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What's Next: Better Methods
 

Suppose you could really figure out why advertising works.
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Advertising and marketing are usually considered to be more art than science. Sure, a fair amount of statistical analysis is used to be sure the person who is reading an ad, watching a commercial, or hearing a message is from the target audience, but the message itself is largely a work of art. When marketing and advertising are taught in universities, much of what is taught is anecdotal -- what has seemed to work before. But it doesn't have to be that way, at least not according to James Kowalick and Mario Fantoni, two guys who say they can show you how to use science to design a marketing campaign that costs less while being 10 or more times as effective as doing it the old way.

Their secret is the Taguchi Method, which is a technique for designing experiments that converge on an ideal product solution. Devised in the late 1940s by Dr. Genichi Taguchi, then an engineer at NTT, the Japanese phone company, the method that bears his name has long been used in designing cars and computers. If you've ever wondered why the quality of Japanese cars is so high, credit Taguchi. The first American car designed using the Taguchi Method was the original Ford Taurus, which quickly became the top-selling car in America. Now just about every car from every manufacturer is designed using the method, which literally builds customer satisfaction into the design.

The Taguchi Method was first brought to the U.S. by researchers at AT&T Bell Labs and has been used for more than 20 years by companies like Xerox and Kodak. There is a global business in teaching Taguchi, but for no reason at all it tends to be restricted to engineering groups in large companies.

James Kowalick was corporate director of engineering at Aerojet General ("Why, yes, I am a rocket scientist") when he met Dr. Taguchi in 1985 and began using the method to design better engines while saving millions of development dollars. Kowalick was so taken with Taguchi that he later left Aerojet and founded the Renaissance Institute at Cal Tech, where he taught more than 300 Taguchi courses to executives from high-tech companies at $13,000 per three-day session.

Taguchi's objective is robust design, which means building a product, system, or process that works well even in the presence of degrading influences. That means products that deliver value without breaking and services that are enduring while being as simple as possible. Taguchi first determines the control factors that go into designing a product, their interdependencies, then generates an orthogonal array specifying the number of experiments required to find the optimal solution.

If the last paragraph reads like Esperanto to you, maybe that explains why mainly eggheads have been attracted to Taguchi. The short version is that however they work, the Taguchi Method can take a project with thousands, even millions of combinations of variables and quickly reduce it to a couple dozen simple experiments that can be run simultaneously and will determine the cheapest way to achieve a goal. Instead of considering one variable at a time, Taguchi is able to test many variables at once, which is why the number of tests can be so small. It's a bloody miracle. Taguchi not only shows the right way to do something, it also tells you what the cost in dollars will be of doing it the wrong way.

But until now, Taguchi has been too obscure or too abstruse to make its way out of laboratories and into real products and services from non-high-tech companies. "I taught over 300 courses for industry where we designed cars and electronic devices, but it wasn't until one day I took over my wife's kitchen and used Taguchi to perfect my recipe for vanilla wafer cookies that I realized how broadly it could be applied," Kowalick recalls. "It took 16 batches, but by the end of the afternoon I had those wafers dialed in."

That's when Kowalick turned the Taguchi Method to advertising, with the goal of significantly raising the response rate for ad campaigns. After all, advertising is just a process for sharing information and inducing responses. Like any process, advertising can be optimized if the control variables can be properly defined. Kowalick did a test case with direct mail campaigns for a local winery, then another with Internet advertising for an insurance agency. That was where his longtime friend Mario Fantoni, a former marketing executive for Oracle and management-consultant executive at ATKearney, entered the picture. "Mario was a customer of mine," recalls Michael Malloy, owner of Malloy Insurance Services in Oregon House, Calif., an insurance broker serving clients throughout California. "I had an opt-in e-mail list of 7,500 names and was sending out very nice ads I paid a lot of money for but was getting almost no response at all, nothing. Mario said he and Jim could help."

In three two-hour sessions with Malloy, Kowalick and Fantoni identified the control factors that they thought affected the ads and designed the resulting experiments. The design process finally came down to 12 Taguchi experiments that would define the right e-mail campaign for this particular product and audience. The control factors included graphics, colors, and use of humor. The experiments themselves were 12 mailings to 625 addresses each -- two mailings per day over six days. Analyzing the results took two days, so the whole process, start to finish, took two weeks. Once the control factors were optimized, all further mailings followed the form dictated by the experimental results.

It's a miracle. Taguchi not only shows you the right way to do something, it tells you the cost of doing it wrong.

"I was skeptical at first, but the results were clear," says Malloy. "Where my expensive ads weren't working, what did work were much simpler stories that were cheaper to tell." Malloy's advertising costs dropped from $1,800 per week to $300 and his response rate increased from two or three responses per week to around 70 -- an increase of 2,233% at one-sixth the cost.

"We're still working our way through all the new business," says Malloy. "Of course, all marketing becomes stale with time, but when this tails off we'll just expand our audience or run more experiments."

What the insurance broker learned was that he could find new markets on a very lean budget while determining, in order of importance, the major factors influencing insurance sales to a given population. What worked on the Internet would probably have worked as well using direct mail or even print advertising once the intended customer base had been found.

"The approach condenses the experience of investigating billions of possible combinations for an ad, including copy words, graphics, visual impression sequence, and integration with a larger sales system, into a few dozen mailings or e-mailings," says Fantoni. "It is also a psychological approach that carefully considers what potential readers want to read. Copywriters and artists still have to write the words and draw the pictures that follow the procedures derived from the experiments, but once they become accustomed to actually knowing why what they do works, it becomes a way of life."

This process is very different from the kind of testing that is presently done by major advertisers. A big advertiser may come up with several campaigns it tests in separate markets, but the approach tends to be shotgun, with little rigor in determining how one campaign is different from another and what influences are actually being measured. So Taguchi is potentially a great leveler, making it possible for smaller companies to advertise just as effectively as their larger competitors.

And just as the Taguchi Method was extended from scientific R&D to marketing and advertising, it could easily be used to develop consumer products. Wendy's International, for example, takes an average of 18 months to develop and test a new specialty sandwich. Using Taguchi, the same process could be reduced to less than a month with the same or better results, according to Kowalick. And any product development savings drop to the bottom line as profit.

Of course, Kowalick and Fantoni have started a company to exploit this technology. The company, which is based in Oregon House, is called MR2, for "Maximized Response Rate." They claim their work can be applied to any product or service and any advertising medium. And what presently requires sitting for those couple of sessions with Kowalick and Fantoni (at a cost of about $8,800) will soon be reduced to a $499 interactive software program that will run on a PC, bringing all the benefits of Taguchi without requiring that a nerd be enclosed to make it work. The software should be available this fall, as will a book published by Breakthrough Press and titled E-mailing Your Way to Sales With the Taguchi Approach.

The vanilla wafer recipe, however, will remain a secret.

Contributor Robert X. Cringely is a writer, broadcaster, and entrepreneur specializing in technology. Contact him at cringely@inc.com.

Last updated: Sep 1, 2003




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