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Copyright © 2013 Florian Zettelmeyer Big Data and the Future of Marketing Florian Zettelmeyer Nancy L. Ertle Professor of Marketing Kellogg School of Management, Northwestern University First Data Leadership Summit 2013

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Copyright © 2013 Florian Zettelmeyer

Big Data and the Future of Marketing

Florian ZettelmeyerNancy L. Ertle Professor of MarketingKellogg School of Management, Northwestern University

First Data Leadership Summit 2013

Copyright © 2013 Florian Zettelmeyer

FROM THE BUSINESS PRESS

Marketing using Big Data has become all the rage

- “We need to grab this big data resource that has landed on our front step. Armed with more detailed information about their customers, companies can then promote more e!ectively and in a highly customized manner.”

- “If there is a phrase that summarizes the situation, that phrase is "Data Explosion." The result is over a one thousand fold increase in information and related data storage, display and utilization requirements.”

- “In the next 5 to 10 years there will be an order-of-magnitude increase in the amount of marketing data used and a similar tenfold increase in computer power available for marketing analysis.”

- “The functioning of the organization requires that numerous urgent management measures be adopted which take into account a large quantity of data and complex calculations”

1999

1989

1979

1968

What is actually new about “ ”?Big Data

Big Data"Big"

Copyright © 2013 Florian Zettelmeyer

What is new about Big Data?

Data There is lots of it

Quantity of data

- Move from transactions to clicks, physical movements, and networks

- Combination of seemingly unrelated databases

- Tracking of pre-purchase behavior

- Tracking of post-purchase usage behavior

Computing

- From mainframes to shared-nothing clusters

- New tools (Hadoop, Pig, Mahout, Revolution R, ...)

- From on-site to the cloud• Amazon Web Services• IBM BigInsights, ...

Big

Copyright © 2013 Florian Zettelmeyer

What is new about Big Data?

Data enables customer analytics

"Data"

Copyright © 2013 Florian Zettelmeyer

"Big" is only a small part of big data

- Design all processes with measurement in mind

- Use predictive & proactive analytics

- R&D everywhere

- Test everything

- Challenge conventional wisdom

Is about a big data mindset

A big data mindset is useful even if your data fits on just few servers

Big Data

Copyright © 2013 Florian Zettelmeyer

How do I leverage the big data mindset?

Copyright © 2013 Florian Zettelmeyer

Harrah’s Entertainment until recently owned and operated 29 casinos across the US States

FACTS ABOUT HARRAH'S

Source for this and following slides: Harrah's presentation, HBS case analysis, press reports

CASE STUDY: LOYALTY INCENTIVES

Copyright © 2013 Florian Zettelmeyer

SAME STORE SALES GROWTH

Harrah's had experienced rapid growth in the gaming market

CASE STUDY: LOYALTY INCENTIVES

Copyright © 2013 Florian Zettelmeyer

Harrah's outlook looks di!cult prior to 1998

- Competitors are placing their bets on flashy new properties

- Investment required to compete on properties is huge

- No expected increase in legal gaming markets

SITUATION

CASE STUDY: LOYALTY INCENTIVES

How can Harrah's grow?

Copyright © 2013 Florian Zettelmeyer

Harrah's asks customers to get insights

INSIGHTS

CASE STUDY: LOYALTY INCENTIVES

1. Customer engage in large amounts of cross-market play

1. Customer engage in large amounts of cross-market play

2. Harrah's receives small share (36%) of total gaming dollars

Copyright © 2013 Florian Zettelmeyer

Harrah's asks customers to get insights

CASE STUDY: LOYALTY INCENTIVES

but ...

INSIGHTS

Copyright © 2013 Florian Zettelmeyer

Harrah's creates relationships with customers in local markets, then extend them to destination markets

- Cross-market revenues

APPROACH BASIC REQUIREMENTS

- Identify customers across markets

- Determine what a potentially good customer is

- Create incentives for consumers to visit other properties

CASE STUDY: LOYALTY INCENTIVES

Copyright © 2013 Florian Zettelmeyer

Meeting these basic requirements was nearly impossible

- Each property had its own reward card and di!erent rewards

- Incentives for repeat visits applied only locally

• South Lake Tahoe --> comp rooms & meals at South Lake Tahoe

• Reno --> comp rooms & meals at Reno

CHALLENGES

Key problem:

- Each property has own P&L and resources

- Property managers see customers as "theirs", not Harrah's

- COO refers to them as "Feudal Lords", running "fiefdoms"

CASE STUDY: LOYALTY INCENTIVES

Copyright © 2013 Florian Zettelmeyer

The solution for Harrah's was to thing of the customer, not the property as the key source of value

HARRAH'S APPROACH

Enables marketing with a big data mindset

CASE STUDY: LOYALTY INCENTIVES

- Designed all processes with measurement in mind

• IT Integration / behavior tracking• Total Reward Program

- Use predictive analytics and test everything

• Forecast customer value• Test incentives

- New organizational form:Property managers report to COO, not CEO

- IT integration

- New branding ("exuberantly alive")

Copyright © 2013 Florian Zettelmeyer

- In 1998: Share of gaming dollars of Harrah's customers: 36%

- in 2004: Share of gaming dollars of Harrah's customers: 42%

- Looks like a modest increase, except...

SUCCESS INDICATORS

1% improvement equates into $40 million profit

Harrah's is considered a great success for marketingwith the big data mindset

CASE STUDY: LOYALTY INCENTIVES

Marketing with the big data mindset a!ects the entire organization

Copyright © 2013 Florian Zettelmeyer

SOURCE OF POTENTIAL

Marketing with the big data mindset is not just about marketing any more

- Looking at the customer, but not the

• service or • product or • department

as the source of profits

- Using every product and service to create and capture customer value

- Product

• Design individual products & services to create customer value

- Price

• Capture value from individual products & services for firm

- Promotion

• Advertise and promote products & services to driver awareness, persuasion and sales

- Place

• Manage individual channels of distribution to maximize sales & profits Copyright © 2013 Florian Zettelmeyer

CURRENT VIEW (Kellogg's Phil Kotler)

Traditionally, marketing is about the "4 Ps"

- Product

• Design individual products & services to create customer value

- Price

• Capture value from individual products & services for firm

- Promotion

• Advertise and promote products & services to driver awareness, persuasion and sales

- Place

• Manage individual channels of distribution to maximize sales & profits

- Product

• Design individual products & services to create customer value

- Price

• Capture value from individual products & services for firm

- Promotion

• Advertise and promote products & services to driver awareness, persuasion and sales

- Place

• Manage individual channels of distribution to maximize sales & profits Copyright © 2013 Florian Zettelmeyer

To leverage the big data mindset marketing has to change

Product Ecosystems and Content

FUTURE OF MARKETING

Copyright © 2013 Florian Zettelmeyer

- Product

• Design individual products & services to create customer value

- Price

• Capture value from individual products & services for firm

- Promotion

• Advertise and promote products & services to driver awareness, persuasion and sales

- Place

• Manage individual channels of distribution to maximize sales & profits

Copyright © 2013 Florian Zettelmeyer

Product Ecosystems and Content

• Design for continuous engagement• Content no longer di!erent from products/services

FUTURE OF MARKETING

- Product

• Design individual products & services to create customer value

- Price

• Capture value from individual products & services for firm

- Promotion

• Advertise and promote products & services to driver awareness, persuasion and sales

- Place

• Manage individual channels of distribution to maximize sales & profits

Copyright © 2013 Florian Zettelmeyer

FUTURE OF MARKETING

Product Ecosystems and Content

• Design for continuous engagement• Content no longer di!erent from products/services

Revenue Models

Copyright © 2013 Florian Zettelmeyer

• Apple launched iTunes in 2003 and sold 1 million songs the first week

• In 2008 Apple launched the App Store, offering software applications for iOS devices

• It created a developer community that has produced over 700,000 apps for iOS devices

• These devices are now linked through iCloud

Free or subscription

Transaction Free and transaction

Transaction and subscription

Developers Content Developers

70/30 sharing

53% 5%23% 15%

3%

iOS device owners have downloaded over 35 billion apps

97 %

3 %

0 %

- Product

• Design individual products & services to create customer value

- Price

• Capture value from individual products & services for firm

- Promotion

• Advertise and promote products & services to driver awareness, persuasion and sales

- Place

• Manage individual channels of distribution to maximize sales & profits

Copyright © 2013 Florian Zettelmeyer

Product Ecosystems and Content

• Design for continuous engagement• Content no longer di!erent from products/services

Revenue Models

• Price the system, not the product/service• Separate value capture from value creation

FUTURE OF MARKETING

- Product

• Design individual products & services to create customer value

- Price

• Capture value from individual products & services for firm

- Promotion

• Advertise and promote products & services to driver awareness, persuasion and sales

- Place

• Manage individual channels of distribution to maximize sales & profits

Copyright © 2013 Florian Zettelmeyer

Product Ecosystems and Content

• Design for continuous engagement• Content no longer di!erent from products/services

Revenue Models

• Price the system, not the product/service• Separate value capture from value creation

Engagement

FUTURE OF MARKETING

Copyright © 2013 Florian Zettelmeyer

- Product

• Design individual products & services to create customer value

- Price

• Capture value from individual products & services for firm

- Promotion

• Advertise and promote products & services to driver awareness, persuasion and sales

- Place

• Manage individual channels of distribution to maximize sales & profits

Copyright © 2013 Florian Zettelmeyer

Product Ecosystems and Content

• Design for continuous engagement• Content no longer di!erent from products/services

Revenue Models

• Price the system, not the product/service• Separate value capture from value creation

Engagement

• Deep insight about consumer motivation• Leverage other consumer data

FUTURE OF MARKETING

- Product

• Design individual products & services to create customer value

- Price

• Capture value from individual products & services for firm

- Promotion

• Advertise and promote products & services to driver awareness, persuasion and sales

- Place

• Manage individual channels of distribution to maximize sales & profits

Copyright © 2013 Florian Zettelmeyer

Product Ecosystems and Content

• Design for continuous engagement• Content no longer di!erent from products/services

Revenue Models

• Price the system, not the product/service• Separate value capture from value creation

Engagement

• Deep insight about consumer motivation• Leverage other consumer data

Access Everywhere

FUTURE OF MARKETING

Copyright © 2013 Florian Zettelmeyer

- Product

• Design individual products & services to create customer value

- Price

• Capture value from individual products & services for firm

- Promotion

• Advertise and promote products & services to driver awareness, persuasion and sales

- Place

• Manage individual channels of distribution to maximize sales & profits

Copyright © 2013 Florian Zettelmeyer

Product Ecosystems and Content

• Design for continuous engagement• Content no longer di!erent from products/services

Revenue Models

• Price the system, not the product/service• Separate value capture from value creation

Engagement

• Deep insight about consumer motivation• Leverage other consumer data

Access Everywhere

• Consumers don't think channels; nor should you

• Design access for cross-channel customer

FUTURE OF MARKETING

Copyright © 2013 Florian Zettelmeyer

The future of marketing is one that enables the "big data mindset"

BIG DATA MINDSET

- Design all processes with measurement in mind

- Use predictive & proactive analytics

- R&D everywhere

- Test everything

- Challenge conventional wisdom

Copyright © 2013 Florian Zettelmeyer

Thank you.

Florian [email protected]