The key to the growth of Japanese companies is the fusion of academic research and practice

Advertisers, media, advertising agencies, creatives, and academia. The Borderless Marketing Community (BMC) aims to create interaction and discussion among professionals with different specialties, and to realize seamless, holistically optimized marketing. The third regular event bringing together members of the community was held online on Wednesday, July 2, 2022.

The event was divided into two parts: the "Keynote Speech," in which experts from each field spoke, and the "Lab," in which practical knowledge on the topic was generated through two-way communication between the speakers and participants. This article reports on some of the content of the keynote speech.

【Speakers】

Professor, Faculty of Economics, Keio University / Director, Institute of Economic Research, Keio University

Mr. Takahiro Hoshino

In 2004, he completed his doctoral studies at the University of Tokyo Graduate School of Arts and Sciences. He holds a PhD in Economics. He has worked at the Institute of Statistical Mathematics, the University of Tokyo College of Arts and Sciences, and the Nagoya University Graduate School of Economics, before becoming a professor at Keio University Faculty of Economics. He has also served as a visiting researcher at the University of Chicago and the Kellogg School of Management, Northwestern University. He is the president of the Society for Behavioral Economics and Economics, and a director of the Marketing Science Society. He also serves as the leader of a team that applies AI to economics and management research at the RIKEN AIP Center, a central research institute for AI research in Japan, and is a technical advisor to several private companies. He received the Japan Society for the Promotion of Science Prize, the most prestigious award given by the government to researchers under the age of 45 (2017). He has also received many other awards, including the Japan Statistical Society Research Achievement Award. His recent publications include "Business Problems Already Solved by the Latest Economics" (Nikkei BP).

※listener:

Yoshiaki Hirao, CEO of XICA

*This is an excerpt from the contents of the day.

Overcoming the borders between academic research and practice

The keynote speech at this event was given by Professor Takahiro Hoshino of Keio University, who serves as a director of BMC from an academic perspective.

Professor Hoshino conducts basic research in statistics, econometrics, and psychology, as well as applied research in the fields of marketing, neuroscience, and public health. He also collaborates with private companies in various industries, including IT and communications, to actively promote the practical application of academic research. He is one of those people who truly embody the concept of "borderless," working across the boundaries between academic fields, and between academic research and practice.

Professor Hoshino's recommendations to BMC members and other Japanese companies are:Making the most of "business science" in the workplaceIt is.

Business science refers to academic disciplines that are deeply related to business, such as economics, business administration, and marketing science, and it combines research from multiple fields to help solve a variety of problems that arise in practice.

You want to maximize the effectiveness of your marketing strategies. You want to increase profitability. You want to increase your company's value. What decisions should you make to achieve these goals? Business science is a treasure trove of knowledge for thinking about these things.

This is because, among the problems that business people face on a daily basis, many have already been studied extensively and optimal solutions have been identified. For example, the following questions have certain "correct" answers that have been derived through research:

　　*When is the best time to implement retargeting measures for customers who have visited your website?

　　*How do you design optimal compensation and quotas to maximize sales personnel performance?

Professor Hoshino emphasizes the usefulness of business science, saying, "It is highly unlikely that the problem you are facing is a problem never seen before in human history. Many people have struggled with the same problem in the past. Solutions to those problems already exist, especially knowledge that has been thoroughly researched in a reproducible form, so there is no reason not to make use of them."

According to Professor Hoshino, in Western business schools, excellent scholars from various fields gather to conduct interdisciplinary research as a matter of course, and the vast amount of research results accumulated over the years are effectively used to solve management and marketing problems. However, in Japan, the knowledge of business science is hardly known, and its use is not progressing.

"If we use academic knowledge effectively, we can achieve results with a very high probability, although I can't say it's guaranteed," says Hoshino. "The current situation is such a waste, and it's frustrating."

Is this policy actually a conflict of interest?

What problems arise when there is a lack of understanding of business science? Professor Hoshino responded to this question by saying,There is a high possibility that decisions or activities will be made that are detrimental to the company's profits." he replied.

As long as it is a company, it can be said that "maximizing the benefits of stakeholders" is a common goal, even if the scope (short-term or long-term) and the weighting given to which of shareholders, employees, customers, or the general public is given as the recipient of profit return may differ.

However, in reality, there are many cases where decisions are made that conflict with one's interests. Professor Hoshino explains that the effective use of business science can help prevent such erroneous decision-making.

"Identify your company's issues from the perspective of profit generation, break them down into specific measures, and set KPIs for each measure. Aim to maximize profits while achieving those KPIs. This is how it should be. However, I often see companies that don't keep maximizing profits in mind, but instead set KPIs that 'someone somewhere said were important' and optimize each department and task individually, which leads to a regrettable situation where profits never increase," says Hoshino.

Although what should be optimized to maximize profits depends in part on various conditions such as industry/business model, business phase, and competitive environment, it is said that in many cases this can be proven through the vast academic knowledge of business science.

As an example of how his knowledge is being put to practical use, Professor Hoshino mentioned that in bidding for programmatic web advertising, instead of the traditional bidding that aims to increase click-through rates and conversion rates, "LTV-Based Bidding" based on the lifetime customer value (LTV) of acquired users is beginning to be put to practical use. LTV is the profit that a customer brings to a company over the long term, and unlike KPIs such as click-through rates, it is directly linked to profits.

In addition, if you can consider and decide on the measures that should be prioritized to maximize profits based on the knowledge of business science, it will be possible to avoid two "traps" that pose the risk of damaging your company's profits.

One is the so-called "principal-agent problem," which refers to the situation where an agent (person who is supposed to act in the interest of the principal (client)) ends up prioritizing his or her own interests and acting against the interests of the principal.

For business people who work with various partners such as advertising agencies, marketing consulting firms, and system development companies to carry out tasks and projects, it can be said that acquiring business science is an effective way to avoid this problem.

Another problem is the misleading of decision-making by "new" business and marketing theories. In particular, new concepts and methodologies are proposed one after another in the marketing field, and each time, the words take on a life of their own, leaving many people unsure of what to focus on and to what extent.

Professor Hoshino points out, "Many of these new theories are simply a cut-and-simplified version of theories that have already been studied in the past and organized as academic knowledge. There are positive aspects to the fact that they are clearly organized, but what is not widely known is that because a lot of related peripheral information is cut out, there is the possibility that various drawbacks may arise when trying to apply them in practice."

Business science can also be useful as a form of literacy that enables people to correctly understand the theories proposed and apply them appropriately in practice.

Many companies are unable to properly evaluate the ROI of their initiatives

In business today, there is a growing emphasis on data-based decision-making. Professor Hoshino points out that business science can also be useful in helping companies properly implement data-driven business and marketing.

This is because there are a great many business people who are unable to properly measure and evaluate the "return on investment (ROI)" of their initiatives.

The formula for calculating ROI is very simple: "Increased profits due to the implementation of the measures ÷ Costs of implementing the measures." The problem is that the numerator, "Increased profits due to the implementation of the measures," should essentially be calculated by subtracting the profits when the measures are not implemented from the profits when the measures are implemented. However, in reality, it is very difficult to observe the profits when the measures are not implemented.

"However, solutions to these problems have already been found to a certain extent through extensive research. In evidence-based policy making (EBPM), the effectiveness of policies is evaluated according to methods derived from such research," says Hoshino.

Professor Hoshino cited an experiment conducted in collaboration with a smartphone game app development company to examine the impact of television commercials on the number of times an app is launched and the time it takes to launch the app, as an example, to explain the pitfalls of evaluating the effectiveness of a campaign.

"If you simply compare a group that was exposed to commercials with a group that was not, you will find that the exposed group launched the app less frequently and for fewer seconds. If you take this at face value, you might conclude that commercials are not only ineffective, but that they may even have a negative effect. However, it is important to note that the non-exposed group is more likely to be the ones who play smartphone games a lot in the first place (and therefore do not watch TV). Conversely, the exposed group is more likely to be the ones who watch a lot of TV in the first place (and therefore launch smartphone games for a short time, or not play them at all). In other words, it is possible that what the experiment revealed was not the effect of the commercial, but simply a difference in the subjects. In reality, you cannot grasp the true effect unless you look at the difference between when the same people are shown the commercial and when they are not." (Hoshino)

If you understand what problems may arise in surveys and measurements, you can design the survey method appropriately and correctly evaluate the effectiveness of your measures based on the data derived.

The correct methods and points to keep in mind for such surveys, data analysis, and effectiveness evaluation have been systematically compiled as the results of academic research. Business science is also effective in "measuring the correct ROI and implementing the PDCA cycle," which is the basis of business.

Business science also opens up careers for marketing talent

As mentioned above, there is a growing trend in the business world to place importance on data-based decision-making. As a result, a notable recent trend is that businesspeople are turning their attention to acquiring skills in data science and AI.

However, Professor Hoshino says that what is more important than the data analysis itself is setting a hypothesis, such as "will this measure have this effect?" and considering "why did this phenomenon occur as a result of the measure." He points out that if this is not done properly, the data analysis will not be useful.

As an academic field that would be useful in this regard, Professor Hoshino cited "behavioral economics," an area in which he is particularly interested and conducting research.

Behavioral economics is a field of study that incorporates psychological observations into the mathematical models of economics to more realistically analyze and predict human economic behavior. The following are all topics that are likely to be frequently discussed in the field of marketing, but the optimal solutions for all of them have already been derived through academic research centered on behavioral economics.

　　*Optimal message language for a membership registration campaign with points as an incentive

　　*Optimal frequency of web advertising (number of impressions/frequency)

　　* Online coupon delivery destinations with the highest usage rate

　　*Optimal pricing in chain stores

Professor Hoshino is collaborating with multiple private companies to conduct various experiments in the real world, i.e., practical work sites, and is working to apply business science, including behavioral economics, to practical applications.

He reiterated that the use of business science in Japanese companies is still in its infancy, and introduced how some companies are actively using academic knowledge to improve existing policies and to conduct pilot projects to consider new policies.

"One retail company and several manufacturers are working together to conduct repeated proof-of-concept experiments in physical stores, and are attempting to optimize sales promotion strategies and measures based on data. I have high hopes for this as a very cutting-edge initiative within Japan. In addition, the project is actively recruiting young employees, which I think is great as it contributes to human resource development," says Hoshino.

Professor Hoshino points out that while there are still many cases where decisions are made based on a few successful experiences and are not easily reproducible, people who can build and execute highly reproducible strategies based on the vast research results of business science should be highly valued by many Japanese companies. This is why he has high hopes for an initiative that opens up an environment where young people can put business science into practice in the workplace.

In this era of rapid change and uncertainty, marketing talent who can utilize business science to consistently produce results will be in high demand. In fact, we are beginning to see cases where talent who can model the rules that lead to results and produce results even when the industry, business model, or product they handle changes do not belong to a specific company but work widely as freelance marketing consultants. Furthermore, the ability to build reproducible strategies is also required in management, so the number of talent aiming to become CMOs may increase in the future.

Professor Hoshino concluded his lecture by sharing his outlook, saying, "If Japan can also transcend the border between academic research and practice, as is the case in Europe and the United States, and make decisions based on business science, the career possibilities for marketing professionals will expand greatly."

Questions from participants in Part 2, "Lab"

In the second part of the "Lab" session that took place after Professor Hoshino's lecture, various questions were asked by members who attended the event, and they exchanged opinions with the speaker. Here we present an excerpt of some of the questions posed by members.

"Where do I start when learning about business science and marketing science?"

"I would like to know about overseas trends regarding how to set KPIs and measures when creating a marketing strategy."

"I feel that many policies are damaging long-term profits in order to maximize short-term profits. Is there a methodology to get out of this trick?"