The New Science of Marketing

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Creating a marketing plan used to be more art than science. We’d scrabble for a bit of information here and there, crunch some numbers, wet our finger to determine wind direction, and then go with our gut.

No more.

The avalanche of data—tumbling in from point-of-sale scanners, credit cards, loyalty cards, websites, and social media platforms such as Facebook—has transformed marketing. Sure, there’s still an element of art—intuition comes into play in the end—but science girds it better now, giving us new and often surprising consumer insights.

Yet all this information is useful only if you can connect it to strategy. That’s why future marketing mavens will have to be smart consumers of analytics. Here are five insights that illustrate the brave new world of marketing science—and how all these data can sharpen business plans.

Consumer preferences are important
Most marketing managers rely on data that capture past behavior. They overlook valuable information that can be mined from social media sources to provide a wealth of insight into consumer preferences. If I find out what someone’s preference is today, I can predict his or her actions tomorrow—and try to influence the future behavior I anticipate. At a pharmaceutical company where we conducted research, we found that by knowing physician drug preferences, we could tell early on if a doctor could be retained as a customer—and how valuable that relationship would be over time. That information also allowed the sales force to focus on high-potential doctors based on preferences.

A different view of coupons
If you go into retail, you’ll likely have to deal with coupons. Most managers and retailers measure the effectiveness of their coupons by tallying up the redemption rate. Although it seems counterintuitive, coupons work even when they’re not redeemed because they function as form of marketing. In the past, retailers were not able to track who received a coupon, but online retailing, mobile commerce, and loyalty programs leave a rich digital trail. In research with a grocery retailer, we identified consumers who received customized coupons and found that spending increased after the coupon campaign for both the coupon redeemers and nonredeemers.

What the data say about loyalty lures
Some retailers give reward points for each $1 a customer spends. In theory, that gives customers an incentive to come back—a loyalty lure. Retailers use loyalty programs to draw consumers away from competing stores located nearby. One might think the loyalty rewards a store needs to offer increases with the density of stores in a neighborhood. Analyzing the data, however, we find that the opposite is true. Stores can in fact provide fewer rewards if several other competing stores are nearby. As any dedicated shopper knows, it’s more convenient to shop in areas with lots of stores; that’s the idea behind malls. That means retailers can rely on casual foot traffic and reduce the emphasis on loyalty rewards.

Not dead yet
TV lives. Print lives. Radio lives. Although many consider these vehicles to be marketing dinosaurs, they actually help digital marketing work better. True, more people are buying online, but the consumer still has to type information into a search engine to find what she wants. Companies want consumers to search for branded keywords, because such words are more cost-effective. But you search for a brand only if you are aware of the brand. How do you know about brands? Through advertising on TV, newspapers, and radio.

In old-fashioned marketing, ad campaigns on television and in newspapers were a fixed cost, because it was impossible to change direction and cost on the fly. Even if the campaign wasn’t going well, you couldn’t stop and tinker. With the advent of digital ad campaigns, that’s all changed. You can tell, in real time—click by click—if the digital ads are working and quickly adapt, making marketing a variable cost.

The trend to Big Data provides companies with opportunities as well as challenges. The opportunity lies in understanding consumer behavior better. The challenge rests with connecting all this real-time information on consumers to strategy.