5 Things I Know About Marketing - UCLA’s Dominique Hanssens
Dominique Hanssens is the Bud Knapp Distinguished Professor of Marketing at the UCLA Anderson Graduate School of Management. He was MSI’s Executive Director from 2005-07 and editor of Empirical Generalizations about Marketing Impact (MSI Relevant Knowledge Series, new edition forthcoming). He spoke with Executive Director Kevin Lane Keller in June; below is an edited version of his remarks.
Achieving customer delight is difficult, but it is rewarded very well. Most competitors in a given category achieve at least “parity” on the most important attributes. Occasionally a brand stands out—sometimes for several years until competition catches up—and it will enjoy market leadership and/or profit leadership as a result. For example, the iPhone gave Apple several years of competitive advantage, because it was absolutely delightful to use relative to competition. Really standing out on a dominant attribute for consumers makes a huge difference in the marketplace.
The marketing mix remains a very useful marketing framework. The elements of the marketing mix—place, product, price, and promotion (in order of relative importance)—reinforce one another. The effect is multiplicative rather than additive or linear; this is why “siloism” in marketing execution is suboptimal, where each functional area only worries about their activities and ignores those from other areas.
One sees a great deal of this in organizations today. The digital people do their thing, the sales people do their thing, and the pricing people do their thing. They each try to optimize, which is understandable, but they fail to recognize their mutually reinforcing effects. Resource allocation needs to be guided by senior leadership which takes all these marketing mix synergies into consideration.
Here is an example of the dangers of siloism. Some years ago, I worked with an internet service provider that had fired three ad agencies in fairly rapid succession. When I looked at some of the research data, I was very quickly able to determine that the advertising elasticities for the three agencies were exactly the same. The company was hammering on the advertising silo—not realizing it was their value proposition that was in fact lacking. Their price point was too high relative to what they had to offer. This organization was hammering on the wrong nail!
Achieving the Holy Grail of long-term positive marketing impact is much more difficult in mature markets. Why? Because market share positions of brands tend to be relatively stable over time. Growth markets may be riskier to target, but that is where good marketing can shine and achieve long-lasting performance increases. Great marketing comes to the surface in these growth markets when it can truly make a difference.
Tesla offers a case in point: they provide several new technologies that have the potential to rejuvenate an otherwise mature automotive market and turn it into a growth market again, even in advanced economies. How they execute on their marketing strategies will impact their business performance for years and maybe decades to come.
By contrast, marketing in mature markets should be driven, in a relative sense, more by profitability considerations. What is the net performance impact at the margin of my last marketing dollar? If it is positive, the brand is underinvesting; if negative, the brand is overinvesting. That’s the whole marketing ROI question, which I think is poorly understood in practice. You must focus on marginal effects, not average effects.
Technology changes fast, but consumer behavior actually changes slowly. When a new medium emerges, managers should think about the underlying marketing fundamentals to better understand its potential and how it should be used. For example, these days, people are enamored with mobile advertising, but act as if it is something completely new and unique to anything in marketing that has come before. In many ways, mobile advertising can just be seen as the high-tech version of point-of-purchase marketing. We already know a great deal about point-of-purchase marketing that we shouldn’t ignore just because the technology of the medium has changed. The underlying consumer behavior can be very similar.
There will always be a need for communications directed at the group level, so as to move markets (or market segments), not just directed at individual consumers. To wit, it makes little sense to announce the winner of a presidential election one-citizen-at-a-time. Despite the growth of cookie-level marketing capabilities, there remains a strong need for brand marketing, in addition to direct or one-to-one marketing.
Group communication is arguably cheaper on a product exposure basis—you avoid potential problems with privacy and annoying people and so forth. Further, you can demonstrate that there is lift, i.e., marketing impact. You don’t necessarily need to measure that one customer at a time.
I would even argue that we’re over-doing segmentation in new product markets. Highly successful products often appeal to a large number of people. Finer segmentation comes later. Think of electrical cars—their benefits need to be conveyed to large numbers of people.
I see so much pressure on marketers these days to be in touch with “each and every consumer” individually via technology. Brands can and should inform their consumers in various ways, but also realize they ultimately want to make their purchase decisions on their own.
There is still brand loyalty. You see that in the data that these things don’t change nearly as fast as the delivery mechanisms do. It goes back to the principles of marketing. The elements of the marketing mix remain very powerful.
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