Following Instinct

Striking a balance between intuition and data

BY CHARLES LUNAN

merican business lore is rife with anecdotes of the entrepreneur who followed his gut and – against all the odds and naysayers – built a multi-million dollar brand. But if gut instincts – or intuition – are so critical to achieving the American dream, you may have to ask why half of all new small businesses fail within five years and three quarters of venture-capital backed startups never return capital to their investors?

The reason is that despite overwhelming evidence that outcomes improve when decision-makers engage in a more deliberative, data-driven process, we continue to base our decisions largely on quick, automatic and intuitive processes commonly referred to as “gut instinct.”

Given the highly competitive and fast-moving nature of the marketplace, this should surprise no one. Marketers often have to make decisions on the fly, particularly online, where opportunities may only last a few hours.

This makes it essential for marketers to recognize when they’re acting on gut instinct, how reliable it is and when they should supplement their intuition with a more deliberative decision-making process.

In their 2004 paper – “When Should I Trust My Gut?” – Eugene Sadler-Smith and Erella Shefy noted that intuition comes from knowing and sensing. The former, or “intuition-as-expertise,” comes from knowledge and experience, and can improve with time. The latter, or intuition-as-feeling, is driven by emotions such as fear that may be irrational and hard to control.

While instinct may tell you the growing availability of data analytics are diminishing the role of intuition, Sadler-Smith and Shefy argue intuition provides “mental shortcuts” executives can use to quickly process a growing torrent of data and make decisions more efficiently.

This may explain why CEOs and successful entrepreneurs continue to list “good instincts” as one of their top reasons for their success. But not everyone should trust their instincts, says Paul Schwada, a managing partner at Locomotive Solutions and author of “8 Blocks: The Critical Realities for Growing Any Business.”

“Even those with good instincts – which isn’t really some inherent magic, but is usually the product of years of experience and careful analysis of what works and why – they can’t trust their gut all the time or entirely,” says Schwada, who suggests everyone develop a framework within which they can evaluate the accuracy and usefulness of their instincts.

“When we’re thinking about growth, especially, we are tempted by the gut, such as, “I just feel like we need to get to $20 million,” Schwada says. “A framework can force us to consider the critical angles – why we might need that, what it might look like, how we might accomplish it. It helps validate good instinct. It also shows us where we really need more data, and which data represents critical assumptions, meaning we have to make sure the data is correct and its subsequent insights are valid.”

Striking the optimal balance between intuition and data is one of the greatest challenges facing marketers, says Lindsay Pedersen, a principal of LCP Consulting.

“Creative evaluation is a subtle blend of art and science, heart and mind,” says Pedersen, who earned her marketing chops as a brand manager at data-driven Clorox. “This delicate, yet critical balance is not often taught. Thus, it’s a topic I’m often quizzed about.”

To help her clients navigate the creative review process, Pedersen has developed a three-step HOPE (Heart. On Point. Execution.) Framework. In the first step, Pedersen urges clients to record their immediate gut reaction to the creative. In the second step, she advises laying the creative aside to spend 10 to 15 minutes reviewing the objectives of the campaign. Next, she recommends taking a second look at the creative to see if it is “On Point.” Ask if it embodies the brand’s personality and tone, and fulfills the directive laid out in the creative brief.

“It’s imperative at this point to be analytical,” Pedersen says. “No emotional reactions allowed; make a purely objective assessment.”

In the final step, Pedersen advises the client to imagine “Execution” of the campaign to see what practical issues might emerge with logo colors, trademarks and packaging design. This can be the most time-consuming step. “Your thinking must be granular and precise to avoid embarrassing – and costly – missteps,” Pedersen says.

It was customer segmentation and customer life cycle analysis that saved direct marketer Harry & David from extinction after more than a century of selling fruit baskets.

When sales plummeted in the wake of the 2008-09 recession, executives knew in their gut the company could do a better job converting customers who only shopped Harry & David once a year into repeat customers. So they brought in a new marketing chief to shift the company’s focus from products and distribution channels to customers.

By connecting data stranded in various company silos with an SAS-powered data analytics platform, Harry & David was able to take its data analytics to a new level. Along the way, the company learned how to convert a worthwhile percentage of customers acquired via social media discounts into repeat customers, despite the conventional wisdom that such customers were “one and done prospects” not worth pursuing.

Gonzalez and her team spend much of the fourth quarter “running on gut instinct” to make hundreds of decisions needed to get stores open in time for the holidays. But when the holiday rush ends in January, they crunch the data from their newest surveys, review external research and attend industry conferences to see where their instincts may have fallen short. “We are feeding ourselves, so that later in the year we can trust our instincts even more.”

In the first three years after emerging from a Chapter 11 bankruptcy, Harry & David grew the number of most valuable and loyal customers in its database by 10 percent, customer retention 14 percent, sales per customer 7 percent and profits 20 percent.

Global fashion and other consumer brands seek out The Lion’esque Group for help setting up pop-up shops in Manhattan, Los Angeles and other fashion hotspots to get access to founder and CEO Melissa Gonzalez’s renowned merchandising instincts.

Those “instincts,” it turns out, are being continually honed with data collected from consumer surveys Lion’esque conducts at every store it helps open – a number that now exceeds 100.