AT&T and DirectTV merger case study

Chapter 03 Minilecture - Collecting and Analyzing Marketing Information

The three environments for marketing decision making ― the internal environment, the customer environment, and the external environment ― are rich in their implications. These include, in a word: everything. So if I have enough time, I'll try to make this mini-lecture shorter rather than longer.  I've saved the best bit for the very last, so stay with me.

The Internal Environment

As noted in your textbook, the company's own internal records are the logical first stop for gathering and analyzing marketing information. Unfortunately, information is too often stored in separate "data silos" giving analysts and decision makers only a limited ability to see the big picture. One of the largest challenges facing customer-oriented firms is the ability to gather EVERY bit of information that they collect about a customer at EVERY contact point ― what they call "touchpoints" ― and bring it all into one place to better understand that customer. A bank, for example, records information about customers' mortgages, their calls to customer support, the transactions with consumer lending and credit cards division, transactions made at ATMs, visits to their online banking center, and on and on.

Making all this information available to everyone in the organization ― so they can present themselves in an integrated, information-based way and deepen and strengthen their relations with key customers ― is hugely important, it's complex, but it's the price of admission to the modern era of Customer Relationship Management, which as you know is about identifying and holding on to customers, especially the most profitable ones (80/20 rule again).

Enterprise Management Software firms like SAP, Siebel, and others are trying to help clients solve a very basic problem: to remove the barriers that prevent the integration of all this data and let managers, field sales reps, customer service personnel and others on the inside see every aspect of the organization: not only customer information, but also employee records, sales, production, accounting, and finance records, to name but a few.

Data and predictive analytics can help marketers seize opportunities and minimize risks in today's rapidly-changing marketplace. The biggest development here is the advent of cloud computing, which will enable businesses to be:

· Cost flexible, with pay-as-you-go cloud services to contain fixed costs of IT

· Market flexible, with products, processes, and services that are responsive to changing markets

· Personalized, with different experiences based on user content

· Scalable, with the ability to be rapidly scaled up or down

· Less complex, allowing sophisticated solutions to be widely accessible

· More connected, allowing disparate people, resources, and processes to interconnect

I owe the previous several lines to a former student, who at the time was Chief of Marketing for Hyundai of North America.  Thank you, Alan.

As Julie Schlosser notes, in an article in Fortune , data have value only if they can be used. And to make it more usable, Business Integration (BI) software is designed to analyze and interpret massive amounts of data. Typical BI applications cull information out of giant databases and put them into "data marts" ― smaller clusters of similar information. Breaking data down in this way helps to more easily and thoroughly diffuse information throughout the organization. At Ben & Jerry's in Burlington, Vermont, each pint of ice cream is stamped after manufacture and its tracking number is put into an Oracle database. Using BI software, the sales team can then see which flavors are generating the most sales. The marketing department can check to see whether orders online require additional philanthropic donations. The finance people are able to record sales and close their books more quickly. Consumer Affairs can match up the pints with the roughly 225 calls and emails the company receives each week to make sure there are not systematic problems with any particular ingredients. Similarly, Staples, which had long devoted valuable floor space to high-margin office furniture, adopted BI software and discovered that smaller items were actually more profitable. Successes like these are why the market for BI software is expected to continue its meteoric growth.

The Customer Environment

Outside the walls of the organization, the first thing you notice is that change is a permanent fact of life. In this section on customer needs we'll look at some of the primary drivers of change in today's world. Whether we're discussing business customers or ultimate consumers, the nature and scope of changes depends a lot on what industry you're in. Products that serve basic needs like food, health, and housing may change depending on the technologies available to satisfy those needs better, but the underlying needs remain pretty much the same over time. And in the area of "hedonic consumption" ― purchases made for pleasure, novelty, and stimulation, like fashion, movies, music, sports, etc. ― the underlying need is also fairly stable, but consumer's choices change almost daily.

Identifying and meeting unmet needs therefore is a challenge. We'll start by making a distinction among fads, trends, and megatrends. Fads are "unpredictable, short-lived, and without economic and political significance." A company can cash in on a fad such as Beanie Babies, and Pet Rocks, but this is more a matter of timing than anything else. A trend is a direction or sequence of events that has some momentum and durability. Unlike the fad, a trend reveals the shape of the future and provides opportunities for marketers. For example, the percentage of people who value physical fitness and well-being has risen steadily over the years, especially among under-30s, young women, and people living in the West.

You'll recall that Ferrell and Hartline view these types of motives as "me-oriented" values and predict that they will give way to deeper expressions of values having to do with relationships, harmonious living with the environment and other people, and security. Perhaps, true, but that didn't stop Branson, Missouri from re-positioning themselves in the entertainment-destination market in the past few years. Branson's city leaders realized that in the public's mind, they represent everything out-of-date: 1970s entertainers like The Statler Brothers, or Jim Stafford, performing for the white-shoe, martini-and-steak-tartare kinds of crowds one normally expects to see in Las Vegas. So they set out to make themselves over as a place where younger, fitness- and family-oriented consumers would feel comfortable: offering canoeing, horseback riding, and wholesome fun for the entire family. In other words, Branson changed trends (well, partly... the Brothers are still there).

Here are two articles I'd recommend.  They're not required reading, and there are no quiz questions over them:

When CMOs Learn to Love Data, They'll be VIPs in the C-Suite (Ad Age, February 2012)

and / or

How Companies Learn Your Secrets (New York Times, February 2012)

Together, they provide an entertaining, real world, background for the rest of this minilecture and your text chapter. The first article is very short, and the second one is rather long...  To cut down on you reading load, you might want to skip pages 4 and 5, dealing with cognitive science, then pick up near the end, with Proctor & Gamble. 

But fascinating: Did you know that companies like Target have information about your age, whether you are married and have kids, which part of town you live in, how long it takes you to drive to the store, your estimated salary, whether you've moved recently, what credit cards you carry in your wallet and what Web sites you visit? Target can buy data about your ethnicity, job history, the magazines you read, if you've ever declared bankruptcy or got divorced, the year you bought (or lost) your house, where you went to college, what kinds of topics you talk about online, whether you prefer certain brands of coffee, paper towels, cereal or applesauce, your political leanings, reading habits, charitable giving and the number of cars you own.

Or did you know that researchers found that when someone marries, he or she is more likely to start buying a new type of coffee? When a couple move into a new house, they're more apt to purchase a different kind of cereal. ...When they divorce, there's an increased chance they'll start buying different brands of beer?

The article is mostly about the psychology of habit formation and how researchers have identified products like Febreze that can succeed or fail based on how they fit in with consumers' habits. Also interesting is the way that peoples' routines are in flux at certain points in their lives -- for example when selling a home, or during pregnancy. Target's efforts to capitalize on all this information are fascinating and funny. After browsing this article, you'll be amazed (and maybe appalled) at what marketers-armed-with-data can do.

A few more points about the Customer Environment: Demography

Age: The well-understood trend toward an aging population is a global trend, far more extreme in Japan and Italy, for example, than in the U.S. But in recent years, the population of people above age 60 surpassed the proportion of under-fives. The Japanese call this the Silver Century. The result is fewer working people to replace those who retire ― which should come as good news to you about to enter the job market in the coming years. For marketers, opportunities abound in pharmaceuticals and health care delivery, hair replacement and coloring aids, health club memberships, home gym equipment, skin-tightening creams, nutritional supplements, and organic foods, to name but a few. Also, we Baby Boomers ― folks born between about 1946 and 1965 ― to whom you'll be selling all this stuff are a much easier market to reach than your generation, having grown up with television advertising. And we aren't quite as skeptical about hard-sell marketing pitches as are Generation X (born between 1965 and 1976), and the shadow generation, twenty-somethings, and baby busters, the generations born since the late 1970s.

Interesting trends to watch: as Western economies march off into the sunset, age-wise, the average age in the Muslim world is something like 25 years. Bloomberg Businessweek's February 7, 2011 issue has the cover story: Youth Unemployment is trhe Global Economy's Ticking Time Bomb." Our traditional export markets in Western Europe, like us, are aging fast. Italy actually has a negative population growth rate; many predict that the future of Western Europe, demographically, lies in the influx of immigrants' ambition, brain, and muscle. Marketers are paying attention.

Household Patterns: in the U.S. today, the "traditional household" of Mom, Dad, 2.5 kids, and a dog, is an endangered species. One out of eight households is officially classified as "nontraditional:" single-live alones, adult live-togethers of one or both sexes, single-parent families, childless married couples, empty nesters, and "boomerang households" (after going off to college, the kids move back home). For marketers, this implies many things, but clearly, smaller living spaces, inexpensive and smaller appliances (e.g. the George Foreman Grill), smaller furniture, smaller food servings are the order of the day. George Burns famously remarked: "At my age, I don't even buy green bananas."

Also, a new trend on the horizon is the "neo-tribe:" twenty somethings who live communally, travel with friends and in groups. And don't forget the gay and lesbian market. Compared to the average American, these folks are 10 times more likely to be in professional jobs, almost twice as likely to own a vacation home, eight times more likely to own a computer notebook, spend 10 times longer online, and are twice as likely to own stocks. Companies such as Absolut, American Express, IKEA, Proctor & Gamble, and Subaru have recognized the potential of this market and the non-traditional market as a whole. Just consider: the average middle-class family spends over $1 million to raise a child through age 22. Most gay and lesbian people don't have kids. Where are they spending their money (which they already have more of)?

Income: over the past three decades in the U.S., the rich have grown richer, the middle class has shrunk, and the poor have remained poor. Conventional marketers who offer medium-price goods are most vulnerable to these changes. Companies that respond to the trend by tailoring their products and pitches to these very different Americas stand to gain. Gap (mentioned in your text) isn't the only company to offer "price tiers:" Levi's Dockers can be had at several price points, you can get the ordinary TurboTax software for $29.99, or for a nice premium, the Gold upgrade. Even Anheuser Busch InBev is filling out its product line at the top (Michelob) and the bottom (Natural Light).

Of course, some of the purchasing behaviors that have to do with income depend on the product category. As far back as 1997, Business Week reported on a trend they call "Two-Tier Marketing." (You don't need to read this unless you just want to). Someone noticed an unexpectedly high number of BMWs in the parking lots of America's discount stores, and what followed was the somewhat plausible theory that we tend to spend freely on symbolic purchases: a car, a cup of Starbucks coffee, a Hummer; things that are highly visible and confer prestige. But for other products like toothpaste, toilet paper and detergent, we all ― regardless of income ― like those everyday low prices.

Interestingly, pretty much the same article appeared in the New York Times in February 2014 , saying the same thing, 17 years later:  companies that have traditionally served a middle class clientele - think of Olive Garden, Red Lobster, J.C. Penney, and Sears - are seeing serious challenges in their markets.  They survived two-tier marketing in '97.  Let us hope they can continue to adapt.

Some Noteworthy Developments in: The External Environment

1. The Political and Legal Environment: We don't have space here to discuss the marketing implications of The Do-Not-Call List, Dodd-Frank, The Health Information Protection Act (HIPA), The Sarbanes-Oxley Act which regulates financial, accounting, and ethical conduct of corporations, the ongoing squabble between the U.S. and the rest of the world over marketing practices having to do with processed foods containing genetically-modified ingredients, or the Affordable Health Care Act.... So we won't. I do wish to mention, however, the rise of the consumerist movement : citizens and government acting together to win the right to know the true interest cost of a loan, the nutritional content of foods, their unit cost, or the true cost of a TV that you (especially if you are a low-income family) rent for 10 months or so and end up buying and ultimately paying about twice what it would cost if you bought it outright at Best Buy. With consumers increasingly willing to swap personal information for customized products from firms, privacy issues will continue to grow as a public policy hot button. Google knows this all too well, because they, Yahoo, the Microsoft Exchange and other Internet service providers have recently been ordered to turn over information about their customers' online searches, in the interest of homeland security and controlling the occurrence of indecent materials on the Internet.

The new consumer protection financial legislation, and changes in health care, especially health care insurance, have generated a tremendous amount of heat and light. Interestingly, some of the forces most resistant to these changes are already seeing the potential for new business opportunities.  Whatever our views about politics and the legal environment, marketers can't afford to wait for the politicians and voters to come to an agreement. Just give us some rules and we'll create value for consumers. Opportunities abound!

1. The Cultural Environment: People absorb, almost unconsciously, a worldview that defines their relationships to themselves, to others, to organizations, to society, to nature, and to the universe. Consider:

· Views of Themselves: In the U.S. during the 1960s and 70s, "pleasure seekers" sought fun, change, and escape. Others sought "Self-realization." Today, more and more people are adopting more conservative behaviors and ambitions. In my day, "feminist” was the equivalent of a media star; today even Catness Everdeen (Hunger Games) wouldn't go near that title.

· Views of Others: While people are concerned about the homeless, crime and victims, and other social problems, more people are seeking out their own kind. Witness the explosive growth of Myspace and Facebook, where users open themselves up to and seek expanded contact with their peers. This trend portends a growing market for social support products and services that promote direct relations between human beings, such as health clubs, cruises, religious, and political activities, as we're seeing all over the Middle East today. They also suggest a growing market for "social surrogates," things that allow people who are alone to feel that they are not, such as television reality programs, home video games, internet gaming and chat rooms.

· Views of Organizations: Recently, researchers have identified an overall decline in organizational loyalty ― both among employees and their customers. This outlook has several marketing implications. Companies need to find new ways to win back customer and employee confidence. They need to be sure they are good corporate citizens and their messages are honest.

· Views of Society: People vary in their attitudes toward society. Some defend it (preservers), some run it (makers), some take what they can from it (takers), some want to change it (changers), some are looking for something deeper (seekers), and some want to leave it (escapers). Consumption patterns often reflect these social attitudes. Makers tend to be high achievers who eat, dress, and live well. Changers usually live more frugally, drive smaller cars, and wear simpler clothes. Escapers are a major market for movies, music, surfing, camping, fantasy, etc.

· Views of Nature: Increasingly, people are awakening to nature's fragility and finite resources. Business has responded to increased interest in camping, hiking, boating, and fishing with hiking boots, tenting equipment, and other gear. Tour operators are packaging tours to wilderness areas and to places like Antarctica. Internet retailer Patagonia has gone further than most to cater to this new sensibility.

· Views of the Universe: People vary in their beliefs about the origin of the universe and their place in it. Most Americans are monotheistic, and though religious conviction and practice have been on the wane for decades, these topics have re-claimed a prominent place in our national discussions of who we are as a people and society, and are sure to make their way into the marketspace as well. Certain evangelical movements are reaching out to bring people back into organized religion (Church Marketing is a high-growth area for marketing researchers and academics). Some of the religious impulse has been redirected into an interest in Eastern religions, mysticism, the occult, and the human potential movement. And many young Christians are seeking to redefine their relationship with their church, their faith.

In summary, we have an almost paralyzing amount of information to wade through, and technology is proving to be a blessing to those who are good at data-mining − finding patterns in oceans of information − and a curse to the rest of us. I didn't say anything about the technological environment of marketing because I know the topic will appear regularly in subsequent chapters as we discuss products, prices, distributions channels, promotion, etc.

If all of the foregoing discussion you found to be overly open-ended, I apologize.  If it sounds less like business and more like psychology, like sociology, like political science, the humanities, like a blog...  Well it is all those things.  But it's here because marketers ACTIVELY use exactly this sort of information to conduct what they call psychographic segmentation to group together consumers having similar tastes, and aspirations.  When Ralph Lauren and Viking River Cruises bring you those opulent spots on "Downton Abbey,” you can bet they've understood their target audience's inner yearnings and presented a perfectly-calibrated message.  We'll have more to say about market segmentation in Chapter 05.

BUT. Before I leave the topic of "getting good information about customers,” I wanted to share with you some tapas representing a rather unorthodox approach to marketing offered by Harvard's Professor of Marketing Clayton Christensen.

In a summary of his work published by Harvard Business Review (htttp://hbswk.hbs.edu/item/6496.html), Dr. Christensen offers what he calls "Milkshake Marketing.”  I'll excerpt heavily: people don't usually satisfy their needs by conforming to pre-conceived market segments.  Christensen argues that traditional market segmentation approaches have a merely correlational relationship (being female and 34 years old seems *related* to an interest in fitness,) but it's not a causal relationship.  Dr. C. argues that we have to ask about those causal relationships - about the WHY's that cause consumers to make purchases.  He suggests that when consumers face a "job that needs doing, they hire a product to do that job” and therefore marketers should segment their markets according to "jobs-to-be-done.”  This point of view "...causes you to crawl into the skin of your customer and go with her as she goes about her day, always asking the question as she does something: Why did she do it that way?”

Christensen describes how, by spending a few days with customers of a fast-food restaurant, his research team learned that 40% of milkshakes were purchased first thing in the morning, by commuters who ordered them to go.  After interviewing these customers, the team learned that most of them bought the milkshake to do a similar job: to help them suffer through a long boring commute, and they needed something to keep that extra hand busy and make the commute more interesting.  They weren't actually hungry when they purchased the milkshake, but they knew they'd be hungry by 10AM, and wanted something to stave off that hunger until noon.  Also they had constraints: they were in a hurry, they were wearing work clothes, and they had one free hand (assuming the other was on the steering wheel and they weren't texting).  So the milkshake was "hired” instead of a bagel or doughnut because it was relatively tidy and appetite-quenching.... (by the way, the restaurant started using some of Christensen's ideas about what commuters want, what kids want - totally different - and boosted sales).

You can follow the link to read more, if you're already hooked :). So: Christensen is famous for seeing marketing phenomena with fresh eyes. I only inserted this bit about milkshake marketing because it makes the point that great marketing starts with insights about the consumer.  And occasionally thinking outside the cup.

FINALLY:  Speaking of Clayton Christensen... Christensen is one of the seminal figures (after Schumpeter, of course) in the conversation about DISRUPTION of existing industries and technologies.  I honestly don't recall whether I have previously introduced the topic, or whether it comes up later in the semester.  But everyone in business has to reckon with the fact that new technologies are constantly disrupting existing industries:  the Internet is disrupting the travel agency and book-selling businesses, Uber is disrupting the taxi cab industry... all creating new rules of engagement, new marketing strategy imperatives.  This is very relevant when we talk about gathering marketing information because today we just can't afford to overlook potential sources of disruption.  Here's a very short (2-page) article I do want you to read by the curiously-name Faith Popcorn, a professional tends forecaster, who once was fired by Kodak for telling them their film business was about to be... you guessed it: disrupted.  Enjoy. 

(the url is http://www.theworldin.com/article/10515/trend-spotting-humanoid-condition)

Last updated: Saturday, January 12, 2019