Using Marketing Analytics to Increase Return on Assets
Marketing analytics, which is a technology-enabled and model-supported approach to use customer and market data to shape marketing decision-making, has proven to increase return on assets (ROA) among Fortune 1000 companies. Recent research conducted by professors at the Penn State Smeal College of Business finds that despite the proven value of using marketing analytics, the relative number of companies actually employing them is still low.
Gary Lilien, Smeal distinguished research professor of management science and research director of the Institute for the Study of Business Markets (ISBM); Arvind Rangaswamy, senior associate dean for research and faculty at Smeal; and Frank Germann of the University of Notre Dame found that Fortune 1000 companies that increase their use of marketing analytics improve their ROA on average 8% and as much as 21%, with returns ranging from $70 million to $180 million in net income.
The researchers surveyed 212 senior executives from 500 firms. Their analysis shows favorable performance outcomes from greater use of marketing analytics, suggesting that the impact of marketing analytics deployment on firm performance increases in more intense industries with rapidly changing customer preferences.
Examining one group of firms with an average (50th percentile) deployment of marketing analytics and operating within an industry with average competition and average shifts in customer preferences, the researchers found that increasing the use of analytics by one unit translates to an 8% increase in ROA. Examining a second group of firms, those with the same deployment of marketing analytics, but within in a highly competitive industry with frequently changing customer demands, the researchers found that a one-unit increase shows a 21% average increase in ROA.
The study emphasizes the role of management in the successful implementation of marketing analytics. To ensure effectiveness of using marketing analytics, a company’s top management team must seek to hire people with the skills required to do data analysis, implement a sophisticated information technology infrastructure, and maintain a culture that supports marketing analytics, so that the insights gained can be used within the firm.
“Our study provides a strong rebuttal to executives who believe that information gathering and analysis result in excessive delays and ‘analysis paralysis,’” says Lilien. “On the contrary: when analytics is deployed with strong support from key executives, organizations thrive in competitive industries and react well to today’s customers, who frequently change their product preferences.”
The study, “Performance Implications of Deploying Marketing Analytics,” is forthcoming in the International Journal of Research in Marketing.