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The cognitive timeline, part 4b: Acting (consumer behavior doesn’t lie)

April 20, 2015 0 Comments

Consumer behavior: The gold standard of market research data

choice-at-shelfIn contrast to verbal expressions, actual consumer behavior is the real deal of market research. This is data that all marketers ultimately care about — where consumers shop, how they shop, what they buy, how much they pay, how often they buy, what they tell their friends about what they buy, and so on.

Large research companies collect huge amounts of direct consumer behavior data detailed down to the level of individual point-of-sale (POS) purchases by store and by time of day. That data gets crunched through complex algorithms to identify patterns in the fluctuating relationship between how much gets spent on marketing and advertising and how products perform in the marketplace.

cognitive-timeline-N4D.

A lot of research on consumer behavior — often called market mix modeling in the trade — looks for correlations or causal relationships between marketing expenditures and marketplace performance. In effect, this research “cuts out the middle man” in the process — that is, it cuts out the mental processes in the minds of the millions of consumers who are exposed to the marketing messaging and then spend the money that produces the marketplace performance. It assumes, for the purposes of the analysis, that all those mental processes average out to a “zero effect” over the full dataset of millions of individual instances of consumer behavior.

What we see when we look at this purely input-output behavioral model of marketing is instructive. Gerard Tellis is a researcher who has studied this problem for decades. What Tellis has found is that, when you take the mind of the consumer out of the equation, advertising spending has very little impact on sales.

Tellis has tracked a metric called elasticity of advertising, which measures the percentage impact on sales of a 1 percent change in the level of advertising. In other words, the metric answers the question, “If I increase my spending on advertising by 1 percent, by what percent will my revenues increase?”

The results are rather startling. In his latest calculation of this measure (in 2010), Tellis and his co-authors found that, on average, a 1 percent increase in advertising generates a 0.12 percent increase in short-term sales. This number, calculated in 2010, is over 20 times less than the elasticity of price discounts (calculated in 2005), which showed that a decrease of 1 percent in price resulted — on average — in an increase of 2.62 percent in sales.

With the billions of dollars spent on advertising every year, the net short-term return is minimal. Clearly, we still have much to learn about how to produce more effective advertising.

Although this average figure is rather disappointing, it has a large variance (range of values), because it’s made up of some fabulously successful advertising campaigns, some real dogs, and a lot of campaigns that had no effect on sales whatsoever. What this type of research doesn’t show is why some ad campaigns perform well above average and others perform well below average. From the perspective of marketers and marketing researchers, this is the important question. They don’t want their advertising to be average; they want it to be wildly above average.

In order to separate the winners from the losers, we have to reintroduce the key missing variable in the equation — the mind of the consumer. But as we’ve seen, the mind of the consumer is not well represented by just asking the consumer what he or she was thinking. We need to look for other ways to probe these sources of consumer behavior, and that means going beyond self-reports to understand the nonconscious sources of consumer decisions and behaviors.

N4D-cover -120pxThis post is excerpted, with minor edits, from Neuromarketing for Dummies, Chapter 2, “What We Know Now That We Didn’t Know Then.”

Filed in: Science • Tags: , ,

About the Author:

Steve is a pioneer in the field of neuromarketing. He founded one of the first neuromarketing research firms in 2006 and published the first comprehensive overview of the field, Neuromarketing for Dummies, in 2013. He established Intuitive Consumer Insights in 2012 to help clients, vendors, and industry associations navigate the opportunities and challenges neuromarketing presents to the marketing and market research communities.

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