Digital Darwinism: Evolve or Perish?

Digital Darwinism: Evolve or Perish?
Steven Spittaels
BDMA congress I October, 2014
R.I.P.
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The Do Not Call Registry in the US
220 million
contains over
phone numbers
~30% of internet users are using
ad blocking software, growing at a rate
of +40% a year
AdBlock
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Digital touchpoints are less within companies’ control
TV/Internet: Characterization of initial consideration and evaluation touchpoint
Percent
Customer originated
Outside of company control
62
35
26
11
Offline
SOURCE: McKinsey digital marketing survey 2012
Digital
Offline
Digital
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Consumers take many different paths to their product purchase
Journey 1
▪ 39-year-old woman
▪ Tired of her old moisturizer
▪ Buys luxury products and
shops at department stores
Read review
in magazine
Went shopping and
looked for product
Journey 2
▪ 21-year-old woman
▪ Wanted to start using
moisturizer
▪ Limited income; shops at
mass merchandisers
Talked to friends
about what they use
Went to Target
to stock up
Purchase
Olay Definity
Moisturizer
Saw product she’d
heard about on display
Journey 3
▪ 30-year-old woman
▪ Needed a solution
▪
for her problem skin
Middle income; shops for
skin care at her drugstore
Talked to her dermatologist
about dry skin
Went to her
drugstore
Shopped the
aisle
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The consumer decision journey
Brands enter and exit the
consumer’s consideration set
at any point up until purchase
Evaluation
Inclusion
Closure
The consumer has an initial set
of brands in mind based on
brand perceptions and exposure
to recent touchpoints
Ultimately the consumer
selects a brand at the
moment
of purchase
Post-purchase experience
After purchasing a product or service,
the consumer has a formative
experience and builds biases to
inform her next decision journey
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What’s next to replace this…
“receptive” and “responsive”
Receptive
Responsive
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“Receptive” and “responsive” leaders reap sustainable rewards
Advanced CLM leaders
Revenue
EBITDA
10-year CAGR
10-year CAGR
12
Competitors
12
5
2
31
-1
49
-5
7
5
8
4
11
5
12
1
10
6
10
3
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What does it take to be receptive?
Spotting Intent
Anticipating intent
Creating incentives to volunteer data
Receptive
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Spotting intent
Product: Propensity to buy model for every customer
and product
150,000 km
Emma’s
Account statement
€4,973
EMMA
Adam’s 18th
birthday
€995/Month
for a New Car Loan from Bank
Same day approval online !
Apply Now
New car loan
Car insurance
All-in-one
insurance
85%
70%
45%
Trigger: Understand what touch point sequence / trigger drives
sales conversion
Account balance
Logins and clickstreams
Facebook fans
New Car Loan
Car insurance
Transactions (incl., cards)
Geo-location
Second driver insurance
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Target: anticipating intent
The arrival of newborn leads to new buying behavior, but detecting the pregnancy
enables new habits to be introduced ahead of time
How to evaluate the probability of a pregnancy?
Compilation of
a database
Identification of 25 products (perfume-free soap, XL packets
of cotton wool, hand disinfectant, etc.) as a relatively reliable
indicator of a pregnancy
Put together the proposal
Pregnancy and baby products are randomly mixed in with
other articles in order to remain discrete
Gain: +52% between 2002 and 2010
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Nike+
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Collect customer behavior and pattern
data to be used for future product development,
customer segmentation and personalized direct
marketing
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What does it take to be responsive
Respond in real-time
Make it relevant
Responsive
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Being responsive…
personalization in both digital and non-digital channels
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U.S. retailer Gilt Group uses advanced customer analytics to deliver
highly personalized digital experiences
~3,000 email versions sent daily based on rich consumer data
Unique homepage for each
visitor:
7-12% lift in revenue per email achieved
from site and email personalization
▪
Images tailored based on
demographics
▪
Sales ordered based on past
items browsed/purchased
▪
Items recommended based on
next product to buy algorithms
▪
Discount tailored based on
each visitor’s social media
reach
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So how to pull this off?
Data, Smarter Channels, Metrics, Talent
1
Get your data house in order
2
3
Arm channels with analytics to make
smarter decisions
Apply new metrics and measurement
4
Acquire different talent
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analytic journey began with a small test bed
1 Tesco’s
to inform specific choices
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All range reviews use
substitutability analysis
Net profit
Indexed (1991 = 100)
All promotions post-evaluated
“Value index” integrates price
and promotion indices
Promotions cut by 1/4
"[Customer insights] is used all over the
Customer
perception improves
business, not just in marketing but in the
Macro space
property program, decisions on which
optimisation
Assortment tool
product ranges … in understanding how
different types of customers are
Promotions data
Standard reporting of customer
responding to what we do"
insight KPIs and analytics
–Marketing Director
600
Price Sensitivity segmentation
Shopper panel launch
Lifestyles segmentation
Roll out to international markets
10% data
Identify “gaps” in baskets
100% data
Coupons@Till
Clubcard relaunched with key fobs
£1billion given back to customers
Tesco.com launched
100
Pilot with basket data from 14 stores
1991
1995
Clubcard launched
First statement mailing
SOURCE: Interviews; annual report, analyst reports
Finest launched
Tesco personal finance launch
2000
2005
2010
Tesco baby club launch, followed by wine club
Revise pricing to Price Sensitive customers
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e-commerce player enables Marketing and Merchandising
2 An
teams to use data to inform actions
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ACTIONS INFORMED BY ANALYTICS
Individualized
data-enabled
marketing
1to-1
comms
Send 3,000+ personalized emails daily
Social
commerce
Offer discounts to influential members who promote sales to their
social media networks
Target buyers
vs. browsers
Incent existing shoppers to invite friends to credibly reach
target buyers
Launched a men’s blog highlighting fashion trends
Insights
based
go-to-market
Personalize and curate content to
engage customers
Deliver on the m-commerce promise
Pioneered mobilespecific merchandising
Created specialized sites that
drive ~50% of revenues
Engage customers through new touchpoints
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3 At least measure..
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Percentage of Belgian companies
100%
Online Marketing Performance
32,5
Nr of clicks
32,5
Nr of clicks,
online conversion
35
Nr of clicks,
online conversion,
impact on offline
100%
Not
87
measured
13 Measured
Method
SOURCE: McKinsey analysis
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3 More advanced – strive to increase LTV and not conversion
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A LTV optimizing algorithm
1st purchase
2nd purchase
3rd purchase
4th purchase
5th purchase
6th purchase
Anchor
purchase
Recommendation
TV
accessories
– cable to
connect
DVD player
New DVD
player
DVDs –
Lovestory x
Skin care
Anti aging
Women's
shoes
Children's
clothing
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4 Data scientist, the sexiest job of the next 10 years?
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The sexy job in the next
10 years will be statisticians. People
think I’m joking, but who would’ve
guessed that computer engineers
would’ve been the sexy job of the 1990s?
– Hal Varian, Chief Economist, Google
SOURCE: Harvard Business Review October 2012
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4 “Consumer tech” experimentation mindset to rapidly test/learn
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Many versions of site running
at all times in order to test new
content
Hosts all-night hack-a-thons
to source site improvements,
which go live days later
Conversion rate
0.7
Percent
0.4
Click through rates
Percent
Runs hundreds of marketing
pilots per year to pinpoint what
works
Uses 24-7 digital “window
shops” to test product ideas
and collect rapid feedback without
need for labor or inventory
SOURCE: Press search
+75%
15
10
+50%
Profit per order
Percent
11.8
4.5
+162%
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Recap
Data, Smarter Channels, Metrics, Talent
1
Get your data house in order
2
3
Arm channels with analytics to make
smarter decisions
Apply new metrics and measurement
4
Acquire different talent
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Impact correlating advanced practices
with performance on customer KPIs
Low performer
High performer
Performance index
Strategic KPIs
Customers
acquired
Tactical KPIs
x 23
3
69
Customers
retained
11
Customer
loyalty
9
Customer
satisfaction
x 6.5
71
x9
80
14
SOURCE: McKinsey DataMatics survey
x 5.8
81
Sales to
existing
customers
x 7.4
10
74
Customer
profitability
4
Value
delivered to
customers
Migration to
profitable
segments
5
x 18.8
75
x 15
76
3
x 21
63
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OUT
SOURCE: Source
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In the 1.5 hours of this
discussion, +180 million
videos are watched on
US teenagers send
~110 texts a day
“Over 300 shows with a 10+ TV
audience rating”
“Only 12 shows with a 10+ TV
audience rating today”
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Target knows your daughter is pregnant before you do!
Identify pregnant
women early to
get them into the
store and change
shopping behavior
How?
▪ Created an algorithm to identify about
25 products that, when analyzed together,
assign each shopper a “pregnancy
prediction” score
▪ Estimate due date to within a small window
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Tesco sends targeted coupons along with their quarterly
Clubcard vouchers based on their segment
Player I
Tesco’s targeted coupons achieve redemption rates
of 20-40%, compared to pre-Clubcard rates of 3%
Application
Targeted coupons based on
clubcard to up- and cross-sell
Data used
Transaction data
Impact
Redemption rate
20-40
x6-13
3
Old New
SOURCE: McKinsey
Half the
coupons
are based
on items
the
shopper
already
buys
Half are
for products
Tesco
would like
to tempt
them to buy,
and believe
it is likely
they would
like
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3 Moving beyond conversion metrics to drive lifetime value
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Customer
Lifetime Value
Acquire new
customers
Grow share of wallet
Reduce acquisition
and retention costs
Improve
best
customer
loyalty
MOVE FROM CONVERSION
(“Next product to buy”)
TO LONGER-TERM VALUE
(“Next action to drive”)
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Examples of what’s possible
More real-time signal detection on risk
(e.g., financial, fraud, and safety),
allowing earlier interventions
Be able to make the
right offer to a
potential customer
at the right time and
right place
Correlating marketing
practices/spend with
marketing outcomes
Identify optimal
treatments beyond
the sample base
Predict how stock market
indices will move using
sentiment analysis on
social media data (e.g.,
Twitter feeds)
Source: McKinsey Center for Business Technology
Design based on DNA
analysis new
products/bundles
Quantify influencers
and network of
influence connections
to reduce churn
Detection of
road bumps
Real-time rerouting or trucks
and deliveries based on traffic
conditions local inventory
status, costs
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Talent is scarce
US Supply and demand of deep analytical talent by 2018
Thousand people
140 - 190
180
30
300
440 - 490
50 - 60%
gap relative
to 2018
supply
150
1
Graduates
Others
2018
supplydeepTalent
1 Other supply2008
drivers include attrition
(-), immigration (+), and
reemploying previously
unemployed
analytical gap
talent (+).
employment with deep
SOURCE: US Bureau of Labor Statistics; US Census; Dun & Bradstreet; company interviews;
McKinsey Global Institute analysis
2018
projected
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The 5 forces of digital – strengthening consumer
engagement throughout the CDJ
1
Higher interactivity with the brand
Greater personal involvement from
2
consumer-generated content
Engagement with brand beyond
3
the product
Accelerated viral marketing,
4
with higher consumers’ ability to
influence others
5
Tailored contents and messages
SOURCE: McKinsey
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SHORT- AND LONG-TERM IMPACT
Long-term effects need to be considered to optimize
profit
Gross profit minus marketing investment
Short-term
Facebook advertising
Facebook fan page (owned viral social media)
Display
DISGUISED FMCG
CLIENT EXAMPLE
Insights
Profit optimization on short term
TV
alone leads to 75%
marketing budget
reduction
TV
Inclusion of longterm effects advises
Short- plus long-term
to keep the budget
levels and generate
growth by reallocation
of resources towards
social
Facebook fan page (owned viral social media)
Facebook advertising
Display
Investment
SOURCE: McKinsey
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Growing importance of consumer digitization
in purchasing
funnel
Share
of digital touchpoints,
percent
Initial consideration
Evaluation
34
Bank/
insurance
21
+17
44
18
+17
39
Utilities
28
+14
SOURCE: McKinsey digital matters survey 2008, 2012
+23
22
20
+2
48
26
24
18
+6
57
25 +32
2012
+6
24
20
CAGR 2008-12
(Percent p.a.)
Feedback
34
13 +44
42
2008
12 +42
14 +48
29
Telecom/
media
Purchase
SELECTED EXAMPLES
20
20
0
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DIGITAL MARKETING
Did you know
50% of purchasing
decisions are made
online
Digital stores
have 33% more visits
than physical ones
Social Media already
influencing EUR 5 billion
sales in Belgium
And this is not reflected
yet in Marketing skills
and budgets
SOURCE: McKinsey analysis
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Spotting the opportunity
Spotting the opportunity
Being responsive
Product: Propensity to buy model for every customer
and product
150,000 km
Emma’s
Account statement
€4,973
EMMA
New car loan
Car insurance
85%
70%
All-in-one
insurance
45%
Trigger: Understand what touch point sequence / trigger drives
sales conversion
Adam’s 18th
birthday
Account balance
Logins and clickstreams
Facebook fans
Transactions (incl., cards)
€995/Month
for a New Car Loan from Bank
Same day approval online !
Geo-location
Channel: Channel preference for every customer / product
Online banner
Email
Call center
97%
89%
65%
Apply Now
New Car Loan
Car insurance
Second driver insurance
Message: Personalize message and visuals
EMMA
VOLVO
ADAM
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To get going: the official story that you know
The arrival of newborn leads to new buying behavior, but detecting the pregnancy
enables new habits to be introduced ahead of time
How to evaluate the probability of a pregnancy?
Compilation of
a database
Identification of 25 products (perfume-free soap, XL packets
of cotton wool, hand disinfectant, etc.) as a relatively reliable
indicator of a pregnancy
Put together the proposal
Pregnancy and baby products are randomly mixed in with
other articles in order to remain discrete
Gain: +52% between 2002 and 2010
McKinsey & Company
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