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Five Levels of Rethinking Recurring Revenue and Retention

Many B2B businesses either have shifted or are shifting to some form of a recurring revenue model. When they do, one of the first things they learn is that renewals by current customers are just as important as―and often more important than―initial sales. If the customer doesn’t stick around for, typically, three to five years, then you’ve lost money on them.

But renewal rates and recurring revenue seem to be stuck. Companies I work with are ones that have been trying to make a difference. They need to significantly increase renewal rates to achieve the growth their investors demand and their teams want and have been using a variety of tactics to do so. But none of those tactics targeted to recurring revenue seem to make much of a difference.

These companies usually rely on two approaches to maximizing renewals. The first is an activity-driven approach, usually focused on adoption. The intent is to determine which activities your customer performs with your product that tend to lead to renewal and then to build a program to encourage your customers to do more of those activities. The second is a conversion-driven approach, where you ask customers for renewals, maybe making special offers for early renewals or upgrades, and expect a percentage to accept your offer. This is very much like your demand-generation process, where you expect a given conversion rate from a marketing offer.

Both of these are good approaches to building recurring revenue, and they work. But if you’ve spent time trying to improve your renewal rates, then you probably have that gnawing feeling in the back of your brain that wonders why this is so hard and why it takes what seems to be either a patchwork or a Herculean effort to make any significant uptick in renewal rates.

If this sounds familiar to you, you’re missing something: you’re not paying attention to what your customers really needed in the first place. You’re probably working with each customer on a recurring revenue plan for what you think they define as success, which is typically a list of activities you’ve developed that you think, statistically, lead to renewal.

But renewal is not the same as a successful customer. We have all become so programmed to define success as a collection of metrics that we miss out on what we really mean by being successful.

For Recurring Revenue, Know What Customers Really Want

I’ve heard any number of marketers and salespeople say to me that customers buy only two things: cost reductions and revenue increases. You might even hear the (highly coached) customer attest to this in case studies. But this is not what the customer really wants.

To build a strong relationship with your customer and ensure they renew year after year, you need to understand both their concerns at every level and the kind of relationship your customer needs to have with you.

Note that concerns in this context are not worries. Concerns mean the things with which your customer or its people are concerned with, think about, and hope for.

The model I use with my clients surfaces customer needs, concerns, and aspirations in five different ways. It looks at the questions you are asking and about your customer’s business and how you are addressing the concerns and aspirations you identify. This model is based on a model of understanding concerns written by my good friend Jennifer Kenny.

Finding Recurring RevenueWhen you use this model, it’s important not only to understand what your customers need, what they are concerned about, and what their aspirations are, but also what you can actually deliver. You will not be a trusted adviser to all your customers. Some companies will be transactional with all of their customers. Most will have customers at every level of relationship.

When you understand your customers at this deep level, and you know how you work best with them, you then have an approach to creating, building, and maintaining relationships that will lead to recurring revenue and renewal year after year after year.

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The One Mistake that Derails Company Growth

You have a pretty ambitious company growth target. You’ve put together a strong team, as well as a great sales and marketing plan based on industry best practices. Your offerings are ready to go. And you launch your campaigns. Everything looks good, and the outlook is rosy.

A few months later, you’re scrambling. Everything worked as planned, but prospects are not hitting your B2B funnel nearly as fast as you thought they should. Your pipeline looks pretty anemic. And you’re missing your growth targets up and down your pipeline.

What Happened to the Company Growth Plans?

If your company is like most these days, the entire company is looking at you―the marketing leader―to explain why things have gone awry and how to fix them. After all, marketing’s job is to drive the pipeline, right?

If you’re like most marketing leaders, you take a look at your campaign. Was the message right? Did we miss something in the design or execution? Then you look at your process. Is there something keeping an interested prospect from taking whatever action you were hoping they would take? Did you fail to follow up? Did sales drop the hand-off of the lead from marketing?

The Mistake

Your problem isn’t your sales people. It’s not your marketing people. It’s your customer.

That’s right, the problem is your customer. In my previous post, I wrote about building a better persona to get a better understanding of your customer (you all did that, right?). If you did that, then the next three steps are:

  • Decide, based on what you know you can deliver, what specific concerns and aspirations your company can fulfill for your target customer.
  • Decide what promises you will make to your prospects that they understand will fulfill those concerns and aspirations.
  • Then build your position and your message around those specific promises.

When you do that, every prospect that receives your message will understand instantly how you will help them and whether they need that specific kind of help. If they don’t, they are not your target customer, and you can comfortably let them go. If they do, they will be interested and will enter into your company growth funnel quickly and easily―and of their own accord.

If you don’t get your target customer definitions, position, and message right, you are marketing to no one. You are putting a bunch of messages out into the market in the hope that they will resonate with someone who will then call you to the benefit of your company growth plans. Your metrics for this type of effort (often called “spray-and-pray”) will be below your industry average, and you will be left wondering what went wrong.

We, as marketers, put a lot of effort into the process of marketing, including campaign design and the underlying technology. But marketing is still, fundamentally, about knowing what your target customer wants and needs and delivering that in a way that makes them feel like you’re doing magic for them.

If your marketing isn’t yielding the company growth results you expect or want, the problem is not how you’re doing marketing or sales. The problem is that you don’t know― at least not well enough―who your customer is and what you can do for them.

Go back to the drawing board. Get your target customer, position, and message right. Your pipeline and your company will thank you.

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Drop the Persona. Market to a Person

Nearly all the marketers I meet seem, in some way, obsessed with personas.  A persona is a convenient little tool that describes some set of attributes of a hypothetical―and supposedly typical―customer that are intended to allow everyone in the company to understand this customer and what they want.

If you’ve spent time talking with me about personas, you know exactly how I feel about them: I hate them.

No, I don’t hate the idea that there should be an understanding of the customer, and everyone should be able to see what it is. That’s necessary for getting teams aligned and driving market growth (see my discussion on this in my previous post).

I hate the idea because most of the marketers I meet use them as crutches―and not very useful crutches at that. I hate that most marketers try so hard to be specific and complete in their description of “Finance Francine” that their list of things “Francine” cares about are either redundant or useless in creating messaging that will convince the hypothetical “Francine” to spend non-hypothetical money.

Have you ever seen a list like this?

“CEO Chuck” cares about:

  • Increasing revenue.
  • Increasing profit margin.
  • Meeting set revenue and profit goals.
  • Not losing revenue.
  • Not losing profit margins.
  • Increasing net income.

OK, I’m going a little overboard, but you’ve seen that list. The problem you see with it is that it’s redundant. I see that and something far more dangerous to your marketing:

The list is meaningless.

If the person working on personas in your organization makes lists like this one, you probably don’t ever look at them for anything you do. If you do look at them, I’d ask you whether they help you target content, create advertising, or email campaigns or even inform sales scripts.

A good test for whether you have a useful persona is whether your average sales rep can use the language in the persona document to describe how you help your customer and the prospects on the other side of that table (or other end of that call) respond with “Yes!! That’s exactly what I need!” How often does that happen to you?

So, what do we do about this? How do we get a useful understanding of the people to whom we are selling (and yes, if you’re selling to businesses, you’re still selling to people)?

Focus on the person.

It sounds easy, doesn’t it? Well, it is, but then again, it isn’t. They say understanding other people and building relationships is hard. When you are selling any kind of offering, you are building a relationship with another person (or people), and it’s exactly as easy and hard as with anyone.

What’s the key to getting this right?

In an earlier post, I wrote about the importance of knowing how you and your offering make a difference in the lives of your customers. There are three steps to making this an integral part of your marketing:

  1. Understanding your customer’ needs and aspirations―most importantly, the ones they don’t articulate.
  2. Understanding what needs and aspirations you can enable.
  3. Understanding how you help your customer meet those needs and achieve those aspirations.

Revisiting “CEO Chuck,” here’s how this might work:

Chuck runs a small software company. Chuck is trying to solve the disconnects within his organization. He knows that if product, sales, and marketing could stop arguing and get on the same page, it would be easier and smoother to generate leads and grow the sales pipeline. His demand generation leader says the biggest obstacle to getting prospects into the pipeline is knowing how to effectively find the right kind of person to whom to deliver messages. His investors are breathing down his neck about meeting sales targets and showing some eye-popping PR stories. His engineers are bugging him about prioritizing new features and bug fixes, and claim they can’t understand what they should be doing first―it all seems important.

Now let’s say you are selling some kind of marketing product to Chuck. You could tell Chuck your offering increases revenue, and you’d think that would be important enough for him to buy it. But let’s say your offering could help get the pipeline process unified between sales and marketing, and make sure they both have at least common numbers, account information and the like. You could then offer Chuck a solution to at least part of the sales and marketing friction problem, making his pipeline move more smoothly to help grow revenue.

Some marketers will see that as a more specific and, therefore, smaller offer. It’s not. It helps solve the problem your prototypical customer thinks they have. It makes sure you can deliver something they think is valuable to them and that makes a difference in their lives. And if you do it successfully, I am pretty sure they will tell their friends and colleagues you made a whole set of challenges go away.

This illustration is an over-simplification for the purposes of keeping this post readable. But the point of doing this exercise―and doing it well―is you get to understand your customer as a person, not as a hypothetical persona or profile.

And when you stop making claims to a persona and start making promises to people, you can start delivering real value and changing their lives.

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The Path to Growth: Five Stages of Position-Product-People Alignment

For nearly any business, the path to growth happens when you know your market and have your product and your people aligned to the needs of that market. For young companies, such as the technology startups with which I work, this alignment can make the difference between a future IPO and shutting down the business.

Exceptional Growth Requires Expert Navigation

As companies start and grow, they begin to discover not only their own expertise, but, more importantly, their market, its niches and segments, as well as its quirks, needs, and wants. I think of this as navigating the discovery of a new land, full of opportunity and fraught with danger. Finding the path to growth is challenging, but the closer you get to your particular path, the more rewarding it becomes.

The path to exceptional growth is the precise alignment of your product (and capabilities), your position (the needs and wants of the market), and your people (their execution of your processes).

Most businesses go through five stages of alignment:

Path to Growth StagesI’ve outlined this for a typical technology startup, but this can apply to any business or product line.

1.  Suspicion

When a company is just starting out, the founding idea comes from some knowledge that a handful of potential customers may need something like the product being contemplated and a founder’s belief she can address that need differently from how it is being solved now.

The market is unknown territory. Whether there are more than a few potential customers is unknown. Any knowledge of a path to growth is nothing more than a suspicion. The product is brand new, so it is still trying to find the needs with which to align.

2.  Discovery

As the company starts to sell products and find customers, it has also found a wider range of ways its product meets the needs of a wider range of customers. There may be little consistency from one customer to the next, but they all find the company has something that meets some set of needs.

This stage of discovery is an important step for every company. The company learns some of what is possible and can start to consider which of the many types of customers will suit it best.

At this stage, there is still very little alignment among position, product, and people, as the company is trying to do everything it can to meet the needs of any customer who shows up. The most common cause of failure at this path to growth stage is a product that is not growing to meet these diverse needs, meaning the company can’t deliver on its promises.

3.  Map Making

The company has now become more adept at finding customers and finding ways to discover and meet their needs. While there may be little consistency as to these needs from customer to customer, some commonalities are beginning to appear.

These areas of commonality are the segments and niches in the company’s market. Knowledge of these shows the company what will work best for its own strategy and objectives and will eventually help it better understand how to compete with direct and indirect competitors.

This is where alignment becomes critical. As the company learns where it can be most successful, understanding the needs of that segment and how the company can meet them differently from what has come before becomes critical to continued growth and advancing to the next stage.

The most common causes of failure at this stage are either not seeing the emerging segments making it hard to focus, or not continuing to build product that meets the needs of the coalescing segments, again causing the company to miss keeping its promises.

4.  Navigation

The company has seen success in one or more segments and must now choose to focus on one at a time. Exceptional growth requires thinking smaller. Let me repeat, as this is not always intuitive:

Exceptional growth requires thinking smaller.

Focusing on one position in the market—one set of needs, met in a differentiated way, in one segment—allows the company to build a product, train its people and develop processes to focus on demonstrated success—and start to repeat that success.  This repeatability is the key to scale.

The most common cause of failure at this stage is not aligning product and people with the chosen position—the needs of the customers in the company’s market segment.  This is lack of focus, one of the critical elements of exceptional growth.

5.  Acceleration

With product and people aligned to position (market needs), the company is seeing an increasing number of customers, as well as a decrease in the effort it takes to find a customer. The repeatability inherent in focusing on a chosen position allows the company to scale its operations and delivery in a very precise way.

This same repeatability at this path to growth stage allows the company to define segment after segment and pursue them in the same way that it pursued the initial segment, creating another layer of scale and accelerating growth.

The most common cause of not being able to achieve this scale is not getting the people and processes in the company aligned to delivering the needs of the chosen segment(s), causing the company to stumble in execution.

Understanding your market and how you can meet the needs of the customers in that market in a different and differentiated way is the foundation of creating exceptional growth for your budding business. Once you get your position right, precisely align your product and your people to that position, and you can find your unique path to exceptional growth.

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Customer Messaging Balance: Two Traps to Avoid

Developing customer messaging for your company at any stage can be fraught with difficulty.  Even when it seems straightforward, marketers tend to fall into one of two traps.  These are well-illustrated by how companies in my industry, technology, have approached talking about themselves and their offerings.

Trap One:  You Say You Want a Revolution …

This is the most common customer messaging mistake technology companies make, and I’ve seen this across many other industries.  You want your offerings to be not only different but also new and different.  In tech, this sometimes takes the shape of claiming “you don’t even know you need this yet.”  While there are some companies that can pull this off (Apple, historically), most can’t.

My friend and colleague, Martina Lauchengco, writes, “The Revolutionary Messaging Fallacy happens when those creating customer messaging make leaps into benefits or transformational language as if what their product did and why someone should care is already accomplished and understood” in her article, cautioning against claiming to be too revolutionary.

The problem with trying to be revolutionary is that it’s limiting―often very limiting.  Yes, while some markets are ripe for disruption (and not necessarily technology-based), the vast majority of customers in most markets are looking for something to solve a particular problem (see Christensen’s book Competing Against Luck about how products are hired to do a job) and to solve it in a way they know and understand.

Side note:  If you want to understand how much of your market is looking for proved vs. revolutionary solutions, consider a research project based on those suggested in Moore’s Crossing the Chasm.

Unless your intent is to address the small part of your market that can accept something revolutionary, stop trying to say you’re revolutionary.  You’ll just scare off everyone else in your market.

Trap Two:  Walk the Line

I’ve been around the technology industry long enough to see not just the disruption that can be created but also the bandwagons on which everyone else tries to jump to get a piece of that disruption―whether in market share or in reputation by associating with the lead disruptor.

One of the trends most interesting to me as a marketer is the way companies try to become part of a particular trend or movement.  The first one I was a part of was the “dot-com” trend of the late 1990s.  For most companies, it wasn’t just a web address, it was how they told their own story.  Even the largest companies wanted to jump on this customer messaging bandwagon (do you remember when Sun Microsystems was “the dot in dot-com”?).

Then there was a bust, the dot-com market died, and in its place was the cringe-worthy “Web 2.0,” reflective logos and all.  Even I am guilty of jumping in this bandwagon with “Learning 2.0” and “Sales 2.0.”  Then Zuora showed up and wowed everyone by being the platform for the “subscription economy.”  Every company wanted its own economy, and some jumped on the bandwagons of the “gig economy” and the “sharing economy” and even, in environmental circles, the “circular economy” referring to the market for reused and recycled products.  Now, “economy” is running its course, and I’m starting to see companies calling themselves “the <blank> transformation,” as popularized by the book The Fourth Transformation (by Israel and Scoble).

If you haven’t guessed where I’m going here, the trap customer messaging trap for marketers can easily fall into is sounding like everyone else in the market.  If a prospective customer who knows nothing about you can’t tell the difference between you and your competitors and you can’t explain it in a sentence or two, you’re not going to win them over.

The Customer Messaging Balancing Act

If you can’t be revolutionary and you can’t be like everyone else, where should your customer messaging be?  To me, the answer is simple:  what difference do you make in the lives of your customers?

I don’t mean that you save them X dollars or Y minutes in some task.  That’s not life-changing.

Here’s an example of what I mean by “life-changing:”  When I sold a solution for sales leaders to better predict results, I would address a fear every single sales leader has:  walking into their CEO’s office and telling her they were going to miss this quarter’s number (maybe, again). When we took away that fear and that conversation, we made a difference in their lives.

Ask yourself what difference you make in your customers’ lives.  Explain how you do that better or differently than everyone else.  Distill it into a story everyone can understand. Make that the crux of your message.

And let everyone else fall by the wayside as they fall into one of the traps.

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Overcome the Fear: Three Steps to Effective Pricing

Marketers hate figuring out effective pricing.  It often seems challenging or obscure, and the risk of getting it wrong seems so high.  After all, what you charge for your offerings ends up determining your revenue.  Price too low, and you harm your revenue stream; price too high, and you drive potential customers away.

There are two major schools of thought about pricing:  one that says you should price your offerings to match the willingness to pay of your potential customers and one that says you should price your offerings based on what it costs to produce and deliver them so that you achieve a chosen margin.

Many companies, notably those that manufacture products, use a cost-plus method to determine effective pricing.  The motivation to earn a given margin is certainly a strong one, but this approach ignores market realities.  The economics of any market show that potential customers are willing to pay based on a range of factors, from supply and demand to delivered value to competitive pricing.

That leaves value-based pricing as the more viable approach.  But unless you have a team of econometricians at your disposal, it can be hard to determine the right price to extract enough, but not too much, value from the market and your customers.

The Three Steps to Effective Pricing

Here are three things to do to get your pricing right:

  1.  Know the competitive landscape. You need to know who your competitors are and what they charge.  But that’s not enough.  Don’t forget that “competitor” means anyone―even if it’s the contractor paving the parking lot―competing for the same budget dollars you hope to get.  Know what they charge.  If you can’t find out from public information, ask your sales reps because their prospects are telling them.  On top of that, figure out your competitive position.  Are you a leader?  A follower?  A price-setter?  A price-follower?   A premium offering?  A value alternative?  Once you know that, you can set price compared to your competition.
  2.  Know the history. What have customers paid in the past for your offering?  Other similar offerings?  You don’t have to deliver exactly the same as always, but unless you’re selling to the few truly innovative potential customers or are a completely new offering, you can only change price levels so much―but you can change them.
  3.  Get your packaging right. What do your customers value most about your offering? Can you break out parts of your offering and price them separately?  Can you add new pieces that will deliver additional value?  Do you offer any services your customers especially value?  Make sure your minimal offering delivers value but also make sure you add value where you can.

Once you know the answers to these three questions, you can choose your price level. When I do this, I always sit down and write a price list.  That tells me what I have and what I’m missing.  Once you feel you’ve documented everything you need, you can validate your thinking with a little market research (I usually just call five to ten potential customers and ask if it makes sense).

The last step is one where most marketers should feel comfortable: Test, test, and test again.  Pay attention to how potential customers react.  Are they balking?  Or are they eagerly accepting your new pricing?  Did you get your base product right, but your add-ons are too high?  Make adjustments.  Then keep making adjustments until you don’t see many more needed.

Marketers may hate of fear the idea of doing any pricing analysis, but these three steps can help take the challenge and put it into a context that is much more familiar and easier to approach.  And, I hope, make it less scary.

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How to Prevent Your Biggest Strategy Mistake

It seems like a pretty simple statement:  getting your strategy right and avoiding a strategy mistake is critical to getting the outcome that maximizes your marketing and business potential.  Many companies, especially smaller and mid-size companies, tend to put lots of work into getting the strategy right, and they often come up with all the right answers.  Even so, they are missing the forest for the trees.

Getting the right strategy for your marketing and business requires you choose the right strategy framework for your particular situation.  No-brainer?  Turns out it’s not.

Here’s an example:  A young software company wanted to find ways to generate substantial growth.  The natural model would be to expand their offering to their market and, at the same time, expand their market.  This expands the definition of their capabilities along two dimensions at the same time, significantly increasing the potential to dilute their focus and investment.

After seeking advice, they found out the approach was completely wrong.  They could have developed a strong strategy addressing larger markets with more offerings, but execution would have failed.  It would have been hard to tell why, since none of the assumptions would have been violated―just the desired outcomes would not have happened.

They ultimately went with a strategy based on the business book, Crossing the Chasm. Doing this required a different approach:  narrowing focus on a smaller set of customers initially and then growing from there.  They avoided a strategy mistake, and this strategy worked as they are now on a very rapid-growth trajectory.

Why did this choice make sense?  The premise of the strategy matched their situation.

The book describes the point at which the strategy makes sense as the point at which, for tech companies, customers become less visionary and more pragmatic.  This was their actual experience, but until they saw that described, they would not have seen it explicitly.

Similarly, every strategic framework I’ve worked with has a similar definition of the conditions under which the strategy should be applied.  The challenge is it’s hard to find it― most strategy books and frameworks will describe in great detail how to execute the framework but spend little time describing those conditions.  You really have to look and pay attention!

Whether you need to cross a chasm or find some blue ocean or move in any direction, make sure your approach suits your situation, your market, your business, and your customers.

Or risk unexplained failure.

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Storytelling Is Really the Only Marketing

Maybe the inverse of my title is more true:  if you’re not telling a story, you’re not really marketing.  As marketers, we’ve all spent plenty of time analyzing features and benefits of our offerings, figuring out just the right messaging and discovering the right ways to talk to our prospects and customers.

In more recent years, notably with the rise of online marketing of every sort, we’ve started talking about conversations, storytelling, and how to engage our prospective customers and build relationships.  This is also an important part of marketing work.

But no matter what you sell and no matter what audience you want to engage, if you’re not telling them a good story and engaging them with that story, you’re not going to garner much interest.

Why Storytelling Matters

Kathy Klotz-Guest, CEO of Keeping It Human, (also a friend and sometime MENG speaker) recently released a book, Stop Boring Me! How to Create Kick-Ass Marketing Content, Products and Ideas Through the Power of Improv, based on her years as an improvisational actor, then as a storytelling marketing adviser to Silicon Valley businesses.  Her premise is that all business is human (also the premise of my work, which is one reason I admire her!).

Kathy cites marketing professor and author Jennifer Aaker of Stanford University, who notes that people remember stories as much as twenty-two times more than they do facts alone

Worried?

You should be.  If you’re “talking” to your prospects by showing them features and benefits, and your competitors are telling engaging stories, it might explain why you’re having trouble with your conversion rates.

One of the most important pieces of advice Kathy offers is that marketing is about change, as are stories.  If you help your prospect see and understand the possibilities and how to change to realize them, you have a far better opportunity to engage and, eventually, sell to that prospect.

How do I do that?

Three Steps to Better Storytelling

Like me, you’ve probably heard that advice from way too many marketers and so-called experts. But doing it seems to escape you.  Here’s one person doing it well every single day.  My colleague, Megan DeGruttola heads storytelling and content marketing for Stitch Labs and uses these three guideposts to create a story:

1.  Know your audience

Who is the person you want to hear your story?   What interests them?  Why is your story going to matter to them?  This is nothing more than knowing your target audience but in a much more human way.

2.  Understand their problems and aspirations 

This is not about the problems you think they should have (sorry, we’re marketers, you know you think that way even though you shouldn’t).  Make certain you are addressing the problems that person faces in their daily life.  Maybe it’s something that frustrates them endlessly or maybe it’s something they never thought they could solve.

Then make sure you know their aspirations.  What do they want to change?  What do they hope to become?  How, very specifically, do they think they can get there―and how can you help them?

3.  Take them on a journey 

Show them where they are and make clear the problems.  Show them the way forward to achieving their aspirations.  In other words, tell a powerful story.

Remember, journeys are never a single step, and they are fraught with setbacks. Don’t forget that your story shouldn’t be a carefree romp to the finish line. It should be an honest and credible account of the challenges and motivations that keep the story going.

Are you worried you don’t tell good stories (it’s the worry I hear most often from marketers about storytelling)?  Don’t worry.  You do.  Ask your family or friends.  At least some of them love your storytelling.  Go find out why and use those strengths to get better.

And as with everything else in marketing, keep trying and experimenting.  You’ll get to what gives you and your company that twenty-two times engagement multiplier.

Then tell us the story of how you did it in the comments!

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Artificial Intelligence – The Next Marketing Frontier (and Danger)

Artificial Intelligence seems to be everywhere all of a sudden, and it’s making its way into the technology marketers use every day.  We’ve been talking to (with?) our smartphones for a while now, and there’s pretty much no mobile device that isn’t just begging to hear your voice.  With Apple adding Siri to the Mac, that now applies to pretty much any device. Amazon even has an eerily lighted cylindrical device that can play Jeopardy! with you―and presumably understand your stuttering, uncertain responses in the form of a question.

The Direction of Artificial Intelligence Operational Systems

It’s only in the past year or two that we’ve seen so-called artificial intelligence technologies make their way into operational systems and software used in business.  And now we’re seeing some form of intelligent capability make its way into marketing.  Here are a few examples:

  • Ad Targeting: Machine learning is working for companies such as Baidu to determine when any given user is most likely to click on what kind of ad, then automatically serving the right kind of ads for that user at that time.  This attempts to maximize click-throughs.
  • Recommendation Engines: We’re all familiar with the jokes about Amazon’s (and other vendors’) “people who bought this item also bought” feature which often make less-than-ideal recommendations.  Applying machine learning to large amounts of data on consumer behavior, however, can improve this dramatically.  Under Armour is using IBM’s Watson to analyze its own customer purchase data with third-party data on fitness and nutrition to serve up far more relevant product recommendations.
  • Preventing Credit Fraud: Banks have been using massive amounts of data to try to determine when a particular credit card transaction has a good chance of being fraudulent.  Now companies such as USAA are using natural language processing algorithms to look at the text within transactions to determine potential fraud even without a previous pattern having developed.

These examples are taken from a pretty interesting list of applications of artificial intelligence in marketing.

The key question for me is:  How will this change marketing?  I’ll offer some thoughts on where this is going, but first indulge me a short background explanation.

There are two main lines of thought in the computer science world about how intelligent systems (from software to robots and beyond) should act and interact with humans.  One says we should be developing systems that are independently intelligent.  Those systems would learn from the initial set of experiences humans provide but then would function on their own, without human guidance and making their own decisions.  If this scares you a bit ―and it should―you can read an incredibly insightful speculation on this in Asimov’s classic, I, Robot.

The other line of thought says intelligent systems should be built to extend and enhance human intelligence.  Sometimes this is called the “Star Trek” school of thought since that is how the computer systems on that show generally operated (and the independent androids were almost always evil―apologies to Mr. Data). The goal here is to help humans advance their own thinking.

A good example of the latter in the marketing world (and a function I really hope to see one day soon!) is the ability to ask your marketing automation systems questions such as “What are the top three paths people who buy our products take through our website?” and have your system know it needs to crunch the behavioral data to develop paths and determine outcomes.  Even better, the system would know why.  In this case, the system is not making decisions on website structure or how to present what information to whom, but it is telling you, the human decision maker, what you need to know to make those decisions.

Most of the examples of intelligence, including machine learning and natural language processing, that are in place today fall into the latter category:  they exist to provide some form of information plus analysis to a human decision maker.  There are a few examples of systems that are given jobs they do themselves (such as the ad server example above), but even those are assigned a specific job and decision-making framework by the humans who control them.

What Comes Next?

I think the next few years will bring a dramatic increase in the intelligent capabilities of all kinds that will be brought into business systems, including marketing systems.  Nearly all these will fall into the data or language analysis category at first.  They will do things such as answer customer-service requests or help marketers make sense of large sets of unrelated data.

But some will start to make some of the decisions marketers make every day.  For example, IBM’s Watson technology analyzed millions of recipes and now can develop a (presumably tasty) recipe given a set of ingredients.  That’s why they let it compete on Jeopardy! but not on Chopped!  Imagine if Watson’s artificial intelligence analyzed the marketing mix of every company in your segment and added in the consumer behavior data.  I’m willing to bet it would make marketing mix and timing decisions as well as any of us could―maybe better.

In the retail business, it’s not hard to envision the day when Apple’s intelligent ear pieces (version one comes out later this month in the form of AirPods) can remember that three days ago you mentioned you needed to buy new socks, and then remind you (literally putting a “bug” in your ear) as you walk by a sock-selling retailer that is doing location-based advertising with Apple.  Today this feels intrusive, but as our artificial intelligence assistants become more intelligent, it will seem less so. It’s more like having your friend notice the socks in the window and asking, “Didn’t you mention you need socks?”

Will Marketing Change?

No.  Marketing, as we sometimes need to remind ourselves, is a discipline, not a set of actions.  We’ll still be doing it.  But our jobs will change dramatically.

The predictions for future jobs are dire.  This article predicts Robots (or some form of artificial intelligence systems) will take over 50% of all jobs within 30 years (the career span of someone 10 years out of school!).  And if you Google “Jobs AI is Taking Over,” there is no end of similarly dire predictions.  Many of those jobs are white-collar jobs.

Some of those will be marketing jobs.  As systems get better at analyzing data and behavior, the jobs devoted to that will disappear.  As systems get better at processing and responding to natural-language requests, customer-service jobs will start to go.  And yes, as systems get better at inductive reasoning, jobs that focus on messaging and positioning (inducing target customer desires) will also go.

The flip side of all these dire predictions is that more intelligent systems will help the marketing decision makers make better, more informed, less biased and faster decisions. Those of us who focus on creative roles and on decision-making roles will get much, much better at our jobs, as our systems help us do better, faster.

Now, if Siri could only tell me where I saw that really cool gadget I wanted to buy.  Or even reliably get me directions home.  Then I’d be convinced we’re on our way to more intelligent systems.

Are you using intelligent systems in your marketing?  Are they helping?  I’d love to hear your stories.

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Caution: Predictive Analytics May Miss One Important Thing

Predictive analytics is, without a doubt, the new big thing in marketing.  It’s how we marketers are putting so-called big data to work to help us find, target, and sell to the right customers at the right time.  I’ve written about this before; any time we rely on technology or process to tell us about our customers’ preferences, habits, or needs, we run the risk of missing out on one critical element of our customers’ decision-making.  Our customers are human and, therefore, somewhat unpredictable.

Many years ago, I worked with a company that created customized news feeds.  Customers would select their areas of interest, and each day, the company would sort items from a range of newswires (yes, this is before social media!) and send each customer a custom collection of articles, press releases, and other news items.

A general concern others and I raised about the trend toward more personalization (which is still ongoing) is that people would miss out on items of general interest.  In those days, when I read the newspaper, I would seek out sections of particular interest to me, but I would also read the front page and often catch other items on my way to my sections.  This exposed me to news, information, and thinking outside my specific area of interest.  In particular, reading the front page gave me a sense of what was collectively considered important (as filtered by an editor, granted, but one whose interest likely was matching the collective interest).  This provided a common understanding of the world and important events of the day.  With an entirely customized newswire (or, in today’s terms, a group of Facebook friends with whom you completely agree), you create your own unique understanding of the world around you, and you become less aware of what is outside your bubble (and in some cases, less able to understand it).

One of our goals as marketers is to influence behavior, particularly toward buying our products and services.  One way to do this is to create some elements of a bubble around the target buyers so they see more of your offerings than anything else and more messages encouraging the lifestyle associated with your offerings.  That creates stronger associations with the promise of the brand and results in brand loyalty.

We observe the actions customers take and focus on the ones that make them most likely to deepen their association with our brand and all of the things for which that brand stands. That creates the customer journey.

Once we know all that, we work hard to influence customers to take the next step on their journey toward becoming a brand loyalist and buying more and more from us.

Dealing with the myriad actions, possible paths, probable journeys, and the wide range of customer tastes and behaviors has been nearly impossible until technology stepped in to give us ways to store and analyze all that data.  Enter big data and predictive analytics.

We now have computer systems that tell us—if a customer has a certain set of tastes and preferences, and then takes a given action (or a series of actions)—what the most effective way to get them to take the next action is.  So we do that.  Then we see many of those customers taking the hoped-for action.

Enhancing the Impact of Predictive Analytics

One of my favorite themes is to remind marketers that your instinct—your intuitive understanding—goes far beyond the analysis of any computer system.  You will not always be right, but your intuition provides a strong sanity check.

For example, your predictive analytics might suggest prospects who end up buying from you always take a specified action several steps prior to purchasing.  This might be true.  But you might also notice there is a large drop-off rate right before that step—only a small number of prospects in your funnel move to that step.  Your analytics don’t tell you this because you’ve told your systems to answer the question of what causes people to buy, so it looks at the outcome and works backward.  It takes human powers of observation to look at the funnel from a different perspective.

I rely on my systems and the analyses they produce to tell me how my programs are working.  I set them up to give me data-driven answers to a variety of questions, including the question of what actions are most influential in converting prospects to paying customers.

But I always look at the data myself.  I look for anomalies.  I look for things that might not be answered by my systems the way I’ve set them up.  I look for things I’ve otherwise overlooked.  Some of those insights have led to opportunities I would not have seen otherwise.

In short, I use my own experienced intuition to make the final call about what is working, what is not, and where I should look next to improve my efforts.

Don’t miss out on this one critical factor.  Don’t let your predictive analytics and automation systems take over your marketing.  There may come a day when intelligent systems can do this for us, but for now, this is your job.  It’s where your value gets added.  Using your own experienced intuition is what makes the difference between good marketing and great marketing.  Don’t give that up.

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MENG is the indispensable community of executive level marketers who share their passion and expertise to ensure each member’s success.
Learn more — Apply for Membership

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