Marketing Performance Management: Break Conventional Marketing Wisdom

We need “Freakonomics” for marketing! As I reread Steven Levitt and Stephen Dubner’s book on a plane flight, the woman sitting next to me practically shouted that out.

“Freakonomics” is all about getting to the economic facts that we are oblivious to but that nonetheless drive behavior, results, and outcomes. For just about all of us, it’s far more convenient, expeditious, and satisfying to follow conventional wisdom. It’s safer. It’s also wrong.

My seat companion on that flight helped me create this example of how we get it wrong when we rely on conventional wisdom to make marketing decisions.

A leading wireless telecommunications company spent millions on segmentation. The segments looked a lot like its company-branded service lines. Its agencies knew that churn was a “fact of life” in its industry. The company works hard at getting more people into its stores. It also began trying to connect directly with customers via the Internet. It was accepted that there really was no way to measure marketing spend in as much as 90% of the media mix. So it benchmarks spending of competitors, matches it, and works to differentiate it messaging. Then it happened.

Verizon Wireless reduced its churn in half, gobbling market share and creating significant economic value and the greatest return on customer by far in its industry (see “Understanding the Paradox: Cash Rich and Customer Poor,” from the January 2006 edition of the e-newsletter Return on Customer Monthly).

No one at the other telecom company believed that what Verizon had done was sustainable. Many apparently claimed it as false because they “knew” Verizon spent basically the same proportional amount on the same media mix. But Verizon figured out that investments in retention and new service methods would reduce churn while still allowing it to acquire more households. The mix and spend looked similar, but the facts driving Verizon’s strategies were new. And our example company did not get it.

We are all a little too much like this company. Think about this:

• History shaped how your company markets to its prospective and current customers—it’s the history of what’s worked before for you and your competitors; the marketing skills your people bring to the job.

• What you measure in marketing activities and performance grew out of that history. It is stamped on your marketing organization, all but vaccinating your people against new ideas, making change a struggle.

• The “deathonomics” in your marketing organization will keep you stuck in that same old conventional way of marketing—unless you challenge that wisdom with facts.

There is a way to break through. Right now, good old hardcore database marketers everywhere should be smiling big: Data-driven discipline in marketing is the key to breaking down the beliefs and assumptions that cause us to keep turning out unpredictable and underperforming results.

Read “Moneyball” by Michael Lewis. This book describes how renegade, data-driven disciplined analysis challenged the conventional wisdom that governed professional baseball. When a couple of economist-statistician types began aggregating baseball facts, they were able to describe and predict higher team performance using disciplined analysis of those facts. Everyone ignored them for years. They didn’t fit how the experts “knew” baseball had to be managed. The breakthrough came when one then another and another leader started testing, using, and adopting the new insights created. And they started winning more while spending less money.

The analytics of marketing is a better way to manage your marketing team. Here are two quick examples of breaking conventional wisdom and achieving stellar results.

One of the largest Latin American hotel chains believed it had a million members in its loyalty program. But “loyal customers” were showing little familiarity and dwindling interest in the chain. Conventional wisdom was that marketing had to spend on at least most of these million customers. Value and needs analysis showed something very different: Only 40,000 customers were really loyal. Investing in that 4% of customers generated profits that far exceeded expectations (see “Analytics Can make Your Numbers Really Add Up”).

Fidelity Investments reoriented its structure and budgets to focus more on new customer segments than on funcitons. It started with an extensive analysis of customer needs. Instead of “fund owners,” customers were viewed in households. Metrics were altered to focus on increasing total value and worth rather than increasing the number of accounts. The satisfaction and financial returns continue to be provocative today (see “CRM Is Not for Micromanagers” in the April 2003 issue of “CIO Magazine”).

Don’t keep making comfortable decisions based on what you “know” has been right. Get that econometrician type into your core team and put him to work on challenging the wisdom that holds you back.

Lane Michel is executive vice president/managing director of the Marketing Performance Management business unit of Quaero Corp., a marketing and technology services provider based in Charlotte, NC.