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!

Summary of Lecture 3 – 16/08/2012

In the first half of today’s class, we had Wall Street Journal‘s business and technology journalist Lora Kolodny speaking with us on Skype from San Francisco. I know Lora because I subscribe to her Facebook updates and sometime participate in the discussion. Considering that she has written for big names as New York Times, Fast Company, Inc, and TechCrunch, it is a great surprise that she is so approachable!

I invited Lora to speak with our students on primarily two topics–the social media start-up scenario and advice on starting your own business. The call went on for about an hour so I won’t be able to cover everything we spoke about. However, here are a few takeaways from her talk-

1) Although social media companies are getting a beating in the stock market, VC interest in social media start-ups remains high.

2) Any new platform, service, etc. must have a clear mobile strategy.

3) Social media adoption in Asia is growing rapidly.

4) For new start-ups, it is essential to evaluate whether they need large investment. Further, creating a personal brand is critical to reach out to potential investors. She suggested joining newer platforms early to create a significant following. Lora has more than 110,000 subscribers on Facebook!

5) She suggested using services like YouNoodle to connect to other entrepreneurs.

My students could add more to this.

The second half of the session was devoted to discussing the ‘Honeycomb Framework’ for selecting and managing various social media channels. The paper is available for download from here and a case study from Australia is available here. Ian MacCarthy, one of the authors of this paper explains what they propose –

“We explain how a firm can recognize and understand its social media landscape, using the honeycomb framework; develop strategies that are congruent with, or suited to, different social media functionalities and the goals of the firm; develop curating strategies for their own social media interactions and content; and finally use the honeycomb structure as a tool to evaluate the constantly changing social media activity.”

Honeycomb framework identifies seven components of social media – identity, sharing, conversations, presence, relationships, reputation, and groups. The diagram below shows what each component means.

The framework give clear guidance to selecting a social media channel. As a business you need to decide what your community is doing and what the community members’ inherent motivations are. Accordingly, one can select the social media channel. For example, LinkedIn has ‘Identity’ as its clear functionality. I know there are a few users on LinkedIn who are anonymous! Yeah, I keep on getting add requests from such people. But what’s the chance that I will ever accept such a request? If one doesn’t reveal one’s identity on LinkedIn, it defeats the whole purpose of that social network!

Social networks may have multiple functionalities. Consider Twitter. Originally, Twitter was used for broadcasting the message–sharing on the go. Therefore, ‘Sharing’ was its core functionality. However, these days Twitter also acts as a very common conversational tool. Therefore, ‘Conversations’ is an added core functionality to Twitter. The readers should think about other channels such as Facebook, FourSquare, Pinterest, blogs, etc. to see how they fit into this framework.

Once a business identifies the channel, it can use the following diagram to operationalize the channel management. The implications can be different based on the functionality a channel offers. For example, for reputation management, one needs to do a lot of monitoring using tools such as Klout scores.

Overall, honeycomb framework is great for channel selection and community management.

In the last leg of the session, I tried to answer the question “why do people share?” I used ‘Unselfish Gene‘ article to show one perspective. We know for a long time that the classic game ‘prisoner’s dilemma‘ doesn’t always end up with everyone choosing the game-theoretical solution. In other words people don’t like to betray others easily. Reputational concerns aside, human values are equally important in sharing something for the community’s good. Unselfish Gene tries to bring home that point.

Summary of Lecture 2 – Part 1, 14/08/2012

We had back to back lectures on first two days. The readings for the second session were divided into a short case study on SAP (SAP – A Company Transforms Itself Through Social Media [PDF]) and a relatively more academic article “Social Media? Get Serious!” There was also the IBM CMO study, but a lot in that report doesn’t directly correlate to my course. The important takeaway from IBM study was that social media now appear among the top two challenges faced by most chief marketing officers (CMO)! I think that the combination of business analytics and social media is perhaps even more challenging. This graph here shows the under-preparedness of the CMOs. (On a side note, surprisingly they are relatively less unprepared in ROI accountability. More on this later on my other blog Marketing Equity)

Data explosion and social media are the top two areas of CMO under-preparedness

SAP Case

SAP is one of the largest enterprise software companies in the world. According to its ADR trading on the NYSE, the firm’s equity is valued at $76 billion with annual revenues of close to $19 billion. Chances are that you may not have heard about this German company because they operate in B2B segment. It is instructive to study how SAP decided to build an online developer community in order to become a software platform.

Wikipedia has an entry about what a platform is. Very broadly it is a foundation on which independent developers build their services. For example, Windows operating system has been perhaps the largest software platform in the world. Several third-party software are build on it. Similarly Apple’s iOS–the mobile operating system which powers iPhone and iPad–is another example of a platform where a multitude of third-party apps are built on the basic framework provided by Apple. A true platform creates network effects (see my post about Apple’s network effects), leading to locked-in customers who remain on the platform for years. They don’t switch easily. SAP was targeting to become a platform. An obvious question is how could it convince its developers to design applications for SAP.

The solution was to create an online community of developers, bring them together, engage with them, and share content. Such knowledge creation in Enterprise 2.0 is highly valuable. First, SAP created a space where developers could exchange ideas, resolve issues, and support each other. Second, SAP created and shared content such as powerpoint presentations with the developer community. Third, they encouraged active participation from the developers in creating content such as blogs. Fourth, SAP used a point system to enable earning reputation in the community. Finally, it possibly helped SAP to reach small businesses who were thus far wary of working with a software behemoth with a closed system. SAP, in other words, repositioned itself.

The lessons from SAP case are many. However, for brevity, I focus on a couple. First, big enterprises can benefit from opening up. There is always the threat from getting exposed to competitors and hackers. But when you know about these threats ex ante, safeguards can be put in place to mitigate them. SAP took a bold step of opening itself to the world, and it was richly rewarded. At the time of writing the case, they had a thriving community of half a million developers! SAP could add premium content to the community at a price, thereby using (sort of) a freemium model–providing stuff free to bulk of the people and value added stuff at a price to a few. Such opening up let SAP experiment with the pricing. It also created an opportunity to connect to numerous small businesses. Second lesson is that social media marketing is not limited to B2C firms. SAP showed that you can run and grow successfully an online community of developers. Such examples provide evidence that with careful consideration and unrelented effort, B2B social media strategy can be crafted.

[To be continued…]

The Rise and Fall of Groupon

I made this presentation for my class. I had many more things to discuss and several numbers to show but finally I decided to put only these many slides. Please feel free to comment on the slides. I would like to get your feedback to improve this presentation as much as possible. Thanks!