Marketing Communications in Interactive Environments

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Marketing Communications in Interactive
Environments

• On and Offline Synergies in Marketing
  Communications

Kalyan Raman Loughborough University,
Leicestershire, UK University of Michigan in
Flint New York University May 7, 2004
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(No Transcript)
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Emergence of Integrated Marketing Communications
(IMC)

• Practice of advertising
• shift in budgets from advertising to promotion
• proliferation of media
• fragmentation of audience
• Pedagogy of advertising
• textbooks in 1990s incorporate IMC in their
  titles or sub-titles
• leading Universities offer new courses and
  degrees in IMC
• http//www.medill.nwu.edu/imc/

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The Broader Relevance of IMC

• Integral Component of Marketing Program
• Customer Relationship Management
• Building Relationships
• Accountability
• Supply Chain Management
• Communications between supply chain
  participants
• essential to avoid Bullwhip Effect

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Media Landscape
Salesperson
Addressable
Tele-marketing
Direct
Ancillary
Mass
One-way Message
Two-way Time Lag
Two-way Instant
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All Media Not Alike

• Primary Media
• Attains main objectives
• high reach, build awareness
• Assumed to be more effective (than ancillary
  media)

• Ancillary Media
• Supporting Role
• PR, Event sponsorships
• Packaging
• Internet
• Assumed to be less effective

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Multi-media Communications
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Cross-media Synergy
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Examples of cross-media synergy

• Dodge Minivan Monsters
• Burger King Homer Simpson
• Revlon Bond Girl
• Camry Steve Young
• J B Christmas

• TV ad Movie characters
• TV ad TV character
• TV ad movie celebrity
• TV ad sports celebrity
• Outdoor ad events

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Cross-media Synergy
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Simple
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Complex
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More business leaders should be thinking about
their businesses as complex dynamic systems that
require innovative tools and techniques to
understand and manage." John Howes, Manager,
IT, General Motors Research
Complexity Science includes many
powerful modeling technologies of relevance
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Genesis

• Synergy is the trademark of a complex system
• Synergy in teaching research?

Combined effect exceeds the sum of the individual
effects
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Synergy in IMC?

• Synergy
• combined effect exceeds the sum of individual
  effects
• 2 2 5 phenomenon
• Adopting an IMC perspective
• Substantive?
• Or just a buzzword?

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Some Unresolved Issues

• How much should you spend?
• with and w/o synergy?
• How should you allocate budget to various media?
• in the presence of synergy?
• How should you change budget or its allocation?
• as synergy increases?
• Does it matter?
• Is there sales impact of IMC programs?
• Is there a profitability impact of IMC programs?
• How sensitive are profits to synergy?

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Unresolved Issues (Contd)

• How much should you spend?
• In an oligopoly?
• Under uncertainty
• How should you allocate budget to various media?
• in the presence of synergy?
• In an oligopoly
• Under uncertainty

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Structure of Marketing Communications Response

• Nonlinearity
• Dynamic
• Uncertainty
• Competition
• Complex
• Information Technology Driven

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Linearity
What do you get when you combine two linear
things?

More of the same
No surprises
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Nonlinearity
What do you get when you combine two nonlinear
things?
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Nonlinearity


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Structure of Marketing Communications Response

• Nonlinearity
• Dynamic
• Uncertainty
• Competition
• Complex
• Information Technology Driven

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Quantitative Analysis of Marketing Communications
Response

• Response Function
• How does the market respond to
• our actions?
• Goal
• Estimation
• Best values of model parameters
• Optimization
• Best actions
• Implementation
• Managerial Usage

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Modeling IMC
JMR, 2003 (with Prasad Naik)
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A Model of IMC
JMR, 2003

• Advertising Response Model
• Multimedia Model Additive (u, v)
• IMC Model Interactive (u, v)

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IMC Problem (Two Media)
JMR, 2003
Find optimal IMC strategy (u, v) to
subject to
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Multimedia Problem
Find to
where
subject to
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Empirical Analysis

• Dockers brand advertising
• sales history
• ad expenditure on TV and print
• We use Kalman Filter Estimation
• Why?
• Because OLS is inconsistent

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Actual versus Model forecast
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Theoretical Results

• As ad effectiveness (b1, b2) increases
• total budget increases
• allocation to the more effective medium increases
  
• As forgetting and discount rate (d, r) increases
• total budget decreases
• allocation to the more effective medium increases
• So extant findings hold in the presence of
  synergy

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Theoretical Results (contd.)

• As synergy (b3) increases total budget increases
• allocation to the more effective medium decreases

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Multimedia Budgeting and Allocation

• Allocate budget proportional to the relative
  effectiveness

Budget100

u1 70
u2 30
TV
Print
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Multimedia Budgeting and Allocation (contd.)

• If ad effectiveness improves (say, new campaign),
  should you spend more or less on the new
  campaign?

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Cross-Media Budgeting and Allocation Effects of
synergy

• Increase the total budget
• Allocate more than fair share to less effective
  ancillary media

No Synergy
Synergy


Budget100
Budget100
3
7
70
30
70
30
TV
TV
Print
Print
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Why So?

• Because synergy enhances ad effectiveness
• It increases ad effectiveness as shown below

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Impact of Synergy onthe IMC Program

• Profitability
• Budget
• Allocation to Media

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Profit
Synergy
Elasticity 1.82 over (0.25, 0.34)
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Budget (u)
Synergy
Elasticity 3.35 over (0.20, 0.34)
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Budget (v)
Synergy
Elasticity 6.02 over (0.20, 0.34)
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Total Budget
Synergy
Elasticity 4.33 over (0.20, 0.34)
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Marketing Implications

• Overspending on advertising?
• Or
• Overstating the claim?

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Marketing Implications (contd.)

• Should advertisers spend money on an ineffective
  activity?
• Yes, if synergy effects are present
• pharmaceutical companies
• samples/literature detailing
• B2B advertising
• See McGraw Hill ad
• Our own study shows that
• Dockers print ads are not effective,
• but optimal print spending is not zero
• also, actual print spending is not zero ( 9)

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Synergy Between Advertising and Selling
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The Role of Advertising and Promotions in an
Oligopoly

• Firms spend on advertising to build brand
  equity
• Firms also on promotions that may erode brand
  equity
• Promotions are often thought to create a
  Prisoners Dilemma for firms
• But why dont they learn in repeated dynamic
  interactions?

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THEM
Refuse
Testify
US
0, 3
2, 2
Testify (Promote)
3, 0
1, 1
Refuse (Do Not Promote)
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IMC Under Competition (with Prasad Naik Russ
Winer)
Competition
Duopoly In a Lanchester Framework in IMC
Marketing Science (Forthcoming in 2005)
Two promotional components
(Advertising and Sales Promotions)
Nash Equilibrium Framework
Firms act in their own interest
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Key Findings in Oligopoly

• Both advertising and promotions are needed to
  compete
• Large brands under-advertise and over-promote
• Small brands under-advertise and under-promote
• Advertising and promotions affect own and
  competitors shares
• Advertising and promotions interact with each
  other

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Impact of Uncertainty

• Should managers act differently under response
  uncertainty?
• Many managers believe that they should determine
  the budget and its allocation differently under
  uncertainty
• But is this true?

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IMC Under Market Response Uncertainty
Find closed-loop IMC strategy u(s) and v(s) to
subject to
Stochastic Hamiltonian Approach not
fruitful Stochastic Dynamic Programming more
productive
(Hamilton-Jacobi-Bellman)
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Preliminary Results

• The deterministic solution is preserved when
  uncertainty is homoscedastic
• In other words, the previous marketing insights
  are robust with respect to uncertainty
• What about heteroscedastic uncertainty? (Error
  variance not constant)
• open issue

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Ongoing Research Related to IMC
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