Too many companies view marketing plans as little more than an exercise in where and when to buy media placement. Yet as the number of digital interactions increases, marketers must recognize the power that lies beyond traditional paid media.
The changing role of older media and the emergence of newer ones extend the marketer’s role well beyond the allocation of budgets and channels. Marketers today require a deep understanding of how consumers engage with different types of media at each stage of the journey toward a purchase decision. McKinsey’s study “Beyond paid media: Marketing’s new vocabulary” splits the media in 5 categories: paid, owned, earned, sold, and hijacked and makes an analysis of how media are evolving nowadays.
What’s there to think about?
1. Media are becoming more integrated. New ways to connect with customers, for example, are transforming traditional relationship management by requiring marketers to interact with consumers through multiple forms of media in increasingly personalized ways. JetBlue has promoted its Twitter offering through many channels, for instance, and now has about 1.6 million followers seeking a regular feed of special deals for tickets. This approach has given JetBlue the ability to deliver timely coupons at a minimal variable cost, reducing its reliance on expensive paid media while fostering closer relationships with consumers.
2. New publishing models are emerging because the increasing complexity of consumer needs. Computer maker Dell and automobile manufacturer Nissan, for example, worked with the Sundance Channel to create a television talk show hosted by Elvis Costello to attract their target demographic. With ads that seamlessly blended into the show’s content, Dell and Nissan not only gained exposure to a highly engaged audience but also shifted the perception of their brands to connect with Generation X.
3. Applications on wireless devices are spawning tools that provide useful information. For example, eBay’s Red Laser generates a list of prices for any product whose bar code has been scanned by a mobile phone. Beverage companies show where their products are available by overlaying icons onto maps on the screens of mobile phones. In Japan, food manufacturers can increase sales across entire product categories through marketing collaborations with platforms such as Cookpad, the country’s leading online recipe site, with 9 million members, more than 40 percent of whom are women in their 30s.
4. Marketing experiences are becoming more personally relevant. McDonald’s in Japan, for example, has developed expertise in the use of Twitter and other blogging platforms to promote new products and promotions by leveraging its huge fan base to talk about how much they love the company’s food. While this fan promotion is sometimes spontaneous, it’s often facilitated and encouraged by providing these fans with free meals. In this way, paid- and owned-media efforts (such as blog and Twitter campaigns) make consumers so enamored of McDonald’s products that the company generates a significant amount of earned media.
5. The evolution of new kinds of media means that consumers are engaging more often in real-time conversations, particularly on social networks and other digital platforms. One consumer electronics company, for example, has recognized the significance of every review or rating posted about its products. It now responds to all comments within 24 hours: positive feedback gets a thank you, an invitation to become a Facebook friend, and special offers; negative reviews get explanations of how to fix issues, instructions on how to navigate an interface more easily, or follow-up questions to learn more about what the consumer didn’t like. Some hotel chains, recognizing the importance of travel sites (such as the popular TripAdvisor), likewise encourage satisfied guests to post comments online, while employing staff to follow and answer negative comments.
“What competitive intelligence? We are in the middle of a crizes, we need to survive!” That may be the statement of many executives today, and it seems that competitive advantage is nothing but an elusive goal. The results of a recent McKinsey survey suggest one reason: just 53% of executives characterize their companies’ strategies as emphasizing the creation of relative advantage over competitors; the rest say their strategies are better described as matching industry best practices and delivering operational imperatives. In other words – this is nothing but a buzzword for stakeholders to make them feel safe.
What I even find more interesting is that only 33% say their companies’ strategies rest on novel data and insights not available to competitors, rather than widely available data. We are more or less used to see companies (especially the big ones) as having some “CIA” teams in charge with competitive intelligence but it seems that this is only true in some of them. What we don’t know from McKinsey’s survey is how many of those 33% are large multinationals and how many are not.
However, there may be one likely explanation of this fact that wouldn’t be affected by the size of the company or the existence of such intelligence units: the widespread availability of information and adoption of sophisticated strategy frameworks creates an impression that “everyone knows what we know and is probably analyzing the data in the same ways we are.” Yet if strategists question their ability to see something that no one else does, the question that raises is how reach are the powerful insight that are most likely to differentiate them from competitors?
Another astonishing result: only 12% of surveyed executives place novel insights in strategy among the top three influencers of financial performance. The financial crisis of 2008 and the recession that followed revealed weaknesses in many strategies and forced many companies to confront choices and trade-offs they put off in boom years. Not surprisingly, 56% report that their companies are making strategic decisions more frequently than before. This increased speed may make it difficult for some companies to analyze each decision in detail. However, a shift toward shorter planning cycles only increases the need to focus on the timeless aspects of strategy that can drive competitive advantage.
And this brings us back to our main question: is competitive intelligence a buzzword or does it bring a genuine value to the company and its financial performance?
Following a year of decline in 2009, the global E&M market, as a whole, is forecasted to grow by 5% compounded annually for the entire period to 2014 reaching US$1.7 trillion, up from US$1.3 trillion in 2009. Fastest growing region throughout the forecast period is Latin America growing at 8.8% compound annual rate (CAR) during the next 5 years to US$77 billion in 2014. Asia Pacific is next at 6.4% CAR through to 2014 to US$475 billion. Europe, Middle East and Africa (EMEA) follows at 4.6% to US$581 billion in 2014. The largest, but slowest growing market is North America growing at 3.9% CAR taking it from US$460 billion in 2009 to US$558 billion in 2014.
Consumers seam to embrace new media experiences with staggering speed. The advancing digital transformation is driving audience fragmentation to a level not previously seen. However, the current wave of change is of a different magnitude from previous ones both in its speed and its simultaneous impact across all segments.
Although there is consistency in the inevitable migration to digital, the ways in which this presents itself and the pace of change continues to vary by market. Regional and country variations in current market size and future growth reflect local factors around infrastructure, access availability and consumer behaviour. For example the mobile internet explosion has already happened in Japan, accounting for some 53% of global spending on mobile Internet access in 2009 while other markets are still at the bottom of their growth curve.
Advertising on the rebound
Advertising revenues have been particularly hit by the turbulent markets and while there are signs of a rebound, this is still fragile in nature. Spend is unlikely to return to former levels. By 2014, the US advertising spend is expected to still be 9% below its level in 2006. Overall, global advertising will increase at a 4.2% CAR from US$406 billion in 2009 to US$498 billion in 2014. Internet advertising will join television in 2014 as the only media with spending in excess of US$100 billion.
The projections reflect the fragmentation of the market and behavioural changes of consumers. The advertising industry is responding to consumers’ shifting attention and has embarked upon a long-term journey towards total marketing or total brand communication. Brands are changing their focus from advertising on a medium, to marketing through, and with, content.
Conversing with consumers
Consumer feedback and usage provides the only reliable guide to the commercial viability of products and services, and the global consumer base is being used as a test-bed for new offerings and consumption modes. However, as responses are still evolving it is up to the industry to anticipate and identify where they are heading and pre-empt the needs and wants of consumers. PwC believes that three themes will emerge from changing consumer behaviour:
The rising power of mobility and devices: Advances in technology and products will see increasingly converged, multi-functional and interoperable mobile devices come of age as a consumption platform by the end of 2011. Consumers are increasingly demanding “ubiquity”, with content flowing across different devices to support ever-greater interactivity and convenience. They are using mobile in new ways, and downloading ever-increasing numbers of mobile applications (“apps”) to support their lifestyles. The ability to consume and interact with content anywhere, anytime—and to share and discuss that content experience with other people via social networks—will become an increasingly integral part of people’s lives.
The growing dominance of the Internet experience over all content consumption: Using the Internet is now one of the great unifying experiences of the current era for consumers everywhere—and their expectation of Internet-style interactivity and access to content will continue to expand across media consumption in every segment. This trend is initially at its clearest in television. Equally, people are already consuming magazines and newspapers on Internet-enabled tablets, and streaming personalised music services such as Pandora in preference to buying physical CDs or even digital downloads.
Increasing engagement and readiness to pay for content—driven by improved consumption experiences and convenience: Ongoing fragmentation means that media offerings will need greater consumer engagement and quality to get themselves heard – and paid. Consumers are more willing to pay for content when accompanied by convenience and flexibility in usage, personalisation , and/or a differentiated experience that cannot be created elsewhere. Local relevance will also become important once again as an aspect of convenience and relevance.
Revolutionising the business
Digital migration and the changes in consumer behaviour have put extreme pressure on existing business models. It has caused the industry to radically rethink its approach to monetising content as it strives to capture new sources of revenue, be it from transactions or from participation with others operating in the evolving digital value chain.
Inevitably this results in individual companies searching for where to position themselves in the new digital world. Partnering with other organisations is becoming imperative in order to create viable commercial content offerings while sharing the costs and risks. Increasingly potential partners are being found from a diverse set of industries.
Whatever the partnership or collaboration PwC identifies seven critical factors for operating succesfully in the new value chain:
• Strategic flexibility
• Delivery of engagement and reationship with the customer through the consumption experience
• Economics of scale and scope
• Speed of decision-making and execution, with the appetite to experiment and fail
• Agility in talent management
• Ability to monetise brand/rights across platforms
• Strong capabilities in partnership structuring and M&A targeting and integration
2010 – 2014 Media Outlook in numbers
• There were 12 countries in 2009 with E&M spending above US$20 billion, led by the United States at US$428 billion and Japan at US$164 billion. Of the leading countries, the People’s Republic of China (PRC) will be by far the fastest growing with a projected 12% compound annual increase, fuelled by a vibrant economy and large increases in broadband penetration that in turn propel other segments. Japan will be the slowest growing of the leading countries at 2.8% compounded annually.
• Internet access is a key driver of spending in most segments. Increased broadband penetration will boost wired access while growing smartphone penetration and wireless network upgrades will drive mobile access. Spending on wired and mobile Internet access will rise from US$228 billion in 2009 to US$351 billion in 2014.
• PwC expects a relatively flat market in aggregate global advertising and consumer/end-user spending in 2010, improved growth in 2011 and a return to mid-single-digit gains during 2014. Overall global advertising will increase at a 4.2% CAR from US$406 billion in 2009 to US$498 billion in 2014. Overall consumer/end-user spending will rise from US$688 billion in 2009 to US$842 billion in 2014, a 4.1% compound annual increase.
• Globally, the video game market will grow from US$52.5 billion in 2009 to US$86.8 billion in 2014, growing at a compound growth rate of 10.6%. This will make it the second fastest-growing segment of E&M behind internet advertising wired and mobile, but will be the fastest-growing consumer/end user segment ahead of TV subscriptions and license fees.
• The global television subscription and license fee market will increase from $185.9 billion in 2009 to US$258.1 billion in 2014, a CAGR of 6.8%. This will outpace TV advertising, which will grow at a CAGR of 5.7%. The biggest component of this market is subscription spending and this will increase at 7.5% CAR to US$210.8 billion in 2014. Asia Pacific will be the fastest-growing region with a 10% compund annual increase rising to US$47.1 billion in 2014 from US$29.2 billion in 2009.
• Total global spending on consumer magazines fell by 10.6 percent in 2009. PwC projects an additional 2.7% decrease in 2010, a flat market in 2011, and modest growth during 2012–14. As a result, spending will total $74 billion in 2014, up 0.7 percent compounded annually from $71.5 billion in 2009.
• Electronic educational books will grow at a CAGR of 36.5% globally throughout the forecast period yet will still only account for less than 6% of global spend on educational books in 2014.
Research and development has risen sharply on the corporate agenda in the wake of the global economic crisis, a McKinsey survey finds. Four in ten respondents report that both R&D budgets and activity levels are up this year relative to 2009. What’s more, executives are remarkably optimistic that the R&D moves their companies made during the downturn will serve them well in the coming three to five years.
Moreover, nearly 60% of executives say R&D will be either the top priority or among the top three priorities this year – significantly higher than the 47% of executives who said the same last year. Despite the increased levels of spending and activity, companies are taking a wait-and-see approach to R&D hiring. Relatively few respondents say their companies are hiring or firing; the most common approach is a focus on retention.
Executives recognize that delaying, reducing, and eliminating R&D projects can limit long term competitiveness. Still, 42% of respondents say their organizations cut R&D costs in 2009, perhaps reflecting the lengths to which some companies needed to go in order to survive the recent economic turmoil. Further, when compared to the moves companies had made in spring 2009 (when McKinsey’s first R&D survey was conducted) with the moves they made by year’s end, it becomes clear that for many R&D organizations, conditions worsened steadily. Far more companies eliminated projects, delayed spending, and instituted hiring freezes as the year progressed.
These actions may well haunt some companies for years to come. A significant share of executives whose companies cut costs expect that these moves will have adverse effects in the coming three to five years. The problems respondents are most likely to expect include reduced market share, a loss of technological ground to competitors, a weaker R&D talent pool, a loss of institutional knowledge, and damage to morale.
Meanwhile, a significant number of companies appear to have used the downturn as an opportunity to add a measure of discipline to their R&D organizations, infrastructure, or processes. Among the most frequent changes in 2009 were increased accountability for performance and spending, increased collaboration with outside R&D groups, increased use of global R&D resources, and the streamlining of core R&D processes. All these moves should help companies innovate more effectively over the long term.
Moreover, high performers in the survey appear more attuned to the “softer” aspects of R&D than other companies are. Executives at high-performing companies, for instance, are significantly more likely to say their organizations are focusing on retention of key employees (40% versus 29%). And while the majority of high-performing companies didn’t cut R&D costs in 2009 — 63% of high performers didn’t, versus 56% of the others — those that did are far more likely than other companies to fear weaker R&D talent pools, a loss of institutional knowledge, and damage to company morale. Finally, high-performing companies appear to be markedly more proactive than the others in two operational areas that represent significant long-term investments: the streamlining of core R&D processes and the expansion of R&D infrastructure.
Over the next five years, digital technologies will become increasingly widespread across all segments of entertainment & media (E&M) as the digital migration continues to expand according to the PricewaterhouseCoopers Global Entertainment & Media Outlook 2009-2013.
The study shows that this recession will last longer than previous ones due to a steeper downturn and that the impact on consumer spending will be much steeper than in the past. E&M is not immune to that trend – consumer spending in E&M will fall by a projected 1.2% in 2009, remaining weak in 2010 and seeing only relatively low growth at 3.2% in 2011.
Responses to the recession will vary from country to country and region to region with some territories showing little ill effects while others experience steep declines. Latin America and Asia Pacific remain the fastest growing regions increasing at an annual compound rate of 5.1% and 4.5% through to 2013 reaching $73 billion and $413 billion respectively. Excluding Japan, the dominant country in the Asia Pacific region which accounted for 45% of total spending in 2008, E&M spending in Asia Pacific will increase at a projected 7.1% compound annual rate over the period of the Forecast.
According to PwC’s analysis, this ongoing migration to digital will occur and manifest itself across three parallel and interrelated dimensions:
The overall, effect of the current global economic downturn will be to accelerate and intensify the migration to digital technologies among both providers and consumers of E&M content and services.
The accelerating digital transformation will in turn reinforce and proliferate new consumption habits and “digital behaviours”, as consumers seek (1) more control over where, when, and how they consume content, and (2) higher value from their entertainment and media choices.
As digital behaviours become more widespread and embedded, a new generation of advertising-funded revenue models will emerge, aiming to reflect and capitalize on the evolving consumption habits by delivering advertising that is ever more targeted and relevant to the specific audience.
By 2013, the combination of these three change dimensions will give rise to a much more fragmented E&M landscape than today’s, characterized by a wide divergence of revenue models aimed at exploiting the digital opportunity. Traditional, long-established revenue models in segments such as TV and magazines will be replaced by more targeted and tailored models that will differ widely within and across segments and geographies.
E&M companies will have to commit themselves to participating actively in this industry-wide shift, or risk suffering lower growth than their competitors and ultimately possible extinction. As we said at the beginning of this article, they will have no place to hide from the remorseless digital advance.
A recent McKinsey Survey shows that the perceived importance of corporate environmental, social, and governance programs has soared in recent years, as executives, investors, and regulators have grown increasingly aware that such programs can mitigate corporate crises and build reputations. However, no consensus has emerged to define whether and how such programs create shareholder value, how to measure that value, or how to benchmark financial performance from company to company.
The McKinsey survey asked CFOs, investment professionals, institutional investors, and corporate social responsibility professionals from around the world to identify whether and how environmental, social, and governance programs create value and how much value they create.
Results show that, among respondents who have an opinion, 67% of CFOs and 75% of investment professionals agree that environmental, social, and governance activities do create value for their shareholders in normal economic times. By wide margins, CFOs, investment professionals, and corporate social responsibility professionals agree that maintaining a good corporate reputation or brand equity is the most important way these programs create value.
Respondents to this survey are split over whether putting a financial value on social programs would reduce the reputational benefits to companies: slightly more believe stakeholders view financial value creation as important than believe it’s a distraction.
Investment professionals generally agree that the global economic turmoil has increased the importance of governance programs and decreased the importance of environmental programs to creating shareholder value. Respondents do, however, largely agree that environmental and social programs will create value over the long term, and that governance programs create value in both the short and long terms.
Some 67% of CFOs, investment professionals, and corporate social responsibility professionals also believe that the shareholder value created by environmental and governance programs will increase in the next five years relative to their contributions before the crisis. Expectations of social programs are more modest; half of respondents say these programs will contribute more value.
Most respondents cite attracting, motivating, and retaining talented employees as one way that environmental, social, and governance programs improve a company’s financial performance, but few respondents think communications could be improved by reporting data in this area.
Some future perspectives
• A clear first step would be to develop metrics that focus on integrating the financial effects of environmental, social, and governance programs with the rest of the company’s finances.
• A few companies see environmental, social, and governance programs as an opportunity to create new revenue streams. Given investors’ demand for financial data, companies could benefit from explicitly including these programs and their revenue streams in planning and reporting.
• Corporate social responsibility professionals can help their own companies and their investors fully value their environmental, social, and governance programs by understanding how various stakeholders see them and by learning to communicate their value.
McKinsey’s survey included responses from 238 CFOs, investment professionals, and finance executives from the full range of industries and regions and it was conducted along with a simultaneous survey of 127 corporate social responsibility professionals and socially responsible institutional investors.
“The Fat Tail: The Power of Political Knowledge for Strategic Investing”, written by Ian Bremmer and Preston Keat of Eurasia Group, is the first book to identify the wide range of political risks that global firms face and show investors how to effectively manage them. It reveals that while the world remains exceedingly risky for businesses, it is by no means incomprehensible.
The authors show that political risk is easier to analyze and manage than most people think. Applying the lessons of world history, the authors survey a vast range of contemporary risky situations, from stable markets like the United States or Japan, where politically driven regulation can still dramatically effect business, to more precarious places like Iran, China, Russia, Turkey, Mexico, and Nigeria, where private property is less secure and energy politics sparks constant volatility.
The book sheds light on a wide array of political risks-risks that stem from great power rivalries, terrorist groups, government takeover of private property, weak leaders and internal strife, and even the “black swans” that defy prediction. But more importantly, the authors provide a wealth of unique methods, tools, and concepts to help corporations, money managers, and policymakers understand political risk, showing when and how political risk analysis works.
In recent years, investors have increasingly recognized that politics matter at least as much as economic fundamentals in many markets. To succeed in the current global marketplace, investors must look beyond reassuring data about per-capita income or economic growth and assess the political risk of doing business in particular countries-sector by sector and project by project.
Eurasia Group proposes four essential dimensions of political risk to examine in a country:
1) the stability of a regime and strength of its government;
2) personal and state security, and how prepared government is for future potential disasters;
3) social trends, such as demographic shifts and growing income gaps; and
4) economic factors, such as unemployment, debt, and the openness of the economic regulatory environment.
The Economist noticed a few changes in recent marketing strategies of FMCG companies. It seams that in America, where female consumers make more than 80% of discretionary purchases, companies have started to tailor their messages to appeal to women, in an effort to boost sales:
Frito-Lay, a PepsiCo fast food company, launched a campaign called “Only in a Woman’s World” in an effort to convince women that such products are suitable for their image;
OfficeMax, America’s second largest office suppliers company, has redesigned its notebooks to appeal to women and published advertisements that encourage women to make their personal office space more colourful;
McDonald’s sponsored for the first time ever the New York Fashion Week in February, promoting a new line of hot drinks to women.
It is clear that recession has prompted companies to rethink their market approach. The Economist also makes an example out of companies such as Citibank and Philips that, after marketing women consumers, tripled their number of clients.
Even if proven as productive in some fields, such strategies should be treated with care as they may not be successful for every company. Let’s take Porche for example: when they released a sport-utility vehicle designed for women, sales temporarily increased, but men started to move away from the brand as it has compromised its masculine image. Especially for gender-focused brands, marketing to the other side may enhance short-term sales but could cause a longer-term decline.