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  • 1. RESEARCH & IDEASGetting the Marketing MixRightPublished: October 20, 2011Author: Dina Gerdeman Marketers have a wide array of selling tools the field, and this model helps measure that." flawed because they make it appear as if allat their disposal, but lack an effective method marketing activities produce the same results,for predicting their success. Associate the researchers contend. In reality, differencesProfessor Thomas J. Steenburgh and The ideal mix between various marketing instruments arecollaborators offer a new model for guiding When planning marketing campaigns, brand often significant. The cause of these flawedtheir marketing investments. Key concepts managers have a wide portfolio of weapons to results comes from what is called the Invariantinclude: draw on, including in-store merchandising, Proportion of Substitution (IPS) property, • Discrete choice models commonly used to advertising, coupons and sweepstakes, trade which implies that the proportion of demand evaluate marketing strategies often provide promotions, prices, and deployment of a direct generated by taking business away from a misleading results, leaving managers with sales force. The key is crafting the right mix competitor is the same, no matter which the inability to accurately measure how they between them—the ideal brew needed to marketing activity is used. can get the best bang for their buck. achieve sales and market share goals. "These models get run all the time in • A new model could help managers figure The trick is that each marketing effort academics," Steenburgh says. "There has been out which marketing efforts work best, and affects consumer behavior in different ways, some talk at conferences where there seems to therefore decide which strategies to invest and also prompts different types of responses be an understanding that these models are too in. from competitors. Some activities result in restrictive." expanding demand across an entire category of products. Take for example the "Got Milk" Businesses rely on solid marketing advertising campaign, which is intended to Widening the viewstrategies to boost sales—yet the tools used to increase demand for a category of products, So the professors created a new discreteevaluate these strategies often provide milk. In contrast, an advertisement that points choice model called Flexible Substitution Logitmisleading results, leaving managers with the out how one brand is better than a competitors (FSL), described in their working paper Theinability to accurately measure how they can get brand has the goal of encouraging consumers to Flexible Substitution Logit: Uncoveringthe best bang for their marketing buck. switch products within a particular category. Category Expansion and Share Impacts of If a business seeks to grow demand for a Marketing Instruments. The model relaxes the "Companies really need to category of products, the effort may not elicit IPS property and allows a wider variety of much of a reaction from its competitors; after results to be analyzed when studying the effects pay attention to the all, if the entire category grows the rising tide of different marketing instruments. By doing so, lifts all boats. But a competitors reaction is "the FSL allows a wider variety of effectiveness of their typically quite different when a company individual-level choice behavior to be recovered marketing instruments" attempts to move in on its market share, perhaps from the data," according to the researchers. by offering price discounts. Since this strategy The team tested the new model by looking Thomas J. Steenburgh, an associate is viewed as more threatening, the competitor at the marketing of prescription drugs, namely,professor in the Marketing Unit at Harvard can be expected to retaliate with statins, used to lower cholesterol levels inBusiness School, has developed a new prejudice—often by firing off a campaign to people at risk for cardiovascular disease. Usinganalytical tool that more accurately measures win back many more customers than it lost. data from 2002 to 2004, they studied the threethe effectiveness of various marketing efforts. "We know that retaliation happens and that primary ways these drugs were marketed byHe created the model with Qiang Liu, an companies worry about that," Steenburgh says. Pfizer, Merk, Bristol-Myers Squibb, andassistant professor of marketing at Purdue "But nobody benefits when both companies are AstraZeneca: "detailing," in which drug firmUniversity, and Sachin Gupta, the Henrietta retaliating. One effort just offsets the other." representatives personally visit physicians toJohnson Louis Professor of Management and Measuring the different effects of these sell the drug; at professional meetings andprofessor of marketing at Cornell University. marketing strategies can help brand managers events (M&E) sponsored by the pharmaceutical Steenburgh believes that the model could make the right decisions about which strategies firms; and by using direct-to-consumerhelp brand managers determine which to use in their marketing mix. Steenburgh, Liu, advertising (DTCA).marketing strategies work best to invest in. and Gupta argue that the tools that have been First, they employed the complex "Companies really need to pay attention to used in the past to analyze the effectiveness of mathematical formulas of traditional models tothe effectiveness of their marketing different marketing activities—called discrete study different marketing strategies used by theinstruments," Steenburgh says. "They need to choice models—can skew the results and drug companies. They found that the IPSlook at whether theyre creating new customers misguide brand managers. property created counterintuitive estimates ofor whether theyre just drawing customers away Traditional discrete choice models—logit, demand gains attributable to these marketingfrom competitors. Its a fundamental question in nested logit, and probit, for example—are investments. Although logically the researchersCOPYRIGHT 2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE 1
  • 2. HARVARD BUSINESS SCHOOL | WORKING KNOWLEDGE | HBSWK.HBS.EDUexpected detailing to generate greater demand ones expand the pie and which ones threatenfor the products than either direct-to-consumer other actions," he says.advertising or meetings and events, the Figuring in paybacktraditional models would not allow them to With results that provide a better analysis ofdiscover this because of the IPS. how different marketing instruments work, About the author When they applied their FSL model, brand managers can now decide how to best Dina Gerdeman is a writer based inhowever, the results provided much greater invest their marketing dollars. For example, if a Mansfield, Massachusetts.detail about the potential effects of different brand manager is concerned about retaliation Post a New Comment:marketing investments. For example, the model from competitors, the best decision may be to Name: Position:predicted that sales gains from DTCA and limit investment in detailing and instead put Organization: Email:M&E would come primarily through category more emphasis on direct-to-consumer I would prefer to remainexpansion (87.4 percent and 70.2 percent, advertising or on sponsoring meetings and anonymousrespectively), whereas gains from detailing events, both of which are more likely to expand By hitting “Submit” youwould come at the expense of competing drugs the category. agree that your comment, in(84 percent). By contrast, the random Steenburgh notes that future research is Comment: whole or in edited form, may becoefficient logit model predicted that gains needed to find alternative models that overcome posted online. Comments arefrom DTCA, M&E, and detailing would come the IPS, and he hopes that the FSL model will selected on the basis oflargely from competing drugs. be applied in other studies that examine the relevancy and variety; not all "The FSL model is very useful if you want effectiveness of marketing instruments. will be posted.to predict consumer demand," Steenburgh says. "It would be interesting to apply the FSL"This model gives you a better way to do that." model in a lot of other situations to see whichCOPYRIGHT 2011 PRESIDENT AND FELLOWS OF HARVARD COLLEGE 2