HOK Analyst Josh Harlen explains how remodelling your marketing strategy around the paradigm of “Evidenced Based Medicine” can revolutionise the way you run your Business.
Doctor: “I’m afraid it’s Diverticulitis”
Patient: “Oh no, what do I do”!
Doctor: “Don’t worry, I have a hunch that antibiotics might cure it”
Patient: “You have a hunch??”
Doctor: “Yep, I’ve got a really good feeling about it; antibiotics fix a lot of medical problems, so it should work, hopefully. If not, we’ll try something else”.
“It’s all just a process of trial and error.”
This conversation would, of course, be quite unacceptable in the medical world. Decisions are made with the best available scientific evidence, not with hunches or by guesswork. We call it “Evidenced Based Medicine” or “Best Practice”, and as a patient you wouldn’t want to accept anything less. Your life could depend on it.
Lets lower the stakes a little, and talk instead about marketing budgets. Granted they are not as important as your life, but they’re still an important part of your business. Given the right amount of smart investment, they certainly have the power to shape your profits. But is it reasonable to hold something like a marketing decision up to the same standards that we impose on a medical decision?
I don’t see why not.
With the advent of an increased capacity for collecting customer data across all levels of business, we simply can’t afford to NOT leverage this information in our decision-making processes. A poor marketing campaign can cost us dearly. Many of us know the pain of wasting time and money because of a bad decision. However, good decisions are worth their weight in gold.
To illustrate my point, current research has shown that an increase in customer retention of 1% through marketing efforts can increase a firm’s value by 5%. If you think that’s impressive, studies have also indicated that a 5% improvement in retention can increase profitability anywhere from 25%-85% depending on the type of business you have!
Clearly a good marketing decision has immense power to shape the profitability of a Business, but how do we optimize our own decision-making processes? The solution lies in the adoption of the Medical world’s system of a “Best Practice Approach”.
So how do we learn from the model of “Evidenced Based Medicine” to create our own “Best Practice” of Evidence Based Marketing?
1) Create a Hypothesis
This is your theory. An idea that you wish to test out; here’s an example I made up:
“I think customers are more likely to cross buy within our firm if their initial purchase order is over $500”
We have theories like this floating around in our heads all the time. Unfortunately if I stopped at this point in the process, and started basing my marketing strategy on this theory before testing it, I run the risk of making a very poor, invalidated decision. Instead, I push on to the data collection phase
2) Collect Data
Creating a good data collection policy is crucial. You want to sample as many of your customers (ideally all) in order to improve your chances of finding the truth about your theory. In some instances your research will focus on sampling potential customers and/or current customers
In my next article I’ll talk more about the importance of correctly sampling and surveying. Poorly designed, biased research is the bane of the marketing world, so I’ll be looking at ways to ensure your business doesn’t fall into any common bias-traps.
This step can often be a major hurdle for many businesses, particularly small to medium sized business. If your firm doesn’t have an analyst on hand, you can look to a statistics consultancy firm or a software program for assistance. Bear in mind that software programs often need someone who is statistically literate to oversee the analysis.
In our pretend study, lets say we find a (statistically significant) higher level of cross buy amongst first purchases over $500. We can conclude that our theory is indeed correct. We can now use this information in our marketing decisions. Clearly, to increase the amount of cross buy, we should invest more efforts into marketing our products/services over $500 to first time customers.
5) Further Questions
Often, asking questions will lead to more questions. For instance, we now know that to increase cross buy we want to selectively target customers who are likely to spend over $500 on their first purchase. But who are these customers? What customer characteristics make them more likely to spend over this amount? Can we predict exactly how likely they are to cross buy? (It turns out we can).
Looks like it’s time for another cycle of research! Repeat steps 1) to 5). Over time, you will find your business learns to choose the optimal marketing decision in order to maximise your chances of the desired outcome. This is “Best Practice” at work. By building a base of scientifically validated knowledge you create the capacity to control and shape the destiny of your business at a level that was previously unattainable.