B2B Marketing Confidential

Segmenting Segmentation

2009-10-26T16:46:00.005-04:00

The problem with the word "segmentation" is that it has lost its meaning. Like "analytics", a marketer saying "segmentation" can mean virtually anything. This isn't necessarily a problem, if we are simply using "segmentation" to mean "the parsing of customers in some way", but often people mean something very specific when they say the word, while the people listening interpret something very specific as well, but something specifically totally different.

I've often tried to come up with ways to segment the word segmentation. And yes, I am guilty of the same sin the "Two Bobs" made in Office Space when they wrote "plan to plan" on the whiteboard, but I'm still going down this tautological road.

"He's a real straight shooter, that Andy Hasselwander. He segments his segmentations"

So, here we go. In my view, any segmentation starts out with business goals. What is the company itself trying to do with its customers? Are we trying to grow profit? Grow revenue? Are we trying to do it in a specific area? Do we have multiple goals? What are their priorities? Ignoring these questions and just going down the path of segmentation without context is a big problem. So start by understanding business goals. The two Bobs would be proud of you, even just doing this.

Then, we get to the actual source insight. This is before we do any segmentation. What I mean by insight is pulling all of the stuff we do and can know about customers that would make meeting the business goals defined above easier, and putting them in a giant bin. This can mean old and new market research, qualitative or quantitative, data mining, management hypotheses... it's everything.

Only then do we get to segmentation. Now here I think there's an important thing to consider, which is that "value" segmentation kind of supercedes all the others. The reason is that if we want to do anything to customers, we first need to understand how valuable these customers are. So, I'd argue that segmenting customers first by value--whether customer lifetime value or something less sophisticated--has to happen first before you do anything else. This is probably somewhat controversial, among the 150 people who regularly read this blog. So, I encourage people to engage in a heated, uncivil debate on the topic.

Then, I'll put forth four key "types" of segmentation, in addition to value-based:

Product. What customers want and need from a product or service. Sometimes called "needs-based segmentation"
Creative. How customers respond to different visuals, animation, etc. Some of the cool things going on in biometric research are very useful here.

Promotion. How customers respond to different types of incentives... price, points, free shipping, etc.

Channel. Which customers use which channels, and which they prefer.

Targeting / Finding. Where to actually find customers wherever they are

This is represented in my little "segmentation tree" as a continuum, and that's deliberate. This is because the left side of the tree--needs-based segmentation--is really hard to combine with the right side of the tree. Also, making a segmentation scheme do all five things at once is almost impossible. There are two reasons for this:

A statistical problem called "assignment" which means that you can't make one segmentation based on needs, generated from a survey, fully predict or "find" individual customers

A scope problem that in any one study, you can't possibly combine all elements of "segmentation" into one uber-model. It's just impossible.

One way around this is with behavioral segmentation, or "deterministic" segmentation. This means you just start out segmenting your customers into groups 100% defined by their behavior, and then define the six attributes in the tree post-facto. This way, you're always certain you can target a customer. It might not be perfectively descriptive, but it's guaranteed to be perfectly actionable.

Later everyone.

Verticalizing Internet Marketing

2009-10-13T13:18:00.004-04:00

The hottest thing in direct marketing today is targeting individuals online vs. targeting via publishers or content. The idea that we can "know" a user and target them frees up the 90% of online inventory currently referred to as "remnant" space-- e.g. the space left over after GM, Microsoft and Coke buy the top page banners at Washington Post and NY Times. The remnant space can be just as valuable as the prime space if we only knew who the users were. A user interested in gourmet cooking is still a user interested in gourmet cooking when she leaves the NY Times food page and goes to her hotmail account or to her son's preschool website.

Verticalizing the internet is a potential solution. Or rather, verticalizing internet users. The internet is already as verticalized as it's ever going to be. So how would one verticalize internet users? First of all, it's only going to happen on specific networks of sites. You can't, for privacy and chinese wall reasons, put a universal cookie a browser that decodes them perfectly everywhere. I guess you could, and maybe that's an interesting business model. But for now, you need to work within the context of a network or a publisher. Let's use Yahoo! as an example.

So, say Yahoo! decides that they really want to make their inventory appealing for technology marketers, specifically B2B technology marketers. One option would be to put up pages that are really appealing to B2B technology buyers and influencers. These pages, assuming they attract a lot of volume (another key issue for networks / publishers), would get high CPM / CPC from technology marketers. However, once the user leaves this site, they're still valuable, right? So here's the rub, and how you can actually verticalize the internet. You've got the site; you've got the interested users. So you're missing two steps: (1) follow them around, and, (2) identifying the same types of users regardless of where they are on the property. I'd call this "200-level" and "300-level" verticalizing.

200-level verticalizing. Following them around is pretty easy. This basically means finding the really good vertical targeting-type pages, tagging engaged customers, and making sure we follow them around. This is pure behavioral targeting. We can get quite fancy doing this, by adjusting content on the verticalized page to correlate to segmentation dimensions and then adjusting people's segments based on what they click on. The trick seems to be in the details on this. For as long as I've been a member of Microsoft "Live", for example, I still seem to only get display ads for Hannah Montana movies. I view this as low-hanging fruit.

300-level verticalizing. The real nugget will be identifying all traffic according to vertical. There are two ways to do this. The first way would be doing traditional market research, such as a quantitative instrument, that would be distributed to a broad cross-section of a network or publisher's traffic. All respondents would be pre-linked to as much "targetable" behavioral data as possible. For example, Microsoft could use all the cookie data it aggregates for Windows Live ID users. Then, an analyst does a latent class analysis to derive segments relevant to advertisers; does a multinomial logit model to assign; and hands it off to the ad sales team. A/B testing to determine incrementality, and you're off to the races.

The second way would be to use only behavioral data to create "mock survey data", specifically from the vertical-relevant sites. So, we'd define our orthogonal dimensions that would be relevant to advertisers, such as "self integrators vs. needs help" and "windows vs. open source" etc. for a B2B technology scenario. Then we'd create content on our verticalized site that reflected these dimensions, and start measuring who clicked on and was otherwise engaged with what. We then use the same exact technique I outlined above to define and target segments.

The promise of these approaches is, I think, pretty huge, specifically for B2B where it's much more important to be much more targeted online.

Build vs. Buy to Land Marketing Analytics

2009-09-25T08:36:00.004-04:00

I break analytical marketing into two families: performance optimization and performance improvement. Both families are equally popular these days. However, I'm still seeing significant frustration landing "analytical marketing", particularly in large companies. Smaller "born on the web companies" have no problem at all with this. Generally, the founders of these companies built the core strategy around analytics, hired people comfortable with these concepts, and have woven analytics into the core IT systems of the company as it has grown.

However, for larger "digital immigrant" companies, weaving analytics into marketing can be a daunting task. It's no accident that large global consultancies like IBM are investing heavily in analytics consultants. They've realized a simple truth: that no matter how many fancy new airplanes an airline has, they won't get off the ground without skilled pilots and mechanics. So, why not just book a ticket on United?

I can't take credit for the pilot / mechanic / airplane /airline analogy, but it's a good one so I'll use it shamelessly. To be clear:

Pilot = analytics marketing professional. A dork like me. There are different kinds of pilots. There are the ones that can only fly the plane, and then there are the ones that can also probably start their own airline.
Mechanic = data warehouse, SAS server, web analytics etc. software guru. These are the people that actually understand how the plane is put together and fix it when it breaks.
Airplane = the data warehouse, SAS, etc. software itself, or "cloud", doesn't matter. These are the $100,000 + CAPEX investments that make analytics possible.
Airline = IBM Global Services etc.--the firms that will just do this stuff for you. You just get on the airplane and it flies you where you want to go.

Looking at it from the company's perspective that just wants to get better at customer insight, targeting, ROMI, web ad optimization, etc., it's a very difficult strategic question: Where should I start? One could make an argument for starting at any of the four bullet points above, and I can think of case examples of companies who have gone down each path. But, I'll give you what I think the answer is now.

Don't even bother hiring mechanics if you are less than $500 M in revenue, unless you were born on the web. It's extremely expensive; the people that can truly build great systems are few and far between, and the pain will be enormous.
Everyone who wants to do analytics needs at least one good "senior pilot". All the other stuff might be outsourced, or you might fly United, but you need one person who really understands the stuff and can direct vendors, etc.
Whether to buy airplanes or not depends on business context. I'm a huge fan of the cloud and renting airplanes, and this is getting more and more feasible. Companies that provide managed ROMI environment that still house your data like MSights are a powerful option. However, for large companies, buying other components selectively can make sense. And it certainly makes sense if you were born on the web.
Full-service airlines can also make a lot of sense. Totally outsourcing all analytics to IBM might be the way to go if your culture is simply not built around digital and it's not a core focus. Over time, the company may get enough digital natives on board to make analytics a core competency.

"Barrier Removal" Marketing Strategy

2009-09-15T16:39:00.003-04:00

"Barrier Removal" is a tactic I've used to great effect many times in strategic situations where customers don't seem to be behaving the way companies want them to. In many cases, to a customer, there are hurdles galore when getting information or making a purchase. To companies, these barriers may not be at all apparent.

Barriers can be physical, rational or emotional. Physical barriers might include:

Long load times on a web page
Credit disapprovals at a car dealership
Small type size in an ad
Long distances to a dealership

Rational barriers might include:

Higher prices than competitors
Feature sets mismatched to needs
Confusing steps to buy

Emotonal barriers might include:

Fear of the unknown
The brand doesn't match my identity
Distrust of the product / brand

When a marketer adds up all the barriers, you get something similar to a Markov chain. Each barrier can be thought of as "erected" or "non-erected." A non-erect barrier means the probability of a customer passing through that barrier is 1--because the barrier doesn't exist. But an erect barrier will cause some fall-out, and will effect all downstream barriers, too.

Doing a buying analysis based on barriers can be a powerful tool. One gets the sense that a company like Apple has done them in their retail stores, but maybe not for their B2B business. Looking at an Apple store, there are very few barriers.

Physical:

Everything is in stock
The stores are close to target populations
There are products available for demo all the time

Rational:

Prices are clear and intuitive
Features meet consumers' needs
Buying is simple--just talk to an associate and you walk out with your mac / ipod.

Emotional:

The store is appealing and comforting
The brand is trusted

However, when you look at B2B, there are barriers galore.

Physical:

Where does one go to get Mac for business? The store? A distributor?
What if my battery runs out? Why are the batteries internal? (some insulting me emotion here.)

Rational:

Apple doesn't work seemlessly with Office. Or does it (some confusion mixed in here.)
Apple doesn't make servers.
There isn't enough business software available for Apple.

Emotional:

I've never thought of the Apple brand as being built for businesses.
Apple spends all its time marketing iPods.

Anyway, it's a simple example for illustrative purposes. But I love doing these barrier / hurdle projects. Maybe I'll do another post on the simple math... which gets to the upside business case of barrier removal.

Creating a Dynamic View of Customer Status

2009-08-27T08:46:00.006-04:00

When trying to manage a population of customers in a high frequency-of-purchase business where unique customer data are obtainable, it can be helpful to look at a grid comparing:

Frequency of purchase in the last "active" 30 day period, and;
Last purchase date.

This grid will look like this, when the report is run against the current state of customers:

Another way to look at these dimensions is as continuous dimensions where:

Freq of Purchase {0-->∞}
Last Purchase {0-->∞}

And each customer is plotted along these dimensions.

But, to make things convenient, we cut off "last purchase", at, say, 90 days, and frequency at, say, 4 X for our table. We can then bucketize these scalar dimensions into a neat 4X4 (or nXn) grid like the one above.

A simple customer count in each bucket lets one understand current state. This is a perfect application for an OLAP reporting tool. It's also interesting, however, to understand dynamics: How customer status has changed from previous periods--the real point of this post.

To do this, I use the concept of vectors. A table such as the following can be created:

We can then simply average all of the movements for each unique starting cell location. For example, for the starting cell 1,1, which would correspond to Frequency of Purchase = 1 and Last Purchase <= 30 days, we might get {1.283, 1.321} for movement. These two numbers are the sides of a right triangle, the hypotenuse of which is the vector of customer movement.

There is an even more precise way to do this, which is to measure actual change in frequency of purchase and last purchase for each customer. In this way, we can actually measure customers who are going "beyond the edges" of our table--for example purchasing more than 4 times per 30 day period.

We can then plot our vectors in our table, which might look like this:

Each vector "direction" has a meaning. For example, "North" means more recent; "East" means more frequent / valuable, and so on.

We can also get to the velocity of change--the second derivative--by simply differencing two vectors, say, a month apart. These would tell you how a dynamic trend like the one above is changing. This is a very useful indicator of how marketing programs are impacting customer status.

This approach can also be used with virtually any customer attribute replacing these two dimensions, for example:

Total value
Customer Lifetime Value
Category-Specific Activity
Etc.

This is a neat approach that can be done with basically any pivot table / OLAP tool and a database of customer purchases.

Scott Cross (Office Depot) Talks Efficient Customer Response, Customer-Centric Marketing, and ROI

2009-08-20T15:29:00.003-04:00

I recently interviewed Scott Cross for an upcoming issue of MarketBridge's client email newsletter (Minds Over Markets). Scott is Director of Strategic Campaigns at Office Depot. Scott's a super smart guy who's tried a lot of innovative things and has a firm grasp on the big picture of B2B Marketing.

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AH: Talk a little about how customer data is being used to bring together vendors, manufacturers, retailers and distributors in a more customer focused strategy, and where that’s headed from a B2B perspective.  

SC: The manufacturers don’t really understand who is making the decisions and what information is available within the network of their distributors and retailers. A lot of them aren’t set up to understand the information, and don’t have the capabilities to analyze it. So it’s really a green field, and that offers businesses the greatest upside today in the marketplace.  

How can you get that data and marry it with the manufacturer? It’s critical because the manufacturer has the expertise when it comes to their products, customers’ behaviors and reactions to those products, and even customer trends when it comes to the features, benefits and requirements. What distributors and retailers have are customer data -- transactional and market basket data -- that completes the picture. So there is definitely room to grow there. For us, that’s where MarketBridge comes in: bringing the manufacturer together with the retailer.   

AH: How has customer insight evolved at Office Depot over the past few years?  

SC: Obviously, the retail sector is important for us, but there has been a big insurgence in B2B. But when you look at our customer base, about 80 to 90 percent of our customers are actually businesses now. So we really started trying to understand what drives their buying behavior, and who the decision makers are. In the past we did a lot of qualitative research. Any type of quantitative research was based on surveys, but we didn’t do a lot with customer analytics, database mining, and market basket analysis on the delivery side of the business with our larger contract customers. Most of the market basket analysis was done with the retail customer data.   
So we’ve taken it to the next level by looking at the market basket information such as buying trends and behaviors, and looking at high value customers. Now much of our primary research is done with business customers rather than consumers. MarketBridge has played a big role in helping us understand that, and doing a lot of the modeling on our customer data set.  

AH: As the manager around customer insight, what are the three most valuable reports that you receive or would like to receive? Which ones help you make better decisions about customers?  

SC: I think ideally there are three reports managers want to see. First, a daily overall sales report that shows how you’re doing by product category and by channel is important, because every morning I can see whether we had a good day or a bad day and why, and the most effective channels from a product perspective. We’re also working to understand that at a customer level.

The ideal state is overall sales by product category and channel, and the second layer would be to look at that by customer segment. It’s the ability to drill into your sales vs. plan vs. last year, find out which categories are up and down, and in which customer segments.   

The third report would be how we are doing against campaigns: how a campaign is performing by product category, customer segment, and by channel. Then, taking it even further, how a campaign is doing at the sales rep level. It’s really measuring the performance at a high level down to product, channel, customer and sales rep levels.  

And the next step would be to get this information in real-time, and I think we’re headed in that direction.

AH: Given that, we often talk about the three dimensions of account structure, product market basket and marketing effectiveness reporting. How much importance do you put on those three when you’re managing your business?  

SC: Marketing effectiveness is certainly important. You want to understand what vehicles are working and which customer segments are responding to which vehicles. In today’s economy, knowing which customer segments are doing financially better and have a little more money to invest in our products is important. For example, the public sector is definitely a growth opportunity in the current state of the economy.   

Understanding the effectiveness of marketing to those segments is important, but just as critical is the product marketing basket and the account structure. For example, the product marketing basket allows us to understand that customers are buying ink, toner and paper, but they are no longer buying filing products, because budgets have been cut and they can reuse their file folders. So to understand how the product marketing basket changes by segment, by the cyclical nature of the economy and by the overall macroeconomic environment is important.   

And the account structure is equally important. Knowing the difference between a small single-office customer down the street and a multinational corporation with small branches all over the country is key. At the same time, how do these different accounts make buying decisions? Is it the owner of a small business vs. the administrator within a large company? When you are able to marry those three together, it’s really powerful information to use in effectively marketing to your customers.  

AH: Who understands customers better, the marketing organization or the sales force, and why?
SC: The sales force understands the customer better when it comes to interacting and knowing the way they customers think. When it comes down to one-to-one relationships, the sales force is number one. That said, the marketing organization is more effective in taking that information and using it to segment the customers into similar groupings, so you can have the same type of effect as with the one-to-one sales effort. So in looking at the overall customer base, how to segment them and market to them, and also which product or offering is most relevant to the entire set of customers, marketing is the most effective.  

AH: Switching gears, you’ve got a market research person on your team and plenty of analytics people that are dealing with your core systems. How can market researchers and data analytics people better integrate to drive customer insight? How do you take those two separate tools and merge them together?  

SC: Our philosophy is that research and analytics should be in the same group, because data is just another view of the customers, so if you can understand the customer through market research, you are getting a better picture of what the customer looks like. So market research and analytics go hand in hand.  

AH: With your CPG background, you saw efficient customer response take off with retail scanner data in the supermarket sector, for example. Now it’s finally happening for B2B, and Office Depot is a pioneer in that.  

SC: I do think we’re on the cutting edge. You always feel like it can’t go fast enough, and you’re always feeling behind when you look at retailers and all the information they’ve shared for many years. But it makes you realize there’s a lot of opportunity.

Sterling Cooper What Happened to You?

2009-08-17T14:29:00.004-04:00

As a shameless tag along to last night's Mad Men premiere, I want to develop a hypothesis that I've been kicking around about how agencies, companies, and other elements of the marketing value chain have evolved since 1963.

Back in the 1960s, I've heard from some reputable sources, agencies were much more "do it all marketing companies." The distinctions we make today between a digital agency, an old line agency, an experiential marketing agency, and a marketing strategy firm would be foreign and meaningless back then, because agencies, in many cases, handled all elements of a client's customer facing presence. This was marketing in it purest form. The agency handled research, ideas, creation of message, art, and getting it out to the market. In many cases, agency folks would do things they had no idea how to do, but succeeded anyway. From what I've heard, it was (even removing all the booze, womanizing, and other crap,) a much more exciting time.

I work in a marketing consultancy. We do things that agencies would have done in the 1960s without knowing they were doing them. Did they do those things as well as a specialist would do today? Probably not--but I'm also willing to bet that marketing has lost something to over-specialization and fragmentation. Having all of the people thinking about a brand under one roof has huge benefits. Network effects drove huge creative outbursts and incredible innovation in marketing in the 1960s and 1970s. This is similar to a Google today, at least what I imagine Google to be. You have a company trying to do a whole bunch of cool stuff; specialization has not yet occurred, and innovation happens.

Much more of marketing has been brought in house by companies trying to save money. A lot of this was definitely good, but I think it can also be stagnating. Having people working on your customer facing presence who were working on, say, London Fog last year has benefits. I'm not saying that companies should look to "re outsource" the marketing function, but it's an interesting idea. H1: A company that came along today looking to trade on network effects of multiple creatives handling all elements of a company's customer facing presence... from sales to TV to database to you name it... and really executed on it (and not just said it) might actually be able to make some serious hay.

This is why it would be tough to make a Mad Men today about a company in the "marketing business". If you were going to make a show that good about a company today, it would probably take place at Google. Actually, let's try "company shows" most emblematic of their decade:

1960s: Mad Men (Advertising)
1980s: L.A. Law (Legal)
1990s: Office Space (IT.. ok, it's a movie, but give me a better one)
2000s: Project Runway (Fashion)

Seems like a Google show needs to get made.

P.S. As far as Mad Men last night, while initially underwhelmed, I've been thinking about the episode all morning, which probably means it was actually really good. I didn't like the birth flashback at first, but I now think it was really clever. I loved the London Fog sales call, and I guess the thing that struck me there was that Don was essentially out of ideas and looked pretty impotent. The Sal scene with the bellhop was so awkward but great... and finally Pete's behavior as the junior executive we love to hate reached new levels. Lots of great aesthetic pieces too--the Japanese porn, the Stolichnaya as a cuban cigar equivalent, the use of raincoats as metaphor for (staying in the closet; hiding from the past)... By the way I'm headed to Baltimore tonight. Should I be worried?

Three Ways to Track ROMI

2009-07-24T09:33:00.005-04:00

In keeping with this week's "three ways" theme, here's a framework to track ROMI (return on marketing investment) that can pretty much solve any problem. It's high-level, but it's been very helpful for me over the past couple of months in thinking about a very complex, multi-channel marketing measurement problem.

First, Test vs. Control. This means for every direct tactic that you launch, hold out a control group. The control group can be small, but should be selected from the exact same list that you used to generate the campaign. Otherwise, bias can (and will) creep in. Hold out the control list in a "stimulus table" somehwhere in your database. When the tactic has been in market for a long enough time, take a look at the performance of test vs. control customers against a baseline. A good baseline to use is "90 days prior". You can also use "vs. last year" but here you have to watch to make sure that there isn't a disproportionate percentage of customers in either list that weren't active in that time period.

Second, Opt for Customer Lifetime Value or Customer Data When Measuring Return. It's always better to take a look at customer dynamics vs. simply total sales. For example, if I'm doing test-control analysis, I'm much more interested in understand how many customers I acquired, lost, what my impact was on average transaction size, and ultimately what my impact was on CLV than just total sales for the population for that period. Disaggregating gross sales performance into customer-specific data yields huge insights. This is particularly true of subscription or repeat-order businesses.

Third, Econometric Forecasting with a Marketing Component. Putting all of your data into a time series database and understanding the contribution of each marketing tactic to return is the final step. This can work in a direct marketing, advertising, or "mixed" environment. The first step is to leave the marketing stimulus out--build a forecasting model for key independent variables, namely total revenue, new customers, lost customers, and average transaction size (and potentially price as well). Explain as much of the variance as possible using autoregressive terms (seasonality, etc.) and extrinsic data (competitive actions, GDP, business confidence, etc.) When you have a good model, add in marketing stimulus, using appropriate adstocks / decay rates. This should yield a good model for understand what elements of marketing are driving what elements of return.

Taken together, these three marketing measurement techniques can enable a "test and learn" culture at your organization.

Customer Insight Three Ways

2009-07-21T09:30:00.003-04:00

Customer insight is important to marketers for many reasons. Understanding your customers helps you in formulating market strategy. It helps in campaign design. It helps the sales force understand how to approach acquisition targets or retain existing customers. It is the raw material out of which great marketing happens.

In the B2C space, customer insight is well understood, and whole industries and many great companies have made it their business. Segmentation schemes that provide predictive lift in product design, creative design, and direct marketing campaigns make billions of dollars a year for companies like Axciom and Claritas. However, in the B2B space, customer insight still has a long way to go.

The reason is simple. Companies are a lot more complex than individuals or households. For one thing, companies can be very small--say one worker--or very large. For another, companies have different locations with different functions. Capturing all of this diversity is difficult.

A good way to start simplifying the customer insight question in B2B is to focus on three key dimensions. First, what products are companies buying? Second, how is the company structured from a decision making perspective? Third, what information channels do decision makers and influencers in the company use to make decisions? This simple triad--product / audience / channel--can be very helpful as a "check off" list when thinking about marketing strategy. How would this approach work in a simple marketing campaign to say, sell a new type of tool to construction companies?

First, the product dimension kicks in. What companies currently have similar tools? What types of industries would need this tool? If the tool is very expensive, is there a lower bound on company size? A marketer could use data on product sales to build a predictive model of the most likely firms to purchase this new tool. It's important to note than in most cases, the product dimension is relevant at the firm and not the contact level.

Then, the audience dimension comes into play. Who is going to make the decision to purchase this tool? Are there key influencers to the purchase, the actual users of the tool? What are the features of the tool that will be most appealing to them? A marketer could create a contact strategy that hits each audience with the selling points that make the most impact--price on the buyer, value on the CFO, features on the users, for example.

Finally, the channel dimension is used to understand how marketing and sales should be executed. Do buyers and influencers read a specific type of publication to understand more about this family of tools? Are there influential communities that they listen to that we need to plug into? Are there key distributors that must carry the product for it to penetrate the market?

Of course, getting customer insight--the raw information--across these three dimensions is difficult. Doing this requires at the very least a qualitative market research study. However, by beginning to think in terms of these three dimensions, marketers will make better decisions and begin to collect information on their B2B customers that they can use over and over again.

Best Practices in Pipeline Velocity?

2009-03-10T13:49:00.004-04:00

A client of mine is having challenges forecasting and managing the pipeline. They sell servers and storage (typically smaller deals 25K - 100K).

Was curious what others have traditionally seen in terms of deal cycle times (defined as length of time from qualified lead to deal close) and how they are varying in today’s environment. Would also be interested in understanding typical cycle times…

From when customers respond with an interest until they are connected with the appropriate channel/sales rep

From sales rep contact to a proposal

From proposal to deal close

Also, would be great to get any best practices for segmenting, covering, and tracking these types of deals?

Thanks,

Andy Hasselwander

Are we in a Depression or a Recession... and what are the Implications for Marketing Strategy?

2009-02-25T09:06:00.004-05:00

There are a lot of articles on the value of marketing in a recession. Most of these were written around three recessions: 1982; 1991; and 2001. These recessions ranged from severe (1982) to mild (1991 and 2001). The current "downturn" is definitely a "severe recession"--the question is, is it a depression? I'll set the following rules, somewhat arbitrarily, about separating a recession from a depression. A depression must satisfy 4 of the following 5 conditions:

Negative GDP growth for at least eight consecutive quarters
Unemployment > 10%
Stock market down > 50% from peak
Real Estate values down > 40% from peak
Deflation in corp CPI for at least two consecutive quarters

So, using my definition above, which probably passes a sniff test and little else, are we in a depression? We'll have to use probabilities, because these data aren't complete yet.

Negative GDP growth for at least eight consecutive quarters. We're at three now. It'll definitely be five (no one sees growth in the 2nd quarter.) Bernanke says we "might" see growth this year... I'd put the chances at 33%. So let's call this 66%.

Unemployment > 10%. Most are calling 9% this year. I'd argue we could easily see 10% late this year or early next year. I'd put the chances at 50%.

Stock Market Down 50% from Peak. Dow peaked at 14,164 and hit 7,114 yesterday. Good enough for government work. Bingo.

Real Estate Value Down 40% from Peak. Home prices are down 27% since the 2006 peak. Most see 30% as inevitable. I'd put 40% at a 25% chance.

Deflation in Core CPI for at least 2 Quarters. Core CPI slowed to 0.8% in 4th quarter. It'll probably be slow in the current quarter too, but I doubt it'll go negative. So let's call this one 5%.

So I'd put our chances of being in Depression at about 10%. (.66 * .5 * .25). So, one in ten. Unsurprisingly, that's better than Joe Biden's 30% comment, into which probably no thought went. The hair spray probably just got into his brain for a few seconds and he was overwhelmed.

Why all this analysis? It's because if we're in a recession, there's a lot of past data to rely on, but if we're in a depression, we don't have much to go on. So, I'd argue we have to follow recession marketing rules. Here are some snippets gleaned from the press with the help of our friend Dr. Spekman at UVA / Darden about recession marketing rules of thumb / observations:

An American Business Press / Meldrum and Fewsmith study showed that companies that increase / establish an aggressive market stance coming out of recessions (the 1970 one, in this case) do much better coming out of the slowdown.
A similar study showed the same thing for the 1974-75 recession.
A McGraw-Hill study found that 600 B2B companies that increased their spending in 1981-82 grew significantly more than competitors that did not.
A Cahners and Strategic Planning Institute study of the 1981-82 recession showed that larger companies who spend more on marketing do better in downturns than their smaller competitors. Not surprisingly, this is already being borne out in 2008-09, with Ford and Sears taking share from sick competitors (Ford from GM and Chrysler; Sears from Circuit (bankrupt) and local appliance shops).
AMA found a similar trend in 1990-1991, with larger / healthier companies spending more and taking share.
BMW grabbed share after 9/11 in 2001 and credited its success to taking an aggressive market stance with advertising and event marketing. Good quote from BMW: "We change before the market forces us to change."
After the 2001 recession, B2B Magazine found B2B ad spending recovering and focused on three areas: Supporting established brands, focusing on integrated marketing campaigns (multi-tactic, same creative and targeting) and measuring ROI.
In 2005, Arvind Rangaswamy and Gary Lilien at Penn State did an analysis of the 2001 recession and found that well positioned companies benefit from increasing spend in downturns. A good analogy was "Athletes often choose times of stress to mount attacks; strong runners and bicycle racers may increase their pace on hills or under other challenging conditions."

The message is both (1) don't cut back on advertising, because that's silly. But it's also that larger, healthier companies with cash get a triple effect in recessions:

There is less ad spending out there so your ads / DM get more attention.
Ads are cheaper because media companies are struggling for business.
You force weaker competitors into an arms race they can't win, forcing them to choose between bankrupting themselves or losing share.

This sounds an awful lot like the arms race in the 1980s. Ronald Reagan's 600 ship navy, high-tech fighters and bombers, and stealthy submarines never fought the Soviets, but because we had more cash, we basically forced them to either (1) lose the arms race or (2) bankrupt themselves. So, if you're strong, now's the time to beat your competitors to a pulp. Not sure I have much insight for the weak in this post. I'll try to think on that problem though.

Looking Forward to the Snarky Ad Backlash

2009-02-08T22:09:00.004-05:00

I have had it with snarky ads.

Snarky: Rudely sarcastic or disrespectful; snide (Dictionary.com)

I'd add this definition: The sarcastic, know-it-all, snotty sense of humor that has become the lingua franca of the late 00's among a certain class of too-cool young adults.

The front-line of the snarky cultural revolution seems to be advertising. It's driving me nuts, and I'm hoping I'm a leading indicator for the rest of the world. The sooner we're rid of the snarky ad revolution, the better. Here are some of my absolute most hated snarky ads. If, after watching these, you can't see this trend, then I must be crazy.

T-Mobile Butt Dialing. Can these two people hate each other any more? The absolute awfulness exhibited by these two idiots turns my stomach. I hope each of them butt-dials 911 and a SWAT team traces the call and accidentally blows them away. This makes me despise T-Mobile and Blackberry.

E-Trade Baby. Hey, it's not cute, it's creepy. However, beyond that, the baby is a snarky jerk. Would anyone want to hang out with this creep, as an adult or a baby? Once again, E-Trade is literally out of my consideration set on the basis of these obnoxious ads alone.

Bud Lite Drawing Guy. The UPS drawing guy isn't snarky, he's just a walking cliche. But the Bud Lite drawing guy is snarky and enjoys making meaningless, ironic comments. I don't like any of the "drawing" ads, but the skier one is particularly bad.

Old Spice Neil Patrick Harris. The snarkiness emanating from Doogie Houser in this one far exceeds any nasty body odor one might have. I guess this has just become the only way to talk to the 20-30 generation (at least that advertisers understand.) Troy McClure was funny--in 1994. It's not funny anymore.

I'd love to come up with more, but to do that I'd have to watch more TV. Any comments suggesting other examples of this awful ad genre will be posted. And yes, I'm grumpy.

Measuring the Value of Relationship Marketing

2009-02-06T18:18:00.005-05:00

Relationship marketing, unlike direct marketing, is about cultivating a customer (in the case of B2B, this could mean many different audiences inside one company) over the long-term, and ultimately driving loyalty. Customers’ attitudes change in a positive direction; they become satisfied with the brand; they ultimately perceive the brand to be high-quality, caring, etc. and will stay a customer for life. At least, that’s the idea. The problem with relationship marketing is that you can’t try too hard. The dangers of spamming, coming across false or fake, engaging in only one-way communication, or being too pushy have sunk many well intentioned relationship marketers.

Measuring relationship marketing can be a good way to get a handle on how to do relationship marketing right. I’ve seen a lot of companies troll around for best practices and never truly understand what impact they’re making on customers until they start truly tracking spend, engagement and resultant attitudes.

There are three important components of measuring relationship marketing:

Develop an RM taxonomy and track spend. This is basically carving out your vehicles into meaningful categories. It is not tracking campaigns. In fact, a relationship marketing “campaign” is a bit of a misnomer. The goal of RM is to keep consistent engagement going, with no gaps longer than six months. So you want to divide your vehicles up into things that are really different in the mind of customers. I’d also recommend using a hierarchical approach. A simple example is shown below. Once the taxonomy is established, start tracking spend, by audience, at a granular time scale. Weekly is good, but monthly is probably fine too.

Track engagement. Engagement is different than spend. Spend will be really useful to track ROI, but engagement tracks two-way interactions. Use the same taxonomy you use for spend, but this should be the actual interactions with the customers. Engagement is an “in process indicator” for the success of relationship marketing. It is a good leading indicator for success, and can be tracked frequently, giving marketers frequent updates on their efforts. Important: Don’t just track outbound activity—track both inbound and outbound. People in relationships talk to each other, at least those whose relationships last. It’s also a good idea to track reach over a total audience.

Track core attitudes and the ultimate attitude. Core attitudes and perceptions need to be determined by market research. I talk about SEM and how to do this here. But once these attitudes are defined, these should be considered as the ultimate goal of RM. Advertising has an effect too, so these metrics will be shared, but people in good relationships feel good about their partners. It’s important to track both the “ultimate attitude”—something like net promoter—and predictor / component attitudes that marketers can message too. Once again, the goal is to provide guidance back to marketers on where they should be re-mixing their efforts.

With the three above metric families in place, relationship marketing can become much less of a mystery. Tactics can be chosen on the basis of empiricism vs. gut feel, and companies can truly improve their relationships with customers. After a time, you’ll realize that your taxonomy for parsing out vehicles can be improved. Core attitudes measured will also change with changing business objectives and customer landscape.

Mobile Codes and B2B

2009-01-09T16:56:00.007-05:00

Over the past decade, I’ve been involved with many projects to “de-tangle” digital marketing for big companies. Big companies want to know what’s out there in the digital landscape, and how it all fits together. Most importantly, they want to know why the latest trend is important to them. Take Twitter, for example. Is it a real, honest-to-goodness life changer that will be used addictively by a whole generation of digital influentials? Or, will it be the Segway scooter of web 2.0, a tool in search of a solution, that enjoys a surge of activity followed by a slow decline into boredom and malaise? I won’t comment on Twitter (at least not for now), but I will mention a truly cool tool that could be very, very important for B2B marketers.

QR codes were invented in Japan in 1994 and are used a lot in Asia. They’re all over the place in India. The basic concept is simple—a mobile two dimensional barcode. Instead of putting barcodes on merchandise for use in payments, you can put them anywhere. Here’s what one looks like. This is the one for wikipedia's home page:

Microsoft’s biggest announcement at this weeks’ CES was their version of QR codes called Microsoft Tag. These are two-dimensional color codes that contain a lot of information and are very readable by mobile phones’ cameras. A key to adoption of these codes is ease. How close do you have to be to the code to take an accurate picture; how much light is necessary; how good does the camera have to be to pick out the contrasts in color. From what I’ve heard through some savvy friends, the new Microsoft technology is best-of-breed on all fronts. Here's what a Microsoft Tag looks like for B2B Marketing Confidential:

However, we’re back to the Segway question. Will this thing take off, and will it last? I think it will. For one thing, it’s taken off and lasted in the more mobile-phone-savvy countries already. For another, it’s got a lot of real, honest-to-goodness business applications. Microsoft points out several of these:

Real Estate Listings: Snap a code of a for sale sign, take a virtual tour on your phone.
Business Cards: Snap a code on a business card and download the person’s contact info.
Dating: Print out a t-shirt with your code. If people are interested, they snap you and get your digits (my friend Jeremy came up with this, I agree, it’s a bit sick).
Linking to Facebook / Twitter: Snap codes and people automatically see what you’re looking at and where.

There are lots of others that I’ve thought of for B2B marketers:

Put codes on retail displays / end caps. Snap the code and you download a coupon and get loyalty points
Put codes on all of your hardware components. Snap the code and you’re automatically routed to the best tech support person for that device, along with the device’s serial number and configuration.
Put codes on drug posters. Snap the code and a doctor downloads all the clinical data and prescription guidance.
Put codes all over at events. Snap the codes to create a customer event portfolio, complete with time visited. The sponsors also know who you are, who else you visited, etc.

There are probably 10,000 other applications. I came up with the above in three minutes; I think with some heads-down time you could come with many more meaningful B2B applications. So B2B marketers, start planning for mobile / QC codes in your planning. Some open questions:

Is Microsoft going to out-innovate Google here for a change, or will Google release their much better version shortly and snap up all the share?
What does this mean for GPS integration? Didn’t even go there but imagine that…
Implications for privacy? Is there a way to streamline “opt-in”?

So, so cool. I don’t say stuff like this too often, but this is exciting.

Thoughts on and Definition of Inbound Marketing (Listening)

2009-01-08T12:30:00.004-05:00

Marketing is a word that has lost its meaning, and marketing is a discipline that has lost its way. When I say “marketing” to most people on the street, the first words that are mentioned are overwhelmingly negative. Marketing is thought of as “advertising”, “spam”, “pushy offers”, or “tricks”.

Here's an ironic and unlikely hypothesis--marketing accountability has driven this trend. This is meant to be a controversial statement. Marketing accountability, otherwise known as “ROMI (return on marketing investment) measurement”, has forced the marketing function into a single role driven by a single metric—driving incremental, short-term revenue. Of course, this is an oversimplification. Many companies think “long-term” and do care about their long-term customer relationships. But, there has been, over the past fifteen years, an undeniable trend toward the short-term profit-driven marketing function.

At AOL, in the late-1990s, marketers pushed an obsolete product to customers with such relentless efficiency that the company’s infamous CD-ROMs became the gag in its own television ads.
Through the 1990s and 2000s, credit card companies pushed a product to customers that they knew will destroy them in the long-run, unapologetically. Letter after letter came for pre-approved cards, even when customers are teetering on the brink of bankruptcy.
Pharmaceutical companies have given in to a seemingly never-ending arms race of more direct-to-consumer advertising and more physician detailing, leading patients to develop a deep distrust of companies that keep them healthy.

This sounds borderline socialist, but I assure you, I'll get around to making money. The question, however, is whether marketing must be considered a “zero-sum game” where a company treats its customers as wells to be tapped as deeply as possible, as quickly as possible. In future posts on inbound, I will make the argument that this objective is deeply flawed and must be changed by companies across the landscape. The goal of marketing must became customer advocacy.

Inbound vs. Outbound Marketing
A colleague of mine loves to talk about “inbound marketing”. The problem is, most marketers at big companies these days usually respond with a blank stare. For marketers at Fortune 500 companies, 90% of jobs are “outbound”—getting customers to buy stuff or feel a certain way. The inbound function is usually encapsulated in market research. But, even this has been gutted. Market research departments spend a lot of time figuring out how to sell better to customers. Their business customers are compensated on “selling more stuff” so they need “actionable research.” This is all great, but something has been lost in the shuffle.
Here’s a first attempt at a definition for inbound marketing:

Inbound Marketing: The voice of the customer manifested inside the company.

A good start, but not very descriptive. The voice of the customer, manifested inside the company, could be one person aggregating a bunch of customer feedback speaking to no one in particular.

Inbound Marketing: The voice of the customer manifested inside the company, that acts as an empowered advocate for customer needs across all company functions.

This is much better, because now the voice of the customer is actually changing the way the business operates. But something is still missing, which is how this customer advocacy is gathered and communicated.

Inbound Marketing: The voice of the customer manifested inside the company, that acts as an empowered advocate for customer needs across all company functions, gathered through the ever-increasing digital interactions and channels available.

This definition brings together the what, the why and the how, and seems pretty comprehensive and precise. A lot more work needs to be done to flesh this definition out, which will be the subject of future posts on this topic.

Corporate vs. Product Advertising in Tech

2009-01-02T09:52:00.003-05:00

When talking about allocating a marketing budget, one of the most important questions is the split between corporate and brand spending. In other words, is it better to lift the brand as a whole, or hawk specific products? Peeling the onion another layer, when doing corporate advertising, should a company focus on "hard" attributes--also called "corporate ability" or CA advertising--or on softer "corporate social responsibility" or CSR?

I hadn't really thought about this much in the context of tech until today, when I started running through various ad campaigns and realizing just how bereft most are of CSR advertising in tech. Literally the only company I can come up with that does CSR is Microsoft. Am I missing someone? I guess you could argue that Google does it, but that's not really advertising as much as big PR stunts.

I think the reason for this is simple: most tech companies don't really do anything "bad", or at least they're not accused of it. Have any tech companies recently changed the climate? Cut down a rainforest? Enslaved children to mine silicon? If they have, it doesn't make the news because they're so far down the value chain from these activities. And of course, this is why Microsoft has to run ad campaigns on its CSR.

Keep in mind, the above table contains estimates I put together in five minutes. They are 100% wrong.

This leads me to wonder, does CSR even work to a technology environment? Does it almost backfire? I mean, I watch these Exxon Mobil / BP greenwashing ads and I literally want to vomit. Maybe Microsoft would be better off ignoring CSR because the audience is so savvy. I think there's probably a big inverse correlation between CSR effective and audience sophistication.

What about product vs. corporate spending? Apple doesn't do any corporate spending. They market their products only, and yet have an incredibly strong brand. This is because their products are (1) linked together through design, creating an "idea" of an Apple brand just by handling, viewing and using their products, and (2) are advertised in very similar ways. So, they're getting the double-whammy of getting product SKUs out the door with product advertising and strengthening their brand.

Could any company do this? Could Microsoft do this? Are they better off just abandoning CSR and CA altogether and advertising products through a unified portfolio approach? I think it's worth a shot.

Three Free and Not-so-Free "Listening" Sites

2008-12-31T10:02:00.006-05:00

I've talked about "listening" or inbound marketing as a key component of a marketer's job in the late 2000's environment, and I thought it would be helpful to aggregate a few of the sites that have interesting ideas on the listening front. What I do to keep all of these listening sites organized is to use http://www.delicious.com/ (formerly de.licio.us) and tag each of the listening sites so I can keep them as a group or sort through them based on what I'm looking for.

1. BrandTags.net. One of those ideas you wished you had, BrandTags allows people to come in and partake in one of two activities. First, you are flashed a brand--like The North Face--and you type the first word or phrase that comes to mind. Tags are aggregated and presented in a cloud format. The second option is a forced trade-off for brands, ultra-simple style. So, you might have to choose between Microsoft and Apple. Is this biased? Of course it is!!! But, I bet it's a pretty good proxy for a digitally savvy 20- or 30-something male audience. Brands are also ranked against each other in a list, based on their "winning rate" in the head-to-head.

2. Buzz Monitor. Why the World Bank went and built their own tool to aggregate digital buzz I'll never know, but they did, and because they're .org they've made it available to anyone who wants to use it. All you need is a Linux server and the thing installs using Apache / MySQL / PHP. It basically goes out there and "scrapes" the web for what people are saying about you. Yes, it requires some effort, but it's very cool. I don't think it'll be free for much longer. I think they have non-profits in mind as users.

3. Nielsen BuzzMetrics / BlogPulse. It's no surprise that Nielsen's in this business, but this tool is pretty slick. Blogs are theoretically the "rawest" content on the web, and BlogPulse lets you see what's going on in real-time. There are free applications, but of course you have to pay for the good stuff. They have a neat blog that discusses some of the trends they're seeing in the blogosphere. This is mostly harmless stuff, yet good cocktail chatter. For example, the percentage of blogs mentioning "New Year's Resolutions" as the New Year approaches. Sometimes there are interesting posts for companies, such as this one tracking XBox vs. PS3 vs. Wii through the holidays. Turns out XBox is winning. Or, the interesting "bursty phrases" page which allows you to see which phrases are "accelerating" fastest out there. You can even do custom searches that are actually really enlightening. Say you wanted to do an informal analysis of the impact of Microsoft's Seinfeld commercials on the blogosphere. I did three searches and did a serial plot through six months.

This is obviously just the tip of the iceberg. It's astonishing how much a motivated marketer can learn about his brand, products, and customer perceptions by keeping a few sites bookmarked and checking periodically. The opportunity to do "big" market research tasks with little or no budget is huge, lowering barriers to entry for digitally-focused brands. I'm always on the lookout for new "listening" sites (beyond the obvious such as Google alerts) so keep the comments coming. Happy New Year... hope everyone had a great holiday season.

Creative Destruction of the Demand Chain - Part 2

2008-12-20T19:32:00.004-05:00

The Problem with B2B Sales and Marketing

By David Bradley, MarketBridge

The new wave of innovation finds too many Go-to-Market functions lacking in readiness to exploit the changes coming. After years of making marginal cuts in Sales and Marketing budgets and limited investment in tools and technology, GTM leaders will not be able to cut costs necessary to maintain positive cash flow without seriously compromising the ability to deliver future revenues. Although there are exceptions to each of the following conclusions, taken as a whole there is a pattern of outcomes and root causes that suggest fundamental changes needed and guide where to cut and where to reinvest.

First among these is GTM organization and portfolio complexity which lead to burdens on organic growth and lack of investment in enablers of sustainable productivity. In large multi-line, matrixed companies the complexity of large portfolios and competing go-to-market priorities have led to a slow, product-centered planning system that fails to focus adequate resources on growth segments. And across the board, marketing and sales organizations continue to invest in traditional campaigns and tactics versus the structural enablers of sustainable productivity.

Second is the disaggregation of the “Four Ps” of Marketing in most B2B companies. No single go-to-market executive can drive the alignment of product, price, distribution channel and promotional tactics. In an era of maturing product markets where defining standard product-based solution bundles and aligning GTM functions to target growth segments through most efficient channels are keys to success, the shortcomings of B2B GTM governance models will become apparent.

Third is the relative lack of sophistication of B2B sales and marketing organizations in identifying and addressing increasingly small growth market segments. Product management, brand marketing, sales management and tactical demand generation marketing each manage their own market segmentation schemes which are rarely treated as part of a holistic view of market structure, much less supported by an integrated analytical and data model.

Fourth is the poor state of marketing data and performance analytics. While many companies have made progress on the basic needs to measure marketing contribution to pipeline performance, these post measures do little to inform marketers of segment-oriented performance. Very few companies have made the strategic and financial commitment to making the majority of their marketing tactics Web-enabled, with the accompanying real time analytics engines and reporting capabilities. Yet in most B2B categories the Web is acknowledged as the most important information source.

The fifth and final fundamental problem is the natural tendency of leaders to be averse to disrupting current – usually maturing – revenue streams. The pressure to maintain period revenues is very much at odds with making radical change in the GTM functions. Sales and Marketing leaders are stuck in separate silos and dated mental models for how their functions should interact. And if history is any indicator of the future, then it is clear that those leaders not able to adopt a new model will find themselves increasingly in conflict with the forces that are shaping the market.

Creative Destruction of the Demand Chain

2008-12-18T15:04:00.002-05:00

By David Bradley, MarketBridge

As senior leaders in B2B companies evaluate their alternatives for competing in this time of crisis they will be confronted by a choice of merely surviving, or leveraging disruptive forces to gain advantage. Beyond cost cutting, enhancing the ability to generate sales and creating a foundation for sustainable productivity will require new “go-to-market” operating principles. This paper describes our Firm’s vision of what those new operating principles will be, the market forces that are shaping them, the gaps most companies face in achieving them, and ten practical ways to get started.

The term creative destruction has its roots in early-20th Century macroeconomics and was made popular during the post-dot.com business cycle shift. Based on patterns of two earlier waves of technology-enabled creative destruction in the late-1980s and 2000s that changed key business functions across industries, we are suggesting that a third wave of cross-industry functional creative destruction will occur, and that it will define new success factors for how companies achieve major productivity gains in the go-to-market functions while maintaining and improving revenue growth. The views shared here, based on nearly two decades of work with leading B2B companies across a range of industries, represent a model for companies to embrace structural and strategic change by aligning with forces already at work in the market. Our focus is on the go-to-market (GTM) functions of marketing, channel management, sales and service delivery. Our conclusions are relevant for large multi-line companies and focused category leaders alike.

Part 1 – Lessons from the Past

Over the past several decades we have experienced several major business cycles, and witnessed the decline of major industries and the advancement of new ones. Once-revered leading companies have faltered and new leaders have emerged. Much has been written about the failure of leading companies to anticipate a shift in their business models due to a discontinuity in market forces and product technologies. Harvard economist Joseph Schumpeter’s concept of creative destruction foresaw the need to aggressively transform company business models, and the term has been effectively applied in modern times by several authors. It is our intent to build on those insights.

Our premise is that, beginning with the advent of the Information Age in the mid-1980s, there have been waves of functional creative destruction that have set new standards for functional success models across industries. And further, that these waves, while enabled by advances in information technology, were triggered by business cycles and the ensuing pressure to make fundamental changes in business capabilities and cost structures.

The first wave of functional creative destruction was enabled by affordable CAD/CAM technology and coincided with the recovery from the major stock market “correction” in 1987. The TQM movement was born and the reengineering of the design and manufacturing functions spread across all product industries. Productivity gains were then fueled by the first generation of supply chain management systems and tools. The skills required to run the design and manufacturing functions changed forever.

The second wave was enabled by the Internet and coincided with the post-dot-com bubble burst in 2000. Supply chains were reinvented, manufacturing outsourcing picked up more steam, and innovative supply-chain business models ensued. Once again, the skills required to lead these functions and exploit new capabilities changed dramatically.

The third wave of functional creative destruction is already forming and shaping the effect that demand-side forces will have on business models. It is being enabled by Web 2.0 interaction capabilities and further fueled by Web 3.0 analytical advances, which are triggering a discontinuity in how buyers receive and process information, interact with sellers, and form relationships within communities. Accompanied by an ever-increasing focus on sales productivity and marketing efficacy, the current economic cycle will force people to, once and for all, stop making marginal cuts in marketing and sales headcount and adopt a new model for demand generation and relationship management. While this wave will affect consumer products and services, our focus is on B2B companies where industrial buying behaviors and distribution practices are ripe for change.

How Web 2.0 will Change Analytics -- Part 1

2008-12-05T05:00:00.003-05:00

By Tim Furey, CEO MarketBridge

Many of the posts on this blog focus on the types of analytics companies can use to generate customer insight from data. Great.

But an interesting trend I am seeing is how companies are procurring the software and services needed to deliver rich predictive analytics. Let's start with a description of the traditional model (see chart bottom):

1. Companies make major investments in "enterprise" platforms (ERP, CRM, BI) to automate core business processes like finance, supply chain, marketing, sales processes etc.

2. These major SW platforms are LOADED with lotsa feature/functionality in order to make the platform applicable to any company BUT most companies get 80% of the value from only 20% of the features that apply to their business.

3. But, by themselves these enterprise packages provide little business insight -- they just automate processes and collect data. Rather, most companies hire an internal staff of platform experts (e.g. SAP or Siebel experts) or external consultants to do analysis, insight and improve process management.

OK, so that's whats happened so far. But now companies are realizing that: a) automation is not enough, b) more insight and analytics is needed, and most importantly c) there are key, highly specialized, important business processes unique to each company that are not be easily automated by enterprise systems and for which they need unique, highly specialized data and analytics.

Some examples? Here are a few: the pricing process, price discovery, behavior based customer segmentaion and targeting, channel marketing programs, and solution configuration and customization. There are important, specialized business processes in every company that need: 1) some level of automation, 2) systematic data collection, and 3) intelligent data analytics to improve/modify strategy.

These specializded business processes are not amenable to "buying a software package" and then "hiring an expert". They need to be customized to each company's unique products and strategy and they need to produce data and insight unique to the needs of management. As powerful Web 2.0 tools emerge, we are seeing the emergence of is "tailored Web 2.0 solutions" -- a combination of customizable web-based BPM process automation platforms, systematic pro-active data collection, and then on-going analytics of process performance, and customer preferences. These are integrated solutions that combine sofware and services (see chart top).

Sound complex? Not really -- its already happening. In my next post I will describe some examples....

ROMI White Paper

2008-12-04T20:51:00.003-05:00

By Andy Hasselwander

Over the past few months I've worked with a colleague of mine, Alex Aldag, who used to be at Channel Economics and is now a Principal in the analytics group at MB, to write a pretty interesting white paper on the challenges of measuring ROMI in a B2B environment. There's some good data we've gathered from a bunch of industries in there. You can reach it here after registering.

Some Outtakes:

On Return on ROMI:

"Given increasing financial pressures, it is likely that senior executives will continue to be more and more critical of corporate spending. Marketing budgets are frequently perceived to be more discretionary and less directly tied to firm performance. As marketing mix shifts, it will be increasingly critical to adapt measurement and reporting practices to account for new stimuli put into market. Nearly 80% of firms that employ ROMI measurement today assess their marketing performance as somewhat to highly effective, compared to only 42% of firms that do not measure ROMI." (TNS Media Intelligence; TNS Media Intelligence Reports U.S. Advertising Expenditures Declined 1.6 Percent in First Half 2008; 9/24/2008)
"Nearly 80% of firms that employ ROMI measurement today assess their marketing performance as somewhat to highly effective, compared to only 42% of firms that do not measure ROMI" (Lenskold Group; 2008 Marketing ROI & Measurements Study; 2008.)

On Econometric / Atomic Data Sources:

Just over half (54%) of companies have access to aggregated sales reports at a weekly or daily level. Even fewer (33%) have access to marketing spend data at a weekly or daily level. Data issues generally require the analysis to leverage proxies and a variety of aggregated data forms. (Lenskold Group; 2008 Marketing ROI & Measurements Study; 2008.)

There's a lot more in the paper. For those of you curious about the Lenskold group and quotes, here's Jim Lenskold's site: http://www.lenskold.com/

Depression Marketing Best Practices

2008-12-04T09:24:00.004-05:00

No, we're not in a depression. But, given all the recent depression buzz (Krugman's book, non-stop CNBC pundits who won't shut up about crashes and black Mondays and Fridays,) I pulled Studs Terkel's fantastic Hard Times down off the shelf the other night. There's a section in there called "The Big Money" where he interviews people that actually did well during the Depression. Here are some outtakes from William Benton's interview:

"I left Chicago in June of '29, just a few months before the Crash. Chester Bowles and I started in business with seventeen hundred square feet, just the two of us and a couple of girls. July 15, 1929--this was the very day of the all-time peak on the stock market.

As I solicited business, my chart was kind of a cross. The left-hand line started at the top corner and ended in the bottom right corner. That was the stock market index. The other line was Benton & Bowles. It started at the bottom left-hand corner and ended in the top right-hand corner. A cross... When I sold the agency in 1935, it was the single biggest office in the world. And the most profitable office."

Well, this is an interesting case study, I thought. Maybe I should pay attention. The most amazing thing about Hard Times is how familiar it seems. The passages talking about bubbles, business cycles, people's incredulity at how all this happened is really eerie. So how did Benton & Bowles kick butt in the depression? Here are some best practices:

They essentially invented audience research. When they heard a lot of people listening to "Amos and Andy" on the radio, they bought it straight away. They put a Pepsodent spot on and sales went through the roof. They worked with George Gallup. They listened to customers. This was new stuff. Lesson: Marketers who listen to their customers in new and powerful ways will win the battle for fewer dollars.
Radio was the newest new media at the time. Basically, they were investing like crazy into stuff that the big agencies didn't understand yet. They were young--late 20s--and didn't know any better. Lesson: Those who master the next wave of media will rise above the fray. Mobile? Social? Something we haven't seen yet??
Once into radio, they perfected "audio illusion". Example--they cast two people in one role on "Showboat", a program to promote Maxwell House Coffee. A sexy singer for the audio, and a known actress for the voice. They also started adding in sound clips of the coffee brewing and pouring. Sales doubled and quadrupled, crushing store brands. The other agencies were angry because it was improper to do these things at the time. Lesson: Just because things are done one way, don't fear doing it a totally different way. Thinking outside the box is critical.
Once this guy had a lot of money, he was able to buy businesses at bargain basement prices. He bought Muzak for next to nothing and built it into a national behemoth. Lesson: Keep some powder dry. The really good investment opportunities are starting now. Once you buy, own and retool. Pretty good time to be a PE company, even if Carlyle is laying off.
He also comments on how he was able to add incredible talent at low prices because of the glut of labor supply. His salesmen improved every year as they could screen more and more applicants for these jobs. Lesson: Keep hiring channels open and be pickier than ever.

For anyone who hasn't read Hard Times or any of the Studs Terkel interview compilations, they are an incredible insight into people's attitudes and behaviors throughout history. I highly recommend them.

Using Customer Equity as a Dependent Variable for MarComm Optimization

2008-11-22T17:29:00.003-05:00

I've written a lot about marketing optimization, ROMI, and mix optimization. In past posts, the dependent variables--the "things to optimize"--have been defined as time series variables of aggregated data. Some examples--"sales", "profits", "awareness." These would be entered into a model on a weekly or monthly basis, and then once a company has 70 or 100 of these data points, it can start building regression models to understand the effect of stimulus on response.

There are a lot of problems with this approach, particularly when trying to understand short- vs. long-term effects. A short term effect would be the impact of a demand gen campaign on sales. This would happen fairly quickly. A long-term effect would be attitudinal. As customers' perceptions of brand quality change, for example, this has a long-lasting effect that must be taken into account over many years. Decisions to spend money to affect perceptions of quality, though, must somehow be balanced next to decisions on how to spend money that will get customers in the door tomorrow. It's tough work.

Rust, Lemon and Zeithaml, in their 2004 Journal of Marketing Article "Return on Marketing: Using Customer Equity to Focus Marketing Strategy" have a neat solution. It's to make the dependent variable the customer. In other words, when making marketing investment decisions, companies should understand how each investment impact core "orthogonal perceptions" for each of its customer segments, and then trace the impact of these perceptions on customer behavior in the form of acquisition and retention. They suggest thinking of each customer relationship as a string of future actions--either they will or won't buy, at different amounts, through time. They do this using a mathematical technique called a Markov Chain.

So the approach that others recommend and I think can work really well for B2B marketers is to change the dependent variable from an aggregation to the atomic customers.

The nice thing about going investment-->perception-->customer behavior-->customer equity is that you have almost unlimited scenario flexibility. Because the atomic level data is at the customer level, you can change assumptions about segmentation easily and see the impact on ROMI. There are, however, a couple of key challenges:

How do we understand the impact of marketing investments on perceptions? The marketer still needs to do research, in the form of recognition tracking through time, to understand this.
How do we understand which core attitudes are truly important? Market research needs to be done, in the form of qualitative followed by quantitative research, to understand the constructs that truly drive acquisition and retention behavior. In the article, the authors tested questions on inertia, quality, price, convenience, ad awareness, information, corporate citizenship, community events, ethical standards, etc totally 17 questions. They used PCA (Principle Components Analysis) to whittle this list down to 11 constructs.
Customer segmentation. Not all customers act the same way, and the more discrimination we are able to build into our model, the better. Ideally, we'd like a unified segmentation to drive our research here.
True short-term goals. While this approach can theoretically handle all marketing activities, it doesn't describe how to handle true short-term actions. However, I think it's pretty easy to bolt this on. Because we're looking at customers as the dependent variable, we'd simply add on known short-term acquisition and retention levers to only impact the first step of the Markov Chain. If an email acquisition program drove 5% of a segment to but, we'd simply add 5% onto the first Markov chain probability.

There's a lot more detail to this, but it should give a taste to the marketer who's interested in using customer equity as a dependent variable for ROMI / mix modeling. If there's more interest, give me a shout, go to MarketBridge and register your name, or download the Journal of Marketing Article (or all three).

LinkedIn as a Data Source

2008-11-13T10:56:00.003-05:00

AdAge had a good article about a simple segmentation of LinkedIn's user base. I've been thinking lately that LinkedIn could become the best source of B2B Marketing data in the world. Why?

It's international. People sign up all over Western Europe and North America and increasingly in Asian hubs like Singapore and Shanghai.
People add all kinds of information on themselves that can be increasingly accessed by text mining tools like SPSS Clementine (which is what they used for the AdAge piece.)
LinkedIn is increasingly adding meta data to profiles making the datawarehouse much more useful for modeling. The best example of this is the voluntary "alumni" and "company" networks which are self-policing. On the basis of personal experience, the self policing works at least somewhat well.

I can easily see a LinkedIn being purchased by a D&B (or, if they wait long enough, for the opposite to happen) because it will very quickly outstrip D&B as a data source. The biggest hurdle I see is the legal one--I'm not sure how far LinkedIn can go as a data provider without changing their privacy contracts. However, they could do this with a little effort.

I also see LinkedIn as a much more powerful tool in the long run over a FaceBook. This might sound crazy, but it's because I'm not talking about display advertising. It's using the network as a data source. Companies would pay tons of money for an accurate SMB / Enterprise data source that included actual personal relationships inside the company and relationships with people outside the company. Talk about CRM--this takes the B2B CRM approach I spoke about yesterday and really operationalizes it. Combine it with a D&B or InfoUSA and you've got a relationship marketing machine category killer.

The segments that the AdAge work uncovered were interesting:

First over 30 million people are signed up. Just doing some simple math, if there are 150 M in the "professional class" worldwide, that's 20% penetration. Pretty good.
First segment they ID'd was Senior Executives at 28% of population. Average income was $104,000--the highest.
Late Adopters, at 22% of the population, have low network power and were basically asked by colleagues to join. They don't actively tend their networks.
Savvy Networkers, at 30% of the population, actively tend their networks and have high network influence. They tend to be actively out there sourcing business, recruiting, looking for jobs, etc. They are dynamic and are the biggest "users" of the network. I expect there are a lot of entrepreneurs in here.
Exploring Options, at 20% of the population, are sort of the middle-of-the-pack folks who are generally happily employed but looking around.

This is a pretty simple segmentation and not all that useful but it gives you some insight into what someone could do with these data. The text mining was especially interesting. They were able to identify and quantify decision makers, decision makers' budgets, salaries at different title levels, etc. They also noted that 60% of users said they'd take a survey in their area of expertise. Think about being able to identify the entire decision making unit (DMU) inside of an SMB and multiply that be 1000. It's mind boggling. I'm waiting for the partnerships on LinkedIn and the real monetization to start.

Also, think about linking this into a collaborative partner marketing system. Microsoft provides LinkedIn matching data to its resellers in exchange for end user data... Yikes. Probably merits a whole other post or an article.

B2B CRM / Branding Model

2008-11-12T15:35:00.006-05:00

I was doing some more thinking about a specific B2B CRM and branding model. This relates to a previous post on CRM. I was thinking about how you build an interaction model between the firm and its customers if those customers are businesses. I was also thinking about the function of "branding"--creating consistent communications across all customer touchpoints. A more holistic definition of branding might include all customer interactions, period, including services, products, even non-company-sponsored interactions such as through "key influencers."

The concept, while not earth-shattering, does provide some clarity to the role of branding and CRM in a B2B organization. It also leverages some of the concepts that I've been thinking more about lately, namely the core function of inbound marketing or listening and the imperative of thinking of the company-customer as a decision making unit and not just as a monolith.

Basically the framework divides up the CRM value chain into four parts. Let's stat with Marketing Management. This is the company function, and it is the marketing nerve center where all core decisions are made about the customers and the brand. The functions of marketing management involve product features, packaging, and value proposition; service elements, including all of the myriad post-sale touchpoints with customers; the marketing mix; and of course, segmentation, targeting and positioning.

The marketing management function's decisions are manifested in the outbound marketing function. Using a person as an analogy, this function amounts to "talking." The outbound function should entail communications (TV, radio, email, sales force, partners, etc.); experiences (product experiences; service experiences) and influentials (all of the sources that people listen to--the media, influential bloggers, influential user groups.)

The target of the outbound marketing are the business customers. These must be deconstructed from the firm to the decision making unit inside the firm to the individuals inside the decision making unit. Furthermore, individuals must be understood at the level of both behavior--what they do and attitudes and perceptions about the company and its products--which is of course THE BRAND. I can't emphasize enough how important it is to think of the B2B brand as the collective set of attitudes and perceptions latent in the individuals inside the decision making units at your firm's customers.

Finally, the fourth box is the inbound "listening" activity where your customers talk back to you. There are five primary elements of listening: sampling (tracking studies); chatter (web or otherwise); engagement (two-way conversations); purchase (buying); and loyalty (staying a customer). Generally, these five inbound vehicles paint a holistic view of the health of your company within a company, a DMU and key individuals inside the company.

I like this model because it brings together the core functions of both branding and CRM in a B2B context and provides a framework upon which to hang more complex ideas. It doesn't deal at all with technology (which is key to enabling both the outbound and inbound functions). It doesn't deal with any of the "technical" aspects of marketing, like PR, media mix optimization, etc., but it does allow slots for all of these things. Partner marketing could easily slot in to outbound and inbound, or you could actually build two business customer boxes for partners and end customers. In short, it's just a very versatile framework.