wk3dis/talk

The unrecognized changes inside businesses contain opportunities to re-examine the role of insights B y D a v e S i n g l e t o n

34 Fall 2010 Marketing Management

F ormer General Electric CEO Jack Welch once said, “When the rate of change

inside an institution or business becomes slower than the rate of change on the

outside, the end is in sight. The only question is when.” We all have a pretty good

perspective on how the external world has changed. What is less obvious is an

internal perspective of how business itself has changed. Changes in how businesses oper-

ate, how opportunities are assessed and how data is used to support decisions are occurring,

albeit less dramatically and more gradually than changes in the market place. nonetheless,

these changes are real, and they are impacting how knowledge, understanding and insights

are used to make better business decisions.

Marketing Management Fall 2010 35

Look Inside for Opportunity

36 Fall 2010 Marketing Management

From observations across multiple industries and com- panies, marketing research has kept pace with changes with consumers and customers. On a collective basis, however, it has been less responsive to the changes that are occurring inside of organizations. To take Jack Welch’s observation one step further: When changes inside an organization itself aren’t recognized, the end is in sight.

response to External changes There have been significant advancements in market-

ing research during the past 20 years. Most, if not all, have come about due to the availability of new data, which has spawned new analytical techniques and new insights into how consumers respond to messages, where they shop, what they buy, etc. Today, we have access to more data than ever about how consumers spend their time, how they use the Internet, the role of social media and communities, the impact of specific marketing investments, etc. Not only do we know what messages consumers see and read, we can even measure how their brains process those messages and what emotions it evokes. And while we know more, the questions include: Are we, as businesses, making better deci- sions on which new growth opportunities to pursue; what new products to introduce; how to build brands and extend brands to appeal to new consumer segments or occasions; how to spend our marketing dollars across brands, markets, consumer segments, etc.?

If you answered no, you’re not alone. Many companies are challenging traditional structures and practices of insight

departments. Others have downsized their internal research departments as part of a broader effort to control cost. As a result, the stage has been set to update the use of insights overall and specifically the role of marketing research in the broader context of today’s market place, and to develop new approaches and new competencies that address changes in today’s business mindset. So what is that mindset, how has it changed, and what are the implications for how insights are employed?

Here are several insights into some significant changes that have occurred in how business today reacts to new information, how it views risk and where it sources solutions and ideas. Similar to external changes in the marketplace,

these changes present new opportunities for marketing research to develop new competencies, tools and methods.

internal change opportunity 1. We are more likely to bend new information to fit

existing mental models. We are less willing to accept new insights if they are contrary to what we already know to be true (i.e., if they are contrary to our current mental model for how the world works).

Mental models are shortcuts for making sense of the world. We mentally categorize, classify and summarize past experiences and current situations. It makes us more efficient and more confident. Take, for example, the simple act of crossing the street in London, where cars drive on the left side of the road. The city fathers know that if they don’t challenge the mental models of visitors by reminding them to look for oncoming traffic in the right direction, the out- come could be fatal. In the same way, many of our business mental models must be challenged as well because they have failed to keep pace with significant changes in how consum- ers make decisions, where they shop, how they buy, etc. Yet we continue to hold on to them because they are familiar to us. They represent what we know along with what we know how to do.

One such example for marketers is our legacy mental model for how to define and develop brands. Simply put, that was developed in a time when consumers received messages about the brand in static environments (e.g., while watching TV, listening to the radio or reading a magazine).

The purpose of what we’ll call the static brand mental mod- el was to deliver a consistent view of the brand and hammer home a single point of difference via one-way mediums. Consumers today however, access brands in a variety of situations, participate in shaping attitudes about brands and interact with brands in dynamic, two-way environments. As such, the static brand mental model must be challenged because it fails to fully recognize that how, when and where a brand is encountered influences what is relevant, how the brand will be perceived and what will drive immediate or future demand. The old rules of delivering a consistent message and hammering home a single point of difference simply don’t apply anymore—and in fact, inhibit our ability

Recognition of how and why we think increases the chances that we will alter our mindset, if and when we need to do so

Marketing Management Fall 2010 37

to leverage all facets of the brand. A revised brand mental model is clearly

called for, one that enables the brand to be dynamic, fluid and flexible to adapt more readily to the mindset of the consumer at different points of interaction. It would start by identifying the different situations or scenarios when consumers encounter the brand and would isolate how those situational variables influence what brand capabilities are most relevant, what type of communication is most effective and how messages are best received in that unique situation. Specific situations and the desired consumer outcomes would form the foun- dation for defining the most important capabilities of the brand and would inform how to construct the most effective interactions with the brand. Thus, our brand-centric mental model that uses advantages vs. key competitors would shift to a situational-centric approach. In that approach, different types of encounters with the brand, as defined by situations where brand interactions occur, become the basis for deter- mining the brand’s capabilities and how those capabilities should be expressed.

A hypothetical example for a disposable plate brand demonstrates the advantages of a dynamic mental model for defining and developing the brand. Encounters with brands in this category occur in the home, on the go, in the store and at the shelf. Within this framework of situations, important capabilities range from performance (at home), to convenience (on the go), to value (in the store), to size and variety (at the shelf). With traditional brand-centric approaches, performance is likely to trump all other benefits because it is the most important in the aggregate perspec- tive. In the context of when and where the consumers encounter the brand, however, other capabilities rise to the top. When we incorporate insights and expertise in differ- ent modes of communication (e.g., online, mobile, point of sale, packaging etc.) with insights into situational motiva- tions, the brand can be made significantly more relevant and dynamic to the consumer.

Resistance to change is not new, but our increased reluctance to accept new information and insight when it challenges our previous experiences has increased. As such, there is an opportunity to develop new approaches to chal- lenging those existing beliefs and to create an awareness of our mental models: how they shape how we think and what we believe, and to recognize our tendency to shape new information to fit those models. Such tools would include codification of existing mental models and mapping of new information to the individual components of those models. Addressing the individual elements of our models (e.g., who

is the target, what is the competitive frame, what makes the brand desirable) will encourage more openness and accep- tance. The ultimate goal is greater awareness and recogni- tion of what we believe and why we believe it (i.e., a more thoughtful and systematic review of our own thinking). Recognition of how and why we think increases the chances that we will alter our mindset, if and when we need to do so.

2. Our aversion to risk obscures our view of oppor- tunity. We live, work and market in a time when business is being held accountable for its decisions and outcomes (financial institutions not withstanding). The Sarbanes- Oxley Act of 2002, designed to protect people from ac- counting errors and fraudulent practices, ushered in an era of accountability. And the financial collapse of 2008 to 2009 has made us cost-conscious vs. growth-oriented. The cost of failure is greater today than ever, as consumers, retailers, investors and boards have become more suspect and less forgiving of mistakes and failures. As a result, business has become much more averse to risk and more likely to pursue safer innovations such as extending existing brand equities as is the case with Procter & Gamble (P&G). Under new CEO Robert McDonald, P&G is stepping up its use of the company’s best-known brands, such as Olay skin cream and Tide detergent, to smooth the way for new products. Business is also more likely to buy new income streams via acquisition (e.g., Kraft’s acquisition of Cadbury, Pfizer’s ac- quisition of Wyeth, etc.) vs. investing in organic growth, or more likely to reduce the number of items carried at retail (as evidenced by Kroger’s reduction of its number of cereal items by 30 percent) vs. accepting unproven new products or line extension.

It is somewhat paradoxical that with more data available and more analytical techniques at our disposal, we rely on analyses that summarize the data or reduce our understand- ing to a single data point. Year-one sales forecast, return- on-investment models and persuasion scores vs. norms can simplify decisions at the expense of a more complete

b r I e F ly

• Innovations in the development and use of insights have largely kept pace with the rate of change in the marketplace.

• internal organization changes lag behind in decision- making, risk assessment and how information is processed.

• Changes that have been made inside organizations are used to make better business decisions.

38 Fall 2010 Marketing Management

understanding of a potential opportunity or a hidden risk. Conversely, more straightforward, less sexy analyses of attribute ratings vs. key competitors, cross-occasion usage- occasion dynamics, trial-and-repeat analysis, etc., provide a more complete understanding of an opportunity, the potential for growth and how risk can be reduced. Simi- larly, our search for that one mega-, game-changing insight often obscures the view to more subtle changes in attitudes or behaviors that can reveal an opportunity for growth. In work we did for Vodafone in Ireland several years ago, a simple recognition of how much the Irish like to talk led to the introduction of the first bundled minutes package in

Europe (vs. the minute-by-minute payment plans in effect at the time), a simple insight that lead to system-wide bundled- minute packages.

Moreover, we tend to treat all risk the same. Unlike fi- nancial analysts who make the distinction between different types of risks. (e.g., alpha vs. beta), we don’t readily differen- tiate between the different types of risk we face. We fail to discriminate between the risk of introducing a line exten- sion vs. the risk of reducing underperforming stock-keeping units, between the risk of misallocating our marketing spend vs. the risk of running an ineffective ad. In our work with consumer packaged goods clients, it is not uncommon to find TV copy-testing budgets that far exceed the invest- ments made to understand the return on total marketing in- vestment. We are even less likely to find an inverse relation- ship between the cost of single-copy tests and the number of ads in a brand’s copy rotation.

Several years ago while doing global research at Coca- Cola, we had a much less robust (and much less expensive) copy-test methodology for Coca-Cola than PowerAde. Of course, Coke was infinitely more important to the compa- ny’s overall performance, and its ad budget dwarfed Pow- erAde’s. But, the risk of running a less effective ad on Coke was less than it was for PowerAde because advertising was much more a driver of volume for PowerAde and because Coke produced and ran more than 40 different ads globally at that time.

As the economy rebounds and consumers become more willing to open their wallets again, companies that know how to take calculated risks will reap greater rewards vs. those who remain risk averse. McDonald’s introduction of McCafé was a calculated risk to capture consumers who were “trading down” during the peak of the recession. General Motors has taken a calculated risk in challenging Honda’s Accord with a very rational product-based cam- paign. In the late ’90s, during the height of popularity of consumer satisfaction tracking, we learned that the drivers of satisfaction were different than the drivers of dissatisfac- tion (i.e., dissatisfaction was not simply a result of poor performance on things that increased satisfaction). In light of our collective aversion to risk, if we extend this same mental model and actively discriminate between the drivers of success and the drivers of failure, we can manage the downside risk while simultaneously optimizing the upside opportunity. The result will be an ability to take calculated risks and achieve greater success and growth.

3. We are more likely to depend on internal exper- tise. As the economy contracted over the past couple of years, businesses downsized to reduce cost. Unfortunately, this downsizing inadvertently perpetuated an over-reliance on internal industry expertise and ideas. Use of last-in, first- out approaches to reducing head count has cut off critically

I n the mid-‘90s, Coca-Cola shopping occasions (e.g., quick shop, item fill-in, replenishment shop) provided a useful framework for promoting different

package sizes at different locations within the store. Unfortunately, we found it difficult to achieve year-

on-year sales gains as marketing to shopping dynamics and motivations limited our ability to create demand for our brands. As a result, the purchase occasion construct was challenged and replaced with a usage occasion framework (e.g., with food, with snacks, on the go, etc.), which proved to be more effective for developing relevant point-of-sale messages and in-store merchandising.

By redefining our mental model from selling soft drinks to providing physical and mental refreshment, we challenged the purchase occasion convention and found that targeting specific usage occasions made the benefits of the brand and certain packages all the more relevant. Those ubiquitous “fast-lane” merchandisers that are part of the grocery retail landscape today were a result of a new mental model. They also had an expo- nential impact on Coke’s volume and on retailer’s profit.

From Purchase occasions to usage occasions

Marketing Management Fall 2010 39

important access to new experiences and diverse exper- tise from other categories, industries, etc. that new hires brought with them. Those who remain are more likely tenured managers who will rely predominantly on past experience to guide their future actions.

This is an unfortunate phenomenon because, as com- petitive dynamics change, past experience actually becomes less relevant to future success. Note how Pepsi’s, and subsequently Coke’s, purchase of their bottling systems has reduced the value of negotiating with bottlers and simulta- neously created a need for new direct-to-store distribution expertise. Likewise, the growing interest in sustainability and social marketing has created a need for new expertise that is not likely to be a part of past experiences of current managers.

Reliance on internal expertise is also falsely justified with the belief that our industry or situation is somehow unique. Yet a strong argument can be made that analogs from other industries can stimulate new thoughts, ideas and solutions to old problems. Industries such as pharmaceuticals that compete against generic “same-for-less” options could learn to use “more-for-more” strategies developed by consumer packaged goods manufacturers (the experts at competing vs. private-label brands). Geico, Orbitz and Dell are good analogs for anyone looking to bypass traditional channels of distribution and market directly to the consumer. Value meals are good analogs for mobile-phone companies seek- ing to bundle their services. Fast-food drive-thru is a good analog for pharmacies adding walk-in clinics to their retail footprint. For companies looking to leverage expertise into new categories, Nike and Home Depot are good analogs.

We agree that there is no substitute for experience. The point here is that a diversity of experiences can add significant value to an organization. As such, there is an opportunity to use analogs at all points in the marketing process. Doing so would not require development of a formal process or frameworks. On the contrary, the value of finding similar situations is in the open-ended nature of the comparison and the thinking required to find the transitive value.

From experience with use of analogs, the comparisons need not be limited to business situations. Real-life situa- tions often provide insights and expand the thinking relative to business challenges. Productive use of analogs, however, does require an ability to extract and apply the insight. In doing so, it is useful to identify your objective. For example, make it easier for our customers to access the services we provide, and then look for analogs where other companies have achieved that objective (e.g., Delta airline’s kiosks, Wells Fargo’s online banking, Home Depot’s self-checkout). In other situations, the focal point for finding analogs may be a strategy (e.g., to outsource a repetitive, non-value-add task). In this example, the analogs would include Dell’s call centers, EDS’s information-technology outsourcing, UPS’s supply-chain outsourcing. Someone once said that a good analogy is worth three hours of discussion. In light of today’s more indigenous management teams, they can be worth a lot more than that.

re-examine insights Change creates opportunities. Disruptive changes—such

as advances in technology, new regulations and government policies, reductions in disposable income, even increases in childhood obesity, etc.—are more readily recognized. The opportunities they create are more easily identified. Yet we often overlook more subtle changes similar to those discussed above, because they occur more gradually and less consistently. Most importantly, they are overlooked because they are internal changes, changes in how we think and what we do vs. external changes that are happening to someone else. In closing, we pose the following questions: Has your company become more risk averse? Do you fit new data into legacy mental models? Have you become more insular, relying more on internal expertise? If so, it may be time to re-examine the role of insights inside your organization—to consider codifying current models, to increase the use of in- tegrated analysis across different data sources to reduce risk, to developing expertise in the use of analogs and experiences from other industries to stimulate thinking and expedite innovations. MM

Dave Singleton is co-founder of red Phone marketing, Inc. He may be reached at [email protected].

articles measure what matters, Marketing News, 2008 The Cmo Shift: replacing old mindsets, Marketing Matters, 2009

ama meetings strategic research planning: Boston oct. 27-28 boston

ama podcasts market research in a DIy World, Marketing Researchers, 2010

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