marginally subversive

Planning for Marketing? Think Finance - Think Lifetime Value

via www.youtube.com

Marketing has borrowed quite extensively from Finance in the last 10 years.

As marketeers, we've started talking about returns on investments - finding the "biggest bang for our buck".

Some (like my former team in a previous company) have started talking about risk management procedures - not just in managing contracts (and employing "options"-like buying techniques), but also in delivering gross impressions and shares.

All these are well and good.

Perhaps this is one way of the marketing department proving themselves to the finance department - an attempt to say that 'we are more than just an expense line on the balance sheet'.

But as marketeers and suport-teams of the marketing department, we have got to do more.

Employing evidence-based marketing, metrics-based objective-setting and results evaluation, real profitability analyses that take into account present and future value of marketing investments --- all these need to be more apparent in the marketing department's language and in the language of its partners in the advertising, media, promotions, PR, research, and digital space.

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'cause we are living in an "algorithmic" world...

 

What is an ALGORITHM?  From Wikipedia: 

In mathematics and computer science, an algorithm (ⁱ/ˈælɡərɪðəm/) is an effective method expressed as a finite list^[1] of well-defined instructions^[2] for calculating a function.^[3] Algorithms are used for calculation, data processing, and automated reasoning. In simple words an algorithm is a step-by-step procedure for calculations.

 When will marketing planning and decision-making be replaced by algorithms?

With the explosion of data and the continued emergence of analytics as part of marketing planning, algorithms are not too far off in the future of marketing.

Will people be replaced by algorithms?  I don't believe so.

Algorithms and any decision-making process (which is what algorithms are geared towards) will not be accountable for results - people are the only entities who can be accountable for choices that they make for themselves and for others.

 

What is strategic planning?

Every now and then, I would be asked what strategic planning is all about.  It never was an easy question to answer, to be honest. I always found it easier whenever there was a handy napkin and a pen around to explain what strategic planning is all about. 

So I thought I'd take a stab at crafting an integrated visualization of what strategic planning is all about. 

Having seen a lot of planning processes in my career - and having lived to see the rollout of at least five rolled-out, championed, and mandated processes in one company, I believe it all boils down to this one chart.

 

The drawback with this visualization is that it is static - whereas strategic planning, in the real world, is dynamic.  Because the issues that strategic planners tackle are also dynamic and changing. 

Until I find a way to dynamically visualize this diagram above, I will have to use words to come up with a description of the diagram above:

Strategic planning is the science (because it needs hard evidence and information) and the art (because the information and the evidences need to be processed in an integrative manner by a human being who has an opposable mind) of understanding the complex dynamics between brands, consumers, messages, and media platforms set against the constantly-changing social world (which is not just the digital-powered sites and services, but the real social world) and the constantly-shifting, risk- and opportunity-brimmed business environment.  The purpose of strategic planning is ultimately to effect a shift in the business of the brand.

It is still is a mouthful, really.  

And complicated.

Because it really is.

The output may be simple and elegant.  It could be captured in a 1pager or in a 5-slide deck or in a 15minute presentation.  But the process leading to the output is not so simple as the output.

I will try to elaborate more in the next few blog entries the dynamics of the diagram.

Stay tuned!

 

 

of chickens and eggs: is there a definitive answer?

I had a very interesting conversation with a good friend a couple of weeks ago about causation and inferring causal relationships haphazardly.

One of the questions that stuck in my head was this:

Are big companies big because they advertise a lot?  
Or do they advertise a lot because they are big?

Sounds like a chicken or the egg situation: which came first, the chicken or the egg?

(My friend thinks it's neither - it's the archaeopteryx.  To which I argued, "That was a bird." To which she said, "Nope, that's the ancestors of birds." ... I have weird friends, I know.)

But it is something worth pondering - because at the root of this question is the question of causality.

Causality is supposed to be simple:  

If A happens, B happens.  
Without A, B does not happen.
Therefore, A causes B.

Or is it?

What if there is a lurking variable C that is somehow related to both A and B, such that:

If A happens, C happens.
If C happens, B happens.
If A does not happen, C does not happen.
If C does not happen, then B does not happen. 

Can we still consider arrive the same conclusion that "A causes B"?

 

Let's make it even more complicated:

If A and C happen, B happens.
If A happens, B does not happen.
If C happens, B does not happen.
If A and C don't happen, B does not happen.
Therefore A and C happening cause B happening.

 But what if A and C are themselves related somehow?  Worse, what if A causes C?  Or what if there was another variable D that we have not considered that is making the presence-absence of A and of C?  Can we still arrive at the same conclusion?

I am no logician.  And I am pretty sure that there is an answer to these.  

I can already hear my psych professor going "Do a proper experiment in a laboratory setting eliminating all potential confounding variables, and measure properly - and do it several times - and get others to do it several times too".  But sometimes, experiments are not easy to do.

Even the most stringent of experiments still tend to have some flaw in it.

So what now?

All I can say, for now, is - 

And for now, I have no answer (because my brains are swimming in some melatonergic medicine).

 

 

 

 

it's the season for discounts... and time to buy?

a friend has this philosophy about the discount season:  "sale seasons are designed such that you spend in order to save.  hence, i don't wait for them.  i buy regardless if it's the discount season or not - as long as i need it and i have the cash to get what i want."

the same is true with marketing:  a lot of people are so concerned with ROI - and i mean the numeric ROI that comes after a thorough understanding of the factors that make up the formula (returns/costs).  it doesn't matter whether the costs are high or low - so long as they get a "decent", acceptable ROI.

well.

ROI - when misused - is like spending lots in order to get more.

ROI planning is not bad.  but it is only one facet of planning that needs to be taken into account.  there are more. 

(and as an aside, I should say, what really is ROI?  my first bosses impressed on me that ROI is not savings, discounts, nor simple calculations.  we went into discussions of NPVs, FVs, cashflows, future value of money, internal rate of return, and all that - things i never really mastered [i doubt if i understood them at all] in order to really calculate the ROI.  and yes, this was in the marketing department.)

i guess, to each his/her own with regard to measuring ROI.

and i guess that is also where the problems lie.

a focus on ROI can lead to misuse - and disastrous, contradictory - and perhaps, unintended - results.

 

 

38 ways to win an argument according to Schopenhauer...

I picked this one up from my other blog, which I got from this blog.

Presumably, this is from Schopenhauer, a German Philosopher, who is quite well-known for his clarity of thinking.  Though I never read his works in the university, I have heard of him and his influence on Nietzsche, Wittgenstein, and the psychologist, Carl Gustav Jung.

These stratagems to win any argument were lifted from one of his books, The Art of Controversy, which as you will find out is quite controversial indeed.  In this book, he enumerated how one can win any argument.

Well, it doesn't necessarily mean that one ought to follow them - one needs to be aware of them in order to deflect any attempts of others in using them to win an argument.

Will I recommend someone using these?  I am not sure.  Going through the list, I think these do increase the chance of winning an argument - but they do not necessarily facilitate truth nor are they conducive to real, clear communication lines.

I will recommend reading through them in order to know and be aware.

1) Carry your opponent's proposition beyond its natural limits; exaggerate it.
The more general your opponent's statement becomes, the more objections you can find against it. The more restricted and narrow your propositions remain, the easier they are defend.

2) Use different meanings of your opponent's words to refute his or her argument.

3) Ignore your opponent's proposition, which was intended to refer to a particular thing.
Rather, understand it and state it in some quite different sense, and then refute it. Attack something different than that which was asserted.

4) Hide your conclusion from your opponent till the end. Mingle your premises here and there in your talk. Get your opponent to agree to them in no definite order.
By this circuitious route you conceal your game until you have obtained all the admissions that are necessary to reach your goal.

5) Use your opponent's beliefs against him.
If the opponent refuses to accept your premises, use his own premises to your advantage.

6) Another plan is to confuse the issue by changing your opponent's words or what he or she seeks to prove.

7) State your proposition and show the truth of it by asking the opponent many questions.
By asking many wide-reaching questions at once, you may hide what you want to get admitted. Then you quickly propound the argument resulting from the opponent's admissions.

8) Make your opponent angry.
An angry person is less capable of using judegment or perceiving where his or her advantage lies.

9) Use your opponet's answers to your question to reach different or even opposite conclusions.

10) If your opponent answers all your questions negatively and refuses to grant any points, ask him or her to concede the opposite of your premises.
This may confuse the opponent as to which point you actually seek them to concede.

11) If the opponent grants you the truth of some of your premises, refrain from asking him or her to agree to your conclusion.
Later, introduce your conclusion as a settled and admitted fact. Your opponent may come to believe that your conclusion was admitted.

12) If the argument turns upon general ideas with no particular names, you must use language or a metaphor that is favorable in your proposition.

13) To make your opponent accept a proposition, you must give him or her an opposite, counter-proposition as well.
If the contrast is glaring, the opponent will accept your proposition to avoid being paradoxical.

14) Try to bluff your opponent.
If he or she has answered several of your questions without the answers turning out in favor of your conclusion, advance your conclusion triumphantly, even if it does not follow. If your opponent is shyr or stupid,and you yourself possess a great deal of impudence and a good voice, the trick may easily succeed.

15) If you wish to advance a proposition that is difficult to prove, put it aside for the moment. Instead, submit for your opponent's acceptance or rejection some true poposition, as though you wished to draw your proof from it.
Should the opponent reject it because he or she suspects a trick, you can obtain your triumph by showing how absurd the opponent is to reject a true proposition.
Should the opponent accept it, you now have reason on your own for the moment. You can either try to prove your original proposition or maintain that your original proposition is proved by what the opponent accepted. For this, an extreme degree of impudence is required.

16) When your opponent puts forth a proposition, find it inconsistent with his or her other statements, beliefs, actions, or lack of action.

17) If your opponent presses you with a counter proof, you will often be able to save yourself by advancing some subtle distinction.  
Try to find a second meaning or an ambiguous sense for your opponent's idea.

18) If your opponent has taken up a line of argument that will end in your defeat, you must not allow him or her to carry it to its conclusion. Interrupt the dispute, break it off altogether, or lead the opponent to a different subject.

19) Should your opponent expressly challenge you to produce any objection to some definite point in his or her argument, and you have nothing much to say, try to make the argument less specific.

20) If your opponent has admitted to all or most of your premises, do not ask him or her directly to accept your conclusion.
Rather draw the conclusion yourself as if it too had been admitted.

21) When your opponent uses an argument that is superficial and you see its falsehood, you can refute it by setting forth its superficiality.
But it is better to counter with an argument that is just as superficial.
Your concern is victory - NOT truth.

22) If your opponent asks you to admit something from which the point in dispute will immediately follow, you must refuse to do so, declaring that it begs the question.

23) Contradiction and contention irritate a person into exaggerating their statements.
By contradicting your opponent, you may drive him or her into extending the statement beyond its natural limit.
When you then contradict the exaggerated form of it, you look as though you had refuted the orginal statement your opponent tries to extend your own statement further than you intended, redefine your statement's limits.

24) Make a false syllogism.
Your opponent makes a proposition; force from the proposition other propositions that are unintended and are absurd through false inference and distortion.

25) If your opponent is making a generalization, find an instance to the contrary.
Only one valid contradiction is needed to overthrow the oppoent's proposition.

26) A brilliant move is to turn the tables and use your opponent's arguments against him or herself.

27) Should your opponent surprise you be becoming particularly angry at an argument, you must urge it with all the more zeal.
Not only will this make the opponent angry, it may be presumed that you put your finger on the weak side of his or her case, and that the opponent is more open to attack on this point than you expected.

28) You make an invalid objection to your opponent who seems to be defeated in the eyes of the audience.
This strategy is particularly effective if your objection makes the opponent look ridiculous or if the audience laughs.
If the opponent must make a long, complicated explanation to correct you, the audience will not be disposed to listen.

29) If you find that you are being beaten, you can create a diversion -  i.e., you can suddenly begin to talk  of something else, as though it had bearing on the matter.
This may be done without presumption if the diversion has some general bearing on the matter.

30) Make an appeal to authority rather than reason.
If your opponent respects an authority or an expert, quote that authority to further your case. If needed, quote what the authority said in some other sense or circumstance. Authorities that your opponet fails to understand are those which he or she generally admires thae most. You may also, should it be necessary, not only twist your authorities, but actually falsify them, or quote something that you have invented entirely yourself.

31) If you know that you have no reply to an argument that your opponet advances, you may by a fine stroke of irony, declare yourself to be an incompetent judge.

32) A quick way of getting rid of an opponent's assertion, or throwing suspicion on it, is by putting it into some odious, detestable category.

33) Admit your opponent's premises but deny the conclusion.

34) When you state a question or an argument, and your opponent gives you no direct answer, or evades it with a counter question, or tries to change the subject, it is a sure sign you have touched a weak spot, sometimes without you knowing it.
You must, therefore, pursue the point all the more, and not let your opponent evade it, even when you do not know where the weakness that you have hit upon really lies.

35) Instead of working on an opponent's intellect, work on his or her motive.
If you succeed in making your opponent's opinion, should it prove true, seem dinstinclty to his or her own interes, the opponenentwill drop it like a hot potato.

36) You may also puzzle and bewilder your opponent by mere pomposity or use of highfalutin words.
If the opponent is weak or does not wish to appear as if he or she has no idea what you are talking about, you can easily impose upon him or her some argument that sounds very deep or learned, or that sounds indisputable.

37) Should your opponent be in the right but with a faulty proof, you can easily refute it and then claim that you have refuted the whole position.
This is the way which bad advocates lose a good case.

38) A last trick is to become personal, insulting and rude as soon as you perceive that your opponent has the upper hand.
In becoming personal you leave the subject altogether, and turn your attack on the person by remarks of an offensive and spiteful character. This is a very popular trick, because everyone is able to carry it into effect.

via experimentalist.posterous.com and http://melsantos.blogspot.com/2005/06/schopenhauers-38-stratagems-or-38-ways.html. For the complete list in German and in English, see http://coolhaus.de/art-of-controversy/

creativity is under threat...

... and given the current business scenario that we are in, we cannot afford to allow that creativity be threatened.

Teresa Amabile writes about this in a blog at HBR.Org.  Creativity is threatened whenever the elements that promote creativity are threatened.  From the CFO's viewpoint, the curtailment of these elements may very well be financially sound or logical - but curtailing creativity for the sake of financial goals is certainly very myopic.

Cutting down on elements that induce, facilitate, and catalyze creativity could very well result to savings for the quarter and appease angry shareholders.  But the consequences that will emerge beyond the quarter or the year far outweigh the short-term benefits.

What are the elements that companies should protect in order to ensure that creativity could and would save the day?  Amabile identifies three:

1. Smart people who think differently - or people who somehow have a repository of untapped knowledge and untapped stories.  Or people who see the crisis as a crisis and an opportunity to do better.

2. Passionate engagement - or letting people do what they love.

3. A creative atmosphere - or an atmosphere where people are encouraged to experiment, take considered and calculated risks, and where fear of failure is not the defining feeling. 

I hope that CEOs and other C-level execs would heed Amabile's advice.

 

 

of statistical and econometric models and reality

A former colleague of mine who was one of those few econometricians who could make a non-econometrician understand what they are trying to say by focusing on the "spirit of the equations" (his words) had a very great way of putting how to approach stat/econometric models.

This is how he said it:

A model helps you grasp reality easily.  It doesn't mean it is real.  If it were real, then life would be a lot simpler that it really is.  It also doesn't mean it is NOT real: it is an abstraction of what is real - i.e., lifted off what is really happening.  The end goal of the abstraction is for us to be able to understand reality.

Think of it as the map of London Undeground:

This helps you go around the City.  But it doesn't mean this is exactly how it is in reality.

If you really want to look at how the tubes are laid down in London, here is how it looks like:

The tubes are laid down complicated - but the schematic diagram of the tubes' stations makes it a lot easier to go around the City.

That's what equations and models are for: Guideposts.  Schematic diagrams of complex phenomena.  That one can then use with confidence to get from one point to another.

-----------

In the years that I have been working with statistical/econometric models, I have observed that there are three main categories of people - from clients to agencies to finance people - based on their responses to the models.

There are those who would look at the innards of a model, turn it upside down, question every probability value and statistic, and attempt to backtest/stress-test the model - until they are satisfied it works.  After such satisfaction, the equation is the end-all/be-all of decisions and choices.

Then there are those who would look at the model - and turn up their noses towards it, with the belief that the equaiton cannot capture reality - that it is just a set of equations and numbers.  That after all is said and done, it is the "human mind, wisdom, and experience that really count in making decisions".  There's always the belief that "not everything can be captured by an equation - situations are far too complex to be simplified into one equation".

Then there are those who would look at the model, take an interest in its explanatory power, question its validity, backtest it, stress test it - and then look at the implications of the various parts of the model and how it could affect reality and decisions that they have to make into the future.

Thanks to Kottke.Org for the photos.

marketing analytics: some more thoughts...

it has almost been a year since I wrote about marketing analytics and my attempt at capturing the "principles" that could drive at making marketing decision-making far more evidence- and fact-based.

i am republishing these thoughts again, but with a stronger emphasis on what's really marketing analytics is all about: interpretation and transformative insights.

marketing analytics is far more than equations and cross-tabulations and significance-testing - although these techniques form part of that.  it is the interpretation that really matters - the "so-what?" and "what-now?"

i realized this after almost a year of not dealing with equations and wonderful world of econometrics, matrices, error-testing, and all that.  [well, *almost* not dealing with equations - i still had to fit curves against numbers and trends and all that beyond OLS and all that...)

equations, econometircs, statistical modelling, regression, arima, arma, time-series, curve-fitting, stat-tests, and cross-tabs are all means towards bigger end: creating an interpretation that makes a difference in the decisions that we will make in an uncertain world.

here are - once again - my thoughts on "marketing analytics principles" with some additional thoughts or comments in brackets

[i will keep the quotes until - well - I retire and/or leave the world of marketing analytics as i don't think i am qualified at this stage to set the principles as real principles.]

 

Marketing Communications Econometrics ‘Principles’
Draft by PTiongson • Wednesday, September 30, 2009

[comment: indeed, this was written on 30 September 2009; how time flies...]

1. Every investment in marketing has an effect on the company’s sales/revenues business.

The goal of econometrics in marketing communications is to quantify these effects and be able to compare-contrast the effects of investments in marketing channels in order to make decisions.

[we are not in the business of driving awareness.  we are not in the business of "being present on-air".  we are not in the business of being on-air where our buddies can see our products - thereby giving us the chance to gloat.  

we are in the business of business:  driving revenues, sales, profits.  

i will even go further and say that we are not in the business of driving impressions, ratings, share of 'voice', 'share of consumer experiences'... if we are not aligned on that, there is no point in investing in advertising.  and yes, investing - not spending.]

2. Revenues and marketing investments have don’t have a 1to1 relationship.

There is a point where additional investments in marketing will not have any significant effect on revenues or other marketing KPIs; beyond which, any additional investments are considered wasteful.

On the other hand, there is also a minimum threshold that needs to be met in marketing investments in order to ‘break through’, be competitive, and generate returns on marketing investments.

This is the economics behind marketing investments – economics is all about the optimal allocation of finite resources, and marketing econometrics is aimed at understanding the brand’s opportunities to optimally allocate finite resources that are not linearly related.

This is where the concept of S-curved and diminishing-return response rates comes in.

[i believe it is human for us to believe that if something is good, then more of that same thing should be better.  case in point?  money.  that same belief seems to hold in decisions that we make for marketing: if 200Mln USD of investments in advertising worked in the past - then we need 600Mln USD will triple our profits or revenues.  Not.

even in my non-regression/non-econometric work in the past have shown that more is not always better - and that when it comes to investing in marketing, bigger is not always better.  i would go on to say that the higher your investments in marketing, the higher the risks - but not necessarily the profits and the returns.] 

3. Investments in marketing communications have an immediate effect on a brand’s revenue.

Marketing communications spent in time period “t” has a measurable impact within the same time period “t”. Marketing econometrics is aimed at understanding the immediate effects of investments so decision-makers can course-correct accordingly.

[we are not in the business of driving awareness.  we are in the business of driving revenues, sales, profits.  if we are not aligned on that, there is no point in investing in advertising.  and yes, investing - not spending.] 

4. Investments in marketing communications have a ‘lingering’ effect on a brand’s revenue.

Marketing communications spent in time period “t” has a measurable impact after time period “t” – though such an impact may well be diminished and not so strong as the initial impact.

Marketing econometrics is aimed at quantifying the persistent effect of a campaign on a brand’s revenue through the use of concepts such as decay rates and ad-stock.

5. Marketing accountability – and therefore, econometrics – needs to take into consideration differences in execution and messages.

While econometrics is a quantitative technique and a science aimed at quantifying relationships between two or more variables, it should take into account the messages that are being conveyed by the brand.

This may be achieved by incorporating dummy variables that code different campaigns of the brand, the use of granular (by-version) data, qualitatively reviewing and comparing-contrasting messages and executions, and other similar techniques.

[the above paragraph is a bit too focused on 'coding' dummy variables - the only way one can have a true understanding of the dynamics of a market is to have a synergistic approach to marketing analytics: one that encompases quantitative, pseudo-quantitative, and qualitative techniques.  sometimes, equations cannot answer the question "why?" - and therein may lie the need for further analyses using non-quant or hybrid-quant analytic strategies.]

6. Marketing econometrics analytics should result to action points.

Econometrics should result to potential action and/or decision points for the clients. These may include (1) making decisions on how much to spend on specific brands, (2) optimizing revenues and other campaign-effects against constrained, finite budgets, (3) optimizing investment lay-down to optimize revenues and returns, (4) creating different scenarios with varying effects, and (5) deciding the optimal course of action given current knowledge.

[if it doesn't lead to action, then what was the whole project for?]

7. Decisions about the future carry risks; these should be taken into consideration.

Econometrics is an application of statistics and probability to test hypothesis on the economics of marketing. As such, there are risks involved. The most basic of econometric models –

Y_t = β₀ + β_iX_i + ε_i

suggest that there are ‘errors’ that cannot fully be accounted for. These ‘errors’ – or innovations – are the source of risks that no matter how robust a certain model is, there will always be unaccounted for variation – and there will always be errors and risks.

Risks should therefore be considered in making decisions based on marketing econometrics – and any other technique.

[nobody has seen the future.  even the most prolific of quant-traders from the field of finance failed to project the breadth and depth of the financial crisis.  and with all the changing variables and scenarios that are all around us, it is foolish to say that "because the equation has a probability of error of less than 1%, therefore it is correct..."  (which is in itself a contradiction).

risks abound - and therefore must be accounted for, and not necessarily measured or quantified - but prepared for.]

8. Risk management principles need to be integrated into marketing analytics econometrics.

Risk management aims at quantifying and mitigating the impact of random, stochastic variation (and shocks) in the future. Marketing econometrics provides an opportunity for marketing executives to ‘look into possible futures’ – and a basis to mitigate the effects of negative events.

In the practice of marketing econometrics, this entails not just a review of the distribution of “errors”/“residuals” and their corresponding impact on the brands’ business. This also entails the understanding of each variable/factor’s contributions and effects on the company’s revenues, and the risks they pose on the company’s revenues.

[equations are usually back-tested (tested on previous data) to ensure their accuracy.  but that is not enough.  the past is not always a good predictor of the future - and errors, innovations, shifts happen.  and even with the most robust of models cannot capture all these possibilities.  risk management principles - "management" used very loosely - need to be put in place.  risk cognizance, risk awareness, and preparedness need to be put in place.

and that will require far more than just models, statistical tests, inferential statistics, back-testing, and everything numeric.]