The basis for this blog is a book from a UCLA professor, Dominique Hanssens, “Empirical Generalizations about Marketing Impact”. The current big data analytics is focused on discovering trends from massive amounts of data. I believe that combining big data analytics and marketing models from academia will provide the next step in analytic effectiveness. The referenced book is a summary of marketing research from all over the world. The studies are collected into chapters on topics like pricing, promotion, market adoption, etc.
One ox that gets gored right away is the link between market share and profitability. The correlation is 0.35, meaning that profits are only somewhat related to market share based on real world studies. If you want market share and profits you best look to new markets. Market pioneers tend to have higher market share and profits. If the market pioneer develops a broad product line early it can force follow-on competitors into narrow niches. Indeed, the order of entry of new competitors relates to how much market the subsequent entrants can expect. Less for later, more for earlier. There are some benefit to ads and promotion to mitigate a later entry. That said, the pioneers are still risk takers, and 64% of the pioneers fail.
The Bass diffusion model predicts how a new product will be accepted by the market. This model has been around for decades, and indicates that 5-6 years from the start of sales, things peak. Things start to decline around 8 years after sales take off. The diffusion of a product depends on the type of market. More developed markets adopt faster than less developed markets. Fun products like consumer electronics adopt faster than work related products. Another interesting thing about adoption has to do with standards. When there are competing standards (like high capacity DVDs or Beta vs VHS video) things start out slower, but grow faster subsequently. It also makes a difference on how new the product is. For a real new category of product, these experience the fastest growth. Moderately novel products being introduced show slower growth, even while they might be almost as complex as a truly novel product entry.
A new product’s acceptance depends on consumer innovation, usage intensity and income. Consumers who are peer influenced have a lower trial probability. Ads lessen the impact of peer pressure. Innovative consumers are more effected by features and displays than by peers. Price promotions can increase the size of the pie for a new product category, not just market share in a new market. Use promotions to boost demand for a new category of product. The benefit of the promotion lessens after 10 weeks. Ads are more effective early in a product life cycle than later.
Price as a marketing tool in consumer markets can increase sales from existing customers who may be stockpiling product, as opposed to causing competitive customers to switch brands. Price promotions work best with merchandising changes.
The balance between a sales force and marketing is tested also. Personal selling budgets are most effective in early product life and less effective in later product life cycles. Personal selling is also more effective in Europe than in the US. Sales budgets seem to work best at about 12.5% of revenue.
Trade shows work best in the IT industry. They yield about twice the benefit of other industries like medical, entertainment, etc. Also the size of the booth at the trade show is less important than the number of salespeople that populate the booth.
Responding to competitor prices in your ads reduces competitive shopping by consumers. These ads can be effective for up to three quarters. Responding to competitive ads, however, seldom pays. Speaking of ads, only 20% of sales effect from ads is from the actual campaign. Most of the benefit comes from the rest of the marketing efforts, underlining the need for a real marketing plan, not just a campaign. Marketing spending is commonly between 10-20% for successful companies. Higher gross margin products are at the high end, and lower margin products at the low end.
Marketing channels are key for consumer products. About 54% of the difference among brands has to do with distribution breadth.
Finally, it really is all about the customer. Customer relationships are far more important than business performance. Build trust with your customer and it will pay off. For internet companies customers look for privacy policies, good security, easy navigation, and impartial advice. Overselling will reduce the trust of your customers. Companies that are customer focused outperform those that are operationally oriented. Which kind do you want to be?