Featuring Professor Doctor Koen Pauwels
Koen Pauwels is Distinguished Professor of Marketing at Northeastern University and co-director of its Digital, Analytics, Technology and Automation (DATA) Initiative.
This episode is littered with stories and useful anecdotes, all backed up with data that are useful for businesses of all shapes and sizes.
In this episode we discuss:
- The need for marketing academic programmes to bring in reading from more than just a handful of countries.
- Brand love in the UK v Brazil… why countries have different buying processes and what that means for marketers
- *That* Freakonomics podcast about advertising effectiveness – what they got right and what they got wrong
- Why you should be cautious with extrapolation and test yourself
- eBay and the power of brand in paid search
- eBay and how not to do digital advertising
- Why the type of site your ads appear on matters – content integrated v content separated
- Does retargeting actually work?
- Advertising metrics – how to look at them to help your business
- Building brands to increase your pricing power
- Long and short term effects of advertising
- Should all marketing metrics be tracked back to sales?
- Lessons for small and medium sized business from global effectiveness studies
- Should you spend more or less on advertising during a recession? (We’ve got one coming, so it’s worth listening to)
- Why there’s no such thing as the perfect amount of data
- What B2C marketing and B2B marketing can teach each other
- Using marketing to help roll out the COVID vaccination programme
- The value of marketing education for senior teams
Book Recommendations
His books include ‘Modeling Markets’ and ‘Advanced Methods for Modeling Markets’ for researchers and “It’s Not the Size of the Data – It’s How You Use It: Smarter Marketing with Analytics and Dashboards” for managers (http://notsizedata.com/).
Contagious: How to Build Word of Mouth in the Digital Age by Jonah Berger
Beloved Brands: The playbook for how to build a brand your consumers will love by Graham Robertson
Give and Take: A Revolutionary Approach to Success by Adam Grant
Empirical Generalizations about Marketing Impact by Mike Hanssens
The Smart Marketing Book by Dan White
Koen Pauwels
Koen received his Ph.D. from UCLA, where he was chosen “Top 100 Inspirational Alumnus” out of 37,000 graduates. After getting tenure at the Tuck School of Business at Dartmouth (2001-2008), Koen helped build the startup Ozyegin University in Istanbul (2008-2017) and was visiting scholar at Harvard Business School in 2016.
Named a worldwide top 2% scientist in the 2019 Stanford study, Prof Pauwels published over 75 articles on marketing effectiveness, awarded by both managers (Google, WPP and Syntec awards), academics (O’Dell, Davidson, and Varadarajan awards) and both (the 2020 MarketingEdge award for most promising research, and the 2018 Gary Lilien ISMS-MSI-EMAC Practice Prize).
His research received over 11,000 citations (h-index of 38) and is available at marketingandmetrics.com. Prof Pauwels is Senior Editor for the Journal of Marketing and the International Journal of Research in Marketing, and Vice President of Practice at the INFORMS Association for Marketing Science. Koen is President-Elect of the American Marketing Association, serves on the Digital Future Council and House of Marketing’s Board, and on the Editorial Boards of Journal of Retailing and Journal of Interactive Marketing.
Koen consulted large and small companies across 3 continents, including Amazon, GfK, Kayak, Marks & Spencer, Nissan, Sony, Suffolk Construction, Tetrapak, Unilever and Vistaprint. Typical projects include evaluating and improving marketing effectiveness, designing and interpreting field experiments, integrating online with offline marketing and metrics, increasing long-term brand equity and assessing and renovating business models. He blogs weekly at Analytics Dashboard.
Find Koen here:
- Blog: https://analyticdashboards.wordpress.com/
- All research articles: http://marketingandmetrics.com/
- Book: notsizedata.com
- Twitter: https://twitter.com/profpauwels
Andi Jarvis
If you have any questions or want to talk about anything that was discussed in the show, the best place to get me is on Twitter or LinkedIn.
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Make sure you subscribe to get the podcast every fortnight and if you enjoyed the show, please give it a 5* rating.
Andi Jarvis, Eximo Marketing.
Interview Transcription
This transcript has been done automagically using Happy Scribe and hasn’t been checked by a real person, so there may be some hilarious mistakes where the AI can’t work out our accents – I’m sure they’re trained on just the American accent.
I’m doing great. How are you?
I’m not bad at all. Thank you very much for asking. So let’s get straight into this. Tell me, how did you end up from Belgium playing from working in Boston where you are now?
Well, that’s a that’s a very short question for the very long answer. But I’ll tell you, on the stage is most relevant for your audience. Right. So I think my first taste of wonderful for Lent was actually I, I, I went to my Erasmus exchange program to go away. So I was for six months actually in beautiful islands when I was about 19 and I was like, oh my God, this is so fantastic. People are reading for the Greek.
It was it was so exciting. It’s also my first experience with marketing so so I had my very first course in marketing, didn’t go away to buy a fantastic guy who came from the industry and then went on to become a professor. And so my very first marketing was actually about the psychology of pricing a reference price. So I really I really cut it there. And then after graduating from my undergraduate commercial engineering and then a Masters in marketing, I first looked in companies, the web, and then I was like, well, I really want to study this more broadly.
And I then applied to UCLA for my Ph.D. So I literally booked a one way ticket. This is a ninety seven straight from my little town in Belgium to L.A. So that was actually quite a shock, but it was right in the beginning of the end of this quest. So so every month somebody was quitting the company and said, come on, you have to join me. And I was like, no, I’m here for my first, but of course, inspired a lot of my research and then further development.
And then after UCLA, I went to business school in New Hampshire, Dartmouth coach, absolutely fantastic. Time to go teaching with brands who was like learning a lot about about how marketing works in the real world, which is really kind of the might be the I really wanted to have an impact and studied a lot of consultancy and and wonderful time with my students too. And then I had this opportunity to jump started university. So we picked up local banks, so we moved all the way to Istanbul.
So so that was just kind of, you know, in the capital of the world, as they say. And so my exposure to emerging markets, currency fluctuations, things get built very quickly. But they also can get how would you call that? Would it not be there was that things also got that so very quickly for things to outside of your control of the Belgium was too boring and Turkey was too exciting. We decided to come back to the US.
We always love New England and we wanted to be in a big city. So so Boston was the choice. And of course, Northeastern University is the best universities in the Northeast. That’s why it’s built that way. And so we’re having a fantastic time here for the last three months to three years.
So I really love the mix you’ve got there of academia and consulting, but also that you’ve got across different continents, too. So I must give you a really wide world view. I think I know from my time studying here in the U.K. in an island that one of the things that really concerned me or irritated me was how limited some of the reading was. I’m a lots of reading from North America, US, Canada, Britain, Ireland, Australia, a little bit as well.
That was it. I think the only thing that I ever read was on a reading list that was not from there was from the Uppsala University about internationalization. So where’s all the reading from India? What about China? What about Turkey? What about these developing or supposedly developing nations? I think we need more of that as part of our curriculum.
I completely agree. And maybe one thing I really learned in Turkey was that so my MBA students from the start, right. So they were big companies like like Unilever, also very good local companies such as Vestel, which produces actually most of the white goods, refrigerators and washing machines you actually use in the UK. They just slap a different brand on it. But what they learned is that they were very upset that all of the cases were from the US or the UK and they didn’t specifically the Turkish case, even though I did find them and give them they were happy with cases from Latin America, with cases from other places in Asia, because they just felt that it should be a cultural fit.
And so you don’t have to have a case of a specific country. But if you have a few cases with the countries where the consumer culture is more like them, are the company culture is more like them, they will be so much happier and the such a whole world outside of the Anglo-Saxon kind of world style and the consumer culture that we typically teach now.
I mean, I once spent a month in India travelling, so I was supposed to be on holiday, but my mind always seemed to be work rather than switching off. I always found a really fascinating place. Certainly from a marketer’s perspective, I think there’s maybe a couple of hundred official languages there. And yes, everyone speaks English, everyone speaks Hindi, but looking to localize products and looking to sell products in maybe Mumbai, which is very different. So I’m Ritze, which is different to Chennai and Trivandrum in the South.
It always felt like a real challenge to me.
And I wondered how markets cope with that kind of politics, I. Was this comparing how grant strength works differently in emerging versus mature markets, and that was actually the you in Brazil at the time, but later on in Thailand. And so one of the things we found is that this whole brand love concept, that your brand is to be mysterious and sensual, that completely did not work in the emerging markets that we studied. So what we found and we’ll get to that in a moment.
Right. But that’s that’s something like Brand when you ask people how much they love the brands. Once you get that in the UK, you get a lot of people to buy your brand. And this is one of the other ones, by the way. So it’s something that is pretty low tech. If I get you to love my new brand, then you go out and buy it and give it a try, like, you know, whether it’s Duberman or something else.
Once I convinced you that you left, you’re probably right. Well, you saw the emerging market is that brand love was not really powerful, but was really key was consideration. So so when you were advertising in new brands, in an emerging markets that people kind of they sold. Yes. They didn’t look them out as much as British people did, fortunately, then they did. But they first have to ask family and friends, is this a brand that that I should be using?
So there was so much more of this collective forming of the mind about, hey, this is a brand that I would do that wearing outside the house. It would reflect well on my reputation and only then basically. So you have a huge impact, brand consideration on sales, key implications for marketing is that in the UK, in this market, you have to get a lot of frequency. You have to touch the person lots of times before they register your ads.
But then they will. Back in Brazil, you have you have to focus on which you had to reach a lot of people that then talk to each other and say, yeah, this is a pretty good brand that we should adopt. And so the kind of the implications for marketers are absolutely profound cultural differences. Absolutely. That’s the that’s the sort of thing I wish we had when I was studying for my Masters and a little bit more background, a bit more international reading.
But let’s come back to academia maybe later on. What I want to talk to you about is why we’ve invited you here today. Was the advertising useful? Is it effective recently? You may be aware there’s a link in the show, notes to the Freakonomics podcast. It’s a well respected podcast. It’s been going for a long, long time. And fairly recently, they released a two parter, basically questioning does advertising work? They did one part on you might call traditional advertising and one on digital advertising.
Now, when I was listening to both of them, I was sent them by a number of people and what little hair I have. I was pulling out because I just couldn’t quite really take to the way that they tackled this problem. What was it that didn’t like? First of all, I thought it was some bad extrapolation going on. I thought some of the stuff they use may be small sample sizes or data that maybe is only one industry specific and then extrapolated across the whole industry and said advertising doesn’t work.
So that’s a spoiler for that. Freakonomics was advertising didn’t work. But I also thought that what they did was it was a bit of a lopsided argument. They had academics coming up with academic research, and that’s the counterpoint of those appetising work that got Keith. We don’t. So tell us, if you had a few advertising anecdotes, it felt a bit like marketers brought a knife to a gunfight. Unfortunately, I’ve seen you talking about this on Langtang, which is one of the reasons why I wanted you to come on.
So what’s your view on the Freakonomics podcast? Do you have a counterpoint? Do you support what the. Tell us what your view is.
I was also pulling my hair out specifically with the first podcast. I like the second one most and the let me get to it. Right. So in terms of extrapolation, let me just tell you what I like. And I start with the second Fosca, what I really liked. And so Steve Stabilities, which is kind of key in the second post because he’s a very respected and I like him very much as a colleague. So what I like about this is that he says you have to test for yourself.
I completely agree with that. In the marketing world, we take too much of the tests just because something works for one firm or didn’t work for one firm and only it won’t work for you. And I’ll come back in later on. Right. How does this work for small and medium sized businesses who don’t have the resources, do a lot of testing themselves and see that that’s fine. But first of all, I agree with this. That’s for yourself.
And I’ll give you the example of extrapolation of the second Bosco’s. So so, Steve, that is very nicely describes a very thoughtful, detailed look for eBay. Right. So so he got hired by eBay. He was asked the kind of that’s our consultancy firm that things then said, hey, how about I try to do it? They said no, but then they shut down strip search for a month. And it was just to show, I think being that day, that that meant that they could do it.
And so you had this wonderful opportunity to study what happens with eBay does. And so you and your readers know the story based on virtually no declines in their revenue or even visits to their websites, and of course, it’s because when people don’t see the search at click on the organic search for eBay.
And so, I mean, I could have thought that from the beginning before that the research is interesting to show. But here is the important point. When that study came out, it was certainly generalized to all of us. So the headline was played, Such Doesn’t Work. And I’m like, oh, you guys crazy? And why is this crazy?
TV is an extremely well known company, even extremely well. And by the way, so they look specifically at people already searching for it. Of course, if you’re searching for eBay and then you’re still clicking on the on the search results, you’re just a bit lazy as a consumer and consumers are lazy. So it was very natural for me that eBay would get these clicks anyway. The consumer just has to jump on the same thing for eBay is extremely well known.
The second thing I noticed, and this is me as an academic, is that eBay sells what we call search products. eBay sells products that you can basically tell how good they are before you buy and sell is the right thing to buy. I’m like, OK, so pay search is not very useful for a well-known company selling easily. Evaluate the. How about less the company if you’re an average midsize company. Right. Should you stop your search?
If you’re selling services, should you stop your search? So what I did is I got companies these other three sales and I and I basically did the analysis. And lo and behold, if you’re a lesser known company and if you sell how to evaluate products, including services such as extremely effective for you. So it’s all it depends. Right. So just because something is sold for eBay, you shouldn’t extrapolate and say that doesn’t work for anybody. We analyze other well-known companies.
Besides, we indeed found that kind of search was not as effective as managers thought it would be, but it was not so effective. And I think that’s the key. Yeah, I think look, I said in a podcast in January that eBay is a punch line to a not particularly funny joke in the industry about how not to do digital advertising. It’s just going to be awful. You know, they were talking about the return on advertising spend.
Their role has been for every dollar they spent, they got one dollar falsey. But I know most companies wouldn’t even bother at those rates. They’d be looking for five, six, 10, 15 dollars back for every dollar that they spend. So it is a bit of a masterclass in how not to do digital advertising. But this was extrapolated and I just think it was maybe the wrong data.
The other thing is you also shouldn’t generalize over and over online advertising options. Right? So just because something doesn’t work on Bing, on Google, doesn’t work on Facebook, it doesn’t mean it doesn’t work somewhere else. So if you put your product on the site where people not go to for products, they go to family and friends, you can expect less sales that if you put it on an online retailer, for instance, where people specifically go to explore new products and buy them.
So this is just too big of a generalization. You know, you can it can be. And this is one of the things you can become integrated with content, separate. This is very simple to go and separate. You put your ads on the site where the consumer doesn’t go to do kind of look in your category. Right. So the targeting is an obvious example. So some people think retargeting so will be effective. Right, because you follow the consumer around very quickly.
And so I had looked at something, whether it’s a new video game or a pair of shoes. And then now I’m taking out the sports results and you read I’m not on the sports page to check your shoes or your video game. And of course, you don’t want to upset lots of consumers. And so time after time, we actually find that retargeting is less effective that a lot of managers think of this. However, if you have a site that say it’s a price comparison site for talks, if you’re selling are you or an online retailer, then the consumer is there to learn about the consumer, is there to compare prices, to compare qualities, to look at reviews.
So if you put your ad on that site, it’s just way more effective in terms of the whole kind of floated to purchase. And so some of these things are relatively intuitive. And I believe that many managers feel this instinctively, but then they’re completely overwhelmed with all of these metrics that Google and Facebook give you. Right. Oh, how about your engagement? How about how many minutes people watch the YouTube video? And I’m like, what does that matter if you can?
Yeah. Have you made the link from this metric? Actually, what you care about and so I find that a lot of companies, unfortunately, make the time to do that. And if you do that, if you think, first of all, what do you want as a company? Right. And then you can look at these really available and then you can think, well, is that actually something they can respond to each other? And once you have established that, you won’t be upset so often.
So, for instance, when Facebook says, oops, we made a mistake and your engagement is only half right. This actually happened on YouTube, says, oh, we kind of miscounted the number of minutes people watch your videos. The companies that I consult, they don’t care. I mean, we have made the link with the diplomatic service and their sales. And so that’s when the company says, oh, sorry, we double down to, you know, your influences or whatever.
You know, we know that we have a certain kind of good prediction of what the sales effect will be. And so any kind of issues like like France, which is very important, as you know. Right. Like like like double counting, it doesn’t really matter to your company if you have a very simple system that says, OK, if this metric increases by 10 percent, by how much can I expect my sales? And so that’s that’s what I’ve been doing for both smaller and logical.
And one of the things I do when I’m consulting with clients or working with agencies is I say to them, the first metric on your monthly or weekly report or whatever, it has to have a currency sign in front of it. It’s the top of the pyramid. Right. It’s the point we’re trying to reach. It’s the only thing that people at board level are really interested in. But I think with digital marketers particularly, we caught up with so much data that we’re drowning in it and we start to get focused on some of these data points that don’t matter or some of these data points that make the work we’ve done look good, but lose sight of the fact that we’re actually trying to sell stuff and we’ve got the pyramid upside down.
We’re talking about engagement rates or all sorts of other stuff, but nothing that begins with the currency side.
And I think that’s an issue of getting a quick example. When I joined Doug, he said this was 2008. I was actually hired by by the firm, that there was also the consultancy firm in the US before. And one of the big car companies I won’t name which one that one of the big ones. But they only had about the one percent market share. But they came to me and they say so proudly, we have the number one of the mobile Facebook site in the country.
So Turkey is completely Facebook, I think it’s a dozen 2008. It was the third most people on Facebook in absolute number after the US in the UK. Wow. It’s very big in Turkey and people really use it and so forth. And they spend twenty five percent, twenty five percent of their full marketing budget as the car company on that Facebook page, you do what you do is recommended to us. Right. I mean the whole two thousand people have been saying mostly consumers spend so much time online, you should spend that much of your marketing budget on that.
But he was there, probably didn’t sell any more cars. It never got out of the market. I’m like, OK, without any data tell you have been in this business for decades. What is the number one thing a consumer has to do in 30 before buying a new car? And they told me, test-Drive. Exactly. So have you seen any uptick in your test? And they’re like, no, no, we run the numbers, right?
So that we we we got numbers and we correlate that somebody’s Facebook engagement, that and how many times. And there was absolutely no effect. So I said, look, it doesn’t drive you. It’s not going to increase your sales. And then you can say, why is that? Do we have the wrong audience? Are the people going to be interacting with the site? But they’re not the kind of target audience for us, or is it just that it’s not so important in their buying considerations?
But you need to have some idea about this one and then use their intuition and then see whether whatever you’re doing, actually the needle on that.
I think what that shows is that there’s so many variables, not just in digital advertising, but in all advertising. And if you look at what they said about test drives, you could change the content, you could change the frequency, the images, the the copy. So much she could do to a box of Freakonomics for a second. What they’ve said is we’ve pulled one lever and digital advertising doesn’t work. It’s just a bit strange, but simple.
I think maybe rudimentary is probably the kindest way I can describe it.
It is very rudimentary. And I’ll tell you something else. So this may be a bit of a blasphemy to small companies, but this completely holds for the big of companies that actually talked about in the podcast the adults. Just because advertising doesn’t incrementally increase your sales, it doesn’t mean it doesn’t work. Here is what else advertising does. And this show that might be number one, advertising increases your pricing power. And you can quantify that. We have quantified for the other 50 fast moving consumer goods that if you advertise more, more people consider them prefer you.
You have lower price sensitivity in the market. And pricing power is absolutely key. I mean, if you’re only if you like, two or three percent margins, it’s even more important. But so advertising the juice display sensitive to consumer, that’s number one. Number two, advertising is fantastic to influence. And so if you are a stock market trades, people have shown over and over again that completely controlling for any impact on your sales, your happiness, your profits, investors will put more money in if you success.
Is that irrational? Is that the national I mean, the debate is out, but advertising does wonders in getting investors aware of your of your company and actually pouring money in. And of course, advertising also has effects on getting the best employees to join your firm, business partners and branding opportunities. These things are a the hard but to quantify. But we have hard numbers that advertisers reducing your price sensitivity and increases your stock price, which really kind of matters to the CEO and the CFO by doing so many ways that advertising can be helpful, even if it doesn’t kind of incrementally, you know, physically increase your sales.
And I think that that’s a really key thing, which is also a great Segway into another question to talk about what I feel called the the long and the short of advertising. Advertising has a short term impact. Of course it does. Of course it should do. Where you get competition, bottom of the funnel, you spend X and you get three X five. So one point for X or whatever is that you get back. But there’s also a long term impact of advertising.
And I would posit that I think eBay. Yes, if they switch their ads off, it made no difference immediately. But I would say that they would then go into a longer term decline where over a certain amount of time, because that trust ratings drop, because they fall out of people’s consciousness, the slowly go into a long term decline by switching it off. So what’s your view on the sort of long and short positioning of advertising? Is it a long term game?
If it is a tougher question, I mean, I am an economist by trade, so I like to show things that hard metrics. So so that’s two points of view. And that’s what number one is that there is a long term effect, but it shows somewhere in the short term or at least the short term. Another typical example. Right. So I was involved with the two wonderful colleagues in the American government, basically not for profit, except to get kids to exercise more so and so.
It was a bunch of ads that are based on the like jump rope. And so and so even if we didn’t see kind of any and then we basically had this wonderful survey of the kids and their parents to see how they exercise more. And so and so what we saw, which was really interesting, is, is the advertising exercise in Coolalinga. Some of these kids lived in places where they didn’t have the physical opportunity to exercise. There was no playground that was there was no gym and so forth.
And so and so what we measured. Was the change in perception, and then we followed the long term and so that when they had the opportunity to exercise, for instance, in the summer or whenever, they would increase more. So one key point, and I did the same thing with health metrics. Right. So so if you do something that is more brand building and you don’t expect it to increase your sales in the next three months, I’m looking for another.
I’m looking for something that says, OK, somebody has changed their minds. The consumer has subscribed to a newsletter or something else that you can actually measure this. So and then ultimately, I like to relate that back to sales. And it could be long term. But I want to show specifically for smaller companies that ultimately it does not feel safe. So that’s one that’s my other people and I highly recommend them. Embla Right. That wrote this book marketing and the bottom line is London based.
So he says look you’re building a brand equity and it’s kind of that reservoir of goodwill. But so your marketing feeds into this then with all that wonderful, nice and cool water and then it’s your decision to monetize it or not. Sometimes you just want to read the bills. And so, so in his perspective, these brand health metrics like trust and support, they shouldn’t be then later on be forced to translate also into sales. And I see something for that perspective that maybe things that are so important to you as a company that you say, well, yes, we’re going to exercise and we’re going to see some movement in some metric.
Are we going to maintain trust as an example? But we don’t quite have also to translate into sales in some kind of measurable way.
OK, so how do we make that more useful and usable to, say, small or medium sized companies, maybe companies? Fifteen hundred hundred and fifty people. When the person in charge of the business or the person who’s running the marketing team maybe isn’t a marketer, isn’t an economist, perhaps even a marketing team, don’t have any formal marketing training. So what they’re doing is they’re looking at the data which they’re being given from the platforms, Facebook, Google, whatever, or from their marketing team, which may be focusing on those more policy metrics.
What lessons can non marketers or less experienced marketers take from this?
So first of all, and this is the first chapter in my book, in my baktun, you start with what is the vision for your company and what do you feel you have to accomplish? I’ll give you a typical example. Right. So so that, again, I like to think in two budgets. So so if you believe in the best framework that your product needs, mental and physical availability are maybe in the old school metrics, awareness, retail distribution, whatever you call, then think about what is the biggest blockage right now as a small business owner, you know that you talk to business partners, you talk to retailers trying to convince you to carry your product.
And so, you know this you know in your heart that what you really need right now is increasing consumer where you just have to get more consumers to know about your brand. So then you can go to retailers online and offline and say, well, you really have to carry this. Right. And then once they can, it goes up. Or maybe it’s the opposite. Maybe consumers really know you well and you have a very loyal following. But but the retailers still don’t do it.
So then you have to do much more than push them. Right. You have to get much more into convincing retailers that this is the best thing for them to do. And then what they typically do is that I come in and I just quantify these things and it can be material that it can be with so much publicly available research that shows that on average in your category, if you double sometimes this is how much more sales you can expect. And they are very nice benchmark’s to use.
And so very often we can reason through this with the business experience and some general framework without having any data whatsoever about the company. So and so once we have data that we can say, OK, you should spend more on, let’s say, consumer advertising until it reaches a certain point, and then you should spend more on push the other way around. So it could be this wonderful kind of like give them that right to close the bloody process.
But you have to start somewhere. You have to come up yourself with the metrics that you think mattered most to moments. And then, I mean, somebody like me can help you with the more general framework on how to do this. I’ll give you one example. Right. And this is this is something difficult. So when I came into the Great Recession, what they used to call the Great Recession, that so many companies came to me and said, well, put out today, change my exercise because every single person in my industry says I should have.
Session, every single academic says you should increase, which is to say, like every paper you read has all these anecdotes about leader in the recession at some points and that you should at least maintain you have. And I’m like, well, it’s really simple, right? I mean, the optimum formula is you should spend basically your your your product contribution margin times, your expected sales times, your advertising effectiveness. It’s a very simple form and this is good, but we don’t know what the effect is and we have no data.
I’m like, no problem, no data, no problem. So let’s just talk about how it will change with the recession. Will you increase your contribution much? And they’re like, no, I mean, we can squeeze our suppliers more, but our customers vote even more. So our contribution margin will be expected. Sales will decrease unless you’re selling beer or something that sells well. That’s right. And then how about advertising effectiveness? Will it increase or decrease?
And so we will do that. This is very simply right. So if you double your efforts, how much more sales will you get? This can increase on the three conditions. Number one, because all your competitors. Thank you. You stand out if you break through the clutter with the same. But that’s why it’s market number two. Media agencies will charge you less. So one company I was working with was never able to advertise on TV because the bigger brands always out in the crisis, they could suddenly advertise on TV because the rates had dropped.
Number three, your value proposition, good value for money is especially appealing during a crisis. So so we did that and we said, OK, in the product categories that you’re selling. Right. So the rule is, unless your advertising effectiveness increases, you should cut spending in a recession because your margin and the sales go down unless you have a reasonable expectation that you can be more effective. And so in some places, we increase the filters and so we decrease the we don’t have any data whatsoever, no economic model.
So just thinking through the optimal phone number to come up with a very good solution, it’s just worth pausing for a second so we can give a proper plug for your book.
If you’re listening and you think, well, that sounds interesting and you rewind it and play it again and rewinding it and playing it again, there is a place you can get all of that info in a lot more detail. So tell us about the book that you’ve written, which I think has a little bit more information about the thought process that goes into what you’ve just been telling us.
So as you said, I mean, this is really written up in all different kinds of businesses, including a lot of small and medium sized ones across three continents that I consulted. And I Googled it. It’s not the size of the data, it’s how you use it. But I think that’s why it gets stuck in some spam focus. It was a two edged title, but the subtitle is not the marketing with some eSports. And so that is really kind of it’s it’s a from A to Z strategy about how to think about how to build kind of a system, to look at the effectiveness and to improve.
And basically the title is because I wrote it in the beginning of the big data hype and I’m like, oh my God, people are trying to analyze big data. And in my experience, they don’t even make the decisions based on the data that they have now. It’s a small data like how about you start from the basics? You say, OK, which decisions do I need? But what is the low hanging fruit, especially in a small company, right?
Yeah. What am I really confused about? And I’m spending all this money. I don’t feel I’m getting this done. So let me focus on this one and kind of then put the pieces together. And so I talked with lots of anecdotes, also with lots of kind of excerpts about specific companies that I consulted with. I did a really systematic kind of overview from from how to go from, you know, the decisions working backwards to them. How do you maybe get a team together if you want to?
How do you use benchmarks that are published that out there for free if you don’t have your own data? And of course, how do you make decisions in the face of uncertainty? Because, as you know, marketing is the most toughest challenge of any company. And I always say this. When I began teaching in the company, right to large companies have the finance departments and the budget and so forth. And I’m like, you job is easy.
It’s just it’s just a little bit of mathematics. And these marketing is going out in the real world. Right. And trying to get some effectiveness. And it’s all based on fickle consumers or customers or whatever competitors are going to do. What you don’t know for sure what the government regulations are going to be. It is way tougher than lots of other things in the company like operations and finance. And so and so, of course, we’re not going to have 100 percent.
My friend in the book, it’s better to be big the right size, and so I want I want everybody to at least be vaguely right about their marketing spend and how they’re thinking about it instead of kind of following some guru and doing precisely wrong.
I love it. Absolutely love. And I’m definitely going to use that. I mean, I, I tell clients that I’m consulting. There isn’t such a thing as the perfect amount of data. You’ve just got to get enough to be comfortable and confident in the decision you’re going to make. But you could look forever and keep looking at more data points and it’s just not there. And sometimes that’s how it’s a hard message to go through. So definitely going to take your line for that anyway.
Look, tell me this. What about B2B? I often referred to B2B is boring to boring instead of business to business, because it’s never any personality. And I often wonder if advertising is not working in B2B. It’s probably the message rather than anything else. But talk me through any case that is you’ve got in the boat call from anywhere else about B2B marketing.
So a lot of the case studies would be to be marketing. And I’ll give you the typical example. And so this was a practice. So every every other year that the marketing science conference has this kind of final list of academics to show in the real world that this that made a difference and made the company more money. So it’s really cool. It’s the three million and videos and all for free of all the files of all the years. It’s just really cool to check this out.
It’s the first time I applied. It was basically an 80 percent of funds. So they decided to sell to businesses, to hospitals and to government buildings and its chairs, tables and so forth. So complete kind of classical business to business marketing. And one of the big problems that they faced and so they had the marketing excellence, is that they they didn’t get any kind of insights into the purchase of their existing customers, because the problem is the need for responsive is only kind of very spread.
Right. So if you own your business, then you need more research or if you do, but then even if you’re extremely happy with me as a supplier, you won’t need me until you grow again. So they had the list of the first customers and then they bought these e-mail and lists of new business and so forth, and they blasted them with with direct mail. And there was even overlap between the two. So you said we could get votes and they had the low response that, you know, had limited resources and there was nothing we do.
And then this young marketing guy came around and said, how about we spent on Google search? So Google search comes back. Right. And they’re like, well, look, you can have 10 percent of our budget. And then at the end of the year, they completely spend at the maximum of the budget that they set. Right. They went over the website and Google gives them a nice Christmas gift. And there that much so that we must be overspending on paid search because they could afford to give us a nice car.
So they actually brought me in to show that it’s not the fact that it was fantastic. So we analyze this as a model and then, you know, I put this in the dashboard and played around with it. So lo and behold, what turns out is that the search was the most effective strategy. And why is that? Because this is something that people are not typically involved. Right? It’s not like cars are sexy things and business-to-business like private jets or anything like that.
You even though you don’t it’s kind of with consumer refrigerators. I can send you lots of messages about refrigerators. You won’t care until you have a broken down. Need you? Yeah. So we actually showed that for that kind of products and there were not a well known brand. The search was extremely effective. Plus they had a very good value proposition. They could fit into these three sentences that you can put there and that did so. So for them it was amazing, the effect.
So they like plus the other thing is just fascinating, Business-to-business, because of the decision making unit, you would expect marketing to take a long time to be effective. Yeah, that was my expectation coming in. That was completely not the case for the business. So so people even acted within two weeks of that. They also sent faxes so, so successfully it was still allowed. But the time to go people with faxes, you know, like, oh my God, I’m so in the need to have a sponge.
And people would buy with the dates. Oh, they would just destroy the fax. So it actually showed that that know that the effects were within weeks and months instead of years, which we thought before. And then we were able to quantify for the how. So they’re like, OK, they were brought in that switch every. So they spent 10 percent on paid search, 80 percent on direct mail that would switch to the routes, but not like this is selling the book based on my model, right.
It’s come down.
Let’s split your country and for similar reasons and let’s do the field experiment. So in one, we said, OK, we do the full advice. We increase speed search, we reduce that. And the other one, we just followed one of the two advices and then the final one, we have the same as before, as usual. So we actually did a field experiment that you can do that very nicely now where they could see that. Oh, so ultimately it was very effective.
They made a lot more money and the only place where direct mail became effective so they would lose more money than they would. If you spend one year on that, they would get less than one euro back, but it became profitable when they cut it by 50 percent. So one of the things that we realized and this was fascinating to hear them talk about is that they had been overdoing it. It was a knee-jerk reaction every time they were afraid that the quote that we just didn’t know their name because that’s what they knew how to do.
So. So that itself was actually pretty good material. But they had just spent way past the diminishing returns space. And so they cut back. It was it was effectively and make the money. And so that’s field experience, which is way easier to get by in front of a small company by a large company. It’s full of politics and departments. And so we were able to really kind of just a few more examples in the book of business to business.
I understand. And I get why it’s so different in my university. I understand what people see. In general, though, I find that the consumer business, the business, not the skill, learned a lot from each other because because I feel that there’s a lot of great things in business. The business, the consumer markets have finally gotten like the importance of relationships and and so forth. But there’s a lot of cool things in consumer marketing that need to be marketers can also learn from.
So I’m very happy to see more of this cross-fertilization over the years.
The big lesson from consumer marketing from the consumer world is to treat the buyer as a person. And that’s just forgotten in B2B marketing. Most of the time it’s all about features and B2B companies just missed out on so much rich content and an interesting stuff because they’re too busy focused on the product. Talking about nuts and bolts drives me crazy. And that’s why I call it boring to boring a lot of the time. Look, let’s move on. Let’s talk about education.
You’re a marketing professor, so I’m going to guess that you’re a fan of education. I saw you post on LinkedIn recently, which was about what academics can do to support the rollout of the covid-19 vaccination program.
Can you tell us a little bit about that in general? Right. And this is an issue both industries and academia. I find that that marketers don’t get the respect they deserve. So if you do it well, I mean, marketing is one of the most intellectually challenging and also the things that business I mean, it’s always changing. You always have to adapt to the mind. That’s always new instruments that come on, the consumers are changing the competitiveness coming from different places from overseas.
So it’s very stimulating. But we typically don’t get the respect within the company are in academia that we deserve. And so I think one of the key things that people that are not marketers don’t understand, besides the fact that it’s way more complicated than they think it is, is that it’s actually that the thinking that we do and the concepts we develop are very applicable outside of the typical for profit market. And so and so I was very inspired. I have a few government and not for profit examples in my book to explain where marketing professors use that insight to do something for the good of society.
And so what is the influence is very much right now is studying fake news right in elections and outcomes and exit and how it affects things, how important it is, where it would with 19. There was so much wonderful things about, you know, how do you how do you get consumers going? I mean, consumers perceive the threats. They perceive the isolation. How do you talk to consumers and companies to basically do the right thing, for instance, instead of just thinking about, you know, it’s very uncomfortable to ask.
I don’t want the government to mandate that. I’m like, fine, but how do we develop a norm that most people do wear a mask? How do we think about vaccination with all of the and the vaccination agenda? How how do we communicate very clearly without telling the truth? And I think this is absolutely important. So I’m kind of person would never say that the end justifies the means. For me, that means absolutely important. So if you have to communicate clearly.
You have to talk to people, you citizens in this case as adults and as people that understand complicated things. That’s a typical example, right? If you believe that mosques are important in the beginning of the PUNDAK, but you also believe that they should be reserved for first responders because they need it most. And as the shoulders of Matt used to communicate to consumers, you should not say masks are not are not good for you know, you should you should you should allow the consumer to be an adult and to get the kind of do to put sentences.
Right. It doesn’t have to be one simple message because people get suspicious, they dig around. And if you’re not telling the truth, then it’s going to hurt you and your reputation as a government, just like it hurts you as a company. So how do we get the truth out about the vaccine? How do we come to that fake news? But doing it in a way that we’re talking from adults to adults and get the truth. And so marketing has wonderful things to talk about this.
Right. So with 19 vaccines, we have so much great behavioral science that that we can use the as one. And this goes all the way all the way back to enter the tobacco smoking, too. Right. It’s one of the first things that I encounter as these students was was the revelation from a marketing professor that if you put smoking as a forbidden fruit, if you tell teenagers it’s dangerous, you will die. Don’t do it. Something like fantastic.
I like living on the edge. Let’s stop smoking. Because if you make it the tainted fruit, if you say if you go to Hollywood and say, please don’t have you here or smoke anymore. Right. If you make your advertising that you focus on things that teenagers care about, such as yellow teeth not being as attractive to other people and so forth, that’s what’s effective for teenagers. So this is complete marketing thing, but it can be applied to tobacco companies.
It can be applied to 19 communication lockdown’s vaccines. And I feel that the government hasn’t really discovered marketing yet. They listen to economists, economists and come up with resource marketing as a profession and also in academia has so much more different perspectives, had such balanced views about what makes a human think that. I really feel that that we should kind of broadcast what we do outside of just making money for companies and to get to get the respect we deserve.
I love that that is marketing for the greater good, which is driven by the fact that you’ve got an empirical background and an academic background. I’m talking about marketing as an industry wide, a bit of a wider context, people coming from a really diverse number of routes into marketing. And I know from my experience the people with all sorts of different qualifications and some with no qualifications. And we’ve kind of worked our way through. And I think that’s great because it brings a diversity of thought into the profession, which is fine.
And I’m not criticizing that. But what we seem to have developed is a division of formal marketing training, which is most loudly and most vocally by people in the marketing industry. What do you make of that?
So I would I would say that I think that everybody who wants to be an important part in the business should have some sort of formal training, even if you’re in finance. And I do lots of trainings that I have called the finance people of the. Absolutely brilliant. I’ll give you a very quick based on the same formula I ask at the beginning of the course if if your advertising is so creative, it’s three times more effective than before. You have this fantastic new creative exercise developed by your multipotent and you can show and finance increase case that’s three times more effective than before.
Should you now increase or decrease your marketing spend? What do you feelings that increase increase every single market, increase, every single finance person in the room says decrease because it’s three times more effective.
So you sell more for less money?
I think these are the funds. People like, oh, my God, it’s the limited world. I can hit the sales quota for less money. Every marketing person knows this is the promotional mindset, but the mindset, it’s a huge world right now and three times more effective. My consumers will get used to it. My competitors will imitate me. I have this limited window of opportunity. I have to basically capitalize on this one and what I do.
And so this is where my my economics comes in. I drive the profit maximizing formula and I show the finance people that marketing is right. It’s completely right. Your optimal spending to make profits for your company depends directly on your exercising effective. Your advertising gets three times more effective. You should put those inputs and then at the end of the course they’re like, oh yeah, that actually makes sense. And then we go about the reasons why. We talk about the interesting kind of perspective differences.
So, so, so this is a long question. But I do agree that everybody in the company that has some important, especially when they control the marketing budget, should know something probably about marketing. And I think what it really adds, it helps you think about. But I call all the buckets of reports. When you go with a specific experience, you have experience in one sector, in the industry and from your kind of functional perspective to.
Right. Maybe you’re an engineer and you found the fantastic company based on the features of your product and business to business. But then when you want the company to go, you do need to have an idea about how companies make the leap from fifty people to five other people. Right. From a certain revenue to kind of double or triple that. And you won’t get there by just doing what you have been doing before. And so I think in marketing training, yes, it teaches you very concrete stuff like how to optimize the digital ad campaign.
Yes. If you just do the newest things. But it’s a way of thinking that combines economics and psychology and something social is very complete view of the human being related to how people sell and buy. And so I think it’s intellectually fascinating for everybody. I think it’s it offers a framework to make sure that you don’t forget stuff that is very important that your products build in the marketplace and that teaches you some some very concrete stuff you can use in your day to day, if only to better understand the market.
Those in your company earlier.
I absolutely love the answer. They will be taken clips and used as the show promo because that is a fantastic answer to that question. Love it. Listen, I’ve just seen the time and so we’re coming to the end of the interview, so I need to get to my final two questions. The first one is going to be about what books do you read? I ask everybody who comes on the show what books that I read or podcast that they listen to and things like that.
There’s a reading list page on the website if you’ve never looked at it, which keeps all of the books there, quick references, easy links to go buy them. So who do you read? Where do you go for marketing insights?
So the first thing to recommend is a very new book and it’s called Smart Marketing. OK, that’s right. And this is related to what we just talked about. It’s just amazing that I give it to companies, to older people so they know the marketing blackout. Then why it’s book. It’s all visuals. So so it’s a normal sized book. But you read it very quickly because he has this wonderful talent to visualize important marketing concepts. And that was really through.
I’m like, oh my God. And it’s all correct, too, which kind of surprised me for such a book. So it’s based on actual marketing. As an academic, I can endorse, but it’s so much simpler than how I write stuff. So let me just put it that way. So I would I would first read this book called Smart Marketing, and only then I would read my book, which is called Smart Marketing. Everybody agrees that one.
So I like smart marketing, very visual, very easy to understand. And I also give it to my non marketers, kind of important decision makers in the company. So my my advice is good. Mike Henson’s wonderful Belgium guy moved to the States in the 70s. And so you have this wonderful book called Empirical Generalizations, and this is by the Marketing Science Institute. It’s a very small book. And so every page is just, you know, what do we know about the effectiveness of sales force of display?
What do we know about the long term effect? Is it twice the short term effect? So he has distilled all of the studies that we have done, hundreds of studies in academia and come up with complete numbers that are very useful as benchmarks. And so. As economic conditions, we call it the political so we could go the loss of marketing, but because we’re not physicists, we call this, you know, what you can expect. That’s basically the physicists are better at naming books than the markets is.
That’s one of the key takeaways from this podcast.
So I always find that specifically in academia, markets can market themselves. That’s why that’s why they need help. And so he said, well, everybody does what everybody said. Just what I don’t understand. This was literally in 2001 when I joined the was like, look, my finance faculty are all bankrupt because they followed their own advice on the stock market right before the dotcom bust. My marketing faculty can market themselves and my my my team and organizational behavioral psychology can get along with each other.
So obviously, I think I think markets should do a better job of marketing themselves. You’re completely right. Seems like a great but a great school to work. Great. So, like I said, maybe just a few more rides. And I like John I this book like Contagious and his new book. So anything that I have to really understand the process, but I’ll stop there.
But that’s brilliant. That’s great. And look, if you have any other recommendations, do find them open to me in an email or whatever. And everything that you just mentioned will be in the show notes. So just have a look around, whatever you listening and watching and you’ll be able to find an easy click link. So now down to my last question. I ask everybody the same thing. What one question were you expecting me to ask that I haven’t asked?
So so so for me, it was kind of really hard to pronounce my name. And when I was when I was joining. This is 2001. Right. Right. So my name is pronounced couldn’t Powles. I’m not speaking Belgian, but they thought that Colin Powell was joining them.
That’s close. So you can imagine in 2001 especially. Right. I mean, he was he was always fantastic. But, you know, everybody knew him at the time. So when I showed up, they were surprised and disappointed I could see the problem because, I mean, I look more like Colin Powell. You do? Oh, really? I could see the problem. So, listen, Karen, thank you very much for coming on the show.
It’s been an absolute pleasure to have you on and really, really enjoyed the interview, the debt, the background to it, the empirical evidence, but also the stories of people who think it’s been fantastic. You are the first academic on the show for my sins. We will have more academics on in the future, I promise. And, you know, it’s been I think it’s really interesting for people to see the different sides and the important things that you find in marketing as well.
So thank you for your time. Thank you for coming on the show.
This is a great service to the community and thanks so much for having the pleasure. Is all mine right? Let’s say we are out. Thank you for listening to this episode. Please do find us all on your podcasting place of choice if you can raise it. Five stars. That will be wonderful. Thank you for watching on YouTube. Hit like button. Please subscribe and please don’t pass this on to someone. If you like what you hear, it would be great if you could share it with a friend and who’s in marketing, who’s not in marketing, whatever.
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