Category: Leveraging Insights

Practical tips for leveraging insights

Is who you’re targeting who’s really buying?

OECS

As part of the development of a good marketing strategy, marketers define their target market, i.e. who they are trying to attract through their branding and advertising efforts. Typically, they take their cue from the corporate strategy, which would assume, inter alia, that the products and services being created by the company would be of interest to their chosen market.

My experience, however, suggests that in some cases there’s a difference between who the company is targeting and who is actually purchasing its products/services. Consider, for example, the restaurant that is focused on attracting young families, but instead sells to a significantly larger proportion of single, busy professionals; young families hardly eat there. Or the financial institution that realised that the segment that they thought were purchasing one of their investment products did not own various high-valued assets but simply had excess cash. Or the boutique that targeted young, fashionable twenty-something year olds, but actually sold more to mature, less trend-conscious forty-something year olds.

So, how do you know for sure that who you’re targeting are the ones actually buying?

1. You ask them. Feedback and customer satisfaction surveys from customers should be part of the market intelligence arsenal of any company that is serious about keeping close to their customers. In addition to making sure you’re meeting their expectations, you should take the opportunity to collect basic information (such as demographic information, how they use your products or lifestyle indicators) to confirm that you know who’s buying your products.

2. You observe them. If you have a storefront, social media presence or any other location where you can watch customers interact with your brand and your products and services, you should take some time on a regularly scheduled basis to see for yourself who’s buying, who’s looking but not buying and who’s walking past your displays without even a passing glance. You should also ask your customer-facing team to give you their opinion.

3. You monitor them. If you’re in a position to collect customer data, the resulting database is a trove of extremely valuable insight into your customer base. The only caveat is that you have to be collecting the type of information that would allow you to check whether your target market are your customers. For example, if you’re targeting persons that are health conscious, but only collecting information on gender and age, you’ll never know if your customers are in fact health conscious. Or if you’re targeting persons within a certain income bracket, but you never actually ask your customers for their income (or some proxy of income) when they sign up, you’d never know if you’re right.

4. You listen to them. In many cases, your customers are already talking about you. They’re sharing their experiences with your products and services on social media and radio talk shows. Pay attention to who is talking and who’s responding. While the loud don’t always represent the majority, they often spark conversations that the majority chime in on. It pays to listen.

At a time when every marketing dollar spent has to count, marketers have to understand if their efforts are spurring the type of demand they intend, and, if not, what (if anything) they should do about it. 

Using forecasts and scenarios in strategic planning

One of the biggest travesties to me in strategic planning – yes, I know I’m being dramatic – is that companies do not incorporate economic forecasts and scenarios into their strategic plans.

I don’t count mentioning the outlook in the background section when you’re setting the tone for the rest of your plans. To me, that’s like when you’re interviewing someone and you ask about their education. It’s an ice-breaker. It is only relevant if they’ve learned something practical and can put it to good use in your organisation. Otherwise, you’re just giving them an opportunity to relax a little. Many companies use economic forecasts in the same way: as introductory material to break the ice and help other people relax in the knowledge that they’ve given this a little thought.

Another common use is as an item to check off a list, which happens frequently in institutions where employees have to compile economic indicators and send to their executive team or board of directors. They couldn’t tell you what the numbers mean or what the implications are for their company, but they’ve ticked the box and can happily move on to something else. What’s worse is that often the executives and board of directors also tick the box that says they’ve seen it, and no one discusses what the numbers mean.

Maybe I should be happy that they’re at least doing this bare minimum, but it’s hard to watch when there’s so much more value that can be tapped.

Here are a few ways that our clients have used economic forecasts and scenarios to help ground their strategies:

  • An insurance company used our forecasts of economic growth, unemployment, insurance claims, insurance premiums and new policyholders to adapt their strategic plan immediately following the 2007 global financial crisis. They were able to brace for the economic slowdown in Barbados before it arrived by implementing revenue-enhancing and cost-control measures as a matter of urgency.
  • Our client in the global consumer goods industry was considering expanding their operations into the Caribbean. They hypothesised that the size of the middle class in the Caribbean was growing and could represent a lucrative market. We estimated the size of the middle class and forecasted its growth, which the company then used to select the best countries for investment.
  • Amidst all of the discussion about potential downgrades to the Barbados dollar and further austerity measures, our client in the financial services industry commissioned an economic scenario building exercise to investigate the impact of various options being debated in the press. The resulting discussion included senior leaders and was designed to ensure that each area within the organisation understood the likelihood and potential impact of each scenario.

There are many other ways that economic forecasts and scenarios can be used in companies. The most important thing to remember is that your organisation does not operate in a bubble; it is part of a wider network of interconnected companies, government institutions, international agencies and consumers. You affect and are affected by the decisions that each player makes. Staying on top of economic trends, and using them to your advantage, is just as important as staying on top of consumer trends.

Solving Problems With Insights

I believe that often to solve a problem we need new insights. But what are insights? I’ve looked up this word in a number of different sources and this is what I came up with:

Insights are the hidden nature of things; the cause and effect relationship that is not obvious to the naked eye.

insights

That’s a bit abstract, I know, but my main takeaway from all of my research is that for someone to have had ‘insight’ into something, they must have seen something that the rest of us don’t see when looking at the same situation. What they see may not necessarily be the insight itself, but the situation may be sufficiently puzzling to warrant research until you discover the underlying cause: the insight.

I found that Freakonomics presented a good example of this. The authors described a situation where juvenile crime was declining despite experts’ beliefs that it would increase. The experts concluded that crime was declining because the economy was booming. The authors, on the other hand, studied the same data and concluded that the economy had boomed before and juvenile crime did not decline so something else must be at work. What they found was that years prior, legislation was passed that allowed women to have abortions. This was particular important for women that were drug addicts, or were social outcasts for other reasons, whose children often were the ones becoming juvenile criminals. The country had now reached a point where these children would be juveniles, but since they were never born, there was a significant decline in potential criminals. Without this insight, we may have believed that the solution to crime was to grow the economy.

So how is it that experts looked at the same data as the authors but did not get the same insights? My theory is that sometimes we see what we expect to see.

Consider this example: profits in your business are declining at the same time that the economy is in a recession. All over the news everyone is blaming lower profits on the decline in economic activity. So, you conclude that we’re doing the best that we can given that the economy is tanking. You looked at your data and you saw what you expected to see: a relationship between lower economic activity and lower profits. Unless the economy improves and your business does not, you may never dig deeper.

Or what about tourism in Barbados? We were told back in 2009 that the tourism industry was declining because of the global economic slowdown. We said okay, that makes sense. But here we are in 2014, the industry is still struggling and the global economy is not. What now?

So how do we know that what we believe to be the cause of a situation really is the cause? Test your assumptions. You may be right, in which case you can speak with more conviction. You may be wrong, in which case you dig deeper.

The unfortunate thing with this solution is that it assumes that you have the data you need to test the assumption. In our business example, if your business does not collect information on revenue by product, location, sales agent, etc. it may not be possible to see if for example you lost a key sales agent and that is why profits are falling. And if you only collect information on tourist arrivals by market and there is no further segmentation into customer preferences, you may never discover that closing a key hotel was the main reason why the number of tourists declined.

The data challenge is not only what is collected, it is also the length of time for which it has been collected. Few companies can boast that they have detailed customer and accounting data from the time they started the company. Some systems simply do not allow that type of storage. It’s hard to pick up patterns with short histories. Suppose your company existed back in 2002 when the world’s economic growth slipped in the wake of 9/11 but you have no data from that far back. How would you be able to tell whether profits slipped during the last recession too?

And so, here are my conclusions:

  • ‘Insights’ can only be ‘insights’ if they are correct
  • We can only prove that they are correct if we conduct the necessary tests
  • We can only test our assumptions if we have data
  • And that brings me to my fundamental challenge: how do we get new insights in the Caribbean with no data?

Surviving the Recession: 5 Steps to Improve Business Decision-Making

I got the idea to write this post when I was writing the Recession and Falling Reserves 2013Q3 review for Barbados. I wondered if all of this doom and gloom about the economy was leading to worse business decision-making. So I did some research and I realised that within many companies marketing spend appears to be down, prices have gone up and projects have been scaled back. The response of corporate Barbados appears to be to cut costs and increase revenue quickly.

This type of reaction is not surprising. The economy is not doing well and companies are in full defensive mode. But does this make sense? Would this type of response actually help the company survive the recession? Would it position the company for extraordinary growth when the economy finally rebounds?

My short answer is no. I am not suggesting that companies go on a spending spree, or that they do not make some hard decisions. What I am suggesting is that they become more focused. So let’s put this in perspective so you can figure out how to not only survive this recession, but emerge a stronger, more competitive and more resilient company.

Improving Business Decision-Making During A Recession

surviving-the-recession

1. Set your strategic goals for at least the next 3-5 years

Before you make any decisions on how your company will respond to the recession, you first need to be very clear on what your strategic goals are for at least the next 3-5 years. Try to be precise. No vague goals like ‘market leader’ or ‘well-respected’. Market leader should be drilled down to something like ‘Top 3 companies in sales of Product X’.

2. Assess the key factors contributing to achieving your goals

Once you are clear on your goals, you can now have a look at your revenue and cost structure with the aim of identifying what truly drives your company’s ability to achieve these goals. Let’s assume that you would like to lead the market in sales in your product category. You first need to understand what drives sales in your market. If it is customer service, then you may not be able to cut staff in this area. If it is product features, then you may have to continue developing that new product, even though it is expensive. If it is location, then you may have to consider pushing ahead with the new storefront.

The keys to accurately identifying these drivers are objectivity and data. By objectivity, I mean being prepared to put aside old assumptions about what it takes to be successful in your market in the search of the truth. The truth is what the data reveals. You may find that your intuitive understanding of your market and the data revelations match. But in the event that they don’t, go with the data. And be prepared to retrain your staff on how to think about their market.

But what if there is no data. First, there is always data. Most companies have accounting records, sales information, staff performance records and general economic information. Second, if the data that you want truly does not exist in your company, create it. You can carry out a survey of your customers, conduct a competitor review or identify what macroeconomic indicators appear to impact your performance.

With the data in hand, you can now test your assumptions mathematically using econometric techniques and/or game theory. Maybe you can do this in-house, but odds are at least part of this research will require the skills of external specialists (see our Market Intelligence and Research and Retainer Services for more information on how Antilles Economics can help you improve your market data).

3. Armed with an understanding of your drivers, you now know what cannot be sacrificed and what can

Armed with your insights on what truly drives your success, you can start considering what changes may be required to support your goals. The first priority is to focus on those areas that cannot be sacrificed: your drivers. This gives you clear guidance on where you must be competitive and what cannot be cut when considering where to trim expenses. For example, at a minimum my company will provide the greatest range of products in category X because customers in my market consider product selection to be the single-most important factor driving their decision to do business with my company.

Any expense or revenue earner outside of your key drivers is fair game once there is no legal reason you have to maintain it. For example, as a banker, you may not be able to lower your deposit interest expense because the Central Bank of Barbados sets a minimum savings rate. On the other hand, you may be able to raise fees, because not only is there no regulation that determines your fees, but it is also not a driver of loan sales.

4. You should focus your efforts on adding additional value to your drivers

The second step is to determine what improvements can be made to add additional value to those drivers. Even in markets with declining demand, there will be customers still seeking your products and services. The aim of this step is to remain top of mind for these customers and capture a larger share of the market. For example, providing an online catalogue of products in Category X or providing an in-store expert on Category X products. These ‘value adders’ should be ranked based on return on investment. This area may also point to an avenue where you can increase revenue. Since customers prioritise this driver, they may be willing to pay extra to receive additional value.

5. Start development on the areas that will support extraordinary growth when the country exits the recession 

Your analysis in Step 2 may reveal upcoming drivers in your market. These are areas that, while not critical to the sale today, are becoming increasingly important. Examples could include more convenient opening hours, ability to purchase online, product samples, emerging attractive segments of the market, certain geographical locations, etc. An analysis of these features should provide you with an indication of what could be in research and development in your organisation during the downturn.

Starting development in these areas may not require incurring significant additional costs. You could restructure the organisation to better align it with your new direction. You could rewrite the copy for your marketing material to focus it on your new target market. You could touch base with a realtor to start looking for the location of your new store. The key to this step is putting things in place to allow you to respond and grow quickly when demand returns.

Surviving a recession requires greater precision in our decision-making than operating during a period of economic growth. But it is not impossible and recessions do not have to signal the demise of your company if you get more focused when making decisions.