Q&A with Dr. Sam Savage (Stanford)
MarketingNPV (MNPV): You refer to your philosophy of applied analytical processes to decision making as "disciplined intuition." Can you explain what that means?
Dr. Sam Savage: Management science tends to create abstract algebraic formulations that managers can't apply. My approach is to use management science to discipline your thought process. You still make seat-of-the-pants decisions, but now your intuition has grown more powerful.
MNPV: Is it true that the marketing department is still the least likely place in any organization to be using "disciplined intuition?"
Savage: People who have succesfully marketed the same product for a long time probably have disciplined intuition through Darwinian evolution alone. But there are also horror stories analogous to the apocryphal children's shoe company that went after the average family with 1.5 kids, by selling shoes in boxes of three.
MNPV: What types of marketing problems or decisions do you regularly see within organizations that could be approached more effectively?
Savage: First, people talk a lot about customer relationship management (CRM) these days, yet I have found few people who have an intuitive grasp of Markov chains, the granddaddy of all CRM models. This helps answer such questions as: Should we expand our customer base, or expand our offerings to our current customers.
Another area in need of improved intuition involves measuring the success of marketing campaigns. It's easy to BS yourself into believing that a random spike in sales was due to your marketing prowess. Yet it's easy to put this to the test.
A third topic that is poorly understood intuitively is the application of modern finance theory to the marketing portfolio. A credit card company too dependent on a single class of customer or a mobile phone firm, too dependent on a single technology are both vulnerable to upset when the winds of fortune shift. It doesn't take rocket science to detect this sort of problem, but it does take disciplined intuition.
MNPV: Can you give us an example from your work where the marketing department made use of a disciplined intuition approach and what benefit(s) they derived?
Savage: I spoke recently with the head of a software firm that sells specialized systems into the healthcare industry. He said that although their customer base was shrinking, business took off, once they realized the real opportunity was to bring value to the current customers. This gets us back to Markov chains as visualization tools.
MNPV: Is it possible to calculate the cost of NOT employing an approach such as the one you recommend?
Savage: It is straightforward to back-test various approaches, to see how the bottom line would have evolved with or without some analytical technique. But often it is a no-brainer to tell that a new approach is superior.
MNPV: What are the remaining barriers within the marketing function to disciplined intuition methods and how can they be overcome?
Savage: It is critical that people at all levels of marketing management develop disciplined intuition. You can't just have the statistician say to the VP of marketing: "I know this looks like hieroglyphics, but trust me, we'll sell more peanut butter this way." Instead, the VP of marketing needs a seat-of-the-pants understanding of statistics so he or she knows when the analyst is blowing smoke.
MNPV: What would you tell a CMO who is wondering how to start moving his or her organization in the right direction?
Savage: Many people hated their stat courses as business students and are suffering from what I call post-statistics stress syndrome. The new approach doesn't assume any knowledge of statistics, and if someone has had a course in the subject, it usually takes less than 45 minutes to repair the damage. A short course for executives based on current marketing challenges is the quickest road I know to recovery.
Read a review of Savage's book Decision Making with Insight.
