. In marketer’s language, the positioning of the diner in your mind changes because the diner is offering deep discounts. The shift in positioning may harm the diner more than anything because now the diner is perceived as a cheap eatery that is using discounts. There is also a real possibility of changes in the food or service quality at the diner because you and other loyal customers may force the diner to reduce the prices or offer frequent discounts thereby cutting the profit margins.

I strongly believe that price discounting is a horrible strategy which alienates existing customers. The empirical research in marketing supports this notion. I urge small businesses to stay away from Groupon and its likes such as Living Social and Facebook Deals, etc. They will suck the blood out of your businesses and leave you for dead. I understand the pressure is enormous when business owners see the competitors joining hands with Groupon. Groupon salespeople can also be very persistent and convincing. However, in the end it doesn’t make sense that every business offers a price discount and somehow snatches away customers from competitors. It is impossible. It is prudent to avoid that temptation and focus on building your businesses in traditional fashion, i.e., by identifying your customers’ needs and finding a unique way of satisfying them. That is the only way you can keep those customer with you.

What Are Facebook Page Insights?

Facebook Page is getting more popular than Facebook Groups. First of all, companies have ownership to the Page. This means that you have better control over what you can share. Also, you can assign multiple administrators to the Page. The feature I found cool, however, is “Insights.” At the heart I am an econometrician and when I see data, I get excited! Insights give the administrator of the Page a fair idea about how the fan page is performing. It has two basic units of analysis – users and interactions.

One very nice thing is that Facebook lets you download these data as an Excel sheet! If you thought that makes life easier then wait, there is more. Facebook shows you graphs and charts which are much easier to look at rather than the raw numbers. You can copy and paste those in your presentations without any problem; they look professional.

I decided to make a couple of videos to show you how the insights look. Enjoy!

Facebook Page Part I

Facebook Page Part II