Mckinsey - Marketing to the Digital Consumer

8/11/2019 Mckinsey - Marketing to the Digital Consumer

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MARKETING TO THEDIGITAL CONSUMER

THE McKINSEY QUARTERLY 1996 NUMBER 3 5

THE RAPID DEVELOPMENT of interactive media such as online services

and the World Wide Web has taken many consumer marketers bysurprise. While some marketers are still wondering what to do and how

to do it, others are moving forward but oten with mixed success.

Our recent analysis of 95Fortune 500 consumer marketing companies withproduct or service-related Web sites reveals that consumer marketers fallfar short of leveraging the full capabilities of interactive media. While over90 percent of all the digital marketing applications examined providedproduct or service information and featured basic e-mail capabilities, only

about half ofered links to other sites and non-product-related content, andfewer than half provided any sort of interactive content, such as a game or adiagnostic requiring some user input. Most revealingly, only a handful ofthe examined sites made an efort to seriously collect information abouttheir users, and fewer than 5 percent provided an opportunity to allowuser-to-user communications, a unique and one of the most popular characteristics of interactive media.

ONLINE MARKETING

Lets admit it: most Web sites are duds

The task is to attract and engage, not to price and promote

Relating to chiliheads

Should your online marketing be a separate unit?

Alexa Kierzkowski, Shayne McQuade, Robert Waitman, andMichael Zeisser are consultants inMcKinseys New York ofice. Copyright 1996 McKinsey & Company. All rights reserved.

Alexa Kierzkowski Shayne McQuade

Robert Waitman Michael Zeisser


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Most consumer marketers therefore still approach interactive media throughthe static, one-way, mass-market broadcast model of traditional media. Theresults of such an approach are uninspiring applications that fall far short ofthe new medias potential. Shrewd marketers will instead learn to createentirely new forms of interactions and transactions with consumers. To doso theyll need a new marketing model more appropriate to the new consumermarketspace* and new approaches to integrating interactive media into theirbusiness system and marketing programs.

We believe that digital marketing is an attractive proposition for moreconsumer product or service categories than is typically assumed. In factmost consumer marketers be they in financial services, travel, music, andbooks, even food and beverages should be exploring how to capture thedigital worlds business opportunities.

Evolutions grip

For marketers of consumer goods or services, the emergence of a new consumer

marketspace is no longer a matter of speculation or hype. In the consumerworld, users of many popular branded products subscribe today to inter-active media at rates two to three times the national average (Exhibit 1). By

MARKETING TO THE DIGITAL CONSUMER

6 THE McKINSEY QUARTERLY 1996 NUMBER 3

For a discussion of this term, see Jefrey F. Rayport and John J. Sviokla, Exploiting the virtualvalue chain,Harvard Business Review, NovemberDecember 1995 and also reprinted in TheMcKinsey Quarterly, 1996 Number 1, pp. 2036.

302520151050

Exhibit 1

Online access by heavy users of brands

Percent of heavy brand users with online access*

Office DepotMarriott

Charles Schwab

BloomingdalesSaturn

Barnes & NobleNeutrogena

American ExpressIams Dog Food

GodivaThe Body Shop

Federal Express (personal)Baileys

FidelityEvian

NissanObsession for Men

SnappleZimaPepperidge Farm Cookies

Miller Genuine DraftVISA

US average

* Includes access to online services and the Internet

Source: Yankelovich, 1995 data


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2000, there will be between30 and 40 million of suchdigital consumers.

Digital consumers are, gen-erally speaking, attractive formarketers (Exhibit 2). Digitalconsumers are more likelythan their non-wired coun-

terparts to spend more to getthe best and to make anefort to use new devices andmethods. Household income levels among current subscribers to onlineservices and Internet users are considerably higher than average, as areeducation levels. Meanwhile, key technological barriers are falling partic-ularly the speed of content delivery. By the year 2000, more than 50 percentof these digital consumers are expected to access interactive media at speedsfive to 500 times faster than they can today.

A back-of-the-envelope calculation, based on published estimates,* suggeststhat a substantial Internet economy is emerging. Potential revenues acrossinfrastructure, content, and trade businesses suggest an estimated $40 to $50billion Internet economy in place by the year 2000.

The rise of this consumer marketspace isclearly aligned with the evolutionary pro-gress of the marketing function from a mass-

market model to more interactive personal-ization of goods, services, and interactions.With interactive media, marketers can dy-namically deliver personalized servicesand content, in real time, one consumer at atime. This is due to the unique and powerfulcharacteristics of interactive media: it is ad-dressable, meaning that each user can beidentified and targeted separately; it allows

for two-way interaction; services can betailored for each individual customer; andpurchases can be made and influencedonline (Exhibit 3). Capturing the businessopportunities associated with these uniquecharacteristics is the essence of digitalmarketing.



Forrester Research Inc., The Internet Economy, September 1995.

Exhibit 2

Appeal of online consumers

Percent

Believe IQ is higherthan average

Spend more toget the best

Like price wars

Make effort to use newdevices and methods

Bought from

catalogue in last yearSource: Yankelovich

Online Not online

67

80

78

68

73

65

54

71

48

64

On-demand availability24-hour access

24-hour service

Addressable

Direct communication to anindividual user

Two-way interactive

Learn from direct feedback

Enable user-to-user interaction

Effective information delivery

More content than any other media

Easy to search large databasesCustomized

Easily tailor communication andproducts/services

Seamless transactions

Influence consumers when closest to the transaction

Enable purchase online

Exhibit 3

Attractive characteristics of interactive media


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Where to start?

Several broad types of attractive digital marketing opportunities alreadyexist. In fact, aggressive players are already starting to make money withthem. We believe there are three main opportunities today:

1. The information-delivery opportunity. Marketers can use interactivemedia to provide higher service and lower cost by delivering informationabout products or services. Examples of marketers pursuing this opportunityinclude Federal Express, UPS, and Sun Computers.

2. The relationship-building opportunity. Marketers can leverage inter-active media to identify attractive self-selected users/prospects, enhanceloyalty by providing value-added services, and use what they learn abouttheir customers to customize existing or cross-sell new products and services.Examples include Volvo, Zima, Hyatt, Fidelity, Citibank Direct, HotHotHot,and many others.

3. The channel/(dis)intermediation opportunity. Marketers can use inter-

active media as a new channel and either go direct to eliminate traditionalintermediaries or establish an entirely new role as a value-added inter-mediary. Examples include United Airlines, Amazon.com, Quicken, andShoppers Advantage.

But these opportunities are unlikely to ofer any meaningful opportunity tothose companies that fail to make digital marketing an integrated part oftheir business system and marketing programs. In each of the followingexamples, marketers are succeeding by closely tying digital marketing to their

core business systems.

The information-delivery opportunity

UPS provides a compelling example of how information and customer servicecan be eficiently provided on the Internet. Since package delivery servicesare as much about providing information and customer service as they areabout delivering packages, providing timely and easy-to-use package trackingand other related information (e.g., pricing, delivery times) is a key basis of

competitive diferentiation.

UPS has found that their site on the World Wide Web allows them to improvequality and response time in dealing with customer information requests; itis also more cost-efective.

This can be seen in Exhibit 4. We estimate the cost of dealing with packagetracking requests via telephone to be about 90 cents per package, whereasthe marginal cost of answering these requests on the Internet is zero. The




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total costs of maintaininga Web site to answer theircurrent volume of packagetracking requests is esti-mated at about $900,000 perannum. If only 75 percent ofonline package tracking re-quests would otherwise havebeen done through calls to

the 1-800 number, the costswould have been about $2.6 million. Therefore on this function alone UPS issaving in the order of $1.7 million per annum. As the volume of requestscontinues to grow, so too will this cost saving.

The same benefits realized in answering package tracking queries arealso captured for other information needs in various ways. These includean automated cost calculation tool, online package pickup requests, andpersonalized maps to display the time to delivery from specific locations.

Beyond these advantages, UPSs Web site afords them a valuable marketingand relationship-building opportunity. UPS can use their site to learn moreabout customers and on that basis tailor their services through targeted priceincentives and volume incentives, among other things.

The relationship-building opportunity

This is well-illustrated by a single-store retailer in Pasadena, California,

called HotHotHot which sells hot sauces, chili mixes, and other spicyfood. Ordinarily, the company would be limited in its distribution reach tocustomers within physical proximity to their store, or to those to whom itmight reach through catalogue sales. But in creating one of the Webs firstcommercial storefronts, owners Monica and Perry Lopez succeeded inestablishing an efective direct purchasing channel that gives chiliheadsall over the globe access to HotHotHots selection of over 100 diferenthot sauces.

The Lopezes opened their store in November 1993, and the followingsummer began to plan the Web site with a design company which hassubsequently gone on to design the Web sites of Pacific Bell and ColumbiaTristar, among others. In late 1993 only 5,000 Web sites existed. The compel-ling design of the site and HotHotHots unique product ofering saucescarry such attention-grabbing names as Nuclear Hell and Endorphin Rush soon commanded considerable publicity in the online world. Listing inYahoo!s Whats Cool and being linked from America Onlines and Intelssites have further contributed to the sites popularity. By promoting the site in



Exhibit 4

Digital delivery of information

Example: UPS Package Tracking http://www.ups.com

Allows customers to trackpackages and request pickup online

Reduces query responsetime and increasescustomer satisfaction

Current annualized run rateat about 4 million queries

0.9

2.6

Tracking costs$ million per year

1.7

Internet-based

Phone-based

Cost savings(estimated)


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the chilihead newsgroup, HotHotHot has brought itself to the attention ofchiliheads everywhere. Since the day the site became operational, HotHotHothas received daily orders, creating a steady revenue stream representing 20percent of total sales. (Catalogue orders account for 10 percent, and the retailstore for the remaining 70 percent.) What is more, the site drives store trafic,with online customers from all over the United States and Europe stoppingby the store when they are in Pasadena.

The economics of marketing online work for HotHotHot and demonstrate

onlines advantages over traditional direct marketing. The store doesntpurchase mailing lists for its catalogue efort, but rather sends catalogues

only when requested. Even with theself-selected customer base of theircatalogue channel helping to lowercosts, marketing costs still represent22 percent of catalogue revenue. Mar-keting costs on the Web site amountto only 5 percent of online revenue

(Exhibit 5).

The Web site has also proven to be agood way for HotHotHot to learnabout its customers. Information col-

lected from users reveals that they are mostly male, and like their hot sauceespecially fiery at least thats what they say in their communications. Feed-back via e-mail is substantial. It requires an hour and a half daily to read andrespond to it, but Monica Lopez appropriately values this customer input

and regularly implements suggestions. While the HotHotHot Web site is asuccessful digital marketing efort by any standards, Lopez recognizes that themedium is still new and quite rough around the edges. But with plans to contin-

ue to refine the site and develop it into a true community of interest, the Website looks like it will be an increasingly integral part of HotHotHots business.

The channel/(dis)intermediation opportunity

United Connection provides an intriguing example of how digital marketing

allows companies to capture the third opportunity of digital marketing bypassing traditional intermediaries. United Connection is sotware thatallows travelers to book their flights directly without a travel agent. Developedby United Airlines, it is available free of charge to frequent travelers inUniteds Mileage Plus rewards program. Once a traveler loads the sotwareonto a PC, she or he not only has access to flight information on all majorairlines, but can also make a reservation or a booking. At the moment ticketsare sent by mail, although with the growing emphasis on paperless ticketing,this will increasingly no longer be necessary.



Exhibit 5

New channel opportunity

Example: HotHotHot, 1995Dollars

http://www.hothothot.com

RevenueRetailDirect channel

Web siteRevenueMarketing cost

CataloguesRevenueMarketing cost

245,000

70,000

35,0007,800

3,500

105,000

5%

22%


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The economics of such aservice are compelling for theairline (Exhibit 6). Typically,travel agent commissions canamount to 10 percent of theprice of a trip. If a typical$500 round-trip fare is pur-chased through the service,the airline saves $50, and

sometimes more if it canavoid other typical travelagent discounts or bonusessuch as overrides. Assuminga yearly transaction volumeof about 0.8 to 1.0 milliontickets, United Airlines would save between $36 and $45 million in distri-bution costs with its direct-booking services. Eaasy Sabre, a similar serviceofered by a subsidiary of American Airlines, could be saving the airline

about $50 million annually. No wonder then that most airlines have begun orare reported to be about to launch similar services.

United Airlines has marketed its direct-booking service aggressively. Itadvertised the availability of United Connection in many general interestbusiness magazines and in its in-flight magazines, creating broad awarenessamong potential heavy users. Further, to incent usage, travelers earn 500frequent flyer points for every ticket purchased through the service. This iswell worth it, given the savings achieved for the airline. From a consumer

relationship-building perspective, a service such as United Connectionpresents significant benefits for the airline. By establishing a direct relation-ship with travelers, the airline can build greater loyalty, and sell more seats.The direct-booking sotware memorizes trips frequently made, making iteasy for the traveler to book the same itinerary again at a later date. Seatingand meal preferences can be set, providing added convenience and makingthe service truly tailored to individual travelers.

In summary, we believe that digital marketing is an attractive proposition for

many more consumer product or service categories. Some categories ofproducts or services, such as sotware or travel, are natural fits with inter-active media (i.e., they are information intensive; transactions can be madeonline; current interactive media users are heavy users). Other categoriessuch as automotive are well suited for digital marketing because they areattractive for relationship as opposed to mass marketing. The combinationof both of these factors, a categorys fit with interactive media and itsattractiveness for marketing-oriented relationship building, suggests asignificant breadth of opportunity for digital marketing (Exhibit 7).



Exhibit 6

Disintermediation opportunity

Example: Travel industry

Traditional travelagency distribution

Interactive mediadistribution

Distribution costsavings

United Connections

Eaasy Sabre

Estimated yearlytransactionsMillions

Distribution costsavings$ million

$70*

$2030*

6070%

1.01.2 4554

0.81.0 3645

* Approximate figures As of first quarter 1996

Source: Literature search; McKinsey estimates

Airline distribution costs: $500 round-trip fare


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How to do it?

Our survey results show that many consumer marketers approach interactivemedia in the same way they might approach traditional media like television,

magazines, or even direct marketing channels. Yet there are fundamentaldiferences between the two. For example, traditional media involves one-way communication from the marketer to the customer, while interactivemedia allows marketers to establish a dialogue. Further, marketing throughtraditional media takes place in a mass-market environment, while interactivemedia allows marketers to reach (and interact) with individual consumers.

What this means for consumer marketers is that they must build a newmodel for marketing in new media environments, one that is built around

five elements which we believe to be essential factors for success in digitalmarketing (Exhibit 8):



Fit withinteractive media

Potential for relationship building HighLow

High

Low

Selectedgroceries

NewsSoftware

Interactivegames

Sportinggoods

Conveniencestores

Gasoline

Insurance

Music

Books

Real estatebrokerage

Financialservices

Travelservices

ToysWhitegoods

AutosMedicalservices

Consumerelectronics

Finejewelry

High-endapparel

Babyproducts

Exhibit 7

Categories suitable for digital marketing

Exhibit 1

Digital marketing framework and levers

What: Customize interactionand value delivery

How:Personalized/customizedcommunications andproducts/services

Real-time interactions

Linkages to core business

What: Attract customers to theapplication

How:Audience creation

Mnemonic branding

Piggyback advertising

What: Generate interest andparticipation

How:Creative programming

Interactive content

User-generated content

Transaction capabilitiesWhat: Make sure consumerscome back

How:Dynamic content

Digital communities

Proprietary/unique content

What: Learn about consumerspreferences

How:Information capture

Continuous preferencelearning

Relate

Learn Engage

Retain

Attract


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1. Attract users.2. Engage users interest and participation.3. Retain users and ensure they return to an application.4. Learn about their preferences.5. Relate back to them to provide the sort of customized interactions that

represent the true value bubble of digital marketing.

Each of the five success factors suggests a number of issues that marketersmust address. While the answers to many of these issues will be specific to a

given marketer, we are beginning to identify best practices that may guidecompanies in getting more from their digital marketing eforts.

Attract

Unlike direct and traditional mass marketing, where the interaction isessentially imposed on the consumer, digital marketing requires consumers tovoluntarily visit an interactive application, such as a World Wide Web site,or to choose to use a dial-up airline reservation service such as United

Connection. Since the current clutter on the Internet virtually ensures thatthe build it and they will come model is insuficient to draw consumers,marketers need to actively attract users in the first place. Typically, this isachieved by billboard advertisements and links from other sites, listingson the whats cool services, and leveragingexisting marketing communications such asadvertising or product packaging.

Two issues merit particular consideration; first,

the issue of branding, or what to call theapplication. Based on the precedent of tele-phone services where the success of services such as 1-800-MATTRESS or1-800-FLOWERS is partially due to their names it may be essential to have amnemonic address for a digital marketing application which is easy andintuitive for consumers to find and remember, such as www.zima.com orwww.hyatt.com. This becomes even more important due to the need to builddigital marketing applications into the marketing mix, which means using thesame name for the interactive application as for the product or service that is

being promoted. Since problems with name availability and copyright arealready beginning to surface, all emerging and aspiring digital marketers shouldtake steps now to ensure the availability of their brand name on the Internet.

The second issue relates to the economics of attracting users. Simply put,attracting users can quickly become unjustifiably expensive relative to theeconomic value that the digital marketing application is likely to generate inthe short term. Marketers must be careful no matter what vehicle they chooseto attract users, whether that vehicle involves ofering incentives (e.g., certain



The current clutter on theInternet virtually ensures

that the build it and they will

come model is insuficient


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banks no-fee bill pay services), using traditional media advertising for digitalmarketing applications (e.g., United Airlines magazine ads for UnitedConnection), or making new media promotions (e.g., links to other sites). In allcases, marketers should validate the economics of their promotional activitiesagainst their efectiveness, challenging, for example, whether the right types ofusers are attracted to the digital marketing application, and whether there aremore optimal marketing vehicles that the marketer should experiment with.For example, piggyback marketing, which involves leveraging existingmarketing eforts to draw trafic to a site, is becoming increasingly prevalent.

UPS now features its Internet address at the end of television advertisementsand many advertisers list theirs on traditional print advertisements.

Engage

Having attracted users to a digital marketing application, it is imperativethat marketers engage users interest and participation to achieve aninteraction or a transaction that is, ater all, a major point of creating theapplication in the first place. This engagement stage is where too many

digital marketing applications fall short. For some applications, the exhibitedcontent is uninspiring, trivial, or poorly presented, while for other appli-cations it is so sophisticated or graphic that it is simply too time-consumingto browse given the unfortunate constraints on bandwidth of most presentInternet connections.

The key to engaging users is twofold: mastering creative programming forinteractive media (the form) and providing content that is valuable to

consumers (the substance).

Very few if any marketers have fullycracked the creative programming challenge.Directories such as Yahoo!, Internet-relatedtechnology sites such as Netscape, or broadpublishing sites such as Pathfinder clearlyengage thousands of users every day. How-

ever, for each of these seemingly successful applications, there are dozens ofothers many developed by world-class marketing companies that fail to

engage users, oten because of the questionable quality of their creativeprogramming. A clear lesson learned to date is that simply transferring con-tent from traditional media such as catalogues or co-opting direct marketingcopy usually does not work because it oten fails to create interaction. Infact, developing content for interactive applications is becoming an expertskill, as evidenced by the emergence of specialized agencies such as OrganicOnline, CKS, Poppe Tyson, Modem Media, and many others. Marketerswho do not have such specialized in-house expertise should not hesitate tooutsource their content creation.



Some exhibited content isuninspiring, trivial, or poorlypresented, while others are so

sophisticated that they aretoo time-consuming to browse


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In the matter of substance, where marketers are struggling to createcontent that the consumer will find valuable, the seat auctions held by CathayPacific and American Airlines on the World Wide Web may prove to be aninteresting example. Arguably, the auctions leverage many of the uniquecapabilities of the Internet while meeting the objectives not only ofconsumers but also of the airlines. Other examples include Saturn, thecar company, which attempts to engage users by allowing Saturn car ownersto find and to communicate with one another, or Bristol-Myers Squibb, whichallows women to exchange opinions and advice at www.womenslink.com.

Both of these digital marketing applications attempt to engage users bycreating virtual communities of interest. Finally, American Express andCharles Schwab attempt to engage users by providing them with conven-ience-oriented content, including electronic access to their financial records,or one-stop-shop information that consumersmight find helpful for making financialdecisions.

It is too early to say whether these particular

forms of digital marketing truly engage usersor whether there is a better way to create ormanage content to generate interest and participation. New technologydevelopments such as the Java programming language will further enhancewhat digital marketers can do on interactive media. The key for digitalmarketers will be the continued willingness to experiment while maintaininga clear focus on what delivers value to the consumer.

RetainOnce youve drawn consumers to your site in the first place, and then haveengaged them with suitably interactive and valued content, you must makesure that they keep returning to your site. Maintaining ongoing contact isessential to developing relationships with consumers. Retaining usersemphasizes the need for marketers to recognize that digital marketing is nota one-time project, but requires continued resource commitments over time.

Arguably, digital marketers who are capable of truly engaging users may

be well on their way to retaining them. However, there are some subtlediferences between engaging and retaining.

Emerging evidence suggests that while consumers may visit a site once out ofcuriosity, they will not return there without a reason. At a minimum, thisimplies that marketers must keep their sites fresh by continuously renew-ing content and/or providing content that is inherently changeable on anongoing basis, such as stock quotes or weather reports. For many marketers,particularly those with content-intensive digital marketing applications such



Many marketers treat onlinemarketing like advertising, bylaunching an application and

then stepping back from it


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M any m arketers have found that digitalm arketing initiatives som etim es require

signi cant and profound changes to their

m arketing organization. M any of the

organizational challenges of digital m arketing

are not new . M arketers have faced them as

they integrated other m arketing vehicles (such

as direct response m arketing, direct m ail, and

1-800 services) that triggered organizational

or channel con icts. D igital m arketing

com pounds these issues because of its m ore

profound potential im pact on the relationship

betw een m arketers and consum ers, and

therefore on the business system s of

m arketing com panies.

W hile the w orld of digital m arketing is still too

young to have yielded de nite answ ers on

w hat w orks and w hat does not in term s of

organization, som e patterns are beginning to

em erge. Based on research w ith 12 Fortune

500 consum er goods/services com paniesw ith a presence in interactive m edia, w e

have identi ed four key stages for the

developm ent of the digital m arketing

organization (seeexhibit on facing page).

1. The ad hoc activity stage.In thisrst stage, com panies establish a basic

online presence. H ow ever, there is no form al

organization dedicated to the effort, w hich

is often led by self-selected individuals. There

are no dedicated skills in place.

2. The focusing the effort stage.

The organization recognizes the effort as

a learning experim ent. Typically a cross-

functional steering com m ittee led by a senior

executive develops a set of policies/principles

for how the com pany w ill go digital.

A sm all num ber of resources ( ve to ten

people) are dedicated to the digital m arketing

effort, although its reporting structure is

still considered tem porary.

3. The formalization stage. A t this stage,

the digital m arketing organization has found

a long-term hom ew ithin the business.

It focuses now on im proving its digitalm arketing efforts. The organization grow s

from 10 to 50 people and begins to develop

its ow n structure, typically separating the

technology-related from the m arketing-related

digital m arketing activities.

HOW TO ORGANIZE FOR DIGITAL MARKETING

as Levi Strauss or Toyota, this requirement raises the issue of the skills needed

and costs required to maintain fresh content. Many marketers treat onlinemarketing like traditional advertising by developing an application, launchingit, and then stepping back from it. However, the eforts required to maintaina vibrant digital marketing application do not stop at launch. As a result,some marketers have significantly underestimated ongoing content main-tenance resource requirements. An emerging trend to control the cost andcomplexity associated with content management is to shit the burden ofcreating content onto the user. For example, an athletic shoe company couldallow sporting associations to use its site to publicize upcoming sporting

events. Assuming interest on the part of the associations, this solution mayboth lower the marketers cost of creating content, which is now efectivelyborne by the users, leverage a unique capability of interactive media by actingas a central distribution point for perishable information, and provide valueto consumers through one-stop shopping for hard-to-get information.

The second diference between engaging and retaining has to do with aunique yet oten overlooked opportunity for marketers: the creation ofswitching costs for users as a means to retain them. This occurs as users invest


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4. The institutionalizing capabilitystage.This stage is characterized by the

developm ent w ithin the digital m arketing

organization of dedicated experts and

skills, often around technology platform s

like the W orld W ide W eb, online services,and dial-up services, and the em ergence

of general m anagersfor the various

initiatives that ensure the linkage w ith

the core business.

Development stages of digital marketing organization

Activities ofdigital marketingorganization

Establish a basiconline presence

Rally internalinterest and skills

Create policies tolimit and unifyeffort

Track what worksand what doesnt

Build the businessof/for a digitalpresence

Develop/gatherappropriate skills

Manage deliveryagainst valueproposition

Manageorganizationalinterdependencies

Structure andreporting

No formalstructure in place

Low visibility

Steeringcommitteeestablished

Temporaryreportingrelationship

Organizationalstructure emerges

Formal homeestablished fordigital marketinggroup

Distinct businessunit/departmentin place

Linkages to corebusiness

People involved A few, oftenself-selected

Part-time

Fewer than 510Full-time

1030 full-timeHeavy supportfrom 12 sources(e.g., agency)

More than 50 full-time

Web of externalsupport sources

Skills in place No institutionalexpertise orspecialization

Few experts withlittle specialization

Experts emerging Dedicated expertsand skills in place

Funding source Little or none Corporate orad hoc

Business orfunctional units

Business units

Ad hocstage

Focusstage

Formalizationstage

Institutionalizingstage

their own time and energy in the interaction with a digital marketing

application, therefore creating an important disincentive to repeat thatinvestment with another application. With Quicken, the financial manage-ment sotware, the more consumers input their own financial informationinto the sotware, the more they actually raise their own switching costs.Another example is user-to-user relationships: the more consumers investtime and develop familiarity in interacting with others, the less likely theyare to start building these virtual relationships again elsewhere. This explainsthe growing emphasis among digital marketing application developers oncommunities of interest. New comparative agent technologies such as those

pioneered by companies like Agents, Inc. present another example ofswitching costs: in an existing application, users spend time revealingtheir preferences in music or movies, and are then ofered suggestions forother things they may enjoy based on the information gained by the sotwarefrom other users.

The lesson is that digital marketers must explicitly think about how to buildswitching costs as they define their strategy to retain users of their digitalmarketing application.


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Learn

Due to their very nature, interactive media open up unprecedented oppor-tunities for marketers to learn about consumer demographics, attitudes, andbehaviors. Demographic and attitudinal information may come in the form ofe-mail communications to marketers, opinions volunteered on bulletin boardsor information gathered in surveys, questionnaires, or registration processes.Behavioral information may be gleaned from transaction records or click-streams, which track how users behave in a site.

Currently, of course, the potential to leverage the learning opportunity ofinteractive media is limited. There may not yet be enough of the rightdigital consumers to treat interactive media as a representative learning tool;further, many of these consumers are reluctant to provide information aboutwho they are and what they want, for lack of interest or for fear of privacyinvasion. Similarly, the technologies needed to capture actionable informationare only slowly becoming available. There also remains considerable uncer-tainty around whether it will be the marketer, the access provider, or someother party such as a payment aggregator who will capture and own the most

valuable information about consumers.

While significant, these issues do not reduce the importance for marketers ofexplicitly considering consumer learning objectives when they develop digitalmarketing applications. This will require defining what type of informationmay be most valuable to them, what that information is worth, and how tobest leverage their digital marketing application to obtain it. Marketingresearch, for example, holds immediate digital marketing learning potential. Apackaged goods company is beginning to use its digital marketing application

to hold virtual focus groups, to test new product concepts, and to get feedbackon ideas for promotional programs. Another opportunity exists to enhancewhat is already known about consumers. A hotel company, for example, isbeginning to use its digital marketing application to complement its existingcustomer profile database by collecting information about the accommodationpreferences of its rewards program members. A third opportunity will be formarketers to gather information that they do not yet hold about consumers.The potential value of that information could someday be tremendous formarketers to expand into and cross-sell new products or services, and create

entirely new forms of consumer relationship and loyalty programs.

Relate

Relating is one of digital marketings most important value creation oppor-tunities. In essence, it represents the opportunity to customize the interactionand tailor either the product or the marketing efort to one consumer at atime; interactive media provides unprecedented opportunities for a marketerto relate to a consumer. As a two-way, addressable communication and




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the consumer more control over their relationship with marketers. In aninteractive, two-way, addressable world, it is the consumer and not themarketer who decides with whom to interact, what to interact about, andhow to interact at all. Marketers have to earn the right to the digital rela-tionship, and they have to do so by continuously enhancing the value theyofer consumers. As the early experimenters have learned, the heart ofthat challenge is the dificulty of identifying the hooks for developingrelationships with digital consumers. A food manufacturer, for example,thought that digital consumers would be most interested in finding out about

nutrition; consumers, however, tended to ask about how they could buyregional products that were not distributed where they currently live.

Build relationships and skills to prepare for continuous change

Digital marketing will continue to evolve extremely rapidly for the foresee-able future. From a marketers perspective, most of these developments willcome from outside the organization. As John Hagel points out, the Interneteconomy is evolving around a number of webs, each with its own directionand dynamics.* Digital marketers need to keep tabs on these webs to identify

early on the developments that might afect their digital marketing eforts.Resources should be directed toward following external developments suchas the emergence of new technologies, new players, or insights about

consumer behavior. In addition, marketerswill need to build internally or throughrelationships some of the more specializedskills that are emerging in digital marketing.For example, new companies are emerging inthe field of audience creation (attracting

users to digital marketing services), such asCybernautics, and in intelligent agent devel-

opment (creating value-added services based on a users preferences), suchas Agents, Inc. Looking ahead, digital marketers will need to keep abreast ofthese developments, and to continuously embrace those that will allow themto improve their services.

Manage the interdependencies both internally and with intermediaries

A third, and perhaps the most significant, challenge for digital marketers

will be to manage the interdependencies between their digital marketingeforts and both the rest of the organization and existing outside partners,such as distributors and retailers. To have meaningful impact on the bottomline, digital marketing will have to become an integral part of doing businessfor many marketers. In many organizations the potential for significantconflict has already become apparent. Internally, for example, marketers arefinding it dificult to integrate their digital marketing eforts with existing



Marketers are finding it dificultto integrate their digital

marketing eforts with existingfunctional areas, business units,

and information systems

Spider versus Spider, The McKinsey Quarterly, 1996 Number 1, pp. 418.


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functional areas (e.g., marketing or customer service) and business units,not to mention information systems. For example, there is much debate inseveral companies about whether the digital marketing group should be setup as an independent entity or as a support unit. The answer, of course,depends on factors such as the size of the potential commercial opportunityof digital marketing, the existing culture within the organization, and theneed for cross-functional integration.

Externally, the challenge of managing relationships with existing intermedi-

aries is just as important. Salesforces, distributors, and retailers oten perceivedigital marketing as a major potential threat to their ownership of consum-ers. In automotive, for example, the challenge is to make a manufacturersdigital marketing initiatives a win-win-win proposition for dealers and carbuyers; in travel, airlines have to manage relationships with the travel agencycommunity very carefully when they ofer directbooking digital marketing services to their frequenttravelers. As the potential impact of digital marketingon the core business grows, managing these inter-

dependencies will likely emerge as one of the mostimportant challenges for marketers.

Implications for marketers

Over the next three to five years, interactive mar-keting is likely to become an increasingly significantpart of the consumer marketing landscape, at leastin the US. This development will challenge many

large marketers. For many of them, however, digitalmarketing could yield good outcomes as long as they are aware of three majorfactors company, competition, and category (Exhibit 9). It is imperative formarketers to consider what interactive media should or should not meanto them.



Company factors

Company consumers use interactive

mediaCompany willing to build capabilities

Competitive factors

Competitors using interactive mediato gain share of spending with corecustomers

Opportunity to use interactive mediato displace incumbent marketer

Category factors

Product/service well suited

Relationship marketing makes sense

Exhibit 9

Commitment factors

Mckinsey - Marketing to the Digital Consumer

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