by Byron Sharp
The additional research consists of a survey; the first question of which asks customers about their attitudinal loyalty. Figure 1.4 reports the percentage of switchers who agree with the statement: “This is my preferred brand”, (the switcher group is the interesting one, as we can safely assume that both Crest's and Colgate's loyals will report that their brand is their preferred one.) As you can see, Figure 1.4 shows that Crest switchers are substantially more likely to say that Crest is their preferred brand.
The survey's second question asks customers about their perceptions of quality. Figure 1.5 reports the quality perceptions of the switchers in each customer base. Both Crest and Colgate buyers perceive both brands to be quality products – as they should, because these are both well researched and well-made products.
Figure 1.4: Percentage of brand buyers who say “This is my preferred brand”
Crest switchers Colgate switchers
Data source: Spaeth & Hess 1989.
Figure 1.5: Percentage of brand buyers who say “This is a quality product”
Data source: Spaeth & Hess 1989.
Here are the 'brand insights' the market research agency reports:
•Colgate's sales volume comes mostly from non-loyal buyers
•Colgate is 50% more dependent on switchers than Crest
•Colgate buyers are less loyal, both behaviourally and attitudinally
•Even Colgate buyers think Crest is a quality product
•Colgate is a quality product but it has perception problems and lacks loyalty
•Colgate is attracting the wrong sort of buyer.
These insights are translated into the following action recommendations. Colgate needs:
•more persuasive advertising that stresses Colgate's quality
•comparative advertisements against Crest (common in the USA)
•media schedules that emphasise frequency of exposure (to shift attitudes)
•research to profile Colgate 'loyals' with the aim of attracting more people like this.
All this sounds perfectly normal. It happens in marketing departments around the world every day. You personally may have come up with a somewhat different marketing strategy, depending on your own experience, preferences, and creativity, but the insights and the strategy appear reasonable, and not unusual. Except that they are wrong.
The 'insights' suggested here reflect ignorance of relevant scientific laws about buyer behaviour and marketing metrics, laws that we'll cover in this book.
Consequently, Colgate's fictional Insights Director is jumping at shadows, and overly worrying Margaret. Colgate's loyalty metrics, both attitudinal and behavioural, are normal for a brand with half the market share of Crest. Indeed all the other research findings are essentially repeating the findings of the first graph (Figure 1.1), that is, that Colgate is half the size of Crest in this market. These metrics don't show why it is half the size; they are what they are because of Colgate's size. All will be explained in the forthcoming chapters (if you can't wait, turn to the end of the book for a list of laws including those that relate to this Colgate case study)
Note: this case study could have been written from the Crest (Procter & Gamble) perspective, where the danger would be in patting oneself on the back for having such a ‘strong’ brand with highly loyal buyers. Brand equity consultancies make money flattering owners of large market share brands that they are not just large but also strong with attitudinally committed consumers.
Are marketers bleeding the companies that employ them?
I am in awe of the modern market economy and the diversity and quality of products that marketers deliver. This modern economy is the product of one of the most incredible social experiments: in the twentieth century classical, planned economies were tried alongside market economies (Hunt & Morgan 1995). The results were startling. Market economies won by a mile, as they provide people with more choice, fewer queues, and better, cheaper products and services3. For example, within a few hundred metres of where I am sitting I have a choice of multiple grocery stores, bakeries, pharmacies, cafes, wine stores, even several fine chocolate shops. Not bad!
Once when I was in Thailand my charming host Professor Tasman Smith asked if we had many Thai restaurants back home in Adelaide, Australia. I did a quick mental count and tactlessly replied, “Yes, there are four within a short walk from our house”. My faux pas illustrates the fact that those who live in developed market economies are spoilt for choice – we can eat pizza in Thailand, or order a curry in Paris, if we want to. This is because today's marketers do an amazing job of getting attractive goods to market.
Yet marketing is far from perfect; there is much waste. This matters because marketing activities consume a vast amount of our time. As Robert Louis Stevenson said, “Everybody lives by selling something”. Poor marketing wastes an incalculable amount of resources, and it prevents and slows the uptake of life-enhancing products and social initiatives.
Marketing practice, for all its advances, has never been strong on R&D into marketing practices; there is plenty of ineffectiveness and room for improvement. Response rates to advertising are perhaps in indicator of inefficiency. However you define a consumer response – from clicking on a web ad to driving to a store – response levels are extremely low, and in some places falling. It's even more scary if you look at the impact of advertising on memory. For example, one of our yet-to-be-published studies4 on advertising productivity examined 143 ads on Australian television that were screened on consecutive weeknight evenings. That weekend respondents were telephoned and those who watched the programs during which the ads were played were asked if they recognised the particular television commercial (i.e. each ad was verbally described to only those people who had an opportunity to see it). The average recognition score for a television ad was barely 40% (i.e. 40% of potential viewers noticed the ad when it aired). Those respondents who recognised the ad were then asked what brand it was for, and on average the correct brand was linked to only approximately 40% of the ads. Consider that for an ad to work, at the very least, it needs to be noticed, processed and be linked to the correct brand. So only around 16% of these advertising exposures passed the two necessary hurdles; put another way, there was 84% wastage! 5
Note that the effectiveness of the ads varied widely. Some were noticed by more viewers, and correctly branded too. But most were not. This suggests that there is much to gain from learning how to make better advertising.
Though hard to see, the advertiser here is actually ASB Bank, they are trying to knock a competitor Kiwi Bank (who should be laughing...all the way to the bank)
There is much to learn about marketing. Even very senior marketers (and marketing academics) believe many things that are wrong, and there are many important facts that simply aren't widely known. Many well-paid marketers are operating with wrong assumptions, so they are making mistakes and wasting money, without even knowing it.
Marketing professionals today are better educated than in the past, and they have access to much more data on buying behaviour. But the study of marketing is so young that we would be arrogant to believe that we know it all, or even that we have got the basics right yet. We can draw an analogy with medical practice. For centuries this noble profession has attracted some of the best and brightest people in society, who were typically far better educated than other professionals. Yet for 2,500 years these experts enthusiastically and universally taught and practised bloodletting (a generally useless and often fatal 'cure'). Only very recently, about 80 years ago, medical professionals started doing the very opposite, and today blood transfusions save numerous lives each and every day. Marketing managers operate a bit like medieval doctors – working on anecdotal experience, impressions and myth-based explanations.
It would be arrogant to think that the current marketing 'best practice' does not contain many mistakes and erroneous assumptions. I used to teach some erroneous stuff to my university students; I know how easy it is
to parrot a falsehood simply because that's what we were taught to think and because it appears to make sense. This book challenges some of the conventional wisdom with empirical evidence. I hope you find this 'myth-busting' knowledge as liberating as it is useful.
Marketing textbooks
Marketing prides itself on being a practical discipline, so marketing texts (textbooks, marketing magazines, consultant reports, etc.) should be full of answers to practical questions, such as:
•What will happen to sales if I change the price of the product?
•Why can I see the effect of price promotions in the sales data, but the advertising campaigns barely show up, if at all? Is advertising not generating sales?
•What is a reasonable cross-selling target?
•Will the new brand cannibalise sales from the current brand? If so, by how much?
•Should I pay double for a full-page newspaper ad or buy the half-page ad instead?
•When should 15-second television ads be used?
Yet it is difficult to find answers to such practical questions, let alone to find explanatory and predictive theories that can be used to provide the solutions.
A good colleague of mine, Scott Armstrong, Professor at the Wharton School, once put marketing principles texts to the test (Armstrong & Schultz 1992, pp. 253-65). He asked four doctoral students to independently go through nine leading texts looking for managerial principles. They found many (566) normative ('you should do') statements, but the texts failed to accompany the statements with supporting empirical evidence. The students only found twenty statements that were clear and meaningful. When these twenty statements were sent to marketing professors they rated only half as true, and said they knew of supporting evidence for only two. Only one single statement was universally rated as true, supported by evidence, as well as being considered managerially useful. But this principle was also rated as “unsurprising, even to someone who had never taken a marketing course”. 6
We could dismiss our texts as harmless introductions to marketing practice, but marketing texts aren't harmless, because they routinely lead managers astray. Texts tell us what to worry about (customer satisfaction, image perceptions, brand equity, loyalty), what we should be doing (segmentation, targeting), what techniques to use, and what metrics to measure. Marketing texts largely reflect and reinforce current practice and existing beliefs. They contain a lot of good basic information, like telling us that if we want to advertise we should remember to book the media. But texts are also full of myths; the sort of myths that sap the effectiveness and productivity of marketing departments.
Many of the things that we’ve been told are important, such as loyalty programs, are not (see Chapter 11). Many of the 'facts' marketing people believe, particularly about brand buying, are incorrect. Furthermore, many marketers lack the deep knowledge necessary to ask the questions that will lead to new valuable insights.
Take the following test on strategic assumptions (Table 1.1). Marketing professionals agree that these assumptions really matter and underpin strategic marketing decisions that are linked to substantial expenditure. How would you and your marketing colleagues answer these questions? Would there be consensus? If your answers were questioned, could you point to anything more than anecdotes to support your view?
Table 1.1: Strategic assumptions test
Strategic Assumptions True, False, or
Don’t Know?
Differentiating our brand is a vital marketing task?
Loyalty metrics reflect the strength, not size, of our brand?
Customer retention is cheaper than acquisition?
Price promotions boost penetration not loyalty?
Who we compete with depends on the positioning of our brand image?
Mass marketing is dead, no longer competitive?
Our buyers have a special reason why they buy our brand?
Our consumers are distinctive type of person?
Our heaviest 20% of our customers deliver at least 80% of our sales?
If you answer true to most of the questions above then you are operating under false assumptions. This book will give you the evidence. As Mark Twain wrote in his notebook in 1898: “Education consists mainly of what we have unlearned”.
False assumptions have led us astray in the past
“a theory requires some facts, Captain”
- Mr Spock, Star Trek episode ‘Space Seed’
Science's systematic approach to discovery is a relatively recent practice that didn't really get going until around the 1700s. Prior to that, knowledge largely came from myth, folk-tale, and from experts in authority (chiefs, priests, kings and queens). How these 'experts' acquired their knowledge no-one knew or dared ask. Most of the time their understanding was wrong and there were glaring gaps. This lack of accurate knowledge meant we didn't think to ask useful questions. So for millions of years humans made little progress; life was typically short, painful and we were hungry and cold much of the time. In the past few hundred years we've made extraordinary progress. Our combined knowledge has grown in leaps and bounds, and we live in comparative luxury.
Let's return for a moment to the case of our learned but bloodletting doctors. For centuries they bled patients for almost every possible ailment, indeed many advocated bleeding simply to maintain good health. For most of the last millennium bloodletting was as trusted and popular in Europe as aspirin is today (Starr 1998). 7
Over the years, doctors must have killed hundreds of thousands of patients. Among them was US President George Washington, who died when his doctors bled him vigorously to cure a sore throat. The doctor of another US legislator once wrote that he had treated his patient by relieving him of 165 ounces of blood in five days (almost all the blood in his body!). The doctor wrote, 'he died ... had we taken a still greater quantity [of blood] the event might perhaps have been more fortunate' (Starr, 1998). Apart from a few rare medical conditions, bleeding does no good whatsoever. So how did these well-meaning and well-educated doctors get it so terribly wrong for so long?
First, it was because they believed untested theories that advocated bleeding. Like all practitioners they were, probably without realising it, deeply theoretical. The ancient Greeks (e.g. Hippocrates) developed a theory that all illness resulted from an imbalance of humours; bleeding and purging were common ways of addressing such imbalances. This humoural imbalance theory dominated medical thinking in Europe and the Middle East for 2000 years because no one tested if this really was the cause of illness.
Second, bleeding continued because no-one conducted systematic research into its effects. If patients recovered from their illness then bleeding was credited as the cure; if they died ... well they were sick after all! Doctors worked using their impressions, assumptions, commonsense, accepted wisdom, and scattered bits of data. This is very similar to the working practice of marketing managers today.
Adding to the danger, doctors overestimated how much blood was in the human body – no-one checked properly. And they underestimated how long it would take the body to manufacture new blood – again no one checked.
Douglas Starr (1998) argues that bleeding was also popular because it gave doctors a sense of control. It produced dramatic results – patients fainted (for a long while this was considered a good thing). Patients demanded that doctors be seen to do something, and bleeding fulfilled this requirement. It's not hard to see similarities with many marketing interventions (like price promotions, bursts of advertising, and rushing into 'new media' like proverbial lemmings8).
The scientific revolution transformed medical practice as doctors, and statisticians such as Florence Nightingale, started compiling detailed records and case histories. The numbers they recorded started to generate insight into causes and effects, and germ theory eventually triumphed over humoural imbalance theory. Medical experiments gradually started separating the effectual from the ineffectual and the downright dangerous.
Today marketing managers operate
a bit like nineteenth century doctors; they are affected by the scientific revolution, but are not yet governed by it. Even 'best practice' is still dominated by impressions and untested assumptions. Texts still contain untested, ungrounded theories and myths. And serious experimentation is rare.
The marketing equivalent of humoural imbalance theory may be the Kotlerian 'differentiate or die' world view where marketing success is entirely about creating superior products, selling these at a premium price, targeting the most likely buyers, and advertising to bring people's minds around to the product's superiority.
You are reading a book about real-world facts and law-like relationships that challenge the fundamental tenets of modern marketing theory; the widespread beliefs that affect not just the decisions of marketing managers, but also how marketers see the world.
Commonplace marketing mistakes
Even the most intelligent marketers, in the best organisations, routinely make mistakes. Because many marketers operate using incorrect assumptions about how buyers buy and how marketing works, they emphasise the wrong things and ignore important points, consequently making mistakes such as:
•changing packaging in ways that reduce the brand's ability to be noticed
•creating advertising that doesn't build or refresh relevant memory structures
•failing to research what memory structures are devoted to the brand
•failing to research what makes the brand distinctive and noticeable
•creating advertising that isn't branded (other than a flash of the brand name)
•investing countless hours and many dollars on pointless tracking research that informs no decisions
•over-investing in already highly loyal consumers, while neglecting to reach new buyers