Out of the shadows: The Internet puts marketing in the spotlight
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1 Telecom, Media & High Tech Extranet Out of the shadows: The Internet puts marketing in the spotlight No.22 RECALL A publication of the Telecommunications, Media, and Technology Practice May 2013 Copyright McKinsey & Company, Inc.
2 8 Out of the shadows: The Internet puts marketing in the spotlight By: Francesco Banfi /// Ewan Duncan /// Ken Kajii /// Paul Magill
3 RECALL No.22 Digital: From enabler to shaper Out of the shadows: The Internet puts marketing in the spotlight 9 Marketing was once a last-stage function, trotted out to push products. Now, marketing has become the fundamental, crossfunctional force for consumer-focused companies in the digital age. The world is more connected than ever. To a large degree, this is thanks to the growth and unparalleled reach of digital media (particularly Internet-based social media) and the widespread adoption of mobility devices. The next five years are likely to bring a threefold increase in the number of computing devices in use, and consumer adoption of social media will exceed the scale of all previous technologies. More people online connecting to more social networks results in an unprecedented amount of data generated by devices and services. This volume and breadth of consumer information will transform the way companies interact with and serve their customers but only to the extent that companies can make use of the data available. Mastering digital marketing is a competitive necessity given the changing nature of customer interaction. This could be a major opportunity for players in the telecoms, media, and technology (TMT) industries, which are positioned at the very heart of this transformation. The digital effect The Internet revolution impacted everything from consumer video consumption to home security. Three effects in particular, however, have very specific implications for consumer-focused companies to improve how they interact with their customers. Touch point complexity. The existence of online touch points is nothing new. For years, McKinsey has researched and written about digital interfaces (e.g., online stores, digital devices, and social media) that have joined in-store interactions, customer service phone calls, and television ads as ways in which customers engage with businesses. But Online touch points once considered to be on the fringe are now as important as a retailer s online store some things have changed: what were once considered fringe online touch points Twitter, blog postings, mobile Web, and mobile device applications for instance have now become core. Prominent marketers such as American Express are not simply using these touch points as additional communication channels. They are mining them for insights to improve service and new product development. B2B companies such as Dell are sifting through online technical support forums for similar insights into product strengths and weaknesses along with potential service improvements. The good news: now companies can enter into rich, interactive dialog with customers via many more touch points to learn more about them than ever before. Opportunities for enhanced marketing are enormous, but they don t come without challenges the biggest one being successfully orchestrating the customer experience across the growing galaxy of touch points. Coordination on this scale represents a huge new organizational challenge. Many CMOs already struggled with multichannel coordination when it just comprised retail stores and the online site. In the future, the coordination challenge will become exponentially more difficult to master. What CMOs are addressing now as multichannel is just a waypoint on a journey to the future s myriad of touch points. The data avalanche. Since so many TMT players have witnessed the dramatic growth in consumer data available, big data has become a commonly used term. But the real issue for
4 10 An effective marketing strategy requires structured and unstructured data from more and more consumers captured on a growing number of devices consumer companies is not the sheer volume of data. It is the more numerous types of data from more touch points going to more places within the organization. The result: an influx of structured and unstructured data, data from an increasing number of devices, data from click streams but also from YouTube postings and Tweets, data with differing country-specific constraints on how it can be used, and a seemingly unharnessable stream of close-to-real-time data. Gathering data from continuous sensor-based monitoring, predictive analytics, automated initiation of customer touches, and real-time response is not only feasible in this new age, it is increasingly a requisite for an effective marketing strategy. The marketing function is rapidly becoming a highly scientific discipline. The new data alone doesn t enable test-and-learn marketing strategies, predictive modeling, and close-to-real-time offer personalization. Businesses need analytical skills and organizational capacity to unlock this potential. Data streams often exist well beyond the marketing function s boundaries. Making these data streams usable requires significant coordination with a number of other functions whether sales, Web, customer service, network, or IT. Beyond this, deep changes to the talent pool and systems infrastructure will be needed in most marketing organizations. Only with these elements in place can data be translated into insight and action. Social vetting and the customer experience. Offering an enjoyable experience has long been a way in which consumer-focused businesses attempt to differentiate themselves in competitive environments. What s quickly changing is the power the Internet has given to consumers to voice their experiences. The consequence of a highly satisfied customer was once individual loyalty and maybe the customer s recommendations to friends or family. Now, social media amplifies both customer praise and critique, turning word of mouth into consumer reviews that instantly reach an audience of hundreds of thousands. Customer experience and engagement have become a major marketing lever for every company for many, the major marketing lever. This is particularly true in the multiple categories where growth has slowed and value comes from retaining the most valuable customers. American Express lost card replacement process, for example, is viewed so positively by customers who experience it that this drives long-term loyalty. Designing experiences like this now plays a critical role in marketing particularly because of the growing rate at which customers talk about these experiences in heavily-visited social media forums. It s no wonder we see the rise of great marketing companies that are primarily based on the strength of their customer experience and engagement, not the volume Both planned and unplanned interactions will shape customer experience and engagement in the context of greater transparency of their promotions think Starbucks or Amazon. In an environment of increased transparency, customer experience and engagement will be shaped by both planned and unplanned interactions. A careless act by a frontline employee, a controversial blog posting, or an abrupt change in pricing can undermine the customer experience and engagement built so carefully over many years. This is a far different world than the one in which marketers could tightly control promotional messages flowing through a few key channels. Implications for marketing organizations Marketing used to be a siloed function with the objective of using customer insights to shape the product, position its value, and then push the
5 RECALL No.22 Digital: From enabler to shaper Out of the shadows: The Internet puts marketing in the spotlight 11 product to market. The dramatic increase in customer touch points, the growth of data, and the renewed importance of the customer experience are taking marketing out of its traditional boundaries, making it fundamental to all aspects of the organization. Digital phenomena compel a dramatic shift in the nature of marketing along three dimensions in particular how marketing sees itself, how it interfaces within the organization, and how it manages the faster-paced, data-rich environment. Mindsets and behavior: from promotion to engagement. Success in the digital age will require the marketing team to stop thinking of their primary objective as promotion telling customers what to buy and why and start prioritizing engagement giving customers reasons to choose to build a relationship with the brand. Engagement is about building a relationship with the customer based on a coordinated series of compelling interactions. This goes beyond managing the experience at touch points to include all the ways companies motivate customers to invest in an ongoing relationship with a product or brand. Even how employees behave has become part of the marketing mix. Marketing as a function can no longer view itself as a silo, since touch points and data streams critical to the marketing mission exist in and across multiple functions and units. Its main role has shifted to orchestrating customer experiences and engagement through all touch points and for the company in its entirety. Thus the marketing function needs to be the engine driving customer engagement. Organization and integration: cross-functional operations. This shift not only shakes up the perception of marketing s function, it also disrupts traditional organizational models. Companies will need to be capable of coordinating coherent customer engagement strategies across a myriad of touch points from high-touch to self-care across a growing number of channels. Since these customer interfacing opportunities are distributed across multiple areas of the organization, seamless coordination will require a more nimble, less fragmented organizational structure. In short, marketing must be granted greater status and influence within the organization and the mandate to work more closely with sales. The line between acquisition and retention investments will also blur in the age of digital marketing. This naturally has implications for budgets including a more balanced spend across the marketing and sales apparatus and governance, as it forces organizations out of their compartmentalized patterns and toward cross-functional priorities. Skills and capabilities: tech-enabled and rapiddata-driven. Beyond a structure that allows for greater cross-functional activity, the business will also need to focus on skill development, enhancing its toolkit to effectively deliver on the customer relationship requirements of the digital age. Fastermoving and data-rich, the new marketing environment requires greater analytical skills and faster response capabilities. Marketers also need superior influencing skills across the C-suite. Finally, technology will be critical to facilitating a business s changes in both its approach to marketing and its organizational capacity to handle the changes. IBM projects that by 2017, CMOs will spend more on IT than CIOs, and the CMO role will overlap significantly with that of the CTO or CIO. The Internet is enabling a growing number of social media and the increase in mobile devices is giving more consumers greater access. Not only can users engage with each other more readily, but the interfaces at which they interact with businesses are becoming more numerous. This opens up massive customer insight opportunities for business, while giving virtually every customer the power to become a widely-read, credible critic and reviewer. To capitalize on the opportunity and simultaneously manage the risk that this data revolution presents, consumer-focused companies will need to move marketing from the margins to the top of their agendas and restructure their organizations accordingly.
6 12 Francesco Banfi is a Principal in McKinsey s Paris office. francesco_banfi@mckinsey.com Ewan Duncan is a Principal in McKinsey s Seattle office. ewan_duncan@mckinsey.com Ken Kajii is a Principal in McKinsey s Tokyo office. ken_kajii@mckinsey.com Paul Magill is an alumnus of McKinsey s Stamford office.
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