PRAISE FOR THE INSIGHTS ADVANTAGE " . . . this important work will provide the CEO with a blueprint on how to compete with smarter insights" -Thomas Harrison, chairman and CEO of Diversified Agency Services (DAS), an Omnicom Group Inc. division "Data and analytics are great, but only insofar as they yield insights. If you're serious about insight-driven marketing and sales, you'll read this book and apply its lessons. It's your first step toward decisions based on valid and unique insights about your customers" -Thomas H. Davenport, President's Distinguished Professor, Babson College; coauthor of Competing on Analytics and Analytics at Work "Marco Vriens writes with authority and personal experience on the strategic advantage of validated insights. This approach will help the bottom line for businesses and business units of all sizes" -Christine Betts, general manager for Microsoft "In this period of innovation anemia and marketing data overload, Marco Vriens' skillfully written book shows marketers the necessity and manner of organizing corporate business insights, which are currently all too often hidden in plain sight. Read the book, adopt the approach, and prosper" -Simon Kooyman, CEO of Knowledge Networks "Marco Vriens lays out a blueprint for generating business-differentiating insights and how to profit from those insights. This unique book should be preferred reading for business decision-makers" -Sandra Miller, chief marketing officer of Health Travel Technologies "Companies are literally swimming in data, but data without insight or action is just overhead. Marco Vriens unlocks some of the mysteries of how companies can turn raw data into insight for financial gain. The principles in this book can bring a big advantage to your company" -Tom Markert, senior vice president of marketing for The Home Depot "Finally, someone who possesses deep insight on insight has created a framework to help businesses ex
THE INSIGHTS ADVANTAGE
Knowing How to WinBy Marco VriensiUniverse, Inc.
Copyright © 2012 Marco Vriens
All right reserved.ISBN: 978-1-4620-8395-4Contents
Foreword......................................................ixPreface.......................................................xiAcknowledgments...............................................xiiiIntroduction..................................................xviiChapter 1 Defining the Discipline.............................1Chapter 2 Discovery and Management............................11Chapter 3 Smarter Data........................................27Chapter 4 Advanced Analytics and Modeling.....................37Chapter 5 Enabling Factors....................................67Chapter 6 Action and Impact...................................79Chapter 7 The Bottom Line.....................................101Further Reading...............................................117About the Author: Dr Marco Vriens.............................119References....................................................121Endnotes......................................................135
Chapter One
Defining the Discipline An organization's ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage. —Jack Welch
Defining Insights
When I started working on this book I asked people in my professional circle if they could give an example of an insight they had generated (or come across) that made an impressive impact on a firm. Few could do that. One reason, I discovered, is that we didn't have a common shared understanding of what qualifies as an insight.
If firms (or departments, such as marketing research and analytics) are to generate business insights, they need to define what qualifies as an insight and to start capturing and tracking these insights. Although this seems elementary, rarely have I seen it done, and this is surprising given how often the term insights is increasingly being used—in the names of internal departments, in the names of external suppliers, and in day-to-day language. Instead of tracking insights, insights departments track the specific projects that they have done or are doing. The results of such projects may contain insights, but often they are not called out as such, and they are not tracked or managed.
In this chapter I will give a definition of insights and present a framework to help firms keep track of and manage insights.
I have come across a few definitions of what constitutes an insight in the literature. For example, one definition states that an insight is "new information giving you actionable ideas to drive your business in your stated desired direction and provide competitive advantage." This is a great definition. It states that for something to be an insight, it needs to be new, it needs to be actionable, and it needs to move the organization in a stated desired direction. I agree that anything that has these qualities can be called an insight. Another definition states that an insight "involves building complete pictures from multiple sources." A third definition states that "Deep insights are based on the fundamental or core meanings customers have about a topic such as an activity (snacking), a problem (cleaning floors), or a product (computer software), and the role it plays in their lives. These deep meanings operate in largely unconscious ways to structure, guide, and motivate customers' more conscious interpretation and choices." The latter two definitions are focused more on "understanding," and there is no requirement that the insight be actionable. These definitions are actually trying to describe how an insight could look. This is helpful when one is searching for insights. Based on these examples, I loosely define an insight as follows:
Thoughts, facts, data, or analysis of facts and data that induce meaning and further understanding of a business challenge and create an urgency to act or rethink a business challenge in terms of its problems or solutions.
This definition doesn't set the bar too high, which is important for two reasons:
1. This will motivate teams to start articulating and measuring the. number of insights generated, as people will believe they can actually generate insights and are not paralyzed by something that seems unachievable.
2. Individual small insights may not lead to bold action themselves, but2. they can lead to a bigger insight or make the existing smaller insights more credible.
An initial insight need not be based on explicit data or analysis. It may be a thought, hypothesis, or insight someone has formed based on past experience. I recommend capturing these insights. Calling out an insight does not mean the firm should act on it. Insights need to be validated, and further requirements should be in place. We return to this topic in chapters 2 and 6.
From Specific to Foundational
Now that our definition is in place, we need to know how the insights should be used and what to expect when it's time for a firm to act on these insights. For that purpose it is useful to differentiate between specific insights, broad insights, and foundational insights.
Specific insights pertain to a specific product, service, or issue. Organizations running their business face a series of recurrent tactical decisions, such as what product improvements to implement, what new product concepts to move forward with, how to set a price, if and how to set a promotion, and whether message A is better than message B. In some cases, specific insights can have an impact at the firm level. If that is the case, one needs to anticipate organizational barriers so the firm can act on the insights (see chapters 6 and 7).
As an example of a specific insight, let's look at how Marriott came to add an iron and an ironing board to their hotel rooms. Some of you may remember the days before almost every hotel room was equipped with an iron and ironing board. As the "customer satisfaction movement" was speeding toward its high point in the 1990s, managers at Marriott had decided to spend the amount remaining in a particular budget to install small televisions in the bathrooms of some of its Marriott flagship brand properties. We might imagine that this decision was informed by careful study of guests' needs, their wants, and the amount of time they spend in the bathroom when they stay in a Marriott hotel. However, it may have been a case of "feature creep," in which the addition of an extra TV in each room might have resulted in a few more guests being "delighted" with their Marriott stay. Before going ahead with this plan, Marriot decided to examine some data on the requests guests were making to the housekeeping department. Guests most often asked for an iron. Therefore, they assumed, equipping guest rooms with irons and ironing boards would generate more customer delight than placing TVs in the bathrooms. Moreover, the cost differential meant that many more rooms would have irons than would have TVs in the bathrooms. That is why today you often find an iron in the closet of your hotel room rather than a TV in the bathroom.
Insights on specific decisions can help avoid costly or time-wasting mistakes and can have a positive impact on the firm when the insights are valid (I define this in the next chapter) and used in the appropriate way by the decision-maker. Any firm looking to create a competitive advantage needs to generate and use such insights better than their competition does. Given that there is an established set of methodologies to generate specific insights for tactical decisions, it may be quite difficult to do this "better" than the competition. Firms are exposed to and utilize similar research approaches; therefore, they tend to obtain similar tactical marketing insights. However, even if firms have the same set of in-house insights, a competitive advantage can still be gained by making the best use of these insights. We discuss this topic in chapter 6. Neglecting to use tactical insights appropriately will likely lead to competitive disadvantage.
Broad insights illuminate a business situation without immediately pointing to a specific decision. For example, an insight could indicate a slowly eroding advantage of the firm. It may not be immediately clear what the best response is. The impact of broad insights is achieved in terms of further research, analysis, and thinking.
Foundational insights are broad insights with the added benefit that they apply to a wide range of businesses, products, etc. They are more "law-like" in the sense that they do not lose validity over a long period. An example of a foundational insight is "Leading customer satisfaction drives stock performance."
There are at least two reasons why foundational insights are needed:
1. They provide a valuable context if one discovers more specific insights, for example, when insights on driving customer satisfaction are discovered. The foundational insight immediately provides the context for assessing the value (value is discussed in chapter 2) of this more specific insight.
2. Often, decision-makers need to make decisions when there is not enough time to do a formal new research or analytics project. In these situations, having a set of foundational insights available may help ensure decisions are at least directionally solid.
From Avoiding Mistakes to Strategic Advantage
Another way to differentiate between insights is to consider the type of impact an insight can have. In many firms marketing research is often done to support specific areas. For example, it may be done to support product development. This would include marketing research projects aimed at understanding unmet needs, assessing the market opportunity for a new product, testing new product concepts, and feature optimization. Marketing research or analytics may be done to support commercial or go-to-market research. This would include testing communication messages, positioning statements, and advertising.
There is nothing wrong with using marketing research and analytics for such purposes. Firms, though, will have an advantage if they adopt a broader scope and call out types of impact that are defined in more general terms. I recommend five types of beneficial impact an insight might have for a firm. These are summarized in table 1.1.
Avoiding Mistakes
Doing formal market research can reduce the likelihood of a mistake. One of the big benefits of market research and analytics is that a firm can prevent costly mistakes. Business blunders are being made every day and it is known that human judgment and decision-making are subject to many flaws and biases. The failure rate of new products is estimated to be somewhere between 40 and 75 percent. Examples of marketing mistakes cited over the years include New Coke, Ford Edsel, and McDonald's Arch DeLuxe. In their book Counter-Intuitive Marketing, market research consultants Clancy and Krieg cite many examples encountered during their twenty-plus years in consulting. The bad decisions they cite were often based on "intuition" or were rushed into despite the availability of "specific" insights, often resulting in catastrophic results. They called this "testosterone decision-making."
If a firm generates insights beyond the typical product/market domain, it can further reduce the likelihood of making costly marketing mistakes. However, in order to further avoid mistakes, we must have an explicit framework as to how insights should be linked to quality decisions. If we are disciplined in our search and use only valid insights, we can reduce the number and severity of the mistakes we make. I discuss this topic further in chapters 2 and 6. This is an important purpose for insights. Just as in chess or tennis, the winner is often the one that makes the fewest "unforced" mistakes. An example of where a company was able to avoid making a major mistake is Boeing's strategic decision to focus their "Dreamliner" project on fuel efficiency instead of passenger capacity, as Airbus did.
Early Warning
Insights can alert us to a potential threat in the (near) future that can dramatically alter the firm's revenue and competitive position. This threat may be a changing demographic, a changing technology, and/or a new emerging competitor. Early warning insights can come from a variety of sources and methodologies, such as formal forecasting, analytics, marketing, scenario planning, or competitive intelligence, or from capturing and analyzing unstructured "news" information. The three examples below demonstrate the diversity of early-warning insights and show how they can come from a variety of methodologies.
1. Encyclopedia Britannica: In their book Winning Decisions, Russo and Schoemaker describe how Encyclopedia Britannica saw their sales drop by as much as 53 percent because they insufficiently understood the growing appeal of the CD-ROM. This example shows how not recognizing a new technology led to a disastrous outcome.
2. Microsoft and Linux: Microsoft recognized the potential threat of Linux. As early as 2003, Microsoft did extensive research on a small competitor, Linux, and started tracking awareness and usage of Linux. At that time I developed a statistical model that predicted the market share potential of Linux and identified what would be the key driver of this potential share gain. These insights, along with others, showed the potential Linux had as a game changer. As a result, Microsoft put considerable effort into keeping this competitive threat at bay. Reed Cundiff, the general manager of marketing research and insights at Microsoft, says, "Everything from framing the problem through to specific messaging points and engagement with core audiences was insights-driven."
3. Frito-Lay: Frito-Lay needed to understand and anticipate changes in preferences for its snack categories resulting from demographic, economic, and health trends. So they developed a comprehensive forecasting system covering nine hundred snacks. The model that has been in use since 2006 accurately predicted what categories would grow and shrink, and it helped the company focus on the growth categories. This affected not just marketing but also finance and R&D and had a sizable impact on the overall performance of Frito-Lay.
Early-warning insights are less likely to come from traditional market research and analytics, because forecasting or scenario planning are often not an integral part of a marketing research or analytics group, and new competitors or trends begin quite small and do not tend to show up in survey research, or they are not recognized as a potential growing threat.
Efficiency
Insights can help the organization market or produce more efficiently, leading to higher profits. Standard market research and analytics is usually quite good at generating insights that lead to more efficient marketing. Examples include selecting only the most promising new product concepts, thereby avoiding wasting time on concepts that would likely not make it to launch, or identifying customers in your database most likely respond to cross-selling efforts.
Opportunities in this area lie in recognizing the full scope of possibilities to increase marketing efficiency (see chapter 4 for an extensive review) and in expanding the domain from merely increasing marketing efficiency to increasing operational, finance, and human resources efficiency. For example, John Deere identified insights that led to more efficient product lines. By reducing the number of possible configurations while maintaining customer preference and demand, they were able to increase their profits for these product lines significantly. Offering fewer choices improved production efficiency, which allowed the company to reduce production costs while keeping sales constant. This led to an overall gain in profitability. Reducing the number of possible configurations they offered by 20 to 50 percent increased profits in the 8 to 18 percent range.
Interestingly, on the marketing side, there are now examples of situations of increasing sales (not just profits) by offering fewer choices (reducing the assortment), especially in situations of too much choice. In a natural experiment by an online grocer the stock-keeping units (SKU) size was reduced for 94 percent of the product categories (assortment across was reduced by 20 to 80 percent across product categories available). Overall sales increased by 11 percent! In the first half of the 1990s, Procter & Gamble cut its number of products by one-third, often with gains in market share!
Growth
Insights can help create and grow a market, and they can help grow market share. The two examples of growth insights summarized below show that both qualitative and quantitative insights can lead to a breakthrough set of actions.
1. When Gilead Sciences introduced a new AIDS drug with demonstrated advantages over existing drugs, the organization noticed that sales among patients already undergoing treatments were much slower than expected. They subsequently gained valuable insights that deepened the emotional understanding of what motivates patients to switch drugs, leading to a different way to position and market the drug. After acting on these insights, Gilead saw the market share of its main competitor drop by 33 percent.
2. Sunbeam sought a turnaround in the early eighties. In 1981 Sunbeam was acquired by Allegehny International, and it was decided to redesign its mature lines of small kitchen appliances. The insights that drove this decision were extracted from multiple (strategically designed) datasets (i.e., an attitude survey, an attribute and benefit survey, and a conjoint study), along with advanced analytical techniques, such as conjoint simulations. Before embarking on this redesign project, their product line had a unit market share of less than 10 percent, and Sunbeam ranked fifth in share rank in the food processor market. The analytical insights based redesign was introduced in early 1984, and by the end of that year the market share of the redesigned product line had exceeded 10 percent and ranked fourth in overall market share.
(Continues...)
Excerpted from THE INSIGHTS ADVANTAGEby Marco Vriens Copyright © 2012 by Marco Vriens. Excerpted by permission of iUniverse, Inc.. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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