Transcript Slide 1

INTEGRATED MARKETING COMMUNICATIONS
AT THE MARKETING-SALES INTERFACE: A
CASE OF NATURE vs. NURTURE
Timothy M. Smith
University of Minnesota
INTEGRATING MARKETING COMMUNICATIONS
THE COMMUNICATIONS MIX
 Advertising
 Trade Promotions
 Sponsorships
 Direct Mail
 Telemarketing
 Price
 Word-of-Mouth
 Distribution/Marketing
Channels
 Packaging
 Personal Selling
 Electronic Media
 Public Relations
© 2006 Smith, Gopalakrishna, Chatterjee
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BUYING PHASES AND COMMUNICATION
MEASURES
New Customer/
Prospect Buying Phase
(Robinson, Faris & Wind, 1967)
Key Seller
Communications Objectives & Tasks
(Churchill, Ford, Walker, 1997)
Need recognition
Objectives
General Awareness
Task
Prospecting
Developing product
Specifications
Feature
comprehension
Opening
Relationship,
Qualifying prospect
Search and qualification
Of suppliers
Lead generation
Qualifying prospect
Evaluation
Performance
comprehension
Presenting sales
message
Supplier selection
Negotiation of
terms
Closing sale
Reassurance
Account Service
Purchase feedback
© 2006 Smith, Gopalakrishna, Chatterjee
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SELLER COMMUNICATIONS AND
EFFECTIVENESS
Message Delivery
Relative Comm. Effectiveness
(Kotler, 1997)
(Schultz 1993, Rogers 1995)
Low
High
Awareness
Uni-Directional
Knowledge/
Interest
Evaluation/
Preference
Trial/
Conviction
Adoption
Non-Personal
© 2006 Smith, Gopalakrishna, Chatterjee
Personal
4
TRADITIONAL MARCOM VS. IMC
FRAMEWORKS
Traditional
 Message delivery as a
starting point
 One-way communication
 Attitudinal measures of
success (ad recall, brand
associations, etc.)
 Additive Communications
© 2006 Smith, Gopalakrishna, Chatterjee
IMC
 Customer as a starting
point (dynamic
segmentation)
 Two-way communication
 Behavior measures of
success (purchases, partial
transactions, etc.)
 Interactive
Communications
5
Competing Materials – Steel
© 2006 Smith, Gopalakrishna, Chatterjee
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THE RESPONSE…
The Wood Promotion Network is a coalition of companies
in the wood and wood products industry that have joined
together to provide information and news about wood and
its use in North America.
The Be Constructive campaign, created by the Wood
Promotion Network, provides information and resources to
homeowners and professionals about the benefits of using
wood as a building material. Wood offers unsurpassed
performance as a building material and is our only
renewable and sustainable resource.
© 2006 Smith, Gopalakrishna, Chatterjee
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IMC at work…
The Wood Promotion Network (WPN) officially launched the largest North American woodproducts communications campaign at the recent NAHB International Builders’ Show in
Atlanta. The "BE CONSTRUCTIVE – WOOD" theme reached masses of builders, retailers, and
consumers who attended the show. As soon as visitors entered the doors of the Georgia World
Congress Center, they were greeted by BE CONSTRUCTIVE crews dressed in jumpsuits and
hardhats. The crew members handed out info packets, t-shirts, stickers, 2x4 blocks, and
buttons as well as copies of the January issue of Builder magazine, which contained a twopage BE CONSTRUCTIVE ad. While these efforts were underway, other WPN members were
busy implementing planned events, including a live satellite media tour from the New
American Home, conducted by Mr. Fix-It, Lou Manfredini, from NBC’s Today Show.
On the streets of Atlanta, campaign billboards were put up during the show. Similar billboards
are also being placed in central locations across the U.S. and Canada. As part of the "Homes for
Hopeful Hounds" project, campaign crews teamed up with the Atlanta Boys and Girls Club to
build wooden dog houses that were donated to the Atlanta Humane Society. Both FOX and
CBS-TV affiliates in Atlanta covered the story. Numerous other events took place too, such as
an exclusive editors briefing with Hanley-Wood Publishing, a full-length feature article in the
February 9 edition of the Wall Street Journal, and the debut of www.beconstructive.com, a
website that connects builders and professionals, offering news, industry information, and
business support resources. The industry-funded WPN initiative will help secure and expand
wood markets and increase consumer confidence about forest abundance and sustainability.
© 2006 Smith, Gopalakrishna, Chatterjee
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Competing Materials – Plastic
The ads focus mainly on
plastics' health, safety and
lifestyle benefits. While
they have proven highly
effective in raising the
industry's overall
favorability, they are only
now starting to turn the
corner to focus on plastics'
environmental benefits.
© 2006 Smith, Gopalakrishna, Chatterjee
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The IP Milk Carton Case
 In 1970, 80% of milk sold in paperboard packaging.
By 1980, paperboard share down to 40% and falling.
Problem:
 Direct customers – dairy manufacturers wanted less
product (investments in blow-molding machinery).
 Customers’ customer (supermarkets) didn’t want the
product (harder to stock without handles, in less than
gallon containers, etc.)
 End customer preferred plastic.
© 2006 Smith, Gopalakrishna, Chatterjee
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The IP Milk Carton Case
Solution:
 Step 1: Cross functional task force including ad
agency representation.
 Step 2: Identification of Leverage point (the
customer).
 Step 3: Research (market and product development).
© 2006 Smith, Gopalakrishna, Chatterjee
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The IP Milk Carton Case
Enter IMC:
 Target audiences were multiple and diverse
 Customers wanted to keep children healthy and to get value.
 Daries wanted to keep supermarkets happy and costs down.
 Supermarkets wanted to keep regular customers in their
stores and away from convenience stores.
 Indirect audiences




FDA
Politicians
Dairy and Farm associations concerned about image.
Wall Street
 Necessary to use multiple media
 Not an advertising problem per se (message too important,
difficult message, credibility).
 Complementary messages to different constituencies
 Objects both brand awareness and trial.
© 2006 Smith, Gopalakrishna, Chatterjee
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The IP Milk Carton Case
 Consumer nutrition program
 Consumer advertising
 Trade Advertising (Co-op Ads and messages)
 Allowances/coupons
 POP – shelf talkers, print on cartons, and bags
 Press – Food news
© 2006 Smith, Gopalakrishna, Chatterjee
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IP Solutions Campaign
My Dad Works For
International
Paper, and…
•Chocolate Milk
•Global
© 2006 Smith, Gopalakrishna, Chatterjee
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© 2006 Smith, Gopalakrishna, Chatterjee
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RFM Analysis
 Tool used to measure the value of accounts without
considering outside factors.
 Recency - Time since last purchase
 Frequency - number of transactions in period
 Monetary – Revenue/gross margin/contribution in period
 Higher RFM = Higher lifetime value
© 2006 Smith, Gopalakrishna, Chatterjee
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RFM Analysis
Recency
Days
since last
sale
Hoover
Frequency
Score
# of
orders
(Period)
6
3
Weyco
6
Amerhart
Monetary
Score
Gross
Margin
(Period)
Score
40
3
14,660
3
3
45
3
15,323
3
20
2
26
3
11,733
3
GP Marietta
6
3
7
2
7,160
3
Central Bldrs. Supply
8
3
2
1
2,166
2
Builders 1st Source
13
2
5
2
1,593
1
Menard’s
124
1
3
1
2,218
2
Torborgs
69
1
4
1
2,276
2
Sherwood Lbr.
133
1
1
1
934
1
Accounts
© 2006 Smith, Gopalakrishna, Chatterjee
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RFM Analysis
Top Customer
Recency
Account
Days
since last
sale
Hoover
Frequency
Score
# of
orders
(Period)
6
3
Weyco
6
Amerhart
Monetary
Score
Gross
Margin
(Period)
Score
40
3
14,660
3
3
45
3
15,323
3
20
2
26
3
11,733
3
GP Marietta
6
3
7
2
7,160
3
Central Bldrs. Supply
8
3
2
1
2,166
2
Builders 1st Source
13
2
5
2
1,593
1
Menard’s
124
1
3
1
2,218
2
Torborgs
69
1
4
1
2,276
2
Sherwood Lbr.
133
1
1
1
934
1
© 2006 Smith, Gopalakrishna, Chatterjee
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RFM Analysis
Forgotten Customer (catch’em if you can!)
Recency
Account
Days
since last
sale
Hoover
Frequency
Score
# of
orders
(Period)
6
3
Weyco
6
Amerhart
Monetary
Score
Gross
Margin
(Period)
Score
40
3
14,660
3
3
45
3
15,323
3
20
2
26
3
11,733
3
GP Marietta
6
3
7
2
7,160
3
Central Bldrs. Supply
8
3
2
1
2,166
2
Builders 1st Source
13
2
5
2
1,593
1
Menard’s
124
1
3
1
2,218
2
Torborgs
69
1
4
1
2,276
2
Sherwood Lbr.
133
1
1
1
934
1
© 2006 Smith, Gopalakrishna, Chatterjee
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RFM Analysis
The Price Hopper
Recency
Account
Days
since last
sale
Hoover
Frequency
Score
# of
orders
(Period)
6
3
Weyco
6
Amerhart
Monetary
Score
Gross
Margin
(Period)
Score
40
3
14,660
3
3
45
3
15,323
3
20
2
26
3
11,733
3
GP Marietta
6
3
7
2
7,160
3
Central Bldrs. Supply
8
3
2
1
2,166
2
Builders 1st Source
13
2
5
2
1,593
1
Menard’s
124
1
3
1
2,218
2
Torborgs
69
1
4
1
2,276
2
Sherwood Lbr.
133
1
1
1
934
1
© 2006 Smith, Gopalakrishna, Chatterjee
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RFM Analysis
Prospect/Fired Customer
Recency
Account
Days
since last
sale
Hoover
Frequency
Score
# of
orders
(Period)
6
3
Weyco
6
Amerhart
Monetary
Score
Gross
Margin
(Period)
Score
40
3
14,660
3
3
45
3
15,323
3
20
2
26
3
11,733
3
GP Marietta
6
3
7
2
7,160
3
Central Bldrs. Supply
8
3
2
1
2,166
2
Builders 1st Source
13
2
5
2
1,593
1
Menard’s
124
1
3
1
2,218
2
Torborgs
69
1
4
1
2,276
2
Sherwood Lbr.
133
1
1
1
934
1
© 2006 Smith, Gopalakrishna, Chatterjee
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RFM Analysis
 Provides an easy (yet, surprisingly effective) way to separate
your best customers from your lousy ones.
 Provides “organizational” knowledge about customers.
 Provides a common benchmark for the comparison of
customers.
 Provides a series of simple measures that can be tracked over
time.
Specifically,
 Helped management re-allocate customers equitably in a
territory realignment.
 Helped communicate to sales reps. acquiring the new
accounts as to their potential.
 Shed some light on the value of customers to the firm/sales
person – prior to this tool, employees perceptions of the
accounts were often over or under valued.
© 2006 Smith, Gopalakrishna, Chatterjee
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Operations….
 Companies spend heavily communicating with customers/prospects;
 Little definitive knowledge on practical issues:
 What mix of communication elements to employ
 Appropriate levels of expenditure and timing for those elements
 Particular area of interest: the marketing/sales interface.
 Sales calls are expensive (up to $400 per sales call).
 Up to 70% of leads generated by Marketing are ignored by the sales
force (Watkins 2003).
 Possible synergies across lead-generating media sources (advertising,
direct mail, events).
 Leverage ability of sales force to convert leads to sales.
 IMC framework useful in capturing complementary/synergistic
effects (Smith et al. 2004, Naik and Raman 2003).
 Different communication elements, properly deployed, can enhance the
impact of other media (Gopalakrishna and Chatterjee 1992).
© 2006 Smith, Gopalakrishna, Chatterjee
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CONTEXT & OBSERVED PHENOMENA
 A large home improvement retailer in the United
States
 Lead-creating media sources (with time-varying
expenditures): (1) radio, (2) newspapers, (3) direct
mail, (4) events
 Call center handles incoming leads, attempts to turn
them into sales appointments
 Sale is not complete without an in-house sales visit
 Particularly in the high season, long wait times for
appointments results in lower likelihood of conversion
to sales appointment and to an eventual order
© 2006 Smith, Gopalakrishna, Chatterjee
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LEAD VOLUME AND SERVICABILITY
WEEKLY LEADS AND AVERAGE TIME TO SERVICE: Market A, 2002 & 2003
700
30
600
25
500
400
15
300
# of Days
# of Leads
20
10
200
5
Num ber of Leads
© 2006 Smith, Gopalakrishna, Chatterjee
12/30/03
10/30/03
8/30/03
6/30/03
4/30/03
2/28/03
12/30/02
10/30/02
8/30/02
6/30/02
4/30/02
2/28/02
0
12/30/01
100
0
Average Tim e to Service Leads
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RESEARCH QUESTIONS
1. Which elements of the mix are more effective than
others in generating leads?
2. What happens to lead volume if allocations change?
Timing of expenditures changes?
3. What is the impact of sales call timing on the
likelihood of conversion of a prospect into a
customer? Does this vary by lead source?
4. How does seasonality affect the approach to making
cost-effective communications decisions?
5. At a given sales force capacity, what level of media
expenditure and allocation improves profitability?
Sales force effectiveness?
© 2006 Smith, Gopalakrishna, Chatterjee
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MODEL: Three Stage Process
Sales process as sequence of stages marked by concrete outcomes:
STAGE
LEAD
GENERATION
CONVERSION
CLOSURE
(LEAD TO
APPOINTMENT)
(APPOINTMENT TO
SALES ORDER)
No Call
CONSUMER
DECISION
Call
(Lead)
No Appt.
No Order
Appt.
Order
• Order Size
MKT. COMM.
FIRM
ACTION
•
•
•
•
Direct Mail
Radio
Newspaper
Exhibition
© 2006 Smith, Gopalakrishna, Chatterjee
APPOINT.
SCHEDULING
(Call Center)
• Sales capacity
constraint
SALES VISIT
• Salesperson
performance
measure
27
RESULTS: Stage 1 – Lead Generation
 To illustrate, consider a scenario in the high
season where the firm spends a budget of
$30,000.
Scenario #1
Leads
Scenario #2
Leads
Direct Mail
$6,000
49
$2,000
43
Newspaper Ads.
$8,000
42
$5,000
48
Radio Ads.
$1,000
1
$8,000
2
Exhibition
15,000
171
$15,000
231
30,000
263
30,000
324
Total
 Increased radio expenditure complements high levels of
exhibition spending, also helps newspaper response.
© 2006 Smith, Gopalakrishna, Chatterjee
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RESULTS: Stage 2 – Appoint. Conv. (R2=.96)
Significant negative early and late season effects
Significant differences among source dummies
Significant and different lag coefficients
Number of Appointments (Leads = 30)



30
Newspaper Advertising leads convert
at lower rate than Telephone
Directories after 7 days.
28
Worse than direct mail after
13 days.
26
24
22
20
18
2 3 4
5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
Time-Lag
Direct Mail
Newspaper Advertising
Directories
Referrals
© 2006 Smith, Gopalakrishna, Chatterjee
Radio Advertising
29
RESULTS: Stage 3a – Order Conv. (R2=.15)




Significant
Significant
Significant
Significant
negative early and late season effects
sales representative effect
differences among source dummies
and different lag coefficients (Exhibitions, Referral Programs, Repeat Cust.)
Predicted Probability of Sales Conversion
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
1
3
5
7
9
11
13
15
17
19
21
23
25
27
Capacity-Driven Lag (days)
Direct Mail
© 2006 Smith, Gopalakrishna, Chatterjee
Exhibition
Repeat Customer
Referral Programs
30
RESULTS: Stage 3b – Order Size (R2=.45)
 Significantly influenced by potential order size
captured at the call center.
 Significant sales representative effect
 Significant differences between lead sources:
 Referral programs and retail showrooms yield significantly
larger orders than other sources
 Repeat customers provide significantly small orders
 Customers buying products for older homes tend to
place smaller orders and those with higher incomes
tend to place higher orders.
© 2006 Smith, Gopalakrishna, Chatterjee
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PUTTING IT ALL TOGETHER…

Conduct simulations to explore estimated outcomes
based on marketing communications spending:

Two broad strategies compared to actual budget
allocations:
1. Leverage synergies between communications:


Shifts in timing – overall budget and allocations between
media held constant
Shifts in timing and allocations – overall budget held
constant
2. Reduce variation in lag

Shifts in timing, allocations, and budget
© 2006 Smith, Gopalakrishna, Chatterjee
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SIMULATIONS
Simulation Stages
Communication Budget
Direct Mail
Newspaper Advertising
Radio Advertising
Exhibitions
Total
2004 HIR Budget
Allocation
Scenario #1
Media Timing
Lead Focus
Scenario #2
Media
Allocation
Lead Focus
Scenario #3
Media
Reduction
Sales Focus
$821,684
$958,991
$206,040
$141,957
$2,128,672
$821,684
$958,991
$206,040
$141,957
$2,128,672
$779,354
$914,321
$287,040
$147,957
$2,128,672
$492,029
$1,013,931
$269,079
$136,732
$1,911,771
Leads (Stage 1)
9,752
10,643
10,994
9,674
Appointments (Stage 2)
7,710
8,258
8,499
7,678
Orders (Stage 3a)
2,683
2,823
2,879
2700
$20,832,556
$4,121,095
$21,935,446
$4,451,962
$22,389,750
$4,588,253
$20,951,843
$4,373,782
8.3
3.70
2.0  18.0
8.9
3.60
2.0  17.9
9.2
3.73
2.0 – 19.7
8.2
2.73
2.0 – 12.7
Total Sales (Stage 3b)
Total Profit
Delay Statistics:
Mean
Stand. Dev.
Range
© 2006 Smith, Gopalakrishna, Chatterjee
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Conclusions and Extensions
 We have shown that superior business outcomes can
result if marketing actions are coordinated with sales
force activities.
 Dollar sales and Profit are impacted by:
 the size of the marketing communications budget
 the relative allocation of the budget across the mix of
communication elements
 the timing of communications.
© 2006 Smith, Gopalakrishna, Chatterjee
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MODEL: Three Stage Process
Sales process as a sequence of stages marked by concrete outcomes
LEAD
GENERATION
STAGE
(Media Effectiveness)
No Call
CONSUMER
DECISION
NURTURING
CLOSURE
(Dynamic
Segmentation)
(Effort to sales order)
Attrition
Call
(Lead)
Progress
FIRM
ACTION
No Order
Order
• Order Size
MKT. COMM.
STRATEGIC TOUCH
PERSONAL SELLING
(Marketing Ownership)
(Marketing-Sales integration)
(Sales Org. Ownership)
• Combined media and
personal comm.
• Individual level
response
• Selling exposure
and sales mgmt.
• Individual level
response
• Media Comm.
• Aggregate level
response
© 2006 Smith, Gopalakrishna, Chatterjee
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Purchase Readiness Index
Stage 2: Nurturing identified opportunities
1
0
Time

Modeling issues to consider:
 Magnitude of increase in PRI influenced by source of information,
prior communications mix, most recent lag, cumulative lag.
 How does this change if content (functional
performance/environmental performance) is thought to influence
PRI? May influence the “starting point” based on stage 1 lead
generation; may increase/decrease the rise associated with
communication; may increase/decrease the decay; these effects
may be moderated by a timing effect (a ramping up and ramping
down around some empirically derived inflection point?)
© 2006 Smith, Gopalakrishna, Chatterjee
36