A lot of businesses use analytical marketing as a key marketing tool. It is scientifically based, it is relatively easy to do and it delivers measurable results. CMOs love it and CFOs love it too. But even the best analytical marketing suffers from the winner’s curse; that reduces its effectiveness and prevents it from reaching its zenith.
The difficulty is caused by a combination of insufficient data for analysis, the overuse of champion-challenger testing and marketing’s natural reluctance to change what is working. Even when it stops working.
No matter how much transactional data a company has, it will always be inadequate to really predict what individual customers will do next. It works well at a population level, but that doesn’t help in targeting individuals. The problem is not in the analysis, but in the stuff that can’t be analysed, things like customers real needs, their current situation, competing products and so forth. The 1% response rate that many financial services companies get on their analytically targeted direct marketing is testament to these challenges.
Analytical marketers overcome this by using champion-challenger testing. A new marketing campaign is set up as the champion. Each subsequent change in the campaign is scientifically designed to challenge the champion. The campaign with the best results becomes the new champion and the whole process starts again. Over time, each incremental campaign improvement gets smaller and takes longer to find, until no further improvements are possible.
Faced with a stale analytical marketing campaign, many marketing organisations are reluctant to change it, other than through further champion-challenger. It is human nature to want to believe that things will get better, and besides, starting the analytical process again is expensive and may end up with the same result. So the campaign stays the same, even if it is no longer the best use of marketing resources.
This is the winner’s curse. It is a bit like climbing what you thought was the tallest peak in a mountain range only to find out when you are on the top that there are lots of even higher peaks. You need to go down to the bottom before you can start to climb the higher peaks all over again.
The answer to the analytical marketer’s winner’s curse is to have an active marketing search strategy that is always on the look out for new marketing opportunities and experiments to test them. The search strategy breaks the marketing landscape down into a series of patches that can be searched quickly for likely opportunities. Each opportunity tested through experiment not only delivers a result (hopefully a high response and lots of sales), but it also delivers learning about what works and experience in making it work. It is a marketing real-option that can be developed later at will.
But winning opportunities can occur anywhere on the marketing landscape and finding them is part of the challenge. One of the best ways to search for them is to start is to involve lead customers in the whole process. By co-opting the customers who are already pushing the company’s products to the edge and enhancing the information they can feed into their analytics, marketer’s can give their marketing a higher probability of succeeding and of staying ahead. And other marketing experiments help decide when to stop a campaign and to invest in another instead.
Peter Gloor describes some of the tools to do this in his new book Cool Hunting: Chasing Down the Next Big Thing.
What do you think? Is your analytical marketing doing just fine? Or is it time to involve customers?
Post a response and get the conversation going.
Graham Hill
