UN 291 - Koen Pauwels. Strategies for a Successful Marketing Mix.

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Welcome to Up Next. I'm your host, Gabriella Mirabelli. My guest today is Cohen Powells. He's a professor of marketing at Northeastern University and co founder of the Data Initiative. He holds a PhD from UCLA, has authored multiple books, and has played a pivotal role in Gringo's Yedjin University in Turkey. We're going to be talking to him today about how marketers should be approaching and thinking about their marketing mix. Thank you so much for joining us today.

Thank you very much, Gabrielle. A pleasure to be here.

Marketers have a wide range of questions around their marketing mix and how to improve their strategies and tactics. They want to know the most effective way to distribute their budget and so how should they approach determining the optimal allocation? How should they be thinking about allocating across channels and activities? Is there a framework that they should approach this with?

Well, I'm an engineer by training, so I think about every.

So the answer is yes, probably.

That's a good point. Probably a spreadsheet too. But I think about things as input, throughput, output, and then I think the important thing is working Backwards, Right. So in output, what are the goals that you really want to achieve? A lot of my work, also my books talk about analytic dashboards. And what that means is first that you fully align as marketing with the goals of the business. So does your business want to achieve a lot of growth this year? Does it has to constrain resources because it's trying to survive? And then what can marketing do to help the business around? Right. So typical example, your CEO wants you to increase revenues by 20% this year. Then you think as a marketer, well how can I do that? By how much do I have to maybe raise awareness or how much engagement do I need that is linked to my sales and so forth. So if you work backwards and first focus on the outcomes and these are typically hard metrics so things that your, your, your finance people will love, then you, then you think through, through the, the, the throughput and the input, right? Then you say hey now how within my marketing, kind of, I was going to call it bubble. That's a bad word. Within my marketing understanding, which kind of maybe softer metrics do I really want to advance? And that could be consumer perceptions, that could be relationship with retailers. And then you think about the inputs. So what can, what can you do? What can do what? What do you need cooperation of other teams or other departments for within your company to really kind of drive the inputs to make that happen? I'm old school, so I think about marketing as the four P's and so I look at product price, price and promotion. Of course I realized that not every organization gives marketing the full autonomy over these four. And that's why how you should cooperate with other departments is so important.

Right? I was going to say, actually in my previous question, I was going to say we want to maximize ROI, but in one of your blog posts from 2021 you wrote that ROI is not a silver bullet metric in marketing effectiveness. It requires lots of judgment calls on incremental revenues and costs, focuses on short term over long term and efficiency over effectiveness. So if ROI is dead, what are our marketing KPIs and how should we select them? Does it just tie back to whatever the business goals are or is it more refined? Like is there a little bit more guidance there?

Oh wow. I wish every marketer would read my work so thoroughly. Gabriella, thank you. So why ROI is typically not the right metric for you? ROI is an efficiency metric. So if you apply it correctly, the way it is meant in the original finance definition, it is really how much incremental profits you yield for the company divided by your marketing investment. So the easiest way to increase ROI is to decrease your marketing investment. And so that's typically not what you want to do. And so you can drive your whole business to bankruptcy by maximizing roi. ROI is an important efficiency metric, but it's not effectiveness. So effectiveness is indeed going back to your outcome goals. What do I actually want to achieve? What I very often do in lots of my case studies is I only look at if you're mathematically inclined. I look at the top of the ROI formula, how much incremental profits do I get for the company, and, and that's typically a much better yield. Right. Just as an example, suppose you have this Fanta fantastic upper funnel campaign that costs a million dollars and gives you 5 million more profits, right? So, so that's really nice, but it did cost you $1. So let's say the ROI of that one is 500%. On the other hand, you can have a very efficient small scale campaign on social media that, that only cost you 10,000 bucks, but only million, right? So if these two things are the two options you have because you can't do everything at the same time, then the social media campaign had a much higher roi, was much more efficient, but gave less profits to the company. And so if your company is not about to go bankrupt and is not in lots of problems and can actually for instance also expand resources with the right arguments, then then effectiveness metrics such as how many net profits do I get, how much more sales do I achieve, are just a better kind of benchmark to optimize than roi.

Right? You also, you have a book that says it's not the size of the data, it's how you use it. Smarter marketing with analytics and dashboards. So what type of data should people be seeking out? Especially if I'm a small business with a very limited budget, how can I be smart about it?

So I, I wrote the book and this is now over 10 years ago.

Well, digging in, right?

Yeah. This was the beginning of the hype of big data, which is still continuing. And, and a lot of my, my research, research and optical sense be like, hey, big data means big mistakes, right? So, so a lot of our kind of human biases and decision making, they can easily actually be exaggerated by big data instead of made smaller. So I think it's way more important to think through how you're going to use data, for which purpose, who needs the data when? And that's why it's not the size of the data, it's how you use it. So at the time I was writing this, and I'm afraid that's still the case. Most organizations that I see have a good grasp of how to deal with. With even the small data they have, who's going to make decisions based on them? And how do we really evaluate whether the cost that we give to obtain this information or this data is really going to be worth it? Maybe a few examples.

Yeah, that would be helpful in the book.

Right, so. So again, input, throughput, output. So I was doing some, some consultancy work for a company in the US when I moved to Istanbul. So I helped start up a university there in 2009, and the same comm in Turkey was just next door. It was right, right on the same street. So I went to them and I'm like, hey, I would love to help solve your problems here too. And they say, well, we are so proud because we actually did what you marketing academics tell us to do. And I'm like, wow, what did we tell you to do? And they're like, well, follow your consumers, right? Our consumers are more and more online, and we don't spend the percentage of the budget online that we shoot. And so this is a manufacturer that has about 2% market share in Turkey. But they were so proud because they had the number one Facebook site in the country on automobile. So there was lots of engagement as measured by the platform. There were lots of people kind of following it. And Facebook was and is still very big in the country. So they're like, this is fantastic. And we spent 25% of our marketing budget, but our sales don't increase. How is that possible? Facebook gives us engagement metrics, follower metrics. This is what I call vanity metrics in my later research, which we can come back to. But our sales don't increase. So I say, well, you know much more about cars than I do, of course. So what do you really need to get people in your cars? What do you need to get people to consider you? And they said, well, that's easy. Test drives. And I'm like, well, have you measured test drives over time? And then let's correlate them with Facebook engagement. And so we did that and we found absolutely no correlation. So I'm like, well, a throughput metric, right? Test drives. That is so important to you as a manager. You know, this is important in your industry. You know, doesn't seem to be at all all related to, to. To this metric that you're very proud of. So then of course you have to dig Deep Right. And then we thought about well why is that? Is it the wrong audience or these people not in the market for cars, Maybe they're too young or don't have enough money. Is it that they are the right people but we're not discussing the right content that makes them eager to come in for a test drive and so forth. But so that's an example of hey, they want more sales at a reasonable ROI and efficiency. Right. But, but they haven't really l their input how much money they spent on their Facebook page to the important throughputs test drives and to then link that one to sales which, which closes the loop in a lot of the the frameworks I use.

Well, I'm curious. So was it the content they were putting out on the Facebook wasn't driving to test drives or was it simply that it just wasn't. That wasn't where people who were interested in going for test drives were going.

Question it was the content a fascinating kind of danger online. I have another paper on retailers that put an information website online and some of their very frequent customers coming into their retail less because of it. To some extent it allows you to fantasize about the car but like build your own car without actually and so to some people it kind of substituted their car hobby and it made them actually less likely to get into the test drive. So we did change the content and we got much better results which then could link to test drives.

Interesting. So they had. So once they adjusted the content, given that they did have such a good audience and following on Facebook, did it help? It's going to follow this one.

It did help. So I can't, I can disclose exactly how of course consultancy but, but, but it did help the other, the other thing I had to of course I felt the need sorry to help them with is how does social media fits in your over portfolio? Yes, it's not because there's a shiny new thing and this year it's something else than ten years ago of course, but it's not because the shiny new comes up that you have to drop whatever you're doing to try it out. There's a very important maybe new weapon in your arsenal as a marketer as I call it but you still have all of your tried and true methods that typically work together or can work together with that shiny new thing to produce a much better input. And yes, in marketing academia we have formulas that with some good estimates about how sales respond to marketing and what the synergies between different actions we have we have mathematical formulas that based on that suggest how much you should spend on something. And so I typically get this question when people say, well, I have this upper funnel marketing thing, right. Maybe awareness driving or in business to business marketing. It's, it's your whole marketing department where the salesforce says, hey, don't waste money on marketing. Just give everything to us. We are lower funnel. We are needed to make the sale. Right, Right. And then I'm like, well let's, let's look at how much more efficient the marketing makes your salesforce efforts. So if you look at the synergy, you see that hey, if there is a lot more awareness and consideration out there for your brand, then your salespeople just have a much easier time. And so from, from, from marketing publications, we know then how to suggest the optimal marketing budget based on these estimates and then propose a way to go. And then we test an experiment, of course, to see what.

Right. So when thinking about online and offline marketing methods and thinking about what the balance is, do they really just need to look at these formulas? I'm just thinking of that poor marketing executive who got into marketing because they really like creative work and didn't like formulas very much at all. So how should they, what do they need to do? They need to hire you as a consultant, clearly. But barring that as an option, what, how should they. Is there any sort of rules of thumb, things that they can apply?

Yeah. I first want to address kind of indeed what you noticed as the elephant in the room. Right. So there is a math versus creativity tension within marketing. And so most of my courses I teach marketing analytics and I get exactly half of my students that hate math and went into marketing to get rid of it.

Yes.

That are analysts that come from like computer science and want to learn more marketing.

If we think about that earlier example example around the Facebook and the content, that's a, there's a creative piece there that, that is important and I think it's important that both things get paid attention to that it isn't just the, the math part and it isn't just the creative part. Often though the listeners to this podcast are more strongly in that I was an English major camp or an artist and so I like to make it something that they can understand. Is there any way sort of just philosophically thinking like general rules, ways they should think about online and offline marketing methods and striking that balance, even if it's just understanding signals from target audiences. I mean, what, what, how should they be thinking about it if that's where they come from, that's where they're sitting. You've got the poor student who really wanted to escape math.

So I would say going back to the goals of your marketing. So as you indicated when you contacted me, right, you were, you were fascinated. My statement on this one, the channel is not as important as the content and how you say it, which is the creativity. So study after study have shown that in my quantitative marketing studies that the creative message is a key driver. That is the key driver you can control to increase advertising effectiveness. And I think the other number one thing that you can control is your brand size. If you have a very famous brand already, then it's easy to get people attention, but you can control it at the moment, right? But the first thing you can control is creativity. So it has a huge effect on advertising effectiveness. And my pitch to creative folks is always, wouldn't it be wonderful if you could actually prove that your fantastic creative message or channel combination has had five times the effect of your typical boring ad message, which constantly happens in my research. So that's kind of the pitch for why it's really important. And I would say kind of the medium is not as important as, as the message and the goal you're trying to get across. So I absolutely hate this distinction that, that offline advertising is somehow upper funnel, right? And only good for creating awareness. And online marketing is only lower funnel and basically like a shelf space in a retail setting. I'm like, no, there's lots of examples of brands built online. So the Day of Glee said, and I always quote him, you have to go offline. You cannot build the brand online. And I think the last years have, have shown that statement to be, to be wrong. Part of it is because online advertising indeed started more from kind of, you know, catching or I shouldn't use that word, right? Or kind of converting people who are already looking for your product. And that's kind of the quick and easy, low hanging fruit, right? Online you see now lots of upper funnel metrics, right? So you can, you have connected TV that you can take over that screen and you can really measure who reacted to it, right? Have, I mean just, just talking about retail media, right, which is in the lift, you have things like display video and you have sponsored brands on Amazon.com that really helps showcase your brands and can basically get the attention of people to learn about your new products and about your brand image at the same time. I fully believe that some offline advertiser can really be a call to action. So, so I mean, I think it's important to look at your goals and then to see what's available in online and offline as a medium that is perfect to the message. You do have to adjust the format, of course, to what people like in the medium. So when, even, even just online, right. When I'm scrolling on phone, there's a different, different kind of format I want to see than, than when I'm on my laptop, for instance. But you can have a very consistent message even if you adapt the formats to the different media.

Well, right. Understanding why people are on that medium, what they, what they are open to. So you craft it for the purpose of that they working within their expectation, desires and purpose. One of the things people debate and talk about is whether or not you can attribute things. I mean, do you believe you can trace attribution that you can do, do that?

Yes and no.

Okay.

And here I strongly differ with lots of my academic colleagues.

Okay.

So a good friend of mine wrote this academic paper, but maybe some of your audience have heard it. It's on the near impossibility of measuring to digital advertising. And in that paper it's experiments by, with hundreds of thousands of consumers. He talks about the fact that if, if you, Gabriela, go to a website, let's say, and you browse and then I show you an ad for my brand and you click on it and you buy. Did you buy because of the ad or did you buy because the algorithm thought that you were very likely to buy anyway and what you showed through your browsing of the websites?

Right, so.

So he calls it the problem of seller selection.

Right, Right.

Giving that online ads are shown to people who are very likely to be at least interested in the product. At least that's what targeting should do. It's just very hard to set this apart. So in the paper he says, look, you cannot, at the 95% confidence, say that Gabriela really bought because of the ad. Now my reaction to that one is.

That, yes, but that's completely irrelevant, right, because it's happening. So does it work or not?

So that's the point, right? So here is what I think that your audience cares about, right? So suppose you have a brand with millions of consumers or potential consumers, right? Let's say so you have, in principle, millions of people that can buy your product. What you really want to know is that if I, let's say, increase or decrease my spend on the medium with 10% or if I change my creative message, if I do something with how much will my sales incrementally increase and is that worth the cost? So, so. And that I can pinpoint with 95% confidence. And so I'm. This is very important to ask the right question. The question is not in attribution do I know for sure for that Gabriella bought because of the ad? The question that is relevant is do I know with a good degree of certainty that me spending more or something or me cutting something because we have to do that was worth the effort that I put in?

Right. Well, right, because that's, that's what you really care about. It's. It's happening. Wanted to go back to understanding channels and creativity. One of the things that, and especially with B2B businesses, content marketing. That's the thing, everybody's content marketing thought leadership. How should content marketing be slotted in and can it be optimized?

Wow. So in content marketing I find there's a lot of, what do you call that? Old wine or new wine and old bags? No, old wine, new bags. That's the one. And so this is going back to, you know, the purpose, as you mentioned, why consumers access a website. So in one of my previous papers, this is in the best International Journal of Marketing, International Journal of Research and Marketing. We looked at five years ago at, at, at the brand that had about 11 different online channels and they wanted us to optimize it. And we said to each other, wow, I mean it's 2016 now. How on earth can we still be relevant in 2023? We have to put some theoretical framework around it. And we came up with content integrated and content separated distinction which is very close to what people now call content marketing. So very br. So, so content integrated is that your ad fits in the purpose why the consumer accesses the website. So if I am a shoe manufacturer and I see you accessing hobby sites for shoes, then my, my ad is content integrated, right? In, in content marketing, if people are reading a news item and. And your content fits in with that one, then it's content integrated. And then as a contrast, if I'm going to a website to connect with friends and family and I get an ad for your product that has nothing to do with friends and family, that's content separated. So as as an example of the distinction. And so and so I think, and so in our research we find that these content separated ads are great to get people to your website, but they don't buy. So it's the content integrated ads that are three times more effective to actually, you know, have customers that convert to purchase and so I, I spend a lot of time advising companies to, to ensure that the ad is relevant for the purp. Consumers accessing it. So content marketing, I think is a later term for really understanding that you want to put the right content in front of the consumer when she or he is ready to be exposed to it. And that's typically when they're browsing a website that is related.

I see, I see. Now, switching from the mix, I want to talk about frequency and timing for marketing campaigns and messages and determining what it should be. Are there any universal rules or ways to approach that?

That's a great question. There used to be universal rules back in the days of only offline and TV advertising. We had, we had this idea that three exposures was kind of a minimum for a new consumer to really become familiar and interested in your brand. I have several companies that use the seven exposure rule that say hey, in, in our category. Right. And so the, the, the, the bigger the budget item is, the more involvement like a car versus like a new toothpaste. The old wisdom is that you have to expose a consumer several times. And then one of the companies I was working for, a big electronics retailer, was like, well, I want to, to reach Gabriela seven times times. And sometimes she's not paying attention, so let's reach her 14 times, double that as a rule of thumb, right. And see what happens. Now if you have consumers which are much more goal oriented, right. So in the old days, tv, radio, print, you were exposed passively, right. The difference is online, you're typically what they call leaning forward. You're either really goal oriented, you're actually really looking for a product that let's say you want to buy on Amazon, are you looking for something else, a news item, but you're typically paying a lot of attention to what's happening, happening on your laptop screen or your phone screen because you're actually searching for something. So in this world, a very interesting research question is, well, do you now have to expose consumers less before they buy? And so I haven't seen any good research to give the final answer to that one. I have seen a lot of companies limiting the frequency of exposure for fear of annoying consumers. But the data that I have seen is that even up to 20 exposures, there's no evidence of that, that people actually are reducing their purchase likelihood. So I do see.

That's interesting. That, that really is interesting, huh?

And that that has to do. And the research I have seen is from really content integrated marketing. Right. So of course, if you if you send 5 emails per day to a consumer, there can be a negative effect.

But that's, yeah, that's all, it's a bit extreme.

So I have seen no evidence of, of, of, of people getting very annoyed with it. What you do see, of course right away in frequency is diminishing return months. So if you look just at ROI at the efficiency, your first exposure, so let's say I make up a Powell's bank, right, And I try to convince you to put your mortgage there, your first exposure to my Powell's bank advertising has a bigger effect than the second has a bigger effect than the third. So in terms of roi, the first exposure is the most effective. But of course, going back to the goals, if your goal is to get, I don't know, 100,000 customers, then you typically, specifically for a high involvement product like a bank, you typically do want to expose people several times. And some people will try you out within two exposures. Some people need 10 exposures in different medium even. But, but you typically, if you have such goals, you want to, you want to increase frequency of exposure. The opposite of that, as you probably know, is my good friend Byron Sharp at the Aaronberg Baas Institute. And so his argument is that because the ROI is the best at the first exposure, you should just maximize risk reach. So given the fact that there's diminishing returns to frequency of exposure, he says, well, if you have any budget, you should just spend it all in reaching as many consumers just once. Now my problem with that very simple rule is that yes, there's diminishing returns in frequency, but the assumption is there's no diminishing returns in reach. So the assumption that people are making is that suppose I have select a million consumers that are really, really the target for my brand. The assumption is if I just increase reach and reach the next million, the next million, they have the same purchase likelihood as the first million. And that I disagree with. So I think it's something that every brand should test themselves with data how their budget is best spent and whether which frequency of exposure is best and whether they should be broader, targeted or more narrowly targeted.

Fascinating. Well, thank you so much for taking the time to speak with me and share your thoughts on these things. It's really interesting stuff and I'm sure I'll be connecting with you again to talk about more stuff.

Thank you very much, Gabrielle. It was a pleasure.

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