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Trends and Outliers

TIBCO Spotfire's Business Intelligence Blog

12/04
2013

Boosting ROI with Data Analysis

When it comes to big data and data analysis for marketing, business leaders want to understand the return on investment that accompanies the use of the tools needed to generate actionable insight from multiple and disparate data sources.

shutterstock 107966804 300x300 Boosting ROI with Data AnalysisTo that end, McKinsey & Co. analysts took a sample among the 400 times they have worked on marketing ROI with clients and found that 15% to 20% of marketing budgets could be invested in other activities or returned to the bottom line without losing marketing ROI.

Based on a rough estimate of $1 trillion annual global marketing spend, $200 billion could be put to better use by using analytics, according to McKinsey principal Jonathan Gordon.

“Big data has arrived,” Gordon notes in a recent blog post. “That’s empowering a lot more analytics. We are seeing marketing ROI increase. Armed with facts, the marketers can be a force for real growth in the company.”

To avoid this waste in the marketing budget, Gordon advises companies to take four steps with analytics:

1. Blank sheet the budget. Budget from the top down every year taking into account where future growth will come from and the company’s competitive strengths. “There’s a lot of ‘I’m budgeting this year what I spent last year, plus or minus a little bit,’” says Gordon.

2. Isolate key locations in the customer decision journey. “This isn’t just a numbers exercise, this is marketing,” notes Gordon. “We all kind of knew the funnel wasn’t quite right . . . in an increasingly digital and social world, the funnel is not a good representation.”

3. Reallocate marketing mix. Bring analytic precision to the budgeting process. Data analysis allows marketers to build better models and generate “hard ROIs” from their efforts.

4. Streamline procurement. Gordon advises companies to use data to drive media purchasing and choosing third-party providers.

“There is a misperception that smart analytics is uploading data to the cloud and waiting for the answer to rain back down,” he says. “Big data doesn’t mean you have to have small judgment. This has to start with: What’s your strategy? And therefore: What are the questions that you want to explore through data?”

Marketers need to balance the focus on business objectives without losing sight of the customer or the data itself, Gordon concludes.

“The marketer of the future has to maintain a sufficient analytics perspective, as well as an eye to the business strategy and the creativity,” he notes.

Michael Schrage, research fellow at MIT Sloan School’s Center for Digital Business, echoes Gordon’s views that big data alters the traditional view of looking at marketing and sales.

While most organizations struggle with the “80/20 rule,” identifying which 20% of customers generate 80% of a company’s profits, big data redefines the fundamentals of the rule, he notes in a Harvard Business Review blog post.

“What happens to innovation and segmentation when serious organizations are challenged to assimilate and integrate 10X, 100X or 1000X more information about customers, clients, prospects and leads?” he asks. “In other words, how much should dramatic quantitative changes inspire qualitative rethinking of the vital few that generate disproportionate returns?”

For example, at one travel services company, analyzing 100 times more data streaming into the firm in less than two years transformed how it tackled loyalty.

While repeat business and revenue were once the dominant loyalty metrics, the company began analyzing the overlaps and intersections between its “best” customers and the social media comments about its service.

By adjusting its definition of loyalty to include and reward its customers with enough of a virtual presence to be influencers, a few hundred customers, out of hundreds of thousands, generated millions of dollars of additional top-line revenue.

“Remote diagnostics and maintenance networks empower industrial equipment firms to simultaneously ask and identify which 20 percent of [their] customers generate 80 percent of the most interesting and/or unexpected uses for the equipment,” Schrage notes.

“Simply by seeking to create, measure and assess 80/20 value creating segments, firms can harness 100X more information to new strategic thrusts. Instead of ‘data being the plural of anecdote,’ 80/20 anecdotes emerge from the data: that is, committing to 80/20 key performance indicators inspires new analytic narratives,” he adds.

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