Density, Sparsity and the 4-Cs

Solving the micromarketing challenges of the Information Age

We live in the Age of Information, so we are told.  Never before has so much raw data existed bearing testament to every  pulsebeat of human commerce, every touchpoint between a customer and a good or service.  The problem for decision-makers, according to the conventional wisdom, is Information Overload – volumes more data to analyze than the human brain can easily digest.  But it is not that simple – there are deeper challenges below the surface.

Information is not always where you need it

While the conventional wisdom is right in the aggregate, the lush and dense information rainforest starts to turn remarkably arid and sparse as you drill down into the nuanced segments of your demand environment.  At the micromarket level, infrequent transactional activity in the long tail of customers and SKUs yields little insight to inform decision making.  Managers thus face challenges that go well beyond the simplistic construct of TMI (too much information).  They need tools for managing the real information problems in their micromarkets.  These tools need to address head-on the challenges posed by what we call the 4-Cs:

• Complexity: With near-limitless combinations – of customers, products, locations, messages and channels – managers need the ability to first aggregate and then disentangle how variables related to price, assortment, advertising & promotions, and sales mechanisms affect customer demand and thus impact firmwide performance metrics like market share or profit margin.  Not knowing what impacts sales or profits raises the risk of suboptimal performance. Advanced scientific methods can help fill in the gaps where data sparsity exists and extend the vision of key decision-makers far into the details of what moves their markets.

• Coordination: Marketing involves a series of decisions, all of which have an impact on each other – yet each decision often gets made in an organizational silo isolated from other decisions.  This can produce persistently suboptimal outcomes unless managers can overcome the limitations of organizational silos.  Holistic optimization tools that provide visibility across silos and facilitate “what-if” experimentation can help achieve a clear, coordinated understanding of each single decision in a more integrated context.

• Connection: Managers need to connect to what the market is telling them in real time.  Historical transaction data can only help so much in an environment of constant flux: customer tastes change and competitive threats emerge in a Petri dish of constantly evolving activity.  It is not enough for decision-makers to learn from their quantitative systems: the systems have to learn from them as well.  This is what it means to be market aware: intimately connecting human experience and judgment with machine-based algorithms for optimal decision guidance.

• Customization: Insightful managers know that there is no such thing as an “average” customer.  Marketing and sales messages that play to a perceived average will wind up being average themselves – in other words falling short of truly connecting in the best way with target customers.  The fact is that every enterprise’s customer base is unique – defined by a distinctive combination of tastes, wants, needs and propensity to spend.  This is true even if the product line is what most observers would view as commodities.  Customizing a value proposition down to the most granular level possible can unlock the power of micromarket monopoly and defend against the margin-eroding practices of cutthroat price competition.

If the Information Age were really all about combing through volumes of aggregate data to develop key marketing decisions for your average customers then the 4-C framework would not matter so much – you could price, advertise and sell based on their perceived wants, needs and spending propensities.  But that average customer doesn’t exist.  The more precisely you can gain the necessary insights into micromarket uniqueness, the more you can calibrate marketing and sales decisions to optimal advantage.

So, if you are a marketing manager in a highly competitive industry  like foodservices, consumer packaged goods or retail, what should you be looking for in business intelligence & analytical solutions to take on the 4-C challenges?  Ask yourself three questions:

1. Can the solution really cope with the complexity of my demand environment in a way that is commercially viable, i.e. that keeps up with the fast pace of my daily decision-making?
2. Is the solution seamlessly compatible with my company’s existing technology platform including existing ERP and other critically important business intelligence?
3. Can my sales reps continue to do their jobs effectively and impart their experience and judgment without compromising the integrity of the system’s recommendations?

We’re going to come back and explore each of these questions in subsequent postings.

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