Marketing analytics: What is it good for?
Absolutely nothing? Well, not exactly. A 2018 article reported companies’ plans over the next three years increase from 5.8% to 17.3% the allocation of their marketing budget to analytics.
Yet this same article goes on to report that the impact of analytics on company-wide performance is modest, and has been that way over the past five years. Talking to member companies at the Marketing Science Institute, data used in the analytics and talent doing the analytics were the culprits.
I would like to add a necessary antecedent to the data argument.
Marketing analytics is taking marketing data and processing it using statistical and econometric methods to turn that data into actionable information. The results, hopefully, help marketing managers gain improved customer insights and make better, fact-based decisions about their current or future marketing actions.
Uncertainty and a number of alternatives are two key factors challenging decision-making. Decisions based on data tend to be more accurate and less risky. Some common types of marketing decisions (and examples) that can be enhanced by using marketing analytics include:
• Pricing — setting prices for consumer goods such as automobiles;
• Customer segmentation — identifying and targeting key customer groups in retail, insurance, and credit card industries;
• Merchandising — determining brands to buy, quantities, and allocations;
• Product — determining if part or all of production be outsourced;
• Promotion — how much should be allocated to paid search advertising.
While I focus on marketing analytics in this column, analytics has been applied in virtually all sectors of business and government. Businesses large and small have embraced analytics to solve important problems or to achieve a competitive advantage.
There are three major categories of analytics: descriptive, predictive, and prescriptive. Bringing it back to marketing, while there is benefit in descriptive analytics via a rearview mirror or archivist approach, marketing decisions need to be made to successfully guide the company’s marketing strategy, assess attractiveness of market opportunities, and respond to external threats.
Companies that have not been impressed with their marketing analytics efforts have not clearly defined their business problems or objective functions. Basically, what is the metric the company wants to set as its goal for optimization or business success? That could include conversion rates to sales, near-term sales lift, market share, and profit.
Next, the firm must find and assess the necessary marketing inputs and how they map to the business problem. This brings us back to the data argument. What useful customer data are currently available in the company’s house list? What additional customer data, if any, needs to be appended to the house list?
Firms like Acxiom are a resource from where companies can purchase those extra data elements. While this step is somewhat time-consuming, it is time well spent. Future projects will spend much less time in this step.
The next step involves the talent doing the analysis and communicating the results. I will save that for a future column.
Access to massive amounts of marketing data, improvements in analytic methodologies, and substantial increases in computing power has ushered in marketing analytics. Customers and competitors are also experiencing this new and ever changing reality. The marketplace is bursting with information. All of this provides unprecedented challenges for companies to delight their customers and execute their marketing strategy better than their competitors. Capturing that potential requires a proactive and strategic approach to marketing analytics.
Hopefully those firms committing that 198% increase in marketing analytics budget allocation over the next three years are truly committed to the marketing analytic process and will reap the rewards.
Yancy D. Edwards is an associate professor in the Department of Management, Marketing, & Entrepreneurship at the John L. Grove College of Business at Shippensburg University.