S Arunachalam: What do you think are going to be the five big trends in marketing academia and marketing practice?
Rob Palmatier: It is hard to nail down just five specific trends. I think there are a number of trends. When it comes to marketing academia versus marketing practice, in my own case, in nearly all of my personal research, I work with businesses because they have the leading ideas. If you want to be on the cutting edge, you want to be working with firms.
To answer your question, I foresee the Internet of Things (IoT) becoming phenomenally big in the future. What I mean by IoT comes from predictions on how much the internet is going to be connected to everything you are doing. I was at one of the biggest appliance white goods manufacturers in China about three weeks ago. And they were showing me some of their new refrigeration equipment. So, in front of the refrigerator, there is a touchscreen and it is connected to the internet. Based on the weight, it can even sense when your milk is low. If you programme the fridge, it will automatically re-order the milk for you. Or you can programme it so that it shows you an indication of the shortage on the touchscreen. On one hit of a button, it will re-order. There will also be advertisements popping up on this touchscreen.
With the amount of data they are collecting and storing, the company also knows how often you open your refrigerator door at your house. They know when you grab a drink. They have sensors on the bottom of the trays. Some of the marketing managers at this Chinese firm were suggesting that in the future, they might give you a refrigerator for free if you just committed to doing all your re-purchasing through the refrigerator.
In other words, a big retailer would make a deal with the manufacturer of the refrigerator. The refrigerator would be sold for free, but it would be linked to the internet. This is happening in refrigeration, cupboards and even in bathrooms. This technological change will disintermediate a lot of retailers. Not just the brick and mortar retailers, which we all know are being squeezed out in most cases, but also some of the online retailers. You don’t even need to go online and order. Your order will go straight, from let us say, the refrigerator or the cupboard, to some firm. That would be a dramatic change.
You don’t even need to go online and order. Your order will go straight, from let us say, the refrigerator or the cupboard, to some firm. That would be a dramatic change.
Another dramatic change is mobile shopping. The leaders in this area are also in China. I visit China several times a year and I have interviewed many marketers. They do almost all of their banking and shopping on their phone. No PC or laptop or iPad. They are doing it all on their phones. That interface becomes very important, especially with geo-targeting.
In one of my meetings with a large telecommunications firm in China, I was told that the company sold the location data of all their customers who visited Macau. Now Macau is an island off the coast of China where there are a lot of casinos. If you go to a casino, they know the cell tower and your GPS. If you were to visit casinos in Macau a lot, this company would learn about your gambling habits. Your location data is then sold to banks. Now if you go and ask for a loan from those banks, they would know you gamble.
I think the privacy issues in using big data are very important. When firms know not only who you are but also where you are, it allows them to target you much better. But should your location not be confidential?
It is something that should be protected. These issues are still to be decided in many countries.
I think the privacy issues in using big data are very important. When firms know not only who you are but also where you are, it allows them to target you much better. But should not your location be confidential?
Are there any other trends which you believe will make a big difference to marketing in future?
Yes, I see the way we communicate with firms changing dramatically. Historically, people communicated face- to- face. That was a very rich form of communication. You could see visual cues, proximity cues and verbal cues. But today, we interact through text messaging, phone calls, email and video calling, like Skype. Each of these has different communication characteristics.
If you look at Facebook, some studies have found that 60% of the videos that are watched on Facebook have no volume usage. One communication form that is becoming very popular is videos without volume, which is interesting. You design your videos to be watched because the person sitting somewhere does not want the volume to pop up. In many cases, they don’t even bother turning it on. And overall, videos on the web are taking the largest portion of bandwidth.
In some cases, people are predicting that in future, over 50% of search will be done with voice-activated devices set up in most of your rooms. You say lights and they get turned on. You have Amazon Echo, Google Assistant, Siri and a number of others. These novelties are becoming part of mainstream marketing. They will change how we do marketing.
And will these trends be global, or will they be restricted to the Western or European economies?
In some cases, new information and communication technologies will allow emerging markets to skip whole stages. In China, retail spaces are very expensive. On the other hand, a lot of malls that were built in the United States (US) are now hurting for business because people are not shopping in them as much. They are shopping online. In some emerging markets, they are never even going to build the mall. Maybe they will build a few big showcase malls, but not several small malls. These markets will skip malls and go right into mobile shopping.
In China, retail spaces are very expensive. On the other hand, a lot of malls that were built in the United States (US) are now hurting for business because people are shopping online. In some emerging markets, they are never even going to build the mall.
You spoke about privacy issues surrounding big data. Recently, you also published a Harvard Business Review (HBR) article that focused on big data and privacy issues. What is your take on these issues, given your work in this area?
I have a book that I am working on now that is titled An Intelligent Marketer’s Guide to Data Privacy. It is based on two or three academic papers that we have done as far and the summary paper in HBR.
As marketing professors, we spend a lot of time studying big data. Marketing analytics or big data analytics are the number one programme being added in business schools today.
The premise is that if we collect a lot of data about our customers, we can target them better with the right product, the right price point and at the right time. With geo-targeting and the use of cell phones, we can even target them as they are walking into the store. Right now, we are working on some campaigns in which when customers walk in front of a store, say ten feet away, we send them a coupon on their phones. It is so accurate and we are not using GPS. We are using some kind of cell-phone ID. That is pretty powerful targeting.
The premise is that if we collect a lot of data about our customers, we can target them better with the right product, the right price point and at the right time.
But people don’t like to be stalked. What we are finding is that many customers feel very violated when they are over-targeted. There was this interesting newspaper article in the New York Times, about a gentleman who kept on receiving magazine catalogues of baby products from Target, a US retail store. Even though he threw away the first ones he received, he got about five or six of them over a period of time. He complained to Target to stop sending the catalogues. Two months after his first catalogue, his daughter comes up and says, “Dad, I have something to tell you.” Target knew two months before the father that his daughter was pregnant. In an analyst report, the Chief Executive Officer (CEO) of Target said that one of the reasons why their performance has been so good is because they could tell within two weeks, the stage of a customer’s pregnancy. They target the different stages with different products.
Well, you can see how that bothers people. Big data is ultimately going to be limited by machine learning and it is going to be limited by privacy. At the end of May 2018, the European Union implements the General Data Protection Regulation, known as GDPR. It is a law that changes the way privacy and data can be tracked in Europe.
But people don’t like to be stalked. What we are finding is that many customers feel very violated when they are over-targeted.
In the US especially, if you do some online activity with a firm, they can use your data. They can even sell your data to a third party like Facebook and Google. Those are the two biggest companies which own about 60% of the online advertising business.
The only way to stop companies from using your data is to opt-out. Opt-out is a choice made by visitors when they go to a website and select the option to prevent companies from using their data. Now some firms do not even offer you the ability to opt out.
However, with the new GDPR implemented in Europe, an opt-in system is introduced so that firms can no longer use your data unless you go online and permit them to do so.
Now I am sure firms are going to be smart. They will make a lot of system capabilities available to you only if they can use your data. There are good things about using consumer data. You do not have to re-enter it. The company can make suggestions that are targeted for you. Amazon book recommendations is a classic example.
Privacy is going to be a very big push. Potentially, it is going to impact some big data operations.
However, most companies have gone farther than that. Now there is going to be a backlash. It will be interesting to see how companies like Google and Facebook can operate in this new legislative environment.
These laws have not been passed in the US. Primarily because those companies are the top political lobbyists and they are spreading a lot of money around Washington to make sure that these laws are not passed. Or if they are passed, at least they are presented in a way that it doesn’t cause as much pain. It will be interesting to see how this plays out.
Privacy is going to be a very big push. Potentially, it is going to impact some big data operations. In many cases, the only reason why firms offer loyalty programmes is that it is the way they get to track you as an individual customer. Let’s say I go to Starbucks this morning, pick up a coffee and pay cash. But when I go in the afternoon, I pay with my credit card. In this case, they will have no way to know that the two transactions were done by the same person. Once I use my loyalty card, they give me a free cup of coffee ever so often. But Starbucks gets to identify me as a customer. They can track me over time. They will now understand when I buy sandwiches. They learn what kind of coffee I buy. They take what they learn about me, and if I am a good customer with high customer lifetime value, they can target other customers like me.
To open up the canvas once again, how do you think research on emerging markets would evolve in the near future with regards to marketing strategy or even consumer behaviour?
Marketing strategy has a big role to play in emerging markets. Emerging markets are moving to become developed markets very quickly. I would say that marketing techniques are diffusing across the world very fast. In China, the emerging market where I have spent the most time, in the last five years, they have made a tremendous journey from being in the early stages of advanced marketing to doing state-of-the-art strategy which is at par with the developed markets.
In some cases, researchers take a result which has already been demonstrated in North America or the US and apply and retest it in the emerging markets. In those cases, I don’t think the research is very insightful. Where I think there is a better focus is on topics such as sharing economy and mobile shopping. Customers in China make more purchases on mobile phones than any other country in the world. So in that way, China is not a developing or emerging market; it is the leader. Studying why using mobile phones work better than bricks and mortar in that context would be a great topic for research.
When it comes to the sharing economy, in some countries, there are large populations of people with fairly low disposable incomes. The sharing economy is one channel to access goods and services when there is a need. The sharing economy is important everywhere but it has advanced and is taking off the fastest in emerging markets. But whether or not the economy is called ‘emerging’, marketing works the same way. If you looked at demographic groups in the US with a lower disposable income and compared that with some developing economies, there would be little difference.
Customers in China make more purchases on mobile phones than any other country in the world. So in that way, China is not a developing or emerging market; they are the leader.
I have also studied relationship marketing and there, I do see a difference. Relationship marketing involves using relationships between firms and individuals in firms to impact business performance. What we find, for instance, is that relationship marketing is 55% more effective in Brazil, Russia, India and China (BRIC) countries than it is in the US. Why? It may be that the institutional system used for governing business transactions is not quite developed in some of these emerging markets. As a result, relationships determine who trusts whom. But here too the difference is a matter of difference, rather than degree.
I wanted to ask you about the Centre for Sales and Marketing Strategy at the Foster School of Business. How did it all start? What is its vision?
The centre has been working for about four years now. I think that centres are going to be the key pillars of academic research and marketing in the years to come. About four or five years ago, I went around and benchmarked the centres at a number of universities around the US. After looking at these peers closely, I designed the research centre with the purpose of linking business and academics not only to improve business performance but also to generate sales and marketing knowledge. And from that, hopefully, we can generate high-quality academic research.
We have an advisory board of about 25 executives who include chief marketing officers and other senior sales and marketing executives of companies like Starbucks, Microsoft, Alaska Airlines, Expedia, Costco and Nordstrom. We get insights from these business executives and learn about the top sales and marketing problems facing their firms. We take those problems and then match them with our affiliated researchers and marketing professors. At the University of Washington, we have about 12 Marketing Professors, of whom only a few work in what I would call marketing strategy. We have about 50 affiliated researchers from around the world.
I designed the research centre with the purpose of linking business and academics not only to improve business performance but also generate sales and marketing knowledge. And from that, hopefully, we can generate high-quality academic research.
We match the problem from the firm with a researcher who is an expert in that area. We work first on solving the company’s problems. And in the process, we receive data from the firm. We analyse the data and make recommendations. Following that, we may conduct field experiments to change some practice at the firm and watch as it improves its performance. We then use the knowledge generated from this exercise to generate an academic paper. In my experience, getting access to good data and field experiments is vital in generating quality academic research in marketing strategy. Which is the reason why top academic researchers in this domain work closely with centres such as ours.
We have now formed a new organisation called the Sales and Marketing Strategy Institute (SAMS) which will launch in the next year. Through this institute, we are forming centres all around the world and these centres will be linked together. We are opening three centres in China – Shanghai, Beijing and Guangzhou. We are in initial discussions in Seoul and we have one underway in Australia. These centres will all be linked together to help enable substantive research on strategy. In some cases, the investigators have data but not the expertise to analyse it. SAMS will promote academic research and especially help young scholars and PhD students in the area.
More broadly, I find that in some cases, Chinese companies are much more open to working with academics than some in the US. This is probably due to privacy concerns in the US. Also, a lot of the US firms have already made inroads into the data and have their research teams in-house.
I want to end once again with a big question. What according to you are the most salient research questions or directions for research arising from managerial practice?
I am going to answer this in a couple of ways. First, what is most important for a junior scholar is to find a domain, a substantive area where they can be an expert. And some of these areas, be they online shopping or social media, are moving so fast that you have to get a narrow area where you can dig deep. You cannot be scattered all around in different domains if you want to be an expert. So first pick an area to be an expert. And then you must try to make most of your research fit into this area. Every time you write a paper, you think about two or three other papers. It helps if these papers are all in similar interlocked areas.
What is most important for a junior scholar is to find a domain, a substantive area where they can be an expert…You cannot be scattered all around in different domains if you want to be an expert. So first pick an area to be an expert.
The other thing I would do is not to restrict myself to academic journals for ideas, but also turn to the business press and meet with business people. The MBAs and Executive MBAs are a phenomenal source of knowledge. These are some of the best and leading minds in the business community. Usually, the firms cough up quite a bit of money to send them for these programmes and to pull them out of work. That is also a big opportunity cost. It is very exciting to me to engage with the business community and delve into managerial problems. Also, it is much more fun as a researcher rather than just sitting in your office and working on some problem that maybe not many people in the world would be interested in.
As a business practitioner for 15 years, I went on to become the CEO of a company. Now I have moved into academics. I like bridging the two areas. And that’s exactly what the centre and the institute are trying to do. Scholars, especially students and junior scholars, around the world are welcome to collaborate with my centre and find value in it.
Thank you so much for your time.
The John C. Narver Endowed Professor in Business and Administration in the Marketing Department at the University of Washington’s Foster School of Business, Professor Robert W Palmatier is also the Research Director of the Centre for Sales and Marketing Strategy at the Foster School. A world-renowned expert in Marketing Strategy and Relationship Marketing, Palmatier is the Editor-in-Chief in the Journal of Academy of Marketing Science and the incoming Co-Editor of the Journal of Marketing. Among his awards are the Harold H. Maynard Award for “significant
contribution to marketing theory and thought in the Journal of Marketing,” 2008 and the Robert D Buzzell Award from Marketing Science Institute, 2016