Paths to and off purchase: quantifying the impact of traditional marketing and online consumer activity
with Shuba Srinivasan and Oliver Rutz, Journal of the Academy of Marketing Science, 2015, 1-14.
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This study investigates the effects of consumer activity in online media (paid, owned, and earned) on sales and their interdependencies with the traditional marketing mix elements of price, advertising and distribution. We develop an integrative conceptual framework that links marketing actions to online consumer activity metrics along the consumer’s path to purchase (P2P). Our framework proposes that the path to purchase has three basic stages–learning (cognitive), feeling (affective), behavior (conative)—and that these can be measured with novel online consumer activity metrics such as clicking on a paid search ads (cognitive) or Facebook likes and unlikes of the brand (affective). Our empirical analysis of a fast moving consumer good supports a know–feel–do pathway for the low–involvement product studied. We find, for example, that earned media can drive sales. However, we find that the news is not all good as it relates to online consumer activity: higher consumer activity on earned and owned media can lead to consumer disengagement in the form of unlike. While traditional marketing such as distribution (60%) and price (20%) are the main drivers of sales variation for the studied brand, online owned (10%), (un)earned (3%), and paid (2%) media explain a substantial part of the path to purchase. It is noteworthy that TV advertising (5%) explains significantly less than online media in our case. Overall, our study should help strengthen marketers’ case for building share in consumers’ hearts and minds, as measured through consumer online activity and engagement.
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How Online Consumer Segments Differ in Long-term Marketing Effectiveness
with Oliver Rutz and Kerstin Reimer, Journal of Interactive Marketing, 28 (4), 2014, 271-284.
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Online commerce gives companies not only a growing global sales platform, but also powerful consumers enjoying 24/7 availability, choice proliferation and the power to opt in and out permission-based communication. Unfortunately, our knowledge is limited on long-term marketing effectiveness in this space and on how it differs across customer segments. Managers appear overwhelmed by the combination of rich online data on hundreds of thousands of customers and the typical aggregate-level data on offline marketing spending.
This paper is the first to investigate the long-term impact of coupon promotions, TV, radio, print, and Internet advertising across customer segments for a major digital music provider with over 500,000 customers. We first segment customers and subsequently analyze how these segments respond in the long run to different marketing activities when purchasing music downloads. Our findings reveal that the effectiveness of marketing differs across segments, while standard segmentation approaches fail to identify the most valuable catches in a sea of consumers. In contrast to empirical generalizations on consumer packaged goods, heavy users of digital music products are least sensitive to price and most sensitive to TV advertising and to multiple touch points. Light users, the majority of consumers, are price-sensitive and tend to opt-out of targeted communication. Our research enables managers in the digital media space to target high-value customer segments with the most effective actions.
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Consumer Attitude Metrics For Guiding Marketing Mix Decisions
with Dominique M. Hanssens, Shuba Srinivasan, Marc Vanhuele and Gokhan Yildirim, Marketing Science, 33 (4), July-August, 2014, 534-550
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Marketing managers often use consumer attitude metrics such as awareness, consideration, and preference as performance indicators because they represent their brand’s health and are readily connected to marketing activity. However, this does not mean that financially focused executives know how such metrics translate into sales performance, which would allow them to make beneficial marketing mix decisions. We propose four criteria—potential, responsiveness, stickiness, and sales conversion—that determine the connection between marketing actions, attitudinal metrics, and sales outcomes.
We test our approach with a rich data set of four-weekly marketing actions, attitude metrics, and sales for several consumer brands in four categories over a seven-year period. The results quantify how marketing actions affect sales performance through their differential impact on attitudinal metrics, as captured by our proposed criteria. We find that marketing–attitude and attitude–sales relationships are predominantly stable over time but differ substantially across brands and product categories. We also establish that combining marketing and attitudinal metrics criteria improves the prediction of brand sales performance, often substantially so. Based on these insights, we provide specific recommendations on improving the marketing mix for different brands, and we validate them in a holdout sample. For managers and researchers alike, our criteria offer a verifiable explanation for differences in marketing elasticities and an actionable connection between marketing and financial performance metrics.
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Social Media Metrics – A Framework and Guidelines for Managing Social Media
with K. Peters, Y. Chen, A.M. Kaplan and B. Ognibeni, Journal of Interactive Marketing, 27 (4), 2013, 281-298.
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Social media are becoming ubiquitous and need to be managed like all other forms of media that organizations employ to meet their goals. However, social media are fundamentally different from any traditional or other online media because of their social network structure and egalitarian nature. These differences require a distinct measurement approach as a prerequisite for proper analysis and subsequent management. To develop the right social media metrics and subsequently construct appropriate dashboards, we provide a tool kit consisting of three novel components. First, we theoretically derive and propose a holistic framework that covers the major elements of social media, drawing on theories from marketing, psychology, and sociology. We continue to support and detail these elements — namely ‘motives,’ ‘content,’ ‘network structure,’ and ‘social roles & interactions’ — with recent research studies. Second, based on our theoretical framework, the literature review, and practical experience, we suggest nine guidelines that may prove valuable for designing appropriate social media metrics and constructing a sensible social media dashboard. Third, based on the framework and the guidelines we derive managerial implications and suggest an agenda for future research.
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Winning Hearts, Minds and Sales: How Marketing Communication Enters the Purchase Process in Emerging and Mature Markets
with Selin Erguncu and Gokhan Yildirim, International Journal of Research in Marketing, 30 (1), 57-68, 2013.
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Consumers differ in the way their minds and hearts respond to marketing communication. Recent research has quantified effectiveness criteria of mindset metrics, such as brand consideration and liking, in the pur-
chase process for a mature market. This paper develops and illustrates our conceptual framework of how mindset effectiveness differs between an emerging market and a mature market. We propose that the re-
sponsiveness, stickiness and sales conversion of mindset metrics depend on the regulative, cultural and economic systems that provide structure to society. In particular, we focus on regulative protection, collectivism and income. First, we propose that a lack of regulative protection leads consumers to be more attentive to, and thus more aware of, marketing communication. Second, we propose that consumers living in a collectivist culture are less responsive to advertising in their consideration and liking of the advertised brand. Finally, we propose that lower income among consumers reduces the sales conversion of brand liking. We examine our predictions empirically with data for the same brands during the same time period in Brazil and the United Kingdom. First, we find that brand liking has a higher responsiveness to advertising, a higher stickiness and a higher sales conversion in the U.K. than it does in Brazil. Thus, the advice to focus on the emotional brand connection is more appropriate in the analyzed mature market versus the emerging market. In contrast, knowing the brand is more important to purchase in Brazil and is more responsive to advertising. These first findings establish an intriguing research agenda on winning hearts and sales in emerging and mature markets.
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The Formation, Evolution, and Replacement of Price-Quality Relationships
with Richard D’Aveni, Journal of the Academy of Marketing Science, October, 2014, 1-20
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Consumers differ in the way their minds and hearts respond to marketing communication. Recent research has quantified effectiveness criteria of mindset metrics, such as brand consideration and liking, in the purchase process for a mature market. This paper develops and illustrates our conceptual framework of how mindset effectiveness differs between an emerging market and a mature market. We propose that the responsiveness, stickiness and sales conversion of mindset metrics depend on the regulative, cultural and economic systems that provide structure to society. In particular, we focus on regulative protection, collectivism and income. First, we propose that a lack of regulative protection leads consumers to be more attentive to and thus more aware of, marketing communication. Second, we propose that consumers living in a collectivist culture are less responsive to advertising in their consideration and liking of the advertised brand. Finally, we propose that lower-income among consumers reduces the sales conversion of brand liking.
We examine our predictions empirically with data for the same brands during the same time period in Brazil and the United Kingdom. First, we find that brand liking has a higher responsiveness to advertising, a higher stickiness, and a higher sales conversion in the U.K. than it does in Brazil. Thus, the advice to focus on the emotional brand connection is more appropriate in the analyzed mature market versus the emerging market. In contrast, knowing the brand is more important to purchase in Brazil and is more responsive to advertising. These first findings establish an intriguing research agenda on winning hearts and sales in emerging and mature markets.
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The cure for schizophrenic marketing: Allocating Marketing Budgets based on the full Customer Journey
Do Display Ads Influence Search? Attribution and Dynamics in Online Advertising
with Pavel Kireyev and Sunil Gupta, International Journal of Research in Marketing, 33(3), 2016, 475-490.
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As firms increasingly rely on online media to acquire consumers, marketing managers feel comfortable justifying higher online marketing spend by referring to online metrics such as click‐through rate (CTR) and cost per acquisition (CPA). However, these standard online advertising metrics are plagued with attribution problems and do not account for dynamics. These issues can easily lead firms to overspend on some actions and thus waste money, and/or underspend in others, leaving money on the table.
We develop a multivariate time series model to investigate the interaction between paid search and display ads, and calibrate the model using data from a large commercial bank that uses online ads to acquire new checking account customers. We find that display ads significantly increase search conversion. Both search and display ads also exhibit significant dynamics that improve their effectiveness and ROI over time. Finally, in addition to increasing search conversion, display ad exposure also increases search clicks, thereby increasing search advertising costs. After accounting for these three effects, we find that each $1 invested in display and search leads to a return of $1.24 for display and $1.75 for search ads, which contrasts sharply with the estimated returns based on standard metrics. We use these results to show how optimal budget allocation may shift dramatically after accounting for attribution and dynamics. Although display benefits from attribution, the strong dynamic effects of search call for an increase in search advertising budget share by up to 36% in our empirical context.
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What is special about marketing organic products? How organic assortment, price, and promotions drive retailer performance
with Ram Bezawada, Journal of Marketing, 77 (1), 31-51, January 2013
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Higher sales and margins are key goals for retailers promoting emerging products, such as organics, but little is known about their marketing effectiveness and their cross-effects on conventional product sales. Extant research reports conflicting results about price and promotional sensitivity for organic products and does not address the impact of organic assortment. This article calculates long-term own- and cross-elasticities of organic and conventional product sales in response to changes in assortment, price, and promotions. Using a rich data set of 56 categories, the authors test hypotheses on how different costs and benefits of organic products affect these elasticities. They find that enduring actions, such as assortment and regular price changes, have a higher elasticity for organics than for conventional products. In contrast with common wisdom, even “core” organic consumers are sensitive to these actions. Increasing organic assortment and promotion breadth yields higher profits for the total category, as do more frequent promotions on conventional products. The category comparison yields specific advice with regard to where larger assortment and lower prices versus more and deeper promotions are most effective.
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Assessing Consequences of Component Sharing Across Brands in the Vertical Product Line in the Automotive Market
with Peter Verhoef and Mirjam Tuk, Journal of Product Innovation Management, 29 (4), 559-572, 2012
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Component sharing may look great in the boardroom but not in the showroom. Indeed, savings on research and development and production costs could be offset by a plunge in customer brand attractiveness. The central objective of this paper is to investigate consumer and market responses toward component sharing between brands. More specifically, by combining experimental with econometric studies, this paper investigates the impact of component sharing on customer evaluation of luxury, volume, and economy brands offered in a car manufacturer’s vertical product line. An experimental study in which component sharing between automotive brands was made explicit aimed to understand the impact of brand combinations and type of sourcing on the evaluations of the two brands sharing components. This experimental study shows that the evaluation of luxury brands sharing with a volume brand suffers more than when a volume brand shares components with an economy brand. This experimental study was executed for two different brand combinations including one luxury, one volume, and one economy brand: (1) Audi, Volkswagen, and Skoda; and (2) Lexus, Toyota, and Suzuki. The evaluation of an economy brand benefits more from sharing with a volume brand than a volume brand suffers from sharing with an economy brand. The magnitude of these effects depends on several factors, such as component type, the source of the component sharing, and the salience of component sharing to the consumers. One important limitation of the experiment is that component sharing is made rather salient, and no behavioral effects of component sharing are studied. Therefore, a second was executed in which market share data on brands of the Volkwagen company (i.e., Audi, Volkswagen, Seat, and Skoda) were collected, while also data on the component-sharing practices between these brands were gathered. A market share model was estimated in which market shares of the four studied brands were explained by component-sharing practices and some control variables (i.e., price, model changes) in an exploratory fashion. The explorative examination of market share effects confirms that luxury brands may suffer, while economy brands may benefit from component sharing. In sum, this research suggests that component sharing between brands has negative effects for the higher-end and positive effects for the lower-end brand. However, it also shows that sourcing matters. This study is considered as the first study investigating the phenomenon of component sharing, and it points to multiple future research issues, such as studying this phenomenon in other markets.
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Time Series Models of Pricing the Impact of Marketing on Firm Value
Handbook of Marketing and Finance , Shankar Ganesan ed., 2012 ISBN: 978-1849802727
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Marketers continuously engage in actions such as product launches and advertising that are aimed at generating profitable customer response and increasing key marketing assets such as customer satisfaction and brand equity. To the extent that these efforts are successful, they should enhance the financial outlook of the firm, which is of primordial interest to the investment community. However, the interpretation of the impact of these actions is not straightforward, because the effects tend to play out over time. As a result, it is quite possible that mispricing occurs, i.e. the investment community either overestimates or underestimates the future financial impact of a marketing action or marketing metric. The purpose of this chapter is to review time series methods as the primary research tool for evaluating the pricing of marketing actions and marketing assets. The main message here is: what is mispricing, what are various forms (especially the difference between contemporaneous and lags), how can we detect, what does it mean for investors/managers, and what do researchers do with the mispricing information? We discuss, in turn, methods for assessing the return (level) and the risk (volatility) of marketing for the investor, and we provide illustrative findings of each.
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Practice-Prize Paper: Marketing’s Profit Impact: Quantifying Online and Offline Funnel Progression
with Thorsten Wiesel and Joep Arts, Marketing Science, 30(4), 604-611, 2011 finalist for the ISMS – MSI Practice Prize.
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Inofec, a small- to medium-sized enterprise in the business-to-business sector, desired a more analytic approach to allocate marketing resources across communication activities and channels. We developed a conceptual framework and econometric model to empirically investigate (1) the marketing communication effects on off-line and online purchase funnel metrics and (2) the magnitude and timing of the profit impact of firm-initiated and customer-initiated contacts. We find evidence of many cross-channel effects, in particular, off-line marketing effects on online funnel metrics and online funnel metrics on off-line purchases. Moreover, marketing communication activities directly affect both early and later purchase funnel stages (website visits, online and off-line information, and quote requests). Finally, we find that online customer-initiated contacts have substantially higher profit impact than off-line firm-initiated contacts. Shifting marketing budgets toward these activities in a field experiment yielded net profit increases 14 times larger than those for the status quo allocation.
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The Far Far East: Fast moving consumer good branding in a developing market
Does online information drive offline revenues? Only for specific products and consumer segments
with Peter Leeflang, Marije Teerling and Eelko Huizingh, Journal of Retailing, 87 (1) p 1-17, 2011. Winner of the 2013 Davidson Best Paper Award
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While many offline retailers have developed informational websites that offer information on products and prices, the key question for such informational websites is whether they can increase revenues via web-to-store shopping. The current paper draws on the information search literature to specify and test hypotheses regarding the offline revenue impact of adding an informational website. Explicitly considering marketing efforts, a latent class model distinguishes consumer segments with different short-term revenue effects, while a Vector Autoregressive model on these segments reveals different long-term marketing response.
We find that the offline revenue impact of the informational website critically depends on the product category and customer segment. The lower online search costs are especially beneficial for sensory products and for customers distant from the store. Moreover, offline revenues increase most for customers with high web visit frequency. We find that customers in some segments buy more and more expensive products, suggesting that online search and offline purchases are complements. In contrast, customers in a particular segment reduce their shopping trips, suggesting their online activities partially substitute for experiential shopping in the physical store. Hence, offline retailers should use specific online activities to target specific product categories and customer segments.
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Mindset Metrics in Market Response Models: An Integrative Approach
with S. Srinivasan and Marc Vanhuele, Journal of Marketing Research, 47 (4), 672-684, 2010, winner of the 2011 Best Paper Award of Syntec (French professional association of consultants) in Marketing and Decision Sciences.
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Demonstrations of marketing effectiveness currently proceed along two parallel tracks: Quantitative researchers model the direct sales effects of the marketing mix, and advertising and branding experts trace customer mind-set metrics (e.g., awareness, affect). The authors merge the two tracks and analyze the added explanatory value of including customer mind-set metrics in a sales response model that already accounts for short- and long-term effects of advertising, price, distribution, and promotion. Vector autoregressive modeling of the metrics for more than 60 brands of four consumer goods shows that advertising awareness, brand consideration, and brand liking account for almost one-third of explained sales variance. Competitive and own mind-set metrics make a similar contribution. Wear-in times reveal that mind-set metrics can be used as advance warning signals that allow enough time for managerial action before market performance itself is affected. Specific marketing actions affect specific mind-set metrics, with the strongest overall impact for distribution. The findings suggest that modelers should include mind-set metrics in sales response models and
branding experts should include competition in their tracking research.
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Do You Want to be my “Friend”? Monetary Value of Word-of-Mouth Marketing in Online Communities
GfK-Marketing Intelligence Review, Vol. 2 No. 1 / 2010.
Short Article
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How large and lasting are the effects of word-of-mouth (WOM) referrals versus paid marketing? What is the $ / € worth of a WOM-referral to an Internet social networking site? This study finds that word-of-mouth referrals have substantially longer carryover effects than traditional marketing actions. The long-run elasticity of WOM on site signups is 0.53; about 20 times higher than that of marketing events, and 30 times that of media appearances. Based on revenue from advertising impressions served to a new member of the site, the monetary value of a WOM referral is about $0.75 per year. By sending out 10 referrals, each network member thus brings in $7.50 to the firm; which represents the maximum reward the firm could consider to incentivize word-of-mouth referrals. Managers can use this approach and findings to benchmark metrics for both WOM and traditional marketing, to test changes in online WOM referral content, and to decide on the appropriate size of financial incentives to stimulate WOM.
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Dashboards as a Service: Why, What, How and What Research is Needed?
with T. Ambler, B. Clark, P. LaPointe, D. Reibstein, B. Skiera, B. Wierenga, T. Wiesel, Journal of Service Research, 12 (2), 175-189, November 2009.
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Recent years have seen the introduction of a “marketing dashboard” that brings the firm’s key marketing metrics into a single display. Service firms across industries have created such dashboards either by themselves or together with a dashboard service provider. This article examines the reasons for this development and explains what dashboards are, how to develop them, what drives their adoption, and which academic research is needed to fully exploit their potential. Overcoming the challenges faced in dashboard development and operation provides many opportunities for marketing to exercise a stronger influence on top management decisions. The article outlines five stages of dashboard development and discusses the relationships among demand for dashboards, supply of dashboards, and the implementation process in driving adoption and use of dashboard systems. Key topics for future research include metrics selection, relationships among metrics, and the ultimate question of whether dashboards provide sufficient benefits to justify their adoption.
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What is Important? Identifying Metrics that Matter
with M. Lautman, Journal of Advertising Research, 49 (3), September, 339-359, 2009.
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How can the importance of consumer wants and needs be quantified? Using data sets from multiple consumer brand and advertising tracking studies, several standard traditional market research techniques are compared to vector autoregression (VAR) modeling. It is demonstrated that by utilizing VAR models and resolving causal ambiguity, key performance indicators can be identified that not only correlate with traditional market research summary metrics, such as overall ratings and purchase interest, but that also drive brand sales/share and thereby qualify as metrics that matter. The analytic philosophy underlying the VAR analytic approach also is shown to be consistent with (and complementary to) market mix modeling analysis. Presented is a procedure for the simultaneous assessment of the relative and absolute impact of multiple marketing initiatives on baseline and incremental sales—including advertising and promotion effects and traditional consumer awareness and attitudinal metrics—facilitating resource-allocation decisions and providing marketers within a single framework for return on marketing investment optimization.
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Effects of Word of Mouth versus Traditional Marketing: Findings for an Internet Social Networking Site
with M. Trusov and R. Bucklin, Journal of Marketing, 73(5), September, 90-102, 2009, Emerald Mgmt Reviews Citation of Excellence 2009, and runner-up for the MSI/H. Paul Root Award for best JM article.
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The authors study the effect of word-of-mouth (WOM) marketing on member growth at an Internet social networking site and compare it with traditional marketing vehicles. Because social network sites record the electronic invitations sent out by existing members, outbound WOM may be precisely tracked. WOM, along with traditional marketing, can then be linked to the number of new members subsequently joining the site (signups). Due to the endogeneity among WOM, new signups, and traditional marketing activity, the authors employ a Vector Autoregression (VAR) modeling approach. Estimates from the VAR model show that word-of-mouth referrals have substantially longer carryover effects than traditional marketing actions. The long-run elasticity of signups with respect to WOM is estimated to be 0.53 (substantially larger than the average advertising elasticities reported in the literature) and the WOM elasticity is about 20 times higher than the elasticity for marketing events, and 30 times that of media appearances. Based on revenue from advertising impressions served to a new member, the monetary value of a WOM referral can be calculated; this yields an upper bound estimate for the financial incentives the firm might offer to stimulate word-of-mouth.