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The Duke University’s CMO Survey 2013 results highlighted again the need for marketing and CMO’s to carry more responsponsibility and integrate better with the corporate management and operations. It seems to me that marketing is facing the same evolution that car engines have gone thru since 1960’s. In the 60’s car engines were large, heavy, powerfull and impressive but their gas consumption was just terrible and their efficiency unacceptable in current evaluation. Currently engines are much smaller but deliver a lot of power with very low gas consumption. The big and impressive modern engines have amazing power with acceptable gas consumption. The engine game is all about efficiency, as it should be.
This is the case that CMO’s are facing now too. The way to get there is very much about understanding the big picture (customers, their needs and drivers, choice criteria, their cross-channel behaviour and corporate capacity to serve and deliver great customer experience across touchpoints), managing analytics and customer interface operations. The multitude of digital and analogical touch points has exploded and require very much consideration in order to come up with the essentials and focus on what matters. Marketing budget, according to CMO survey, is currently 10,6% of corporate overall budget and if we add to that retail, sales, customer service, customer managament related technology and online service investments, the customer interface investment in total is eventually what runs the company. This combination is what matters most and should be considered as an entity that must be analyzed and managed in an integrated way. See article Marketing do-or-die -managing customer interfaces
According to the CMO survey 2013:
- 6% of marketing budget is allocated to marketing analytics and it is expected to grow to 10% over the next three years. However, only 30% of company’s projects use marketing analytics and leverage insights from it
- Social media share of budget is currently 8,5% and it is expected to be 11,5% by the end of the year and 21,6% in the next five years. However, for the past several year the level of social media integration to marketing strategy has remained at the level of 3,8 in a scale 1=not integrated to 7=very integrated. The spending is expected to more than double but even in current situation the value social media could deliver is not being effectively harnessed.
- The CMO’s role is weakening in the areas of CRM, new product development, sales, pricing, innovation
- The company’s next 12 months expectations though highlight success in customer retention and profit increase and the companies are concentrating on diversification strategy (new products – new customers) and organic growth.
To me these results mean, that CMO’s are actually shying away from the corporate center. The best companies are already using Customer Journey design tools and managing customer interfaces in an integrated way, which really enable CMO’s to fine tune their engines and deliver much higher return on investment. These companies are rare though. The results show that in majority of cases CMO’s and marketing department’s role is weakening. Over time this can only mean declining budgets or declining role of CMO.
We are currently living in very rapidly changing environment from which the marketing has best understanding and the board has least understanding. The boards are now more interested in customers than ever, and they need answers. Sheryl Pattek’s (CMO for Forrester research) article highlights how National Association of Corporate Directors (NACD), a group of board-of-director members from the US’s most prestigious companies is discussing the topic: How to keep corporate boards relevant in the 21st century. This is Sheryl’s view on the discussion:
“The discussion that morning focused on the need to respond to and keep pace with the rapid change in customer behavior to stay competitive. It also addressed how current board members could keep up with the evolution of customer touchpoints to understand the new digitally-based strategies that are increasingly being shared with them. What I found striking about the discussion after some reflection was that the realization of the critical importance of customer behavior on the future success of top companies has made it all the way to the boardroom. The age of the customer that Forrester first identified in 2011 has really arrived and goes well beyond marketing. Why now? Corporate boards are starting to realize that to provide the strategic guidance and governance that their role requires, they need to better understand customers and how the relationship between them and the companies they direct are changing. And they need to understand it fast. The market is moving and changing too rapidly to be left behind.” (see the full article here: CMOs, Is Joining A Board of Directors Part of Your Career Plan? If Not . . . It Should Be.)
This is the time when marketing can really, finally become corporate center – driver for management change and change management. Mr. Steven Cook, the founder of Fortune CMO network has made a great presentation about this subject with some cases. Enjoy.
Author: Toni Keskinen, Marketing Architect & Customer Journey Designer
Christine Moorman is the Director of The CMO Survey®
The CMO Survey 2013 results in full:
The high frequency trading (HFT) stands for machine based stock exchange trading. HFT model leverages price differences in variety of stock exchanges, buy and sell in a fraction of a second. If there is 0,01% price difference in two stock exchanges, you can make 100 profit with a 1M investment in a millisecond. HFT is based on algorithms and data and it’s increasing it’s share of trading steadily against traditional trading. HFT is very much like trained limbic system in human decision making: rapid, based on heuristics and rules from learned experiences and blind to events that have not been pre-coded in to the system. Traditional trading is based on rational thinking, analysis, luck, intuition.. well human intelligence and conscious decision making, even creativity. Traditional trading is much slower and more vulnerable to human emotional flaws but also allow long-term consideration. There is a lot of money involved in stock trading with instantly measureable success. It is also the most developed trading environment in the world.
Well, let’s look at marketing then. If you consider the fact that the CMO has liquid cash worth several percentages of corporate annual turnover, in case of P&G 9-11%, it is quite a considerable liquid asset too. Actually, in many cases it is the largest liquid asset the companies have and spend. The others are for long-term strategic Merger & Acquisition purposes, infrastructure investments and salaries. Marketing is also the only investment that has difficulties in defining ROI, instant and long-term. Well, this will change quite soon and create tectonic changes in the foundations of marketing industry. The data explosion due to multi device Internet and inter-connectivity of mediums and customers combined with regulatory changes in privacy will result complete make over of the marketing industry.
Let’s consider Facebook for a moment. Facebook is a vehicle designed to enable personal communications and community. It is a yielding platform in which the user is the product for sale. The basic idea is that the advertisers will fund the business model and the consumers will allow data capturing in return for using the Facebook as their communications platform and vehicle representing their identity and social relationships. Effectively Facebook knows more about us than we even realize. The question is, how does Facebook capitalize this knowledge? Facebook could become the world’s most effective advertising targeting and RTB business operator outside Facebook’s own touchpoints in case they decide to pursue this goal. We should expect black swans like that to appear and change the way the marketing ecosystem operates and challenging the balance of power. Big players will enter new areas and small players will emerge and grow big faster than ever (like Pinterest) and we will surely see new symbiotic business models created from combinations of existing players creating new value propositions and services.
If we consider the development of media buying and spending then, it is starting to look more and more like HFT due to the increasing level of Real Time Bidding (RTB) inventory and media business model. RTB is about getting the best price available for advertising inventory. The ecosystem is feeding advertisers willingness to pay for contacts and is trying to increase the willingness to bid higher. RTB is the new “share of voice”. The drivers of this business model have been Google Ads and Facebook but the model has been adopted by other media companies widely and will be adopted by majority of mediums over the next couple of years. The advertisers willingness to pay for each contact is based on data and the decision to bid is made based on the rules defined in the Demand Side Platforms (DSP’s) within milliseconds, exactly like in the case of HFT. As the business model is based on engagement or acquisition, also the rewards can be easily tracked which drives transparency and corporate management acceptable investment model in marketing.
The key here is the corporate management acceptable investment model. Marketing has been a rogue spending area in corporations without direct accountability for financial results. This will change. Every single business investment area has been made liable for profitability and accountability apart from advertising. It is not going to be acceptable anymore. Because it is becoming possible, it will be demanded. Period. Just like in case of the HFT also the liquid resources will become almost infinite and marketing budget will become flexible when the accountability is made possible. There is no limit in spending if every single cent invested result 10 cents in return. Well, in future markets such disproportional returns will be balanced but the main rule will still be valid. Groupon is a thriving example of corporate willingness to pay disproportional costs for easiness and accountability. The change is inevitable but will happen gradually. The wheel of change is already turning and it will spin wilder and wilder before we reach the new normal.
Investment sector has been in great turbulence and HFT has changed trading volume based market shares rapidly. In Helsinki Stock Exchange March 2010 the top three traders were SEB, Nordea, Handelsbanken and FIM. They were all local or Fennoscandic players. In January 2012 the top three were Morgan Stanley, Nordea and Credit Suisse. Along with those three there were newcomers like Citadel, Getco and Spire. The newcomers are all specialized in robot managed HFT. Credit Suisse and Morgan Stanley represent the same phenomena by selling others the rights to use their HFT technology. Local players are losing ground.
The change is happening at increasingly rapid speed and will eventually escalate. At that point within apr. 5 years media agencies don’t call to mediums and ask quotes for their mediums, media buyers and sellers in current meaning will vanish. Media planning is no longer about choosing media and negotiating price for it. Media agency will be impossible to distinguish from stock exchange trading company by sight. The tools, technology, algorithms and productivity goals will be very similar. The competition will be about measureable ROI of marketing portfolio management. Like in the stock trading it will be driven by analysts who are specializing in short term instant ROI and long-term profit expectations.
What about creative agencies then?
IBM did a major study in 2010 and interviewed over 1500 CEO’s around the world. Mr. Samuel J. Palmisano, Chairman, President and CEO of IBM Corporation captured the findings in three major issues in his pre-words of the study report:
- The World’s private and public sector leaders believe that a rapid escalation of “complexity” is the biggest challenge confronting them. They expect it to continue – indeed, to accelerate – in the coming years
- They are equally clear that their enterprises today are not equipped to cope effectively with this complexity in the global environment
- Finally, they identify “creativity” as the single most important leadership competency for enterprises seeking a path through this complexity.
Well, creativity is a human trait and a profession. Creative agencies will have major role in the change and they are trusted partners for CMO. Creative agencies will remain true to their creativity but the demand for creativity will be far more diverse than just advertising message creativity now. Customer experience design, advertising, product- and service design all serve the same common goals; creation of competitive advantage, brand and relationship value. CMO’s responsibility is going to be about exactly that, creation of competitive advantage. CMO should be already responsible for insights on customer behavior change and delivering them to other members of the board influencing strategy and operations. CMO’s key role is to practice strategic sensitivity of the market and customers. The best CMO’s will earn a new role closer to COO’s current role as they start carrying more accountable and strategic responsibility. The CMO position will also become number one route to CEO position. Sir Terry Leahy, former CMO and later CEO of Tesco Plc has already shown the way. Tesco is also one of the premier examples world wide in customer data driven strategic and operational management, behavioral economics research and service design. Tesco’s growth and profitability also prove the point rather well. Creativity in the Tesco way will become mainstream now that we are reaching tippin’ point.
There is another reason why Tesco is such a great example of future marketing planning. Tesco is one of the first companies using customer behavior data to personalization and individual customization of offering and messaging in massive scale. Today we recognize this as marketing automatization and customer experience management. Each individual customer has offering scoring attached to their data and this scoring model define what and how should be offered in order to turn push marketing and sales in to inspirational service experience. People are looking for advice, inspiration and great deals. Giving all three in one package with great customer experience in any given customer interface create trust and relationship.
Customers are becoming another portfolio for CMO to manage; who, what, when and how are the questions that need an answer. The answer is another case of trading mechanism. The company has an inventory of products and services. This inventory is the other subject to yield management and the customer base is another portfolio. The perfect combination of both enhances loyalty and lifetime value with optimal profitability.
Well, let’s go back to Facebook and consider that the product they have, are their customers, the users. The product and service portfolio they are managing is not actually their own but their clients, the advertisers. The two way yield management means optimizing the profits from the customer base they have. Facebook must consider overall profitability of their users against the price different product & service vendors are prepared to pay for them. Yield management will differentiate products and services in to categories:
- Easy to activate mass categories which deliver small but high volume transactions
- More difficult to activate categories which deliver less but bigger transactions
Well, that’s not the end of it. There are known brands with stronger demand creating also high volume and less known brands that are more difficult to yield but deliver higher revenue/transaction. In this game brands, creativity and quality of creative work are subject to instant and continuous pricing. If the creative work is highly appealing and works very well, it will result transactions at lower costs and higher margins for advertisers. If the creative work is not working the price you need to pay for each transaction will cost much more. When we reach this point, you don’t need to question what is the value of your brand. You will know the difference… Painfully well. The same apply to advertising in any other mediums, which will still be impossible to directly measure. The measures will be based on direct increase in sales compared to the base line without marketing and it’s effect in real time bidding costs. Currently the same ideology works well in businesses requiring outbound selling. In case advertising works outbound sales conversion will increase and cost per transaction will be less expensive. Same mechanism will work much faster in the real time bidding environment.
The media companies’ capability to invoice consumers’ subscription fees will erode steadily and the requirement for advertising profitability will grow. The media trading could well learn from retail category management and yielding optimization of shelf space. The media inventory is made of certain media placements, which will develop but still exist in the near future. Every single placement will be subject to yielding methodology. Facebook, Google and most media companies will not really care where the money is coming from as long as their yield management drives strong profits. Statistical analytics, scoring models, algorithms, richer and richer data combinations and continuous optimization will be the name of the game. They have the data and they can re-create their business models. There are only so many people on this planet and in any given country. The media which have the best data and the best tools to create multi client lead nurturing methodologies delivering strongest rate of acquisition will win. Just like in case of HFT, the balance will shift and the global players will take larger share of the business. The smaller but local and trusted media companies are now in a do or die situation and by the end of this decade we will know how if and how they survived.
The role of mediums as the data owners will also change. The services they deliver could vary from x amount for introduction, y amount for acquisition to z amount or percentage for the profitability e.g. during the first three years. The data holders will become capable of working as headhunters for advertisers. They will just hunt customers, not employees. The stakeholders in this game can be anything from media companies to large loyalty programs, telecoms, Apple like manufacturers (e.g. Siri) and global social mediums and data capturing platforms like Facebook and Google. The most rapidly growing market sector is currently services that come between the producers of products and services and the customers. Travelzoo.com and Groupon are good examples of such. All players mentioned above have direct customer relationship to consumers and consumers are using their services to make their choices and living easier and better. In a very complex world these players offer advice, the solution to customer’s needs. They can inspire and serve and they can gain a trusted partner status with consumers. The key word is trust. Trust is also the key word in yield management. The increasing transparency will become another management imperative. Bad companies stand for, bad customer experiences and effectively bad advice for consumers. It means lost trust and less effective yielding for mediums. If the company cannot deliver what they promised, they will face increasing costs again.
The world has become extremely interconnected and transparent. The market price for a customer engagement or customer acquisition will be determined by trading environment. The market value of data will deliver steady revenue and the big players will become bigger than ever but we will also witness unexpected newcomers. The competition will be about the game of trust and relationships in the consumer markets and extremely efficient trading tools and data based intelligence delivering accountability in the B2B markets and planning. The value of existing customers will become imperative and corporations will implement marketing automatization technologies in order to enable individual care models and increase in customer lifetime value. The tools will become smarter but creativity will flourish as human trait, profession and specialty.
Author: Toni Keskinen, Marketing Architect & Customer Journey Designer
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- Strengthening the CMO/CEO relationship: Interviewed CMOs report that they are strengthening their credibility with the C suite, and CEOs in particular, through best practices that include framing recommendations in ROI terms (beyond creativity and the marketing budget’s P&L); educating themselves and top management on how marketing can contribute to the company’s growth/business performance; documenting where marketing opportunities exist and might be captured; and highlighting risks while laying out how those can be mitigated. Successful CMOs are also building relationships with fellow senior managers and creating intra-company alliances based on their ability to demonstrate marketing’s impact on their co mpanies’ performance.
- Social marketing: Social media are not only transforming traditional principles of brand-building and customer loyalty, but altering human interaction fundamentals, says CMG. While CMOs are best-positioned within their organizations to lead the mission of understanding and mastering these complex trends, by virtue of their ages/backgrounds, few are “native social-media speakers.” Study respondents reported that they are mastering these challenges through “generational seeding”: Creating internal teams that include younger, cyber-intelligent employees. This also brings the benefit of developing a talent pool that should secure the organization’s future.
- Managing Millennials: Millennial-generation marketing employees are critical because of their inherent understanding of social media, but their insights are too often dismissed because of their inability to present such insights with “crisp logic and presentation cosmetics,” marketing chiefs pointed out to CMG. Investing the time and energy to “connect the dots” to develop this generation’s thinking can unlock crucial learning for CMOs and their organizations, the participants stressed.
- Demand creation: Successful CMOs realize that the ability to position themselves as the rightful keepers of the “innovation flame” – the critical, differentiating mission of creating the perception among consumers that a brand is delivering what they need/want even before they know it themselves – is extremely powerful, and the key to advancing their influence within their companies.
Behind CMO survey that is done twice a year is Christine Moorman the Director of The CMO Survey and the T. Austin Finch, Sr. Professor of Business Administration, The Fuqua School of Business, Duke University. Full study is available below: