By Don Holtz, President, Interlocking Analytics
Understanding Strategic and Tactical Marketing Analytics
There are many different ways to classify different types of marketing analytics that are employed to improve marketing performance. One of the easiest is to differentiate between strategic and tactical analytics that each offer different perspectives to help maximize marketing performance. Tactical analytics focus on assessing and improving the effectiveness of specific marketing initiatives while strategic analytics focus on guiding all marketing investments in a direction that improves all marketing programs.
It is important to understand the difference between the two types of analytics. Far more companies employ the use of tactical marketing analytics to improve their marketing performance. These analytics are used to improve marketing performance in the short term in very specific circumstances. Strategic analytics are typically more advanced and have the potential to have a much greater impact on marketing performance. These analytics are not limited to the marketing already in place, but instead look broader at what marketing should be in place.
Tactical analytics use data from marketing programs that have already been deployed to improve the same program (or very similar programs) the next time it is deployed. Following are just a few examples.
Marketing Mix Models
Marketing mix models provide guidance as to what category of marketing spend is responsible for increases in sales and profits. Along with that analysis is guidance as to whether or not a particular category of marketing expense is starting to have diminished returns. Upon completion of this type of model, TV advertising levels for example, can be either increased or decreased depending on the incremental lift and ROI that can be achieved by changing the amount of spending. Pooled regression supported by analyses such as Market Share Attraction Analytics are used to produce these models.
Direct Mail Response Models
After mailing a solicitation to purchase, a model can be developed that targets consumers or businesses that have a high likelihood of responding to the direct mail. Typically, response can be improved from 20 to 100% depending on how deeply into a list of prospects or customers the company wants to solicit. The analysis uses logistic regression models to develop the resultant targeting.
Purchasing Behavior Models
These models look at patterns that customers purchase products on any given shopping or sales event. They provide guidance as to what additional products should be mentioned on the sales call, promoted in the store, or appearing on the same page of an ad to increase the size of a transaction. The analysis is done by finding the most popular correlations (“Product A is purchased x% of the time when product B is purchased”) and ensuring that those that buy product B are aware that product A is usually also purchased at the same time. (Of course the analysis is a lot more sophisticated as it includes multiple products at the same time aligned with customer characteristics).
The models described above improve performance for specific marketing programs based on their past. However, they are not used to help a company understand whether or not the marketing programs that were deployed were the best that could have been deployed prior to their creation. Strategic marketing analytics helps a company analyze its past on far more dimensions than a single set of marketing programs. It is combined with insights about the future to discover how to target customer and markets so that marketing programs can provide significant incremental profit growth beyond the firm’s usual year to year growth.
The following describes a several forms of strategic marketing analytics used to provide the company with a different way to prioritize and develop marketing programs that increase sales and profits at an accelerated rate.
Customer Base Analysis
A customer base analysis combines internal customer purchase and profitability data with customer characteristics to understand what has been successful in growing a profitable business and what has been unprofitable. Companies generally have a marketing and sales process that has been in place for a reasonably long period of time. Certain ways of doing marketing may no longer be producing the best results but the answer to increasing sales in the absence of good intelligence is to do more of the same.
As an example, a BtoB’s customer base was analyzed to understand its long term sales patterns. It was discovered that over 60% of the revenue of that company was being generated by its top 2% of its customers. The customer base was then deeply analyzed on a number of important dimensions and a behavioral segmentation was developed. Based on this analysis, the company is able to make a very significant strategic shift from generating leads based on vendor trade allowances to training its more junior sales force on the very successful account management processes their more senior sales staff had perfected. The decision was not about modifying tactics for lead generation but identifying the best opportunity to close more sales.
Market Attractiveness Analysis
This analysis helps a company understand where marketing investments can be targeted to best maximize profits and ROI today and in the future. Markets can be defined geographically, by industry or a combination. This analysis can use data on a company’s profit growth versus spend on a market by market basis along with characteristics of that market such as Brand Development Index, Customer Development Index, market share, competitive spend, and in- market infrastructure, to determine where that market is performing on market investment attractiveness curve. The chart below notes potential investment strategies based on this analysis.
This analysis can also help determine the likely cost of increasing profits from a new market. The S-curve below has a much longer start up time than the one above. If the company is at the start of new product category and needs to prioritize markets, it may choose the higher performing markets where a smaller investment is needed to move to the high return part of the curve (See the above curve – assuming marketing of similar potential, competitive make up, etc.) instead of a market with a marketing adoption curve below where a great deal of investment is required before a small incremental spend returns a high ROI.
Customer Life Time Value Targeting
This analysis segments the market by customer life time value and then maps the company’s customer base into their value segment. Since it typically costs more to generate incremental profits from a new customer than from an existing customer, the higher value potential new customers have when acquired, the less marketing expense is required in the future to grow the business profitably.. Having a customer base with a higher potential of purchasing in the future means that marketing programs targeted at existing customers and acquiring new customers with a higher LTV can take a high.
Both tactical and strategic marketing analytics programs will improve the performance of marketing investments. Tactical analysis increases the performance of marketing programs already developed and deployed. Strategic marketing analytics helps the company develop and prioritize marketing program that have the greatest short and long term impact on the firms marketing performance. You want to have a healthy combination of both so strategic analytics can identify the right direction and tactical analytics can maximize the effectiveness in pursuit of that direction.
Don Holtz is President of Interlocking Analytics, our strategic partner for business-driven modeling, analysis and data-mining integrated with advanced ROI processes to assess and guide more profitable marketing decisions. Don can be reached at firstname.lastname@example.org.