Expanding Strategic Perspective In A Digital World

I’ve spent my career working with corporations on the strategic issues impacting their brands. At the risk of aging myself, when I started, there was no social media and no mobile Internet, no apps and no such thing as real-time data analytics. Paper brochureware still mattered, TV ruled the marketing communications roost, and brands still relied heavily on physical focus groups to gain customer insights. And I’m only 38.

Todays world is rather different. Not only have business models been turned upside down and re-defined for a digital world, but the way in which brands interact with their customers has undergone an unprecedented level of transformation.

As technology has had a greater impact, the speed in which brands must act, respond and act again has increased exponentially. The idea of taking months to carefully craft a strategy is increasingly rare, and unlikely to come back anytime soon.

Along with this speed of change, we’re seeing a change in the way people think about brands. The new focus has become one founded on engagement. Seeking rapid iterations of campaigns and activities designed to engage customers in discreet ways that will hopefully add up to longer-term relationships. In overly simplistic terms, to get followers to like you and then keep liking you. It’s all very exciting.

Within this exciting new world, however, we’ve also seen a fundamental change in perspective related to brands by their agencies. In the digital world, what we see is a compression of strategic perspective. Where in the past the brand mattered more than anything, today there is an awkward tendency to be dismissive of the overarching stance of the brand. The focus instead moving more and more to the specific activities designed to drive engagement. To use a technology metaphor, it appears that digitally oriented agencies tend to see strategy as something that works in the ‘app layer’ of the brand rather than at the ‘operating system’ layer.

Contrary to this way of thinking, I believe there is a need to re-focus strategic thinking to the ‘operating system’ layer. Brands are becoming much more complex beasts to manage as product cycles shrink, communications channels explode and technology expands. Already we’re seeing brands struggling to manage their digital detritus that is building up over time, and all too rarely adds up to something cohesive.

But as the need for overarching strategy will become more important, the ways in which we approach strategy will also have to change. The methods commonly used by strategic brand consultancies and others like them appear to be increasingly slow and ponderous. Instead we need to approach strategy in a much faster moving, more agile and more iterative way. We need to embrace new tools like big data and social analytics that will enhance insight and real-time decision making, and we need to become better at filtering and identifying the things that really matter, as the signal to noise ratio of the Internet increases.

But the opportunities in this are incredible. To fuse a clear strategic direction for a brand with ability to build a set of highly integrated, fast moving and innovative engagements with your customer.

The only question for me is where it will come from first. Will the strategic brand consultancies develop new, faster, more fluid methods that help guide engagement activities? Will the fast moving digital and social agencies develop greater strategic muscle, and start thinking in broader terms about brands than they do today? Or, will they both lose out to large, integrated advertising agencies moving in and attempting to take this ground for themselves?

Advertising In 2020?

I was recently asked by my friend and former colleague Karl Heiselman, CEO at Wolff Olins if I’d help him respond to a request to predict the future of advertising in 2020. For two somewhat neutral observers of the advertising business, it seemed like something we could take an outsiders view of.

With the somewhat chastening caveat that the only consistently accurate prediction of the future is that predictions of the future will be turn out to be wrong, this is where we netted out.

Advertising in 2020: The New Brand Building Reality

By 2020, advertising as we know will no longer be the primary marketing vehicle used to build brands. Advertising will instead focus on driving transactions. Rather than a tool of marketing, advertising will predominantly become a tool of sales.

Replacing the role of advertising in brand building will be a slow process, but by 2020 how we build brands will have transformed significantly. Instead of relying on advertising to drive extrinsic perceptions, brands will instead be focused on new methods designed to create more powerful intrinsic value.

Why Advertising Will Become A Transactional Tool

Automated, digital, transactions driven advertising will be the single biggest advertising growth arena of the next ten years. The combination of big data (including social data) with ubiquitous smartphone usage and an intense focus on advertising ROI will create a hyper aggressive, transactions focused battlefield.

By 2020, smart devices and high-speed connectivity will have become ubiquitous among almost all consumer groups.  Media consumption will have continued to fragment, turning today’s remaining mass audiences into a set of smaller, more atomized and more on-demand groups. And while this new environment will bring significant threat, it will also provide significant opportunity. For in this digital environment consumers will continue trading their personal information for free access to services, providing more detailed, deeper datasets than we can imagine today.

What will not have changed is the pressure on the business to deliver results, hit sales targets, and deliver growth. The pressures on business by 2020 will be intense. Product cycles will have shortened still further, competition become more intense, markets more volatile and consumers more informed and empowered than before. In this environment, making the sale will be imperative.

As a result, an understandable desire for ROI will be manifest in tomorrows advertising solutions. Tracking which advertisements drive the most sales to which people, when.

By 2020, winning advertising will be those methods that compress the time between the advertising impression and the transaction being made, and do it in a highly measurable and predictable way.

This means we will see advertising that is contextual to our actions and designed to encourage a specific transaction. Searching for a lawnmower? Here’s a deal for that. Eating at the same restaurant regularly? Here’s a deal for the one next door. Friends who like a certain store? Here’s a discount for you to try it too.

Contextual, automated, transactional advertising will be the perfect tool for the discounter but less so for the brand builder. An unintended consequence of the ROI imperative being that the coming era of advertising will act to compress prices, displace brand loyalty and reduce brand premiums.

In this new landscape, businesses will make a concerted effort to shift the risk profile of their advertising spend.  As focus shifts toward measurable sales effectiveness, a new set of advertising players will emerge that are paid not by % of media spent, but instead by % of sales generated. They will be accountable to the sales team, data driven and more interested in efficiency of sales than creative excellence.

The New Brand Building Reality

While advertising is likely to become highly transactional, brand builders have much to be confident about. For just as technological and social shifts will provide new opportunities for the deals driven discounter, they will also provide significant opportunities for the brand builder. Businesses that are focused on building and sustaining a brands premium will find themselves enabled by a new and more sophisticated set of tools with which to engage their customers.

By 2020, those same technologies that are driving discount advertising will be giving marketers and business leaders a more sophisticated understanding of their customers. They will be able to parse vast volumes of customer data, and monitor and hold significant social media based relationships. The knowledge and insights thus generated turning marketers into key actors in the delivery of innovation and the creation of new layers of brand value.

In specific terms, we believe that by 2020 we will see three major areas of brand building innovation take over the role that advertising plays today.

1.    Total Experience Management

Much as Total Quality Management transformed manufacturing in the 1980’s, Total Experience Management will transform brands in the 2010’s. Today’s brand experiences are highly fragmented and as a result are a significant source of competitive weakness (as any trawl of social media will demonstrate). By 2020, this will have changed considerably. Instead of focusing on individual touchpoints, brands will instead be considering the rich ecosystem of experiences they create. They will look at the integration of their brand ecosystem under a common “operating system” as a means of enhancing customer value. By thinking of the total experience, and usefulness, of the brand from the customer’s point of view, brands will create superior experiences across not just a single touchpoint but across the entirety of the branded experience. The beginnings of this transformation are already apparent in the way that technology brands such as Apple, Google and Microsoft are connecting their branded ecosystems together under a common user experience framework.

2.    Marketing Products

Marketing products are products designed to deliver a marketing benefit, rather than something you intend to charge people money for. They exist to expand the ability of a brand to create utility, and value, around its core offer. For many brands, the core offer is often quite commoditized and as such unlikely to change significantly moving forwards. Under these circumstances, a marketing product seeks to create additional layers of value and utility that can ‘lock’ customers in to your brand rather than have them switch to a competitor. Tied directly into the brand experience ecosystem, by 2020, marketers will be using their social monitoring of customers to find new areas of value that can be built up around the core product or service offered by the brand.

A today’s world example is Nike+, which effectively uses technology to connect a community of running enthusiasts together, and in the process lock these runners into the Nike brand ecosystem. The innovation happening around the shoe, rather than directly within the shoe itself.

3.    The Content Ecosystem

By 2020, the simple reality is that every brand will be a media brand, requiring everyone to consider how they produce, distribute and manage their content ecosystems. In tandem with brand experience and marketing products, brands will be focused on the overlap between content that informs a customer about products, services or propositions, content that educates them in it’s use or in the things they can do, and content that entertains them around the core proposition of the brand.

This content will serve to drive multi-way relationships with and within a consumer community, meaning it will be socially, or third party driven, necessitating new skills in curation, editing, governance and presentation.

Increasingly by 2020, informing, educating and entertaining audiences will happen through channels that are controlled by the brands and their consumer communities themselves, rather than channels brands pay to advertise on, meaning consumers will have actively chosen where to go in order to seek the emotional benefits that brands provide.

In Summary

By 2020, advertising will have become a major driver of transactional sales. It will be automated, data driven, contextual and ubiquitous. A disciplined focus on effectiveness will have created completely new models of advertising agency.

This advertising will be discount driven, ubiquitous and hard to opt-out of. As a result, brand building will happen by other means. Brands will be built through new methods: Total Experience Management, Marketing Products and Content Ecosystems.

Those brands that succeed will increasingly become opt-in, controlling their own channels to the consumer, where they enjoy multi-way relationships with an empowered consumer community made up of people who’ve chosen to actively seek the emotional benefits these brands provide.

Punishment Fees, Innovation & Disruption

Five Dollar Bill

Bank of America are about to start charging their customers a flat $5 fee per month for using their Debit cards. The bank claims this is necessary because Congress recently capped the fees banks were charging merchants for Debit transactions. Congress claims that a cap was necessary because Visa and Mastercard (and hence the banks) were monopolistically gouging said merchants with fees some 400% higher than the cost to process.

Irrespective of who is right and who is wrong, what this new fee does is to quite starkly highlight the innovation challenge inherent in retail banking.

Retail banking, and in particular the checking product, is a highly inelastic environment. Essentially, this means very few people are in the market for a new checking account at any given time (on average only about 9% of the total population will open a new checking account in any given year, and the number actually switching banks is much lower).

As consumers connect more services to their checking accounts – credit cards, savings accounts, recurring payments, mortgages etc, then the pain of switching becomes ever higher and as a result most people don’t bother. No matter how the bank ultimately treats them.

As a result, when facing an enforced revenue decline such as that faced by BofA, the temptation is for the bank to squeeze consumers as hard as possible rather than to innovate, because the most likely scenario is that only a very small number of customers will actually switch.

Why does this matter?

It matters a lot because in an inelastic environment punishment fees like the $5/month debit fee will always be less costly and more profitable than true value-adding innovation could be. In a direct comparison, the potential success of a value-add innovation will always be competed out of the running by an almost guaranteed-return from a punishment fee.

Going further, I believe that the banking prediliction toward punishment fees as a means of generating incremental revenue serves to materially harm their ability to innovate in ways that actually add value to their customers. Like a muscle that never gets used, the customer centric value-add muscle eventually withers and dies.

Importantly this also creates a huge brand conundrum. For what is in the best interests of the bank (to squeeze as much fee income as possible from the consumer) is manifestly not in the best interests of the consumer (who doesn’t want to be squeezed and punished for simple levels of service provision).

Which becomes an even bigger conundrum when you consider that the banking sector overall is facing the worst levels of consumer sentiment ever. Something which is cutting across all brands, and from which none seem able to release themselves.

If BofA stays true to the formula used by banks in the past, it will add this punishment fee with one hand and engage in a significant advertising campaign aimed at bolstering consumer trust with the other.

They’ll then be confused as to why the advertising isn’t cutting through and seperating them from their competition.

The answer, of course, is that the customer is intelligent enough to understand that the brand is actually manifest in the actions of the bank rather than its communications. And when the actions are so manifestly anti-customer (as all punishment fees are) then they speak much louder than words.

The scenario outlined above is very real, and so tempting that almost certainly the other large banks will soon follow BofA’s lead. And considering the recent massive consolidation of retail banking in America, true choice will become seriously limited.

So how could this potentially change?

The only thing that will break the banking addiction to punishment fees and force true value-add innovation will be if the customers were to act en-masse to switch their banking relationships away from the banks with the highest level of punishment fees and toward those with the least.

I believe sheer anger will actually create a significant shift here, moving people away from the big banks into the hands of smaller regional players and credit unions. However, convenience is a powerful force and the hassle factor of switching will be too high for this to become a mass exodus.

For a mass exodus to truly happen, we will need to see technological innovation focused on increasing the convenience of switching. Someone needs to make switching your checking account as simple to do as switching your cellphone provider (in terms of the ease of porting your number rather than the cost of breaking your contract)

I believe there are only two types of actor who could do this, and in the process create the conditions for a large scale re-shuffle of the retail banking landscape:

1. A new intermediary
If you had the technology to make switching any checking relationship from any bank to any other bank, then you have the potential to create a highly valuable new relationship with the customer. You in effect become their banking broker. Aiding their shift from high to low fee charging institutions.

Doing this would mean either a new technology enabled startup focused on taking on this role, or some other trusted, non-bank, technology savvy player stepping into the breach. Amazon perhaps?

2. A medium sized bank
An aggressive, growth focused, medium sized bank could potentially make this play. Unlike an approach focused on moving any banking relationship from any bank to any other bank, this would be designed to create a seamless transfer of the checking relationship from any bank to their bank only.

Doing this would require investment resources and technology capability. The bank in the US which most closely reflects this profile is probably Citi.

In the consolodation of a few years ago, Citi were the manifest losers in US retail banking. In scale terms, Citi have found themselves stuck as a mid-weight regional player.

However, they have the brand, they have the technology and they certainly have the investment resources to make something like this happen. If they were to combine convenient switching with a game-changing low cost, low fee online distribution and service model then the potential for national disruption is absolutely there. Not only this, but the potential to meaningfully and positively improve the reputation of Citi in the process.

Could they do it? Do they have the capabilities and desire to do it? Has their value-add muscle withered too much? These things I don’t know.

It might be nice for all the $5 paying BofA customers to imagine they could though…

image borrowed from: http://www.valdosta.edu/~lomartin/fivedollarbill.jpg

Becoming A Network Citizen

The network is the value. While for network businesses such as Facebook, Skype or Foursquare this statement is a dearly held truth, its a much more nascent concept when it comes to brands more broadly.

In fact, for most, the network value mindset is actually the opposite of how they have traditionally built brands. The reasons for this are fairly simple. As Brad Burnham from Union Square ventures has observed, brands are used to having preferred status on the networks they inhabit – essentially paying for super-node status across a hierarchical media landscape.

This apparent power created a mindset of controlling the network rather than fitting within it. The challenge now is that todays Internet enabled networks tend to be flat rather than hierarchical. To borrow from Mr. Burnham’s comparison, the new networks are closer to the phone network than the TV network. As a result, the shift of customers and brands to these new networks necessitates a very different kind of brand behavior.

From observation, it appears that brand value tomorrow will stem less from how well you control the network and more from how effectively you fit within it and enable the behavior of its other citizens.

This fundamental shift, from marketing as control-the-network to marketing as enable-the-network is what I’d refer to as becoming a Network Citizen.

When we consider the scale and speed of the consumer shift from the old hierarchical networks toward these new flat networks, I believe effective network citizenship may well come to represent the future of marketing.

In becoming a network citizen, there are three areas that I believe will become critical:

  1. Creating value by increasing and strengthening the connections between the nodes in your network.
    Within the new network environments, it appears that strengthening the connections sits atop a foundation of mutual exchange. Whether this is Starbucks asking customers to help them with incremental quality improvements through mystarbucksidea.com or Innocent Drinks who use social channels to promote content created by their customers. Here, mutual exchange of content between brand owner and brand consumer appears to both strengthen connections and increase the number of nodes in your network. In terms of content forms, there appears to be two common types. Either content that is created in order to be mutually shared (e.g. YouTube clips) or content that represents conversation and question answering (e.g. customer service via Twitter)
  2. Creating value by contributing to the issues that people naturally build community around
    It is much rarer than brands think that community will be formed by their customers around them. Instead, community appears to form more densely around peoples issues of interest. For example, rather than a community forming around Tylenol, you’re much more likely to find one forming around a related issue such as acute back pain. In this environment, brands have a tremendous opportunity to fit within the network and enable people’s interest in the issue. In the case of Tylenol and acute back pain, they could strengthen the network through providing a combination of established and emerging thought leadership on back pain and pain management. This generosity of knowledge has two effects. First it creates legitimacy of Tylenol within the network, which strengthens its bonds. Second, it gives Tylenol the permission to directly interact with that consumer around future product innovation requirements. In the short term, while Tylenol is unlikely to be a solution for acute back pain, their enablement within the network strengthens their customer bond and makes Tylenol more likely to be used for that customers other pain needs. (Such as a headache)
  3. Creating value by abiding by the unwritten rules of the network and being generous with its other members
    Every environment within the new networks have different unwritten rules. I don’t want brands spamming my Wall on Facebook, and I don’t want them filling my Twitter feed with needless messages about how good they are. Being generous and fitting within the unwritten rules of a flat network is a key aspect of Network Citizenship. Already for some brands, the boundaries between brand and customer are beginning to blur as customers increasingly participate in the activities of the brand itself, creating a real-time relationship effect with these customers.

All of these ways of behaving, of course, run contrary to the traditional controlling and campaining mentality that defined the old reality of marketing-as-network-control. I’d argue that this is a major reason why the ROI on social media advertising has been patchy at best. It’s simply not a medium built for such campaigns. Instead these flat networks appear to be much more effective at building ongoing relationships that sit atop a foundation of mutual exchange.

Ultimately, if harnessed correctly, the shift toward network citizenship has the potential to create a new generation of brands for whom network participation has blurred quite deeply the traditional divides between brand owner and brand consumer, and in the process re-framed the idea of brand loyalty for the 21st century. At its most powerful becoming a Network Citizen has the potential to create significant competitive advantage, where the strength of a brands network drive both loyalty and recommendations, and creates an incredibly strong emotional barrier to switching.

I live in the future…

This book by Nick Bilton, technology writer for the New York Times is pretty high on my must read list. Although like most books these days there seems to be a lot of repetition, there are a couple of thoughts in here that I think are going to be fundamental for brands moving forwards.

The key thing to me is the idea that people are increasingly using other people they trust to act as curators and anchors for their information consumption. Swapping traditional institutional trusted voices for a new set of more personal voices.

When people do this, they are inherently at the center of their own network (as well as being a part of someone else’s).

This in turn puts brands on the edge’s of these networks rather than in the center. It also backs up what we are already seeing as social media conversation drives toward a communications environment that is like friends and family recommendations on steroids.

The really big question for me in all of this is how many brands are really ready to take on this new reality? A world in which influencing multiple people centric networks means more than controlling messages, and where the creation of compelling and valuable experiences almost certainly means more than traditional marketing techniques can deliver.