Interview: How to Create a Marketing Crystal Ball

At the 2008 ITSMA Annual Conference, Tom Davenport, a professor at Babson College and thought leader on business and IT issues, spoke about competing on analytics in marketing. Here, he describes how marketers can succeed with analytics, how organizations make progress on the journey to analytical competition, and how organizations employing marketing analytics achieve high performance. This year’s ITSMA Annual Conference will have many more great speakers like Davenport. Check out the agenda here.

ITSMA: Analytics are challenging. Most companies don’t have the skills or systems in-house. Is there any proof that analytics are worth the investment?

Davenport: Absolutely! I have done various research studies on this topic-examining whether analytical companies were successful or not and these companies’ use of analytics. In one study, I found that high-performing companies are five times more likely to have analytical capabilities as a key element in their strategies than are low-performing companies.

This research is where I got the idea that some companies were competing on analytics. After one study, I came up with five stages of analytical competition:

• Stage 1. Companies at this stage are still wrestling with the basics.
• Stage 2. These companies have some local, nonstrategic analytical activity.
• Stage 3. The vision is there in this stage, but these companies have a long way to go. A few pharmaceutical companies I spoke to are at this stage. They know what they would like to achieve in the future in terms of analytics, but it’s just too costly and complex right now.
• Stage 4. Companies at this stage have clear intent with analytics and are almost there. They have it built into their culture, just in a low-key way. Procter & Gamble is an example of a company at Stage 4. They have a great marketing organization. They have all the capabilities, data, people, and software to do the analytics, but the CEO is more focused on product innovation.
• Stage 5. Companies at this stage are clearly competing on analytical capabilities. They have been doing analytics for several years; they even talk about it in annual reports. These include companies such as Capital One, Harrah’s, Progressive Insurance, and Wal-Mart.

It turned out that the companies that were more analytical, in the higher stages, tended to perform a lot better than the others.

ITSMA: What are some examples of more ambitious uses of analytics?

Davenport: There are three ways marketers can use analytics:

• Predict the future. You can make predictions on what will happen in the future based on what happened in the past. For example, if a customer purchases an ERP system, chances are good that in the next few years, that customer will become interested in an analytics to extract insight from the system.
• Determine how and why things happen. This is where you get into associations based on past data. An example of this is looking at what is actually driving your financial performance: If you increase client satisfaction, does that make your revenues go up?
• Discover the best possible outcome. The last way marketers can use analytics is for optimization-looking at what’s the best that can happen. This could include things like yield management or merchandising optimization.

So, there are a lot of possibilities for using analytics in marketing. My overall advice would be to get away from only reporting. Try to think about how you can move beyond that into some of the other areas I mentioned.

To read the full interview with Davenport in which he reveals the five most important components of analytical success for marketers, ITSMA members can go here. To see the speaker agenda for ITSMA’s 2009 Annual Conference, go here.

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