For most of us, the levers that control the economy in the USA and the tactics used to create a positive impact on said economy are, for the most part, outside our ability to materially influence. As we have watched the economic turn-around over the last 18 months, I suspect many of us have wondered whether or not the tactics being implemented will in fact produce an optimal outcome. At the risk of becoming an armchair economic quarterback, I would like to talk about marketing and economics, together, suggesting perhaps that a marketer’s microscope on the economy might be an interesting way to look at the problem.
In most areas of life, we are often faced with the dilemma of an uncertain outcome. Due to this fact, marketers have over the years become proficient at using trial and error testing as a way to justify investments when outcomes are difficult to discern ahead of time. Marketers often adhere to a simple philosophy: “Let’s just spend a small percentage of our proposed budget and see if our program actually works.”
Clearly, this strategy couldn’t answer all of our economic doubts, or could it?
As an example, let’s look at last year’s Cash for Clunkers (CFC) program. It’s been reported that $3 billion dollars were allocated to this program, with the goal of stimulating the economy. What might a marketer have done with this program? As step one, a marketer would most likely suggest running a scaled down test program in a single market from which results could be interpreted prior to making the much larger investment.
So, where do we start for this market test? Well, with Albany, New York, of course!
Why Albany? Believe it or not, its demographic makeup very closely matches that of the United States overall. As a result, this makes a great testing ground for marketing programs. In the CFC program, we could have allocated a proportional fraction of the cost of the program -- $300,000, or roughly 1/10,000 of the total $3 billion spent (the population of Albany divided by the population of the USA) -- to fund a trial and error testing program. Additionally, with such a small program, its not hard to imagine that this test could have occurred in as little as a few weeks.
What lessons might we have learned from such a trial and error test? At the end of the Cash for Clunkers program, one study revealed that only 20% of the total subsidy went towards incremental consumer purchasing. If that was the case, then 80% of the subsidies were given to consumers who intended to buy a car regardless of the program.
Given the similarities between Albany, NY and the USA as a whole, our test program could have determined that only 20% of the $300,000 spent (or $60,000) actually would have been a stimulus to the local community. Though it’s not a precise extrapolation, using that calculation, we could have reported, relative to the $3 billion CFC budget, that as much as $2.4 billion of the program’s funding might not have provided the intended economic boost. If we were marketing this program, would this trial have changed the decision to move forward?
While trial and error testing alone probably can’t provide an answer to all our economic challenges, I do think sometimes we must concede that some problems are just too complicated to model mathematically. Maybe, just maybe, a trial and error approach to economic stimulus provides an alternative way to make economic program funding decisions.
As a company, Inuvo routinely uses testing to determine where to spend investment dollars. Our markets and the channels into those markets are many. Not unlike the US economy, it becomes difficult in the absence of a perfect model, to determine where to place one’s bets. When faced with this problem at Inuvo, we choose to minimize risk and maximize knowledge through program testing that allows us to quickly make ‘go/no go’ decisions based on quantifiable information.
