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Consumer-centric Marketing Can Boost Profit, ROI

2016-02-01 · New York

Sun Baohong, the Dean’s Distinguished Chair Professor of Marketing at CKGSB, and Carnegie Mellon University business and computer science professor R. Ravi outlined at a CKGSB Knowledge Series event a consumer-centric marketing framework that they said would bump up profit growth and return on investment (ROI) significantly more than a campaign-centered strategy.

 

During the February 1 session, “Better Marketing Through Digital & Mobile Data,” the scholars, who have coauthored the book, “Customer-Centric Marketing: A Pragmatic Framework” (MIT Press), discussed how companies could enhance both profitability and ROI by leveraging an abundance of data to anticipate and meet a customer’s long-term needs, as a butler would do for a household member. The framework is based on research developed when Professor Sun and Professor Ravi both were on the faculty of the Tepper School of Business at Carnegie Mellon.

 

Sun Baohong, Professor of Marketing at CKGSB, reveals that marketers

employing a customer-centric campaign built on mobile and digital data

could see a 40 percent return on their investment.

 

“Each consumer is important, each consumer should count,” Professor Sun said in an interview prior to the start of the discussion at CKGSB’s New York office. “What does each consumer want? What is his preference? What will he want in the future? Once we learn each individual consumer’s preference, then we need to act on it. The idea is to maximize customer lifetime value.”

 

The session was the latest in a series of CKGSB lectures and discussions that seek to disseminate cutting-edge knowledge and perspectives related to China and promote in-depth dialogue in Chinese, Asian and global academic and business circles.

 

Avalanche of data

As the broad acceptance of mobile devices enables marketers to deploy “push” and “pull” promotional marketing strategies to collect large amounts of data at relatively low cost, attention is increasingly turning toward specific phases of statistical analysis that let managers examine past business performance to gain insight and drive business planning. These phases are descriptive analytics, which examines what happened and why by examining historical performance and is in common use today; predictive analytics, which determines the probable future outcome of an event or the likelihood of a situation occurring; and prescriptive analytics, which specifies the actions needed to achieve predicted outcomes and shows the implications of each decision option.

 

In push marketing, the idea is to promote products by pushing them onto people, using tactics such as putting up sales displays at a grocery store. Pull marketing aims to build loyalty and draw consumers to products.

 

Professor Ravi said that marketing strategies for years have employed a “myopic” practice of evaluating customers’ readiness to be targeted with a campaign on the basis of their most recent, frequent or lucrative transactions.

 

As Professors Ravi and Sun said both in their remarks and in their book, it ultimately will be more lucrative for a business to connect with consumers and build longer-term loyalty via a consumer-centered campaign than by using a one-size-fits-all approach.

 

The CKGSB Knowledge Series session, “Better Marketing Through Digital & Mobile Data,” featured Sun Baohong, the Dean’s Distinguished Chair Professor of Marketing at CKGSB, and Carnegie Mellon University business and computer science professor R. Ravi (back row, second and third from left, respectively).

 

Maximizing ROI

A study conducted by Professor Sun found that quantifiable ROI from a customer-centric campaign that used data to build an integrated model as envisioned in the book would be 40 percent – significantly greater than the return from a more traditional campaign-centric marketing scheme.

 

A bank was given as an example of a business that could benefit from applying the concepts in the book, which is designed as a textbook for MBA students and is due out March 4. Banks often use data analysis to differentiate among customers based on credit risk, usage and other characteristics and then to match customer characteristics with appropriate product offerings.

 

“Bank managers [typically] ask who is more likely to buy a checking account and then run a few predictive models that generate 100,000 names and then send out an email campaign,” Professor Sun said. “That is very myopic. We want to maximize the return on investment of a specific campaign. We propose that you look at each individual consumer – at all of his or her past history.

 

“If we know that the customer has three checking accounts, and just opened a mortgage account and just moved to New Jersey, it’s likely that she is going to plan another account for her kid or for another reason,” she said. “So we follow her development. Then we say, ‘I’m going to do lots of things to educate her.’

 

“So when she opens this mortgage account, I should educate her about opening an investment account. So she when she’s ready, she’s going to buy.

 

“The goal is that, long-term, she’s going to stay with me and in the future she is going to buy more and cross over more.”

 

Other activities or businesses that have used customer-centric marketing are airline pricing; Harrah’s, the gaming firm, which uses analytics in its customer loyalty programs; Amazon and Uber.

 

Laggards missing opportunity

For the most part, however, companies have lagged in adopting customer-centric marketing. Unwillingness among many to allocate the required budget capital to the strategy is one possible reason, the session was told.

 

The framework advanced in the book can be applied effectively across cultural and international boundaries. “It can learn the cultural differences of those customers,” Professor Ravi said of the system described in his and Professor Sun’s work.

 

“This method and framework is applicable even to small, offline data sets,” he said. “The framework doesn’t suffer for having to have data in a certain format.”

 

In recent years, especially since the 2008 recession, many companies have sought to enhance profitability by focusing on securing cost efficiencies. But rather than using a snapshot from data to plot a single campaign-centric marketing plan, marketers must focus on maximizing long-term profit from data collected over time, according to the book.

 

Push and pull

The book’s publication next month coincides with the falling cost of data acquisition and marketers’ growing ability to deliver push and pull marketing strategies. The advent of commodity computing – using large numbers of computing components to get the greatest amount of useful computation at low cost – also makes the book’s release timely, Professor Ravi said.

 

Firms increasingly are collecting data in a unified way that fits with this type of analysis, he added. Previously, the data was in bits and pieces and in different systems.

 

About CKGSB Knowledge Series

CKGSB’s Knowledge Series continues February 22 with “Investment Strategy for China’s Volatile Marketers,” featuring Ling M. Liu, Managing Director, New China Capital Management, the investment manager for the Cathay Funds (a series of China focused private equity funds with total assets under management of $800 million). Next month, the lineup includes “Women Ascending: From Base Camp to CEO Summit, Tools for the Climb,” with CKGSB Americas Senior Director Mary Wadsworth Darby moderating a panel of high-level female executives as they share their insights and experiences just ahead of International Women’s Day (March 8). On March 16, in a program titled “Business Confidence Index – How Is It Constructed and How Can It Be Used?”, CKGSB Professor Li Wei will discuss his Business Confidence Index that measures business sentiment of Chinese executives about China’s macro-economic environment.

 

The Knowledge Series is part of CKGSB’s goal to drive economic development and social progress through interaction with communities of high-level academics and senior business executives. It aims to become a catalyst for positive social transformation and an advocate of new business culture.

 

Knowledge Series memberships are available for young professionals, VIPs and corporations. For information, please contact Julie Zhu at juliezhu@ckgsb.edu.cn or +1-646-627-7729.