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.
From previous studies, the authors cited two companies that had benefited from analytics. One was the German mail-order company Rhenania, whose president credited the approach with saving the firm, increasing its customer base by more than 55 percent, and quadrupling its profitability in the first few years after the system was implemented.
The second example was the Marriott Corporation, which found itself in the 1980s without enough downtown locations to build new hotels in numbers sufficient to maintain growth. Using an analytics approach—and factoring in the changing location needs of both leisure and business travelers—the company developed the Courtyard by Marriott spin-off, which became a multibillion-dollar chain in its own right.
Although doubts about marketing analytics persist in many industries, the authors urge skeptical managers to give the approach another look. For one thing, because it is still not widespread, companies that embrace it would reap significant competitive advantage, they say. But if a decision to go ahead is made, it is not enough to retain outside experts for guidance, the authors warn, without also instilling a supportive culture inside the company.
“Our study provides a strong rebuttal to executives who believe that information gathering and analysis result in excessive delays and ‘analysis paralysis,’” said one of the authors, Gary L. Lilien, in a press release. “On the contrary: When analytics is deployed with strong support from key executives, organizations thrive in competitive industries and react well to today’s customers, who frequently change their product preferences.”
A company’s performance increases the more it uses marketing analytics to align its advertising and other sales campaigns with consumer and industry trends. Firms that promote a culture conducive to data-driven marketing methods can see significant improvement to their bottom line, especially if they operate in highly competitive industries.