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Demystifying the Science of Marketing

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Editor’s note: As a leading innovator of new models and methods to improve the practice of marketing and advertising, Professor Prasad Naik was invited to present at the All India Management Association’s World Marketing Congress 2011 in New Delhi, India, on February 4–5.

The All India Management Association (AIMA), a forum founded in 1957 to develop a national managerial ethos, counts more than 30,000 individual members, 3,000 institutional members and more than 60 local management associations across India.

Marketing science furnishes not only deep insights into substantive questions, but powerful methods to make informed decisions based on real market data… Taking this holistic approach to marketing contributes to the ubiquity of a company’s brand in consumers’ mindset, and that’s priceless. – Professor Prasad Naik

The theme of this year’s Congress—“Expect Miracles, Everyday!”—set the stage for the major summit in one of the world’s biggest and most promising emerging markets. The Congress attracted more than 500 middle- and senior-level marketing leaders to better understand domestic Indian and international markets and learn what it takes to establish a successful brand.

Naik joined Andrew Robertson, CEO of BBDO Worldwide Inc., recently recognized as the “Most Awarded Agency Network in the World,” to co-present a session on the “Science and Art of Marketing Miracle.”

In this article—adapted from Naik’s World Marketing Congress presentation and a column he authored that appeared in the conference publication—Naik explains the science of marketing and the powerful new methods for marketers to optimize ad spend effectiveness to build competitive and profitable brands.

Is marketing science?

Not really. Rather it is about understanding consumers, designing products and services to satisfy consumer needs and, ultimately, building brands to compete profitably. Good marketers know that intuitively.

What, then, is the science of marketing?

The science of marketing is about knowing whether managers’ intuitive actions and decisions are effective in the marketplace. Marketing managers must ask themselves: Are we overspending on advertising? Is allocation to online and offline advertising optimal? Does corporate advertising increase product sales and enhance brands’ advertising efforts? Do regional advertising and national advertising substitute for each other (because consumers don’t know the difference) rather than serve as complements? Should we support the weak regions to build strength or the strong regions to maintain dominance?

Marketing science furnishes not only deep insights into such substantive questions, but powerful methods to make informed decisions based on real market data.

To make this discussion concrete, consider a brand that advertises via offline media (e.g., television, radio), online properties (e.g., banner ads, search ads) and outdoors media (e.g., billboards, in-transit ads). How should brand managers decide how to allocate the total budget to various media? A simple insight from marketing science is to allocate resources proportional to the effectiveness of each medium. But that only works if various media do not exhibit synergy.

Synergy emerges when the combined effect of multiple media exceeds the sum of their individual effects. Professor Kalyan Raman, now at the Kellogg School of Management, and I (Naik and Raman, 2003) developed a new method to enable marketing managers to quantify the magnitude of synergy using readily available market data.

We also established two new marketing principles:

  • In the presence of synergy, managers should increase the total marketing budget;
  • Managers should allocate more than a fair share to the less effective marketing activity. That is, managers should support the weak medium if it enhances the effectiveness of other effective media.

Although it may seem counterintuitive, our research shows that as synergy increases, advertisers should not only increase the media budget but also allocate more funds to the less effective activity. For example, suppose billboard advertising does not increase sales; that is, it is completely ineffective on its own. Should managers cut billboard ads from the mix? No. It may not increase sales directly, but it may be synergistic with offline television advertising or location-specific mobile advertising. Synergies induce catalytic effects, and managers should spend even on ineffective marketing activities that exhibit synergies with other effective activities.

The rapid surge in online, mobile and social media advertising also raises important allocation questions for today’s marketing managers. To help marketers with a model for this budget dilemma, Kay Peters at the University of Muenster, Am Stadtgraben, and I collaborated on research using real market data for a leading German car brand. Our study (Naik and Peters, 2009) confirmed empirically for the first time that online advertising amplifies the effectiveness and synergies of offline media (television, print, newspapers and magazines) and that when there are synergies —within-media (i.e., intra-offline) and cross-media (online-offline)—investing in the weaker media results in the optimal advertising mix.

Beyond offering novel insights, marketing science adds value to companies by quantifying—using real market data—the effectiveness of offline, online and outdoors media and how much cross-media synergy exists in a particular campaign. Taking this holistic approach to marketing contributes to the ubiquity of a company’s brand in consumers’ mindset, and that’s priceless.

As the legendary Don Schultz, who pioneered the concept of Integrated Marketing Communications, says in Marketing News, “…using the Naik and Raman approach, a marketer can better determine how much to invest in which advertising medium, which media form or forms to use, which one to emphasize, …and several other traditionally difficult allocation questions.”

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