INTEGRATED MARKETING COMMUNICATIONS AT THE MARKETING-SALES INTERFACE: A

INTEGRATED MARKETING COMMUNICATIONS AT THE MARKETING-SALES INTERFACE: A

INTEGRATED MARKETING COMMUNICATIONS AT THE MARKETING-SALES INTERFACE: A CASE OF NATURE vs. NURTURE Timothy M. Smith University of Minnesota INTEGRATING MARKETING COMMUNICATIONS THE COMMUNICATIONS MIX Advertising Trade Promotions Sponsorships Direct Mail Telemarketing Price Word-of-Mouth Distribution/Marketing Channels Packaging Personal Selling Electronic Media Public Relations 2006 Smith, Gopalakrishna, Chatterjee 2 BUYING PHASES AND COMMUNICATION MEASURES New Customer/ Prospect Buying Phase (Robinson, Faris & Wind, 1967) Key Seller Communications Objectives & Tasks (Churchill, Ford, Walker, 1997) Need recognition Objectives General Awareness Task Prospecting

Developing product Specifications Feature comprehension Opening Relationship, Qualifying prospect Search and qualification Of suppliers Lead generation Qualifying prospect Evaluation Performance comprehension Presenting sales message Supplier selection Negotiation of terms Closing sale Reassurance Account Service Purchase feedback 2006 Smith, Gopalakrishna, Chatterjee 3 SELLER COMMUNICATIONS AND EFFECTIVENESS Message Delivery Relative Comm. Effectiveness (Kotler, 1997)

(Schultz 1993, Rogers 1995) Low High Awareness Uni-Directional Knowledge/ Interest Evaluation/ Preference Trial/ Conviction Adoption Non-Personal 2006 Smith, Gopalakrishna, Chatterjee Personal 4 TRADITIONAL MARCOM VS. IMC FRAMEWORKS Traditional Message delivery as a starting point One-way communication Attitudinal measures of success (ad recall, brand associations, etc.) Additive Communications 2006 Smith, Gopalakrishna, Chatterjee IMC Customer as a starting point (dynamic segmentation) Two-way communication Behavior measures of success (purchases,

partial transactions, etc.) Interactive Communications 5 Competing Materials Steel 2006 Smith, Gopalakrishna, Chatterjee 6 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. 2006 Smith, Gopalakrishna, Chatterjee 7 IMC at work The Wood Promotion Network (WPN) officially launched the largest North American woodproducts 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 twopage 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 NBCs 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. 2006 Smith, Gopalakrishna, Chatterjee

8 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. 2006 Smith, Gopalakrishna, Chatterjee 9 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 blowmolding machinery). Customers customer (supermarkets) didnt want the product (harder to stock without handles, in less than gallon containers, etc.) End customer preferred plastic. 2006 Smith, Gopalakrishna, Chatterjee 10 The IP Milk Carton Case 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). 2006 Smith, Gopalakrishna, Chatterjee 11

The IP Milk Carton Case 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. 2006 Smith, Gopalakrishna, Chatterjee 12 The IP Milk Carton Case 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 2006 Smith, Gopalakrishna, Chatterjee 13 IP Solutions Campaign My Dad Works For International Paper, and

Chocolate Milk Global 2006 Smith, Gopalakrishna, Chatterjee 14 2006 Smith, Gopalakrishna, Chatterjee 15 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 2006 Smith, Gopalakrishna, Chatterjee 16 RFM Analysis Recency Frequency Monetary Days since last sale Score # of orders (Period ) Hoover 6

3 40 3 14,660 3 Weyco 6 3 45 3 15,323 3 20 2 26 3 11,733 3 GP Marietta 6 3 7 2 7,160 3

Central Bldrs. Supply 8 3 2 1 2,166 2 13 2 5 2 1,593 1 Menards 124 1 3 1 2,218 2 Torborgs 69 1 4

1 2,276 2 133 1 1 1 934 1 Accounts Amerhart Builders 1st Source Sherwood Lbr. 2006 Smith, Gopalakrishna, Chatterjee Score Gross Margin (Period ) Score 17 RFM Analysis Top Customer Recency Frequency Monetary Account

Days since last sale Score # of orders (Period ) Hoover 6 3 40 3 14,660 3 Weyco 6 3 45 3 15,323 3 20 2 26 3 11,733

3 GP Marietta 6 3 7 2 7,160 3 Central Bldrs. Supply 8 3 2 1 2,166 2 13 2 5 2 1,593 1 Menards 124 1

3 1 2,218 2 Torborgs 69 1 4 1 2,276 2 133 1 1 1 934 1 Amerhart Builders 1st Source Sherwood Lbr. 2006 Smith, Gopalakrishna, Chatterjee Score Gross Margin (Period )

Score 18 RFM Analysis Forgotten Customer (catchem if you can!) Recency Frequency Monetary Account Days since last sale Score # of orders (Period ) Hoover 6 3 40 3 14,660 3 Weyco 6 3 45 3

15,323 3 20 2 26 3 11,733 3 GP Marietta 6 3 7 2 7,160 3 Central Bldrs. Supply 8 3 2 1 2,166 2 13 2

5 2 1,593 1 Menards 124 1 3 1 2,218 2 Torborgs 69 1 4 1 2,276 2 133 1 1 1 934 1

Amerhart Builders 1st Source Sherwood Lbr. 2006 Smith, Gopalakrishna, Chatterjee Score Gross Margin (Period ) Score 19 RFM Analysis The Price Hopper Recency Frequency Monetary Account Days since last sale Score # of orders (Period ) Hoover 6 3 40 3

14,660 3 Weyco 6 3 45 3 15,323 3 20 2 26 3 11,733 3 GP Marietta 6 3 7 2 7,160 3 Central Bldrs. Supply 8

3 2 1 2,166 2 13 2 5 2 1,593 1 Menards 124 1 3 1 2,218 2 Torborgs 69 1 4 1 2,276

2 133 1 1 1 934 1 Amerhart Builders 1st Source Sherwood Lbr. 2006 Smith, Gopalakrishna, Chatterjee Score Gross Margin (Period ) Score 20 RFM Analysis Prospect/Fired Customer Recency Frequency Monetary Account Days since last sale Score

# of orders (Period ) Hoover 6 3 40 3 14,660 3 Weyco 6 3 45 3 15,323 3 20 2 26 3 11,733 3 GP Marietta 6

3 7 2 7,160 3 Central Bldrs. Supply 8 3 2 1 2,166 2 13 2 5 2 1,593 1 Menards 124 1 3 1 2,218

2 Torborgs 69 1 4 1 2,276 2 133 1 1 1 934 1 Amerhart Builders 1st Source Sherwood Lbr. 2006 Smith, Gopalakrishna, Chatterjee Score Gross Margin (Period ) Score 21 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. 2006 Smith, Gopalakrishna, Chatterjee 22 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). 2006 Smith, Gopalakrishna, Chatterjee 23 CONTEXT & OBSERVED PHENOMENA A large home improvement retailer in the United States Lead-creating media sources (with timevarying 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 2006 Smith, Gopalakrishna, Chatterjee 24 LEAD VOLUME AND SERVICABILITY WEEKLY LEADS AND AVERAGE TIME TO SERVICE: Market A, 2002 & 2003 700 30 600 25 20 400 15 300 10 200 5 Num ber of Leads 2006 Smith, Gopalakrishna, Chatterjee 12/30/03 10/30/03 8/30/03 6/30/03 4/30/03 2/28/03

12/30/02 10/30/02 8/30/02 6/30/02 4/30/02 2/28/02 12/30/01 100 0 # of D ays # of Leads 500 0 Average Tim e to Service Leads 25 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? 2006 Smith, Gopalakrishna, Chatterjee 26

MODEL: Three Stage Process ales process as sequence of stages marked by concrete outcomes STAGE LEAD GENERATION CONVERSION (LEAD TO APPOINTMENT) No Call CONSUMER DECISION CLOSURE Call (Lead) (APPOINTMENT TO SALES ORDER) No Appt. No Order Appt. Order Order Size FIRM ACTION MKT. COMM. Direct Mail Radio Newspaper Exhibition 2006 Smith, Gopalakrishna, Chatterjee

APPOINT. SCHEDULING (Call Center) Sales capacity constraint SALES VISIT Salesperson performance measure 27 RESULTS: Stage 1 Lead Generation To illustrate, consider a scenario in the high season where the firm spends a budget of $30,000. Scenario #1 Leads Scenario #2 Leads Direct Mail $6,000 49 $2,000 43 Newspaper Ads. $8,000 42 $5,000 48

Radio Ads. $1,000 1 $8,000 2 Exhibition 15,000 171 $15,000 231 30,000 263 30,000 324 Total Increased radio expenditure complements high levels of exhibition spending, also helps newspaper response. 2006 Smith, Gopalakrishna, Chatterjee 28 RESULTS: Stage 2 Appoint. Conv. (R2=.96) Significant negative early and late season effects Significant differences among source dummies Significant and different lag coefficients Number of Appointments (Leads = 30) 30

Newspaper Advertising leads convert at lower rate than Telephone Directories after 7 days. 28 Worse than direct mail after 13 days. 26 24 22 20 18 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 Direct Mail Newspaper Advertising Directories Referrals 2006 Smith, Gopalakrishna, Chatterjee Radio Advertising 29 RESULTS: Stage 3a Order Conv. (R2=.15) Significant Significant Significant Significant negative early and late season effects sales representative effect differences among source dummies

and different lag coefficients (Exhibitions, Referral Programs, Repeat Cust.) Predicted Probability of Sales Conversion 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 Capacity-Driven Lag (days) Direct Mail 2006 Smith, Gopalakrishna, Chatterjee Exhibition Repeat Customer

Referral Programs 30 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. 2006 Smith, Gopalakrishna, Chatterjee 31 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

2006 Smith, Gopalakrishna, Chatterjee 32 SIMULATIONS Simulation Stages Communication Budget Direct Mail Newspaper Advertising Radio Advertising Exhibitions Total 2004 HIR Budget Allocation Scenario #1 Media Timing Lead Focus Scenario #2 Media Allocation Lead Focus Scenario #3 Media Reduction Sales Focus $821,684 $958,991 $206,040 $141,957 $2,128,672 $821,684 $958,991 $206,040 $141,957 $2,128,672 $779,354 $914,321 $287,040 $147,957 $2,128,672

$492,029 $1,013,931 $269,079 $136,732 $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 $20,832,556 $4,121,095 $21,935,446 $4,451,962 $22,389,750 $4,588,253 $20,951,843 $4,373,782 8.3

3.70 2.0 18.0 8.9 3.60 2.0 17.9 9.2 3.73 2.0 19.7 8.2 2.73 2.0 12.7 Total Sales (Stage 3b) Total Profit Delay Statistics: Mean Stand. Dev. Range 2006 Smith, Gopalakrishna, Chatterjee 33 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. 2006 Smith, Gopalakrishna, Chatterjee 34 2006 Smith, Gopalakrishna, Chatterjee 35 Purchase Readiness Index Stage 2: Nurturing identified opportunities

1 0 Time 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?) 2006 Smith, Gopalakrishna, Chatterjee 36

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