Tuesday, April 10, 2007

From advertising to a direct dialogue with customers. Are you ready?

This note is aimed at brand owners, frustrated by the increasingly expensive and ineffectual advertising spending on traditional media and wondering how best they can get their message out. It suggests that today's disrupted media business is too frail to support the demands of brands wanting to advertise. This is no bad thing in itself because the advertising business itself is bloated, inefficient and outdated, and companies would be better off figuring out how to interact with and delight their current customers, rather than wasting money on trying to reach and influence non-customers.

Advertising heal thyself
Today’s advertising business is suffering from (at least) two major flaws. The first is the industry that the traditional media business can no longer offer an economically viable channel to allow brands to deliver their messages to a sizable captive audience. The second - bigger - challenge is that the concept of advertising is becoming less relevant in today's flat-earth world.

Challenge one: the advertising industry is overly reliant on a lame and enfeebled media business
The “traditional” media industry is fragmented, broken, confused and failing to deliver on one of its major tasks - to help brands reach people. (If you don't agree with this, read Bob Garfield's Chaos Scenario before reading on.) The media machine that is pulling the advertising load is to put it bluntly, knackered. Reaching non-customers is getting harder due to a proliferation of alternative media channels and consumer-side filters. Cheap tools and the Web as a distribution platform for connecting people allows anyone to be a broadcaster (or podcaster) resulting in massive fragmentation. Reaching 80% of US TV viewers used to require placing adverts on just four shows in the 1960s, today it would take over 100. Those who are 'formerly known as consumers' employ both hardware (e.g. DVR) and software (e.g. RSS) filters to give them control. Forrester says that 92% of people skip ads on DVRs, and half of US households are expected to have them by 2010. Ironically, brands have until recently been forced into paying ever more for in "upfront" fees for broadcast slots on US TV networks, simply because there was no other place for them to put their money. No wonder P&G's Jim Stengell says, "I truly believe, and I know many of you do, that today's marketing model is broken."

Further complicating the picture is the reality of “media multitasking” – no more the whole family sitting rapt around a television set or radio – today’s audience (kids in particular) will be IM-ing and gaming at the same time as watching TV and listening to the radio or podcasts. This plays havoc with those already creaky viewer figures. The result of this is that some brands are getting desperate, and “outsourcing” their brand to celebrities of various ilks, but these can be crushingly expensive and more importantly, unpredictable and prone to embarrassing PR gaffes.

Beware the siren calls of the search engines

So if traditional media is broken, how about the new media experience? Internet advertising is growing rapidly as advertisers move their money towards where people are spending their time. UK ad spending – up 40% year on year, now accounts for 10% of total advertising spend, and is typical of the trends here. Several flagship advertisers are now massively increasingly their online spending this year and scaling back TV spend. And happily for the brands looking for simplicity, Google, Yahoo and Microsoft account for a lot of the internet traffic, and claim the vast majority (appx 80%) of online ad spending.

So surely search engine marketing provides salvation for brands fed up with the old media offerings? Well, not really for a number of reasons. First, there's a long way to go before the demographics overlap - PC penetration is not TV penetration, in particular in the key markets of China and India. Second, the model itself has flaws – industry experts suggest that click fraud can account for up to 30% of revenues. Third, bidding on competitors’ keywords is now rampant and resulting in spiralling costs (though this practice is probably one class-action suit away from being history). And fourth, just when brands had been extracting themselves from a reliance on an expensive media middleman, the emergence of search engine as intermediary will cost them dear. Overall however, is the issue that search engines are still intended to deliver advertising messages to non-customers and attract them to become customers. Here’s the second major flaw in the advertising industry's model:

Challenge two: advertising itself is an increasingly outmoded concept
The second major challenge facing the industry is that advertising itself is an increasingly outdated concept in today’s transparent and connected marketplace. Influencing prospective customers is ever harder; people are increasingly immune and sceptical to the battering of thousands of commercial messages. Typical of the ennui in the market, the ad agency WPP found that nearly a quarter of US ‘baby-boomers’ are insulted by the advertising messages that companies are sending them. The emerging Generation C reject marketing gimmicks (and can smell astroturfing a mile away). They make purchase decisions based on their trusted advisors and require transparency from the companies they deal with. People it seems, now generally prefer word of mouth to word of the Man.

Consider how Barrons defines advertising: a “paid form of a nonpersonal message communicated through the various media by industry, business firms, nonprofit organizations, or individuals.” These concepts seem outdated – advertising, we are told, should be about a bunch of things which the web is making redundant: in particular paying intermediaries a lot of money for the job that you could be doing better yourself. The new opportunities of free, personalized two-way communication delivered directly to users sounds more like blogs and community forums. As Bob Garfield points out, the head marketer at P&G puts it like this: "What we really need is a mind-set shift, a mind-set shift that will make us relevant to today's consumers, a mind-set shift from 'telling and selling' to building relationships."

Forget non-customers – turn existing customers into your new sales force
So with the advertising channel broken, and the approach itself increasingly irrelevant, where next for brands trying to get the message out about their products? At issue is the need to refocus attention from advertising to non-customers to serving current customers better. Sounds obvious? If so, why aren’t more companies doing it? Making great products, informing, interacting with and delighting their existing customers, rather than prospecting for hard to reach non-customers should be the new priorities. In an increasingly confused consumer maelstrom, advertising to people who are not your customer still serves some purposes – brand recognition, credibility (wow, that startup can afford a SuperBowl ad!?) and general feel good.

Fine, but when it comes to shifting products off the shelves, getting product feedback and innovation suggestions, the relationship of business value to customer intimacy is I would propose, strongly positive, something like this:

The key here is how to meet the needs of a more engaged customer base without incurring massive costs or raising expectations. Creating and fostering an open dialogue with customers is a daunting but necessary exercise. This is one of my pet topics, and there's not enough room to expand at length here, but at a high level, I'd suggest the following elements to achieve this within a reasonable time and cost scale (presuming that you've already got a great product to get excited about):

  • Make every employee an ambassador. This requires creating a mindset within the company that emphasizes openness, collaboration, speed and employee problem-ownership (presuming they're the relevant experts). It's also about installing tools such as wikis (shameless plug...) so that individuals not only feel empowered but are empowered to collaborate with others and take the initiative themseles. All the better for reacting when you...
  • Engage in direct dialogue with customers. Interacting with customers directly, for example allowing them to subscribe to web-based feeds of product news and releases. The use of syndication (RSS, Atom etc) makes dialogue an asynchronous and therefore more manageable process - this is not about giving the CEO's mobile number out to every customer. Well managed, honest external blogs are useful tools for smooth information dissemination that arguably fulfills the role of what advertising used to do. An even easier way to foster dialogue is then to...
  • Facilitate customer-to-customer dialogue. Forums and chat rooms are great examples here - apparently over 30% of HP Europe's customer queries are answered by the Q&A from message boards. Being a fly on the wall to these discussions is important, even if they're not on your own sites - tools such as technorati allow Dell to search for phrases such as Dell Hell on blogs and join the discussion if necessary.

These activities are now pretty much table stakes in the move from being a company that just doesn't get it to one engaged and benefitting from a richer dialogue with current customers. Of course, there will always be room for some old world advertising - somebody has to spend the expense accounts after all. But it may be a worthwhile exercise to look at your company and ask where along the scale between "advertising to non-customers" or "conversations with current customers" they're sitting, and whether they're moving in the right direction.

The final point, which takes us beyond table stakes and into the realms of the Truly Interesting, relates to the eventual primacy of the mobile rather than the PC as the way to interact with the web. I would dearly like to see a new mobile marketing paradigm that allows the mobile to be the platform to allow companies to carry out ongoing conversations with their customers. Mobile devices are the natural interfaces for receiving filtered and tailored customized subscription information from companies that interest then. Note, this is not advertising as we currently understand it; it does not involve any use of the hackneyed “30 cents off a Starbucks” cliché. And it certainly is not about unsolicited spam. It would be a foolish company that abuses extraordinarily intimate relationship that the mobile device can deliver.

No, this is marketing, or more accurately – business as usual. We used to talk about ‘Internet companies’ – but that now seems quaint, as we recognize that the Internet is embedded into every facet of a company’s operations and their customers similarly expect to use the web to carry on conversations with the company. I’m looking forward to a time when brands are able to dramatically improve the quality of service they deliver to their customers rather than wasting money on inefficient advertising campaigns, and they incidentally will use an internet-enabled mobile device as the mechanism for this.

So, in summary, the media business is in turmoil, but the future for brands is not to simply take their old advertising approach over to the Internet. Instead, the smart companies will recognize the need to shift their focus from non customers to current customers, and harness the power of the Web to deliver a personalized, direct interactive dialogue with customers, and then to start thinking about what that personalized, intimate experience would look like on the mobile platform.


Mike Wagner said...

I really like the question this post puts forward. It is exactly the right question to be asking.

I suspect that the very organizational cultures most corporations are made up will keep them from acting on your insights.

Corporations are made for monologues not dialogues. And for that reason, "a whole lot of changin'" needs to happen inside the business culture.

It can happen and will but it is just one more reason why those who get into the dialogue early will be winners.

Thanks for extending a great conversation.

Keep creating...it freaks people out,

PraveenKaroshi said...

A great post, very well written. It's easier said than done, I mean the changes and challenges.

Marek said...

Very interesting article. I think you're right about an emerging generation of customers with new priorities. This is a group which forms its brand relationships on the basis of dialogue and a sense of jointly creating their product experience in partnership with the company.

It goes much deeper than the way an organisation advertises itself. Customers will only be able to feel that sense of involvement if the company is open to collaborating with them at all levels, allowing products to be personalised, listening to requests for new features, etc...

This is a difficult thing to get right. There's every danger of leaving customers feeling patronised or confused if the only people bought into this approach are in the marketing department. I wrote a piece on Orange's 'Racoon, Canary' campaign last year highlighting these challenges:


Perhaps companies which truly value their customers need to view themselves more as collectives which enable people with shared interests to benefit from economies of scale to develop products for their common needs? In many ways social networking services are an early example of this, where the 'customers' have just as much influence over the appearance of the final 'product' (through the contribution of their content) as the 'employees' (who develop the platform). Some, like Three's SeeMeTV service, already pay the customers a share of the revenue they generate, just as they pay their employees.

We had an interesting speaker at the MEX06 conference - Frederique Bouty of the Experience Co-Creation Partnership - who talked about these issues. There's a summary at:


Charles said...

Quite a long post Stephen, and quite a lot to it.

From a "big brand" owner's perspective there is a recognition of all of those issues, but a cultural and historical reliance on the "old media" way of doing things. Which basically is summed up as "spend the budget". TV, (or even banner ads)sprayed around use up that budget and "get the brand message out there".

It is not so much a challenge of turkey's voting for Xmas, as teaching turkeys how to do maths and statistics. There is too much qualitative and not enough quantitative in marketing and the web in its is various forms is gradually bringing rigour. Sometime soon marketing teams will work out which half of their budget they are wasting.

So the issue is building understanding of new methods of communication, building analysis of all methods, and getting to customers through various means.

The current model isn't broken, it just needs a serious makeover!

Stephen Johnston said...

wwculture seems to be both intangible but all powerful - would love to hear how people have successfully changed this, if indeed it is possible.

and the turkey's at christmas is quite an interestig metaphor. you could consume the same quantities of vitamins and minerals as contained in a christmas dinner by just swallowing a pill in 2 seconds. but people still love the theatre of the event! let's figure out how else to spend that money they're determined to.

merben said...

Very informative and interesting post. The success of
Internet advertising has really turned the tables for traditional advertising. They cannot hope to compete with the power of the internet.