SEXY LITTLE NUMBERS
Sexy Little Numbers
Paul B. Brown
David Ogilvy, who is well known as the father of modern creative advertising, has set Ogilvy apart based on its creative efficiency. From my previous job I got to know about Ogilvy as the leading agency in advertising field. They are significant in their works, standing out of other agencies for their distinctive creative ideas. That was the reason why I felt so much interested in looking this book and read about their stories of creative works.
Sexy Little Numbers written by Dimitri Maex, president of Ogilvyone New York, is the practical books useful for those who want to improve their sense to numbers in the world of marketing like me. This book shares contents that I am looking for like: Big Data, business case study of some companies like: CISCO, Coca-Cola or Unilever, etc., value chain model, market share, self- creating the database , written data from what people write on internet, internal and external database, How much budget we should spend, the spend/get curve, econometric models, budget allocation during the economic downturn, how to measure efficiency? data visualization, how to focus in efficiency and reduce wasting? Should you pay to buy database? or unlimited economy. The book mostly mentions about the marketing field, however I believe topics in the books are those which make most concern to the companies, especially in the time that technology, business, society are developing so fast and influencing so massively to each other like nowadays and the future of big data is huge and promising. A person or a company who can possess big data, can control the world and take its advantage to have the huge business opportunity. Data helps make money for enterprise.
Why the little numbers always contain huge power?
Dimitri opens the book by explaining Why the little numbers always contain huge power. I remember in my previous works in a head hunter company, owning the big data of talents who were doctors, nurses and specialists made the big advantage for my company to approach successfully the hospitals to introduce these talents and bring the revenue to company. That was my first time to become aware of database and its business and connection opportunity.
Nowadays marketing or sales activities are not anymore followed this traditional way, but the effectiveness of marketing campaigns can be updated in real time and a company can identify exactly which customers can bring mostly profit to business. These are resulted from the marketing mathematics, a field in which data analyzing is as a science and arts subject.
I used to have the opportunity to cooperate with Nielsen research company which is the leading agency in the field of research and strategic consultancy. Based on the analysis of market data, we could see a very big image of how the market is ruled by customers’ need. We could see clearly that nowadays which marketing has in hands many powerful scientific tools has arrived, as well as the effectiveness of right approaching methods to customers and the evaluation of effectiveness and actions have been proved. Back to the history of the year 1872, when Aaron Montgomery Ward invented mail-order catalogue, one of the direct-response tools which was created from measuring the business effectiveness and progress optimization, I have recognized that this invention idea has been derived from Aaron’s effort to understand the customers’ need, motivated Aaron to find the way to approach more effectively them and took the customers from the hands of competitors.
Nowadays when the world is aiming to AI technology and the need of connecting between the online and reality platforms is increasing incredibly in all fields of businesses, I am self-aware that I need to study more skills and knowledge to catch up the speed of technology and not to be put behind of it. That is the reason why I am excited about digital marketing, or I have been so curious to know how an advertising could recognize my need and chase me to the end of my searching process for a product. Technically that was involved by marketing specialists who can know exactly the time the customers look at an online advertisement, which attracts them to click on, as well as which advertising campaigns can really be effective. The power of database has changed direct marketing. One research with big data of customers has proved that if customer retention rate increases 5%, profit will increase 25% to 100% or a small rate of customers which are most valuable can account for the most of turnovers. This is quite an interesting and useful knowledge that I should notice.
Big data resource collected from digital platforms helps companies understand well their customers and optimize CRM tools (Customer relationship management) to make more profit for their business. This took was done a lot by my previous company, which is distributing ECCO and COLE HAAN products in Vietnam and I could learn that having the big data is important, but understanding and being able to use it are different things. Using super computers together with using advanced analysis tools transforms the data mountains into wisdom tools which can support the business systems and progresses to work smarter.
Strategy to categorize customers according to the market share
When talking about market share, Dimitri has started in very different explanation way. According to other writers I have known market share is defined as the piece of market that shows how many percentages of market one company possesses compared to their competitors. Dimitri explained differently that market share is like ‘a share of a wallet’ that shows how much your customers decide to pay for your products while also shopping at same time other products which are competing to your products. This is very smart way to explain the market share focusing more on the customers and bring the realistic picture of the competition, of how companies are ‘fighting’ for every pieces of market share for their companies.
By defining the market share, categorizing customers group into 4 types: low value- low faithfulness, low value- high faithfulness, high value- high faithfulness and high value- low faithfulness, the company can understand the customers easier and do better customers relationship management as well as have better strategic plan and action to increase sales or revenue. In Vietnam, we have a spoken sentence that may describe this strategy: Choosing your friends wisely. In this case, it means choosing the target customers and identifying what the company should do to satisfy and be ‘friend’ for each specific types of customer wisely. For example, Dimitri has advised in the book that, the company should focus more on high value – high faithfulness customers or high value – low faithfulness customers in order to maintain their high value and increase their faithfulness as well. I think this is a good strategy, somehow supporting well for the Pareto theory: 20% customers will bring 80 % of revenue to your business (stated by Vilfredo Pareto). This 20% of customers really matters more than the rest in the customer database. However, I have learned that analyzing and understanding the customers and making suitable decisions are very challenging tasks. The leader must have ability to analyze and evaluate the situations, as well as strategic creative thinking skill or wide vision to the business situation. I remembered how my last company did to keep ‘legs of faithful customers’; they paid much attention in identifying what values of ECCO brand make their customers care most. Beside quality, ECCO brand has been existing as the premium brand in the mind of customers who have generous wallet. Those would like to spend money for luxurious products and to be respected and ranked as the valuable customers. Therefore, my company aimed to develop the luxurious shopping experiences to these customers, instead of offering more discounts for them all the time like other competitors did.
Customer segmentation using marketing mathematics
Furthermore, Dimitri also mentioned the customer segmentation and how that benefits for business. Accordingly customer segmentation helps the leader to have an overlook of market, identify the market needs that company can satisfy, be able to distribute the company resources accurately and strategically and as well as be able to anticipate the customer behavior in the future. In my opinion, this is so important step to both B2B and B2C business that the companies should not ignore. Understanding customers is to know well who the company is selling to and what the company’s customers’ insights are in order to create the products or service that can attract and satisfy the customers most making the products or service more have more competitive advantage more than competitor. That was why the pet food marketing director in my previous company has decided to cooperate with Nielsen company as he explained that customer segmentation plays an important key role in saving the cost for company which related to cost managements of whole supply chain system, included of production, R&D, transportation, etc. to bring up the final products. All of these are very challenging missions, but it really makes marketing works so attractive in my eyes. This attraction is like when we could see the revenue numbers, or the quantity of orders continued to increase well after the efforts of marketing activities.
A little trick of marketing mathematics was given out by Dimitri to identify the customer segmentations based on the values included of: current revenue by customer, risk level which means the ability the customer can continue to buy from company, intensity point which means if the customer always buys every new recommended products, and the market share that company could not achieve from that customer. This math is quite complicated to understand, however I can see that it is interesting to see how Dimitri who has an amazing brain and high lever sense to numbers could discover and use the number analysis methods for identifying the customer segmentation. Dimitri won the project by offering the solutions for this problem of his customer, but I think he earned more than that by discovering the amazing truths hidden behind the numbers and I think it was very valuable that he shared this in his book. I wonder whether all leaders are good at numbers or be able to control numbers as good as Dimitri?
Dimitri has written a very detailed story of how this project played out? and through it, he taught the audience about how he used his mathematical mindset in analyzing or converting his logical prediction into a math of numbers in a very detailed, clear way through each study case. For example, like the way he explained how he applied a probability statistics method into anticipating which customers are paying less for the company in upcoming months? Furthermore, this anticipation can say how much value the current customer can bring for the company during a lifecycle or in another word, a customer lifecycle value. Getting to know the customer lifecycle value is important in order to see how much the company should invest to nurture and develop the relationship with that customer. In this math, he counted the potential revenue by multiplying probability of decrease with percentage of predicted decrease and with customer value. A very complicated math for me and it was really challenging to understand the math or the probability statistics. I think it is very good if a company can invest money and resources to focus on getting to know these specific concerns like customer segmentation or customer lifecycle value, etc. The outcome is so clear. This methodical study of business situation may bring a very big change to the way the company operates and approaches the customers in order to win more benefits and advantage than competitors. However, I discovered one interesting thing, this project must cost a lot of money and the leader must have very good vision and financial capability to invest for the research company like this way. Also, there would be a big trust between Ogilvy company and their customer, because as I learned from my experience, it is not easy for an agency like Ogilvy to win the project, especially when everything is built based on a part of the prediction and market senses of Dimitri. The given solutions came from numbers must be convincible and the representative of the project, Dimitri must have great admirable bravery and confidence in order to win such a big customer.
Stories of budgeting
Another story must be discussed here when talking about numbers in business, that is budgeting. I used to work as an external corporate communication leader for TBS Group which has business in 6 fields: manufacturing shoes and handbag, logistics and warehouse, real estates and hospitality, retail and investment and construction. We aimed to develop the awareness of our Group to Vietnam community and every year my task was to make budgeting for external communication. The goal was clear and the task was assigned, however there was only the questions of how we can measure the effectiveness of communication campaigns or how much is the return on investment rate or until when we can reach the goal. These questions were always very hard to answer even to my directors. We had putting quite much money in communication activities and always looked for the exit for those hard questions. I believe this is going to be harder if I make budgeting for my start-up company in the future. The question of how much is enough for an investment much be considered very carefully. Dimitri has listed in this book 5 ways of identifying the budget amount based on: Rule of thumb (based on the experience), maintaining the expense as before if we believe it has worked well, previous sales rate, affordable (within the allowed budget), profit remaining from the last year, gross margin, forecast sales rate, fixed cost per unit of sales, cost per customer/ enterprise, matching with current spending levels of competitors, share of voice (market share in brand communication), marginal return, task approach, modelling and media weight test. It was the funny thing for me to remember that all creative agencies do not like talking about budgeting with their customers because the customers always want to give little budget but expect to have huge effects. Dimitri has showed his unhappy attitude when talking about how companies come up with their budget in the book. I think that experience of Dimitri was somehow bothering him and made his words little angry in this section. Most of companies are doing budgeting based on the previous sales rate, but Dimitri recommended that it is more accurate using the 2 last ways: Modelling and media weight test. He has drawn the model of ‘The spend/get curve’ comparing 2 metrics: expenses on horizontal axis and a level of awareness in communication activities on vertical axis. He explained because the more the company spends now, the lower the efficiency per unit cost will tend to decrease and if the curve continues always to the right side, until the specific time, the curve will get to the saturation point where means that the company spend more money but cannot increase any awareness level.
Reading this chapter of the book made me confused and it was not easy to understand the econometric model that Dimitri used to explain this budgeting method in the book. And I believe even I can understand it, it is also very hard to apply into reality. As in my last company, I made the communication budget based on making the estimated yearly expenses and depending the goal of communication, strategic plan and the offered quotation of advertising agencies. I know that in order to make budget as Dimitri’s advice, it is not practical and hard to apply widely in most of companies. Also, his method can only be made by the high-paid econometric model specialists who are not commonly hired by most normal companies. Therefore, I guess nearly all companies still do budgeting as the old way. However, I think if I can understand this method, it can help me practice my skill of analyzing the situation by looking the things multi-dimensionally look in order to see the whole pictures and understand the things better and deeper.
Should a company cut down the marketing cost in the economic depression?
The next topic mentioned in Dimitri’s book was so interesting to me: Should a company cut down the marketing cost in the economic depression? How the company can distribute the budget effectively in that time? This section helps me answer the questions in my mind. When the corona pandemic happened in the world, I wondered how the companies are dealing with budgeting and why there are still many companies paying for advertising on TV in the hardest time like this when many other companies have to face business collapses and bankruptcies. The advice mentioned was to count on the long-term effectiveness of marketing activities which can maintain and even strengthen more the brand awareness and company’s advantage in the case that other competitors cut down their budget of marketing. If the company cut down 1 euro of marketing budget, they will need to pay 1,6 euro in order to get back the growth rate like the time before the economic depression. Moreover, the media cost in the economic depression will also be reduced to stimulate the needs of advertising by the TV stations, newspapers, internet agencies, etc. Also, the people tend to stay home more and spend more time to see the ads and that increases the efficiency of using media budget. I have learned that some companies actually have successfully taken the advantages from pandemic of corona, they have had an acumen in order to move the traditional marketing way into digital marketing platform and could make instead the amazing outcome of it. Everything depends quite much on the vision of the leader, who can understand and evaluate rightly the importance of marketing activities and its long- term effectiveness in business.
Effectively budgeting will bring the return on investment value
Moreover, after identifying the budget amount, the next step is to make sure that the budget can be distributed suitably, and the strategic plan must work to bring out the return on investment value. Budgeting will depend on the goal of each company in each period of business. There are some tools to create budgeting effectively, like a funnel-shaped budget allocation model which is drawn up based on the business goals which leads the customer to: be aware of brand, to consider of buying, to buying decisions and to stay loyalty to the company brand; cost/ efficiency curve model which the budget is distributed from total budget considering to the cost and business efficiency, model of growth contribution which is based on market growth and customer segment, compass or chorus model which is distributed based on the business channels.
In my opinion, depending on the situations of business, the company can choose which budgeting model to apply. For example, as an assistant of marketing and import-export, I could work closely with Director of marketing and sales, I noticed that he has made the marketing budget based the business report which was included: revenue of the previous year, estimated cost, estimated margin, P & L, etc. The budgeting work involved many departments like material supplies department, sales department, logistics department, financial department, etc. The marketing budget rate was decided by the chief financial officer and the chief executive officer.
From reading this book, I have drawn out some steps of budgeting for my future business: I will build it up based on my business goal, identify the target customer, make strategic business plan accordingly and list out possible cost items which I need to invest or buy. From that, I can add in my expected mark-up or margin rate, etc., to perfect costing of company products or service.
As far as I learnt, budgeting requires many skills and a person needs to have a good vision and knowledge of market and customers to accomplish, it is an interesting but challenging work, even to the experienced people.
This book systematizes what I am grasping and has many perspectives and views I could learn and share to others. Dimitri offers many perspectives and perspectives on a world of mathematical marketing. I agree with him when he argues that it is people – not data, or algorithms – that are crucial to the success of mathematical marketing. Therefore, to prepare for the future, I would like to continue a data savvy, focus on what I want to achieve, and learn the skills to build it.