Problems of poor diagnosis

SBHD: Why do big, successful companies, with large marketing budgets, still miss out on business opportunities? Because all too often they blindly accept marketers’ pseudo-explanations and fail to get to the root of the problems.

Why do so many marketers’ campaigns fail? Because, declared a speaker at the IPA’s recent conference on advertising effectiveness, “there is a systemic failure in marketing culture and companies’ organisation”.

That’s the sort of sweeping statement that journalists love and everybody else takes with a pinch of salt. But perhaps market research consultant David Cowan has a point. Too often, he claims, marketers’ pseudo-explanations – explanations which satisfy our curiosity but actually explain very little if anything at all – crowd out real analysis.

Take, for example, the biscuit marketers who noticed they were losing share to own-label and prepared a marketing strategy to counter the threat. Only after further, detailed analysis of consumers’ actual purchasing behaviour did the real problem emerge. Consumers weren’t actively switching to own-label, but the rate of sale for the brand was slowing, thereby creating reduced market share numbers. The real marketing effort needed was to rekindle primary demand, not to fight own-label.

Cowan went on to recall the case of a manufacturer where all six of the “fundamental truths” espoused by the marketing department turned out to be baseless. They had “inherited strategic defects which agencies were expected to put right with bright ideas”.

Which is where the dangers begin to multiply. Marketers tend to see problems in terms of the strengths and weaknesses of individuals. They tend not to give enough weight to the corporate structures and processes that create and mould peoples’ behaviour and attitudes. Sentiments like “if only our agency was more creative”, “if only our researchers had better insight”, “if only the client thought more strategically” are mere platitudes masquerading as explanations: by definition, they are always true.

The real challenge is to understand the underlying conditions that stifle or encourage the human qualities we want. Why, for instance, do companies consistently fail to see the threats and opportunities that are thrown up by emerging technologies and new products?

In a fascinating Harvard Business Review article business school professors Joseph Bower and Clayton Christensen suggest that mistakes like this happen far too often for such non-explanations to be acceptable. For example, when IBM dominated mainframes it missed the rise of minicomputers. When DEC dominated minicomputers it missed the PC. Likewise Apple, which led the world in user-friendly personal computing, missed the boat in the portable computers market.

Their answer is that clever people making sensible decisions following tried-and-tested marketing nostrums can still go wrong. For two reasons. First, they stay close to their customers. Sure, every textbook tells them to do so – and quite rightly. But customers are committed to an existing technology and are often the last to see the potential in a new as-yet unproven product. Thus marketing processes “designed to weed out proposed products and technologies that do not address customers’ needs” end up weeding out the new crops of the future.

Secondly, carefully crafted budgeting processes warn marketers against investing in products where the discernible market is small and its future unpredictable. Faced with the choice of going upmarket and up-margin by serving existing customers with better versions of what they already have, or of going down-market and down-margin by offering products which market research tells them their customers don’t want, they make the sensible choice. Deriding them after the event for being unresponsive or unimaginative entirely misses the point.

Likewise, the endless conflict between finance and marketing directors. Why do marketers and accountants always seem to end up talking at cross purposes?

If exhorting accountants to think more strategically and more long term, or telling marketers to be more bottom-line conscious were a solution it would have worked long ago. But, as the Leo Burnett Brand Consultancy and Arthur Andersen pointed out in a recent study, these are pseudo-solutions created by pseudo-explanations.

The causes of the clash go much deeper. They are partly to do with training and partly to do with the contradictory demands placed on them. The accountant’s short-term budget and profit targets clash directly with the marketer’s longer-term performance criteria of market share or advertising recall indices.

The consultants’ suggested solution is rather daunting. Marketers should be expected to model their market so that the effects of different actions, such as cutting prices or running advertising campaigns, can be quantified. And likewise, the financial effects of these actions – such as timings of revenues and expenditures, effects on inventory and working capital, and potential capacity constraints – all need to be included in the same “continuous budgeting” model.

Perhaps, understandably, few companies are doing this yet. But, crucially, those that do are creating a system that forces individuals to start learning together and to think beyond pseudo-explanations that may have dominated their thinking.

When marketers are feeling modest they say success is 99 per cent perspiration and one per cent inspiration. This is fine for action-oriented cultures but doesn’t help create learning cultures. What it misses out is investigation – and without rigorous investigation inspiration and perspiration is wasted.