To move beyond the perception of a cost center, marketing organizations need to embrace data-driven strategies and AI-powered solutions. Traditional marketing often struggles to demonstrate tangible ROI. This article explores how data and AI can transform this function, shifting it to a revenue-generating powerhouse. Key areas we'll explore include understanding customer motivations, optimizing marketing spend, and the OPTIMAX framework for data-driven decision making.
The Marketing function involves the research, discovery and definition of the 4 P's (Product, Price, Positioning, Promotion) in the context of 5 C's (Company, Customers, Competitors and Collaborators and Conditions/Climate). In addition, this function involves the appreciation and understanding of customers motivations (needs, wants, seasonal demands, emotional content, social status, and cultural norms) and constraints (budget, access, channel, mind share, and timing).
When we step into defining challenges at Organizations, we see that the Marketing teams have different contextual (Company Objectives, Competitors, Collaborators, Conditions and Climate) problems and are essentially working on understanding and defining the following topics (not exhaustive):
Who is my Target Market?
What are my potential customer motivations?
Why do customers buy my product category?
Who will buy my product?
What is my product value propositions and benefits to the customer?
What channels are the customers going to use to buy my product?
When do customer buy the product?
What is my Customer Acquisition Cost (CAC) by Channels and customer segments?
What should be the price of my product?
How do I position my value proposition?
Who are my competitors? How does my product value proposition compare to that of my competitors?
How do I segment my customers? How does the Marketing Strategy vary by each of my customer segment?
How can I get to personalized Marketing?
How do I promote my product? What is the communication strategy?
What is my approach to Branding?
Getting the answers and strategy right to each of the above questions require deep understanding of customer motivations and aligning that with a strategic mindset that can uncover how, what, where and when a marketing activity makes sense?
In most organizations, Marketing is considered as a cost center. The activities of Marketing are put in a financial budget. The Marketing budget gets a critical look from the C-Suite with hard questions flying in the face of its relevance to Sales, Revenue and Cash flow. The essence and the importance of some Marketing activities gets lost in justifying and tying it back to the ROI, hard to define and measure with meaningful KPI's. In most instances, Marketing executives have limited frameworks to justify the disconnect between Marketing activities and corresponding relation to Revenue.
Given the complexity, importance and constraints, this function will benefit with a data/AI driven framework that optimizes the resources to derive the value and justify ROI with the right KPI's. We propose a simple framework called OPTIMAX that takes into consideration various constraints such as Budget and Cost per Channel and optimizes the revenue driven by Marketing activities. In addition, the OPTIMAX framework will be an approach that put data at the center to drive insights and advanced ML models that can predict a specific desired outcome (Increase in sales or response, Increase in Revenue).
Market Research is a qualitative and a quantitative art that helps define many essential Marketing questions. This function will embark into Customer Discovery, Competitive Insights, Target Market Sizing (Total Addressable Market (TAM), Serviceable Available Market (SAM) and Serviceable Obtainable Market (SOM)) and Market Segmentation. We encourage Organizations to conduct Independent third-party Market Research and compare those insights with the internal understanding of the market. This will help bridge any gaps in the qualitative KPI's and measures.
Once the Market Research activities are complete and a strawman can be built on Marketing Strategy, Context and Customer Motivations. These areas need to be further refined and enhanced using data/AI driven Marketing, that we call as OPTIMAX. Using data driven approaches, we derive key insights around the customer motivations and attribution that can identify who, why, and how a sale is made.
One of the first objectives in data/AI driven Marketing, OPTIMAX is to maximize sales or response rates by channel. This can be achieved using AI/ML models and scoring the entire prospect database. The prospect database can then be segmented into segments and rank ordered from high response to low response. This exercise when repeated over multiple channels will attain the response/sales optimization. Getting to this end state will transform a Marketing Organization from a Cost Center to a Value Generation Center. The most important goal to enable sales is achieved with response and channel optimization.
Smart Marketing Organizations don't just stop at the Value Center, but strive to become a Revenue Center. After the response and channel optimization objective is accomplished, the organization can then focus on optimizing revenue given a specific budget. One of the insights that we have observed time and time again is that a high responsive customer may not be a highly profitable customer. In other words, for a given budget/cost, an optimal Marketing strategy need to focus on maximizing the Life Time Value (LTV) of the customer along with the response rates. AI/ML can again come as a solution to score the potential customer/prospect database based on revenue potential and LTV.
Overlaying the prospects across response and LTV segments gives a different targeting approach where the revenue and sales are optimized for any given constraint (cost, channel, time, mindshare context).
If your organization need help in optimizing your Marketing Strategy or Campaigns, please feel free to reach us out for a free consultation at contact@katalyststreet.com.