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New Support for Marketing Analytics

Skeptics abound, but the high-tech approach to consumer data seems to pay off.

Title: Performance Implications of Deploying Marketing Analytics (Subscription or fee required)

Authors: Frank Germann (University of Notre Dame), Gary L. Lilien, and Arvind Rangaswamy (both Pennsylvania State University)

Publisher: International Journal of Research in Marketing

Date Published: November 2012 (online), forthcoming in print

Consumer surveys and myriad other forms of research have long been the grist for marketing decisions at large companies. But many firms have been reluctant to embrace the high-tech approach to data gathering and number crunching that falls under the rubric of marketing analytics, which uses advanced techniques to transform the tracking of promotional efforts, customer preferences, and industry developments into sophisticated branding and advertising campaigns.

Fueled in part by Tom Peters and Robert Waterman’s seminal 1982 book In Search of Excellence, which coined the phrase “paralysis through analysis,” skepticism about the approach remains widespread, even in the face of a number of positive research results over the years. This new study, involving Fortune 1000 companies, offers yet more ammunition for supporters of marketing analytics.

The more a company uses these techniques, the more it will reap positive and sustainable performance achievements, the study’s authors say. Firms facing intense competition or operating in industries with rapidly changing customer preferences have the most to gain. And the gains can be substantial—a modest increase in the use of marketing analytics by one set of companies translated to an average increase in return on assets (ROA) of 21 percent, or US$180 million a year.

Proponents of marketing analytics say that the approach not only adds to the power of advertising campaigns and other sales efforts, but can also point the way to new products and improve decision-making processes. Marketing analytics achieves all this, supporters say, by increasing the ability of a firm to track the outcome and impact of marketing variables and thus to explore a wider array of options.

Critics, however, say the mountains of data actually get in the way of decision making. A former senior executive at one of the world’s largest automakers told one of the authors that “marketing analytics–based results usually raise more questions than they answer” and the approach “often slows you down.” A 2009 survey of 587 C-level executives at large international firms revealed that only 10 percent of their companies used marketing analytics on a regular basis, the authors of this study noted.

In their own study, the authors surveyed 212 senior executives at randomly selected Fortune 1000 firms, asking them more than 20 questions about how much or how little they used analytics. The companies included Amazon, Apple, Boeing, Charles Schwab, Ford, General Mills, Harley-Davidson, Hershey, Hewlett-Packard, IBM, Johnson & Johnson, JPMorgan Chase, Kraft Foods, Oracle, Pfizer, Starbucks, and UPS. Using several databases, the authors also computed the return on assets of many of the companies in the sample during the two years leading up to the survey.

On the basis of the survey answers, the companies were listed on a scale that showed how much they used analytics and how much importance they placed on the approach. A shift in the rankings from the 50th percentile to the 65th (a relatively small movement) meant an average increase in ROA of 21 percent for firms in highly competitive industries or those facing fluctuating customer preferences. For the other firms in the study, that same shift on the scale resulted in an average gain of 8 percent in ROA.

Crucially, the ability of employees to process large amounts of data—and decipher its possible lessons—directly influenced the degree to which the firms used the analytical techniques, the authors found. It was particularly important for top management to nurture a culture supportive of data-driven marketing efforts, their analysis showed. That included hiring analytical thinkers in both technical and advertising departments, committing to a sophisticated IT infrastructure, and striving to transform the insights gained from data into effective marketing strategies.

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