Media Consumption and CrossMedia Synergies

Kalyan RamanNorthwestern University, Evanston, IL

Presented at the Center for MeasurableMarketing, Measurable Marketing in aDigital World, NYU, May 27th , 2011

First therewas Print

Then cameRadio

The Pepsodent Show

And thenTV

And now…

GPS is enabled by Einstein’sTime-Dilation formula

Our Worldis driven byHigh-Tech& ExoticScience

How New Media Shape Consumers

From the EMAC 2007Conference Theme (Verbatim)

• Now the challenge is to fightsimultaneously on several frontsagainst fragmentation, saturationand a storm of novelties that appeardaily in increasingly diversifiedmarkets.

IMC is increasingly importantbecause…

New TechnologiesHaveRevolutionizedCommunications

Integrated MarketingCommunications (IMC)

– 2 + 2 = 5 phenomenon

An IMC program plans and executes variousmarketing activities with consistency so thatits total impact exceeds the sum of eachactivity’s impact.

An IMC program takes optimal advantageof synergies between media

Media Planning Issues• Budgeting $$• Allocation Across Media• Allocation Over Time—Increase, Decrease, Constant,

Pulse, Other?• Allocation under time-varying effectiveness of media• Online and Offline media• Consumers control media consumption• Consumer-created synergy• Social media

Ad Budgets Are Astronomical

A Deterministic Dynamic Model of IMC (Oligopoly)(Prasad Naik, Kalyan Raman and Russ Winer,Marketing Science 2005)

A Stochastic Dynamic Model of IMC (Duopoly & Uncertainty)(Kalyan Raman and Prasad Naik,Review of Marketing Science 2004)

Research on IMC

A Deterministic Dynamic Model of IMC (Monopoly)(Prasad Naik and Kalyan Raman,Journal of Marketing Research 2003)

Temporal Allocation in IMC

• In Automatica (2006), I showed that constant, increasingor decreasing spending patterns can be optimal for thesame response function

• But the assumption of a single medium is restrictive• IMC uses multiple media• And the assumption of constant effectiveness is limiting

because media effectiveness vary over time• How should budgeting and allocation be optimized over

multiple media with time-varying effectiveness?• The answer is relevant to managing IMC optimally during

recessions

Marketing EffectivenessCan Vary over Time

• Changes over product lifecycles, e.g., Competitors enter or drop out Consumer values shift and behavior patterns

change Different customer segments are attracted to

the product at different stages in productcycle

Changes over business cycles Economic upturns or downturns can create

changes in demand16

Empirical Evidence of Time-VaryingMarketing Effectiveness

• Advertising elasticity changes over time (Parsons1975, Erickson and Montgomery 1980)

• Advertising copy quality (Naik, Mantrala, Sawyer1998)

• Price elasticity and promotion effects (Jedidi, Mela,Gupta 1999, Krishnamurthi and Papatla 2003)

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Dynamic Model ofTime-Varying Effectiveness

Advertising Sales

PersonalSelling

2 t1 t

Profitm(t)c(t) T

Sales Responseparametersvary over time

A Dynamic SalesResponse Model

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ttttt vtutSS )()( 211

Advertisingspending

Sales forcespending

SalesCarryover

Time-varyingAdvertisingeffectiveness

Time-varyingsales forceEffectiveness

Random Error

•β1 (t) and β2(t) are continuous and differentiable at least once

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Profit Maximizationwith Time-Varying Parameters

T

0

22t dt))t(cv)t(u)t(mS(eMaximize

subject to

Find optimal strategy (u*, v*) to

)()()()()( 21 tvttuttSdtdS

salvage value: S(T) =e- t mSθ

+S(T)

Empirical study

• Data:– 5 years of monthly data on a major pharmaceutical

product in the US: detailing, journal advertising effort

– Typical life for a patented pharmaceutical product is 12years. Data period starts at the beginning of the 7th yearafter product launch.

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• Selling effort effectiveness decreases over time,consistent with literature (Albers, Mantrala and Sridhar2008; Manchanda and Chintagunta 2004)

• Advertising effectiveness increases over time

Kalman Filter Results

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Implications for OptimalSpending Trajectories

• At t=50, investment emphasis would switch from sales force toadvertising.

23

0

20

40

60

80

100

120

140

160

180

0 20 40 60

ten

thou

sand

time

sales force

advertising

Comparison with a ConstantParameters Model

• Optimal policy will always call for more spending onsales effort (u) than on advertising (v).

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(Raman, Mantrala, Sridhar & Tang,Forthcoming, JIM, 2011)

IMC in a Digital Environment

(Naik & Peters, 2009)

The World Marketers Inhabit Today

Marketer Customers/Prospects

Competitors

Competitors

Competitors

Competitors

Messages and Incentives

Products and Services

Word-of-Mouth New Forms of Media

Web Search

Empl

oyee

s/R

ecom

men

ders

/Frie

nds/

Influ

ence

rs

Agency Media Sales Force Retail

59

Responses Occur Behind the Marketing Lines

Organization Agencies Messages Consumer

BrandExperiences

Internet Systems

Electronic SystemsBrand

Experiences

• Web sites• Customer Service• Tech support• Retailers• Distributors• User communities• Blogs• RSS• Influencers• Recommenders

60

Response

MediaExposure

MediaExposure

MediaExposure

M ediaConsum er

Potentia l SynergyV ia S im ultaneous M edia Usage

(M essages Reinforced)

Potentia l F ragm entationO f A ttention

(M essage Im pact D iluted)

Foreground/Background Media

Tim e A llocated To Each M edia Form

A Media Consumption Model

Schultz and Pilotta, ESOMAR, 2004 106

Four Critical Measures in MediaConsumption

• What media form is accessed• Amount of time spent with each media form• Media combinations – what media used

together and simultaneously• Which media form has the greatest influence

on product purchase

Time US Consumers Spend With Each MediaForm

Time US Consumers Spend With Each MediaForm

Avg Minutesper Day

Internet 146.3Email 132.3TV 124.1Radio 70.7Direct Mail 54.0Video Games 48.7IM 48.5Magazines 46.7Newspapers 40.5Satellite Radio 19.6Web Radio 18.7Blogs 14.4

Source: 1st Half, 2010 – BIGresearch, Inc.

Measures #1 and #2

Media Combinations Are WhatCreate Media Synergy…

The Biggest Challenge in MediaPlanning Today!

Digital Media will Continue to Evolveand Open up New IMC Research Areas