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INTEGRATED MARKETING COMMUNICATIONS

AT THE MARKETING-SALES INTERFACE: A CASE OF NATURE vs. NURTURE

Timothy M. SmithUniversity of Minnesota

© 2006 Smith, Gopalakrishna, Chatterjee 2

INTEGRATING MARKETING COMMUNICATIONS

Advertising Trade Promotions Sponsorships Direct Mail Telemarketing Personal Selling Electronic Media Public Relations

Price Word-of-Mouth Distribution/Marketing

Channels Packaging

THE COMMUNICATIONS MIX


BUYING PHASES AND COMMUNICATION MEASURES

New Customer/Prospect Buying Phase

(Robinson, Faris & Wind, 1967)

Need recognition

Developing productSpecifications

Search and qualificationOf suppliers

Evaluation

Supplier selection

Purchase feedback

New Customer/Prospect Buying Phase

(Robinson, Faris & Wind, 1967)

Need recognition

Developing productSpecifications

Search and qualificationOf suppliers

Evaluation

Supplier selection

Purchase feedback

Key SellerCommunications Objectives & Tasks

(Churchill, Ford, Walker, 1997)

Objectives TaskGeneral Awareness Prospecting

Feature comprehension

Opening Relationship,Qualifying prospect

Lead generation Qualifying prospect

Performance comprehension

Presenting sales message

Negotiation of terms

Closing sale

Reassurance Account Service


SELLER COMMUNICATIONS AND EFFECTIVENESS

Relative Comm. Effectiveness(Kotler, 1997)

Low High

Non-Personal Personal

Relative Comm. Effectiveness(Kotler, 1997)

Low High

Non-Personal Personal

Awareness

Knowledge/ Interest

Evaluation/ Preference

Trial/ Conviction

Adoption

Message Delivery (Schultz 1993, Rogers 1995)

Uni-D

irectional


TRADITIONAL MARCOM VS. IMC FRAMEWORKS

Message delivery as a starting point

One-way communication

Attitudinal measures of success (ad recall, brand associations, etc.)

Additive Communications

Customer as a starting point (dynamic segmentation)

Two-way communication

Behavior measures of success (purchases, partial transactions, etc.)

Interactive Communications

Traditional IMC


Competing Materials – Steel


THE RESPONSE…

The Wood Promotion Network is a coalition of companies in the wood and wood products industry that have joined together to provide information and news about wood and its use in North America.

The Be Constructive campaign, created by the Wood Promotion Network, provides information and resources to homeowners and professionals about the benefits of using wood as a building material. Wood offers unsurpassed performance as a building material and is our only renewable and sustainable resource.


The Wood Promotion Network (WPN) officially launched the largest North American wood-products communications campaign at the recent NAHB International Builders’ Show in Atlanta. The "BE CONSTRUCTIVE – WOOD" theme reached masses of builders, retailers, and consumers who attended the show. As soon as visitors entered the doors of the Georgia World Congress Center, they were greeted by BE CONSTRUCTIVE crews dressed in jumpsuits and hardhats. The crew members handed out info packets, t-shirts, stickers, 2x4 blocks, and buttons as well as copies of the January issue of Builder magazine, which contained a two-page BE CONSTRUCTIVE ad. While these efforts were underway, other WPN members were busy implementing planned events, including a live satellite media tour from the New American Home, conducted by Mr. Fix-It, Lou Manfredini, from NBC’s Today Show.

On the streets of Atlanta, campaign billboards were put up during the show. Similar billboards are also being placed in central locations across the U.S. and Canada. As part of the "Homes for Hopeful Hounds" project, campaign crews teamed up with the Atlanta Boys and Girls Club to build wooden dog houses that were donated to the Atlanta Humane Society. Both FOX and CBS-TV affiliates in Atlanta covered the story. Numerous other events took place too, such as an exclusive editors briefing with Hanley-Wood Publishing, a full-length feature article in the February 9 edition of the Wall Street Journal, and the debut of www.beconstructive.com, a website that connects builders and professionals, offering news, industry information, and business support resources. The industry-funded WPN initiative will help secure and expand wood markets and increase consumer confidence about forest abundance and sustainability.

IMC at work…


Competing Materials – Plastic

The ads focus mainly on plastics' health, safety and lifestyle benefits. While they have proven highly effective in raising the industry's overall favorability, they are only now starting to turn the corner to focus on plastics' environmental benefits.


The IP Milk Carton Case

In 1970, 80% of milk sold in paperboard packaging. By 1980, paperboard share down to 40% and falling.

Problem: Direct customers – dairy manufacturers

wanted less product (investments in blow-molding machinery).

Customers’ customer (supermarkets) didn’t want the product (harder to stock without handles, in less than gallon containers, etc.)

End customer preferred plastic.



Solution:

Step 1: Cross functional task force including ad agency representation.

Step 2: Identification of Leverage point (the customer).

Step 3: Research (market and product development).



Enter IMC:

Target audiences were multiple and diverse Customers wanted to keep children healthy and to get value. Daries wanted to keep supermarkets happy and costs down. Supermarkets wanted to keep regular customers in their stores and

away from convenience stores.

Indirect audiences FDA Politicians Dairy and Farm associations concerned about image. Wall Street

Necessary to use multiple media Not an advertising problem per se (message too important, difficult

message, credibility). Complementary messages to different constituencies Objects both brand awareness and trial.



Consumer nutrition program

Consumer advertising

Trade Advertising (Co-op Ads and messages)

Allowances/coupons

POP – shelf talkers, print on cartons, and bags

Press – Food news


IP Solutions Campaign

•Chocolate Milk

•Global

My Dad Works For International Paper, and…


RFM Analysis

Tool used to measure the value of accounts without considering outside factors.

Recency - Time since last purchase

Frequency - number of transactions in period

Monetary – Revenue/gross margin/contribution in period

Higher RFM = Higher lifetime value


RFM Analysis

Recency Frequency Monetary

Accounts

Days since

last sale Score

# of orders (Period

) Score

Gross Margin (Period

) ScoreHoover 6 3 40 3 14,660 3Weyco 6 3 45 3 15,323 3Amerhart 20 2 26 3 11,733 3GP Marietta 6 3 7 2 7,160 3Central Bldrs. Supply

8 3 2 1 2,166 2

Builders 1st Source 13 2 5 2 1,593 1Menard’s 124 1 3 1 2,218 2Torborgs 69 1 4 1 2,276 2Sherwood Lbr. 133 1 1 1 934 1


RFM Analysis

Top CustomerRecency Frequency Monetary

Account

Days since

last sale Score

# of orders (Period

) Score



8 3 2 1 2,166 2



RFM Analysis


Account

Days since

last sale Score

# of orders (Period

) Score



8 3 2 1 2,166 2


Forgotten Customer (catch’em if you can!)


RFM Analysis


Account

Days since

last sale Score

# of orders (Period

) Score



8 3 2 1 2,166 2


The Price Hopper


RFM Analysis


Account

Days since

last sale Score

# of orders (Period

) Score



8 3 2 1 2,166 2


Prospect/Fired Customer


RFM Analysis

Provides an easy (yet, surprisingly effective) way to separate your best customers from your lousy ones.

Provides “organizational” knowledge about customers. Provides a common benchmark for the comparison of

customers. Provides a series of simple measures that can be tracked over

time.

Specifically, Helped management re-allocate customers equitably in a

territory realignment. Helped communicate to sales reps. acquiring the new

accounts as to their potential. Shed some light on the value of customers to the firm/sales

person – prior to this tool, employees perceptions of the accounts were often over or under valued.


Operations….

Companies spend heavily communicating with customers/prospects;

Little definitive knowledge on practical issues: What mix of communication elements to employ Appropriate levels of expenditure and timing for those elements

Particular area of interest: the marketing/sales interface. Sales calls are expensive (up to $400 per sales call). Up to 70% of leads generated by Marketing are ignored by the sales

force (Watkins 2003). Possible synergies across lead-generating media sources

(advertising, direct mail, events). Leverage ability of sales force to convert leads to sales.

IMC framework useful in capturing complementary/synergistic effects (Smith et al. 2004, Naik and Raman 2003). Different communication elements, properly deployed, can enhance

the impact of other media (Gopalakrishna and Chatterjee 1992).


CONTEXT & OBSERVED PHENOMENA

A large home improvement retailer in the United States

Lead-creating media sources (with time-varying expenditures): (1) radio, (2) newspapers, (3) direct mail, (4) events

Call center handles incoming leads, attempts to turn them into sales appointments

Sale is not complete without an in-house sales visit

Particularly in the high season, long wait times for appointments results in lower likelihood of conversion to sales appointment and to an eventual order


LEAD VOLUME AND SERVICABILITY

0

100

200

300

400

500

600

70012

/30/

01

2/28

/02

4/30

/02

6/30

/02

8/30

/02

10/3

0/02

12/3

0/02

2/28

/03

4/30

/03

6/30

/03

8/30

/03

10/3

0/03

12/3

0/03

# of

Lea

ds

0

5

10

15

20

25

30

# of

Day

s

Number of Leads Average Tim e to Service Leads

WEEKLY LEADS AND AVERAGE TIME TO SERVICE: Market A, 2002 & 2003


RESEARCH QUESTIONS

1. Which elements of the mix are more effective than others in generating leads?

2. What happens to lead volume if allocations change? Timing of expenditures changes?

3. What is the impact of sales call timing on the likelihood of conversion of a prospect into a customer? Does this vary by lead source?

4. How does seasonality affect the approach to making cost-effective communications decisions?

5. At a given sales force capacity, what level of media expenditure and allocation improves profitability? Sales force effectiveness?


MODEL: Three Stage Process

STAGELEAD

GENERATIONCONVERSION

(LEAD TO APPOINTMENT)

CLOSURE(APPOINTMENT TO

SALES ORDER)

CONSUMER DECISION

No Call

Call (Lead)

MKT. COMM.• Direct Mail• Radio• Newspaper• Exhibition

APPOINT. SCHEDULING

(Call Center)• Sales capacity constraint

No Order

SALES VISIT• Salesperson performance measure

Appt.

No Appt.

Order• Order Size

FIRM ACTION

Sales process as sequence of stages marked by concrete outcomes:


RESULTS: Stage 1 – Lead Generation

To illustrate, consider a scenario in the high season where the firm spends a budget of $30,000.

Increased radio expenditure complements high levels of exhibition spending, also helps newspaper response.

Scenario #1 Leads Scenario #2

Leads

Direct Mail $6,000 49 $2,000 43Newspaper Ads. $8,000 42 $5,000 48Radio Ads. $1,000 1 $8,000 2Exhibition 15,000 171 $15,000 231 Total 30,000 263 30,000 324


RESULTS: Stage 2 – Appoint. Conv. (R2=.96)

Significant negative early and late season effects Significant differences among source dummies Significant and different lag coefficients

18

20

22

24

26

28

30

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Time-Lag

Num

ber o

f App

oint

men

ts (L

eads

= 3

0)

Direct Mail Newspaper Advertising Radio Advertising

Directories Referrals

Newspaper Advertising leads convert at lower rate than Telephone Directories after 7 days.

Worse than direct mail after 13 days.


RESULTS: Stage 3a – Order Conv. (R2=.15)

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1 3 5 7 9 11 13 15 17 19 21 23 25 27

Capacity-Driven Lag (days)

Pre

dict

ed P

roba

bilit

y of

Sal

es C

onve

rsio

n

Direct Mail Exhibition Repeat Customer Referral Programs

Significant negative early and late season effects Significant sales representative effect Significant differences among source dummies Significant and different lag coefficients (Exhibitions, Referral Programs, Repeat Cust.)


RESULTS: Stage 3b – Order Size (R2=.45)

Significantly influenced by potential order size captured at the call center.

Significant sales representative effect Significant differences between lead sources:

Referral programs and retail showrooms yield significantly larger orders than other sources

Repeat customers provide significantly small orders Customers buying products for older homes

tend to place smaller orders and those with higher incomes tend to place higher orders.


PUTTING IT ALL TOGETHER…

Conduct simulations to explore estimated outcomes based on marketing communications spending: Two broad strategies compared to actual budget

allocations:1. Leverage synergies between communications:

Shifts in timing – overall budget and allocations between media held constant

Shifts in timing and allocations – overall budget held constant

2. Reduce variation in lag Shifts in timing, allocations, and budget


SIMULATIONS

Simulation Stages 2004 HIR Budget

Allocation

Scenario #1 Media Timing Lead Focus

Scenario #2 Media

Allocation Lead Focus

Scenario #3 Media

Reduction Sales Focus

Communication Budget Direct Mail $821,684 $821,684 $779,354 $492,029 Newspaper Advertising $958,991 $958,991 $914,321 $1,013,931 Radio Advertising $206,040 $206,040 $287,040 $269,079 Exhibitions $141,957 $141,957 $147,957 $136,732 Total $2,128,672 $2,128,672 $2,128,672 $1,911,771 Leads (Stage 1) 9,752 10,643 10,994 9,674 Appointments (Stage 2) 7,710 8,258 8,499 7,678 Orders (Stage 3a) 2,683 2,823 2,879 2700

Total Sales (Stage 3b) $20,832,556 $21,935,446 $22,389,750 $20,951,843 Total Profit $4,121,095 $4,451,962 $4,588,253 $4,373,782 Delay Statistics: Mean 8.3 8.9 9.2 8.2 Stand. Dev. 3.70 3.60 3.73 2.73 Range 2.0 18.0 2.0 17.9 2.0 – 19.7 2.0 – 12.7


Conclusions and Extensions

We have shown that superior business outcomes can result if marketing actions are coordinated with sales force activities.

Dollar sales and Profit are impacted by: the size of the marketing communications budget the relative allocation of the budget across the mix

of communication elements the timing of communications.


Stage 2: Nurturing identified opportunities

Time

Pur

chas

e R

eadi

ness

Inde

x

0

1

Modeling issues to consider: Magnitude of increase in PRI influenced by source of information, prior

communications mix, most recent lag, cumulative lag. How does this change if content (functional performance/environmental

performance) is thought to influence PRI? May influence the “starting point” based on stage 1 lead generation; may increase/decrease the rise associated with communication; may increase/decrease the decay; these effects may be moderated by a timing effect (a ramping up and ramping down around some empirically derived inflection point?)

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