Sunday, October 11, 2015
My contention is that the true object of strategy is to sustain value creation, which demands a capacity to relentlessly create and capture new value. The difficulty with setting a given market position or competitive advantage as your strategy’s goal is that its direction-giving guidance is effectively dead upon your arrival. It fails to reveal what’s next.
Saturday, September 26, 2015
At least once a week I get asked a question by a client like this one I recently received, from one of the world's largest CPG companies:
How do we spend our Digital Marketing budget more rationally?Often the question is more focused on the transformation underway as companies move from the "traditional" spending categories (print, broadcast, outdoor...) to digital categories (web, mobile, social), like this one from a computer hardware manufacturer:
What percentage of our marketing budget should be spent on digital?Full disclosure: My qualifications in marketing (other than having worked in marketing for over two decades) are a bit suspect. While my first marketing job was in a direct mail marketing company in the 1980s, the vast majority of my direct expertise has been in leading marketing organizations for digital brands -- an Internet company, a software company, a mobile operating system... So if you are a traditional marketer, selling soap (or whatever physical good), you might look at my advice and say something like "sure, that would work if my product was entirely online... but my products are made up of atoms, not bits..." And I sympathize with you, I really do. The past 100 years have taught marketers to believe that there are two measurable things about advertising: reach and recall. How many people did you reach, and do they recall your brand. After all, the important question for marketers has been whether the consumer will reach for your bar of soap or someone else's when standing in the grocery store aisle. And the medium that we have had available to us (largely broadcast in dollars spent) has lent itself to a logic about advertising that tells the marketer to focus on repetition of a simple and short brand message. Repetition because seeing something over and over again helps the human brain with that recall problem. Simple and short both because our attention span for advertising is short and also because the cost for each advertisement is high (and higher for longer ads). But two things are happening that should cause every marketer to pause and re-examine everything they believe about marketing and begin asking a different set of questions. First, our purchase patterns are changing -- we are no longer buying something because the packaging stands out from a store shelf. In fact, we are going into physical retail less and less and this trend will continue to accelerate for most product categories. Second, people are moving from a diet high in traditional media to one high in digital media which is changing how we engage with brands and what we expect from them. A starting point would be to reconsider what Marshall McLuhan had to say about hot and cool media. McLuhan argued that "hot" media were those that provided little stimulus and thus required an engaged and participatory consumption. Whereas "cool" media were those that offered substantial stimulus and where consumption required very little involvement. From his vantage point at the beginning of the development of 20th century media, McLuhan might have assigned "cool" or "hot" differently than we would today, but the basic model of differentiating levels of engagement is applicable as we think about marketing through traditional or digital means. Traditional marketing fits McLuhan's "cool" media categorization, as epitomized by the goal of repetitive simple and short brand messages. The expectation by the marketer is that the recipient of such advertising will not expend effort in engaging, but must receive the message over and over again in order to get it to stick. Digital marketing is more complex because many of the techniques of traditional marketing were seemingly transplated into online spaces but the medium itself is "hot" -- we are engaged with the computer or mobile device, clicking and directing our experience and not just passively absorbing whatever might come next. Even with online advertising (the seemingly transpanted traditional marketing approach) success is measured by the click-through -- did the viewer engage! For digital the marketing equation has been turned upside down. Instead of repeating short and simple brand messages and measuring reach and recall, marketers should be building vehicles that engage people more deeply and then measuring the degree of engagement achieved. And in digital we have an entirely new capability through this engagement: building our knowledge of people (both individually and as groups) through their interactions with our brands. Finally, digital can allow us to connect what we know about a person throughout their entire experience with our brand -- consideration, selection, transaction, receipt, consumption, satisfaction, return... recognizing when and where we have converted a prospect to a sale, or a purchaser into a loyal fan. Given my self-admitted bias toward digital marketing, it would seem simple to say that companies should be prepared to move ALL of their media spend to digital over the next decade. But in working with hundreds of companies over the last 20 years as digital has continued to mature, I have come to a different conclusion: Companies should be prepared to move a substantial amount of their total media spend into digital and away from traditional media. This will require a new set of competencies and even a new organizational structure in most marketing organizations. It is crucial to get to a sufficient amount of digital activities to develop true data-driven insights. Without achieving critical mass, evidence for how digital is impacting sales and customer satisfaction will remain anecdotal. For the largest advertisers I have worked with, the threshold was at about 25% of total spend. Smaller companies will likely need to spend a larger proportion on digital. Digital media should not be limited to "advertising" but should include all experiential engagement with a customer - websites, mobile applications, social media, even customer service interactions -- anything where you can impact customer experience, measure engagement, and increase your knowledge of your prospects and customers. If you aren't already familiar with the concept of "earned, owned, and paid" media, make it a point to read up on these ideas (click for a good article from Forrester to get you started). As you move to digital and start generating data-driven insights, the transition of spending from traditional to digital will accelerate. I believe that most companies will stabilize at more than 2/3 of their total budget on digital. But traditional marketing will develop to have a new role - the reinforcement of digital marketing activities. One way is to use traditional ads as traffic drivers to digital destinations. Another is to build positive reinforcement cycles for themes that can appear in both digital and traditional mediums. In any case, traditional will often provide the most value when it drives more digital engagement. In 2015 the thing I am most surprised at is that we are still having this conversation -- that companies are still blindly spending their marketing dollars in the same way they were spent in the last century. Each company certainly still needs to answer for itself, based on the specific industry, buyers, and products, the kinds of questions I mentioned at the start of this article -- how do we spend our digital marketing budget more rationally, and what is the right percentage of spend to move to digital. But answers to those questions won't lead to greater success until we embrace the new role of marketing, that the marketer is now responsible for engagement and customer knowledge -- not reach and recall.
Sunday, September 20, 2015
In 1997 I was one of many exuberant entrepreneurs working for a company in this new domain, "the Internet." In telling our stories to investors we all predicted future valuation based on the belief that someday everyone would have high speed connections to the Internet. Its hard to recall today that in December of 1997 only 70 million people had such connections. By the time we had sold our company in August of 1998 many of these early Internet pioneers, including me, had started to say that we were in a period of gross overvaluation. And when Stephan Paternot and Todd Krizelman took their company, TheGlobe.com, public in November of 1998 and reached a valuation of almost $1 Billion the first day, our fears of a "tech bubble" were confirmed. But of course, the party continued for quite awhile after that. An interesting conversation circulates today amongst those of us that knew each other during the so-called dot-com bubble as we watch the current crop of "unicorn" and "decacorn" companies (and the worsening traffic and accelerating rise in the cost of living in the Bay Area). It feels like we've all seen this before and know how it ends -- but we can't decide, is this 1997 or 1998 or 1999? In other words, how much longer will this particular tech bubble last? But I've begun to think that we are asking the wrong question. Looking back on the crazy predictions that we made that someday we'd go from a mere 70 million people connected to the Internet to "everyone" connected -- we were right. And we were probably even right about the timing. And this is where tech bubbles are fundamentally different from other kinds of speculative asset bubbles -- there is an underlying economic dynamic that actually is in a state of transformation. Take a step back and examine what economists mean when they describe something as a bubble. The most basic formulation is when assets are valued in a way that becomes disconnected with the intrinsic value of those assets. One way this happens is when supply and demand fall out of balance for what would otherwise be a stable commodity. Everyone wanting a particular toy as a Christmas present might cause speculators to buy up those presents and put them on eBay at a higher price, creating a kind of toy bubble which would ultimately be resolved either by the company increasing production or another toy coming into favor which would decrease demand. But tech bubbles are different because we are looking at companies extracting value from a transformation of markets rather than from an unbalanced market. When we made our Excel charts of 70 million Internet users growing to billions of Internet users to convince investors of our future value, we were describing a transformation in the way everything would function on our planet. A transformation that has come to pass and is continuing to accelerate today. The current set of maturing technologies founded on the infrastructure of the Internet -- social, mobile, analytics, and cloud -- are well on their way to reformulate the way our markets operate. How we select, purchase, receive, and consume products and services is being transformed. Thus the target opportunity for the tech industry is virtually the entire $18 trillion US economy of which technology only represents 7.1% today. And the $80 trillion global economy of which technology is an even smaller component. Shifting cash flows (and thus valuations) by only a few percentage points would move trillions of dollars out of the old economy and into the hands of technology entrepreneurs and investors, thereby justifying the valuations we are seeing today. Why should Uber ($60 Billion) be worth more than General Motors ($50 Billion)? Because Uber has a plan to shift cash flows from old industries to themselves while GM is still making and selling cars (fewer and fewer as well - down to 3 million cars last year from over 5 million back in the dot-com bubble). So what actually happened during the dot-com bubble? Why did it burst? Will the current tech boom also turn out to have been a bubble and will it burst as well? Certainly one element of the valuation of assets outpacing their intrinsic value came through the uninteded consequences of tax policy changes (here is a good and brief overview). But capital could have flowed into many different financial vehicles. The reason that Internet companies attracted the most attention was that the underlying trends really did appear to be correct (and in hindsight they were correct). The Internet really was going to shift old economy cash flows into the hands of technology entrepreneurs and investors. But investor enthusiasm outpaced the speed at which this shift could happen. As a result, too much supply was created too fast -- too many companies selling pet food on the Internet. Business models and valuations diverged too far from intrinsic value and investors blinked. Which brings me to the question that I think we should be asking right now about the current tech boom. The question is NOT "when will the bubble burst" but instead something a bit more subtle. The question is -- this time around can technology transform markets at a fast enough pace to keep up with growing valuations. I think of this as an escape velocity problem -- gravity in this case being investor expectations. Can the current crop of tech boom companies grow fast enough, deliver results fast enough, to outpace the come back to earth force of investor expectations? Every old economy company on the planet should be frightened by now of the logic behind this process -- shift cash flow away from every other industry to the tech industry. Technology companies are serving as intermediary entities in which the retail (Amazon), entertainment (Apple or Netflix), or transportation (Uber) revenues go first to the tech company and, only after margin has been removed, back to the old economy creator or owner of those assets (often bypassing prior intermediary models). That isn't what technology used to be about. Tech companies used to create new products (personal computers) that created new markets. But increasingly the new products that tech companies create are disrupting old markets instead. And this time around the tech industry is moving faster and has many more tools at its disposal to capture the $80 trillion global GDP. It may be the case that tech again fails to achieve escape velocity and that this boom also comes to an end. But over time, tech will win. In the future as the less mature technologies of accretive manufacturing, robotics, and artificial intelligence further accelerate market transformation, the tech industry will have an ever increasing array of tools to capture a larger and larger portion of global GDP. Eventually we won't even talk about a "tech industry" because ALL companies will be tech companies -- that is, all companies will be dependent upon continuous technology innovation to achieve and maintain competitive advantage in their markets. So next time someone asks you when you think the current tech bubble will burst, ask them instead when do they think tech companies will slow down in transferring wealth from other industries to the tech industry. My answer: not until they have all of it.
Wednesday, November 12, 2014
On November 3rd, 2014 at about noon EST, Bank of America experienced an online banking outage impacting its 31 million online banking customers and 16 million mobile banking users. The outage lasted almost three hours during which the company issued a single statement via twitter, almost two hours into the event:
Some customers may be experiencing issues accessing online & mobile banking. We’re working quickly to resolve. Thanks for your patience.Customers turned to social media for answers as attempts to connect directly to BofA failed. Having long ago forwarded local branch phones to a national exchange, customers found it impossible to get someone live from BofA during the outage since the national phone lines appeared to be completely overwhelmed. For hours a bank's customers could not access their money or get any information about when the system would be restored. One week later, Bank of America has yet to issue any statement to customers on why the system went down. While this one event is unlikely to cause any long term damage to Bank of America, it is an example of a new kind of challenge that companies are facing, one which they are remarkably unprepared to deal with. Computer security experts describe a zero-day (or zero-hour) attack as one that exploits a previously unknown flaw and thus developers have no time to address and patch before damage is being done. In the same way, companies are increasingly facing emergent communications crises for which they have no time to formulate and communicate a response. CHANGING CUSTOMER EXPECTATIONS Social media and ubiquitous mobile connectivity are forever changing the expectations that customers have of the timely responsiveness to their questions. In a 2012 study by Nielsen, twitter users were found to expect a response from companies in less than 2 hours. As companies in some industries meet or beat this goal, expectations will continue to rise (or shorten). Companies have no alternative but to engage with customers, where those customers already are -- today perhaps twitter and facebook but in the future other places and sometimes dependent upon the company, industry, or community that needs to be reached. By comparison to the core marketing budget, the cost of actually communicating with customers on social media is negligible. And customers now expect companies to communicate (they'd much rather get an answer than an ad). WHAT'S A COMPANY TO DO? First - you'll need a social media listening and analytics platform scaled to the size of your organization and customer outreach. One client recently described the objective of such a system as "never be surprised again." Second - develop a team that monitors and responds to customers and also the processes to connect that team with other core customer facing parts of your company -- sales, marketing, customer service... Third - prepare to be changed by these customer interactions -- expect to gain insights and to make sure those insights get embedded into new ways of operating or into your product/service innovation processes. REALLY? YOU ARE WRITING THIS AT THE END OF 2014? I know, it seems like this should all be second nature by now. And yes I have been writing and speaking on this topic for years. But events like the recent Bank of America outage show that our companies are still not understanding the imperative. Do we have to wait for the HBR case study on how a lack of communication with customers has a measurable financial impact on a company to finally make the investments needed here?
Wednesday, July 30, 2014
This article first appeared on July 30th, 2014 on Social Media Today -- Social is the Key to Customer Experience Recently my colleague David Cushman published an article titled The Strategic Role of Content in Proving Brand Promise -- which I highly recommend. David offers a terrific analysis and infographic on how to think about content marketing. But for me the core message was in the scalpel that David applied to the question of why marketers often struggle to succeed with social technologies. I have often railed against the common attitude that social is a "channel" alongside print, broadcast, outdoor, etc for the marketer to consider when planning a campaign. But David puts it very precisely in the first paragraph of his article: Social Media has confused many marketers for many years. Mostly because it isn’t a media. It’s an exercise in relationship building. Right. It's an exercise in relationship building. Or, taking the "exercise" metaphor a bit further, its the connective tissue for customer experience (you know, muscles, exercise...). Marketers are now in the relationship building business, not just the communications business. And that joins them to their colleagues in sales and service who have always been relationship builders. As a customer talking with a company I expect that marketing, sales, and service will all be engaged, or each engaged at the right time in my journey. And social can provide that connection to the company through the different phases of consideration, purchase, and consumption. As I've written about in previous articles, companies in every industry are engaged in digital transformation -- reforming their business to adapt to the changing customer expectations and new opportunities afforded by technology. A focus on customer experience can help align your organization in that transformation process to understand the role of social and how it creates the need for a very different kind of cross-functional behavior across your business. In order to address customer experience holistically (across the complete customer journey) your company will need to develop four distinct types of systems and related operational competencies which will then be utilized across marketing, sales, and service functions. Systems of Record -- Where your transactional information is stored - critical to empowering your employees to know what is happened in the past with your customer in order to track performance, define additional sales opportunities, and provide service. Systems of Insight -- The extended data on your customers and prospects which provides the analytical base for insights, both about customer segments and about individual customers. Systems of Engagement -- How you engage with the customer and manage those interactions Systems of Co-ordination -- The platform for supporting interactions between employees and with business partners These four systems together, used consistently across the organization, provide the framework for supporting customer experience. Social is key - providing both a way to link together the touchpoints of customer interaction but also to provide the means by which coordination can occur across the functional teams engaged in that interaction. Social can be a part of deriving insights, can be a part of how interactions are managed, and is core to the collaboration that has to occur in this new interconnected operating model. So start exercising - you'll need strong social muscles to work through your digital transformation.