The 4 Flaws of Forecasting.

Posted on Posted in Research & Analytics

Identifying trends and understanding their causes is getting easier for marketers thanks to the increasing availability of data and the means to crunch it. However, predicting the future is still akin to alchemy; more an exotic art than a credible science. As such I have a love/hate relationship with those who practice it.  

If history serves as a reliable guide, most prophecies about the future of marketing will prove to be inaccurate. This is especially true in the Technology, Media and Telecoms sectors. So, should we give up on predictions or can we actually learn something useful from the flaws in futurology?

Today, some of the widely reported predictions about the future of media and marketing seem robust and evidence-based. But let’s not kid ourselves. They highlight patterns, map shifts in behaviours and quantify probabilities but as forward-looking statements, they all require some very serious caveats.

Although often revered and highly remunerated, futurologists face many intrinsic problems. Most notably, there’s an implicit expectation that they will eliminate uncertainty by offering a definitive account of what’s coming next. But the future is a big place, with a shifting, unpredictable topography. Moreover, when we seek to imagine the threats and opportunities of tomorrow, our judgment is invariably skewed by today’s reference points, consumer needs and expectations.

However, while commercial prophecy is an unreliable if not bogus pursuit, how we think about the future can actually improve the quality of our planning. While they didn’t deliver an ounce of the gold they promised, many prominent alchemists genuinely advanced chemistry by establishing progressive techniques and more systematic methods. In a similar way, I’d argue that the futurologists can improve marketing if they acknowledge some of the inherent challenges of forecasting. In my view, there are four essential weaknesses or common errors that, once embraced, can help to sharpen up strategic plans.


4. Focusing on the “Known Knowns”

This beguilingly simple set of charts illustrates one of the biggest obstacles to predicting the future. The data shows the inexorable rise of “mobile”. It’s widely agreed that global spend on mobile advertising will increase from around US$25billion this year to more than double that in 2017 and device ownership is increasing exponentially in most developed countries. So, predicting a central role for “mobile” is a safe bet, right?

Mobile-Growth

Well, it’s half right. Just ten years ago, marketing gurus heralded the growth of mobile but notably omitted any reference to the yet-to-be-invented tablet.  WAP phones and later smartphones where the focus of our attention and embodied our understanding of “mobile”.  Despite the iconography used in this graph, Mobiles per se are a red herring. Portability is a dead cert but the exact nature of that portability isn’t so easy to map. Certainly, unanticipated factors make prophecy problematic but it is assumptions about known factors can present some of the biggest hurdles.

Great planning starts with the process of identifying factors that likely in themselves to influence change. Surely the next step is to rank each of these variables by their propensity to change.


3. False Sectors & Pseudo Segments

No1-pdaA good indication of a company’s preparedness for the future is how they answer the question “What business are you in?” If they define their core competency primarily in terms of current industry categories or products it’s likely that they aren’t looking very far ahead. Sectors and segments wax and wane but the basic social and commercial forces are perennial.

For this reason, the frames of reference of the futurologist are often hampered by latency and inevitable redundancy. This is more than simply a question of semantics.

Think of Palm’s tenacious quest to be the world’s number one PDA manufacturer, Nokia’s fall from grace when it became myopic about cellphones or Kodak’s self-destructive obsession with the “photography sector”. It’s widely acknowledged that all three would have had a brighter future if they had framed their ambitions in more essential terms; personal data, communications and imaging respectively. Rather than being preoccupied with improving current solutions as defined by today’s market, I think that the key to long term success is striving to better address enduring needs and wants. To paraphrase my colleague, Lyndsey Weinger; Starbucks realized early on that were not the business of selling coffee. Some years after Lyndsey said this, Starbucks  dropped the word ‘coffee’ from their logo.


2. Self-fulfilling Prophecies

ETITD-Womens-Jeans-ColorsThe maxim that “the best way to predict the future is to create it” is particularly pertinent in the world of marketing. Advocating a particular vision of tomorrow’s products can create demand, establishing a positive feedback loop that in turn generates more supply.

This kind of mechanism is particularly evident in some of the more fickle sectors such as toys and apparel where the mere announcement of The Next Big Thing can influence distribution and sales. A very stylish example is EDITD, a trend tracking service provider for the fashion industry that straddles research and promotion. Based on large volumes of hard data, EDITD’s reports offer timely summaries that provide early indicators, rather than fanciful predictions. The absolutely fabulous graphic here shows the array of colors for women’s jeans being sold online. Remember that most clothing businesses are designing products months ahead of the market and so EDITD’s low-latency, high definition analyses of current collections serve as both commentary and catalyst.

Rory-Sutherland-DemigodIn a similar way, there is value to be gained from marketing-led companies investing in ‘thought leadership’ activities. Extolling your own progressive marketing ideas can actually promote their adoption by attracting progressive clients.

I recall sharing a conference platform with Ogilvy’s guru-in-residence Rory Sutherland (right) back in 2006, when Twitter had barely uttered it’s first chirp. During a typically entertaining and incisive presentation, Sir Rory posited the notion that marketing will evolve to become more of a dialogue between corporations and consumers.  This man is not psychic but he does have a great deal of market knowledge and influence. It’s no coincidence that Ogilvy One grew to be one of the dominant protagonists of social media marketing techniques.


1. The Sacred Curve

 

We are blessed with many tools and models that describe the diffusion of innovation and many appear to reveal tantalising hints of possible futures. Gartner’s much-hyped Hype Cycle is one example that remains popular with some soothsayers. This graphic illustrates the emergence, maturation and mainstream adoption of technologies with a distinctive curve.

As with many management memes, the Hype Cycle has attracted various criticisms. The most egregious of these are that it’s not founded on any real mathematics (a hanging offence in this era of Big Data) and that you can only really plot the progress of a given innovation retrospectively. So, as a predictive device its efficacy is close to that of Tarot Cards. However, as a planning tool it can provide a useful means to frame questions about future commercial strategies.

Gartner-Hype-Cycle-GeneralIf we don’t get hung up about defining what’s meant by “disillusionment” but instead use the Hype Cycle to consider the marketing implications of each evolutionary stage, some real utility can be found. Each of the 5 stages of an innovative product’s lifecycle shown in the chart provides a handy waypoint at which it’s prudent to reassess the product’s competitiveness and/or how it’s promoted. At each stage, the options for establishing or maintaining advantage —cost leadership, differentiation or niche focus— can be assessed and a game plan can be drawn up in response to a variety of combinations of likely scenarios.

For truly long term planning, advance preparation for the final ‘plateau of productivity’ is particular smart, not least of all because it’s typically characterised by vicious price wars or the arrival of subsequent innovation that kills the segment. We can’t predict when this will occur or be sure how it will manifest but we can be ready with a responsive strategy. LoveFilm achieved this with grace and poise, transitioning seamlessly from a DVD rental company to a movie streaming business ready for Amazon to gobble up. Meanwhile executives at Blockbuster (RIP) were working hard at ‘improving’ their stores.


Planning for the future?
Feel free to get in touch in strictest confidence.