Last month, I had the pleasure of addressing a CMO Summit held in New York. I was given 15 minutes to set up a discussion on the future of marketing. It forced me to be even more concise than usual, but I was able to pull together a number of themes from my client work that I will eventually develop in a more systematic form. In the meantime, I thought it would be useful to write up my speaking notes to share a high level view of where marketing is going.
Shifts in business economics
We are in the early stages of a profound shift in the economics of business that will transform marketing (along with many other things). Three shifts in economics are occurring in parallel.
First, we are moving from a world of relatively scarce shelf-space to relatively scarce attention. Second, costs of production and physical distribution are significantly declining on a global scale and customer acquisition and retention costs are rising. At the risk of over-simplification, value creation is shifting from businesses driven by economies of scale in production to businesses driven by economies of scope in customer relationships. Layer in a third factor at work – the systematic and significant decline in interaction costs that make it easier for customers to identify vendors, find information about them, negotiate with them, monitor their performance and switch from one vendor to another if they are not satisfied with performance.
These three forces reinforce each other and help to explain the growing power of customers in markets around the world.
Redefine marketing strategy
These shifts have broad implications in terms of marketing strategy, branding and marketing performance metrics. To start with marketing strategy and again at the risk of over-simplification, conventional marketing is built upon the three “I’s”:
- Intercept – target and expose customers to your message wherever you can find them.
- Inhibit – make it as difficult as possible for the customer to compare your product or service with any other options.
- Isolate – enter into a direct relationship with the customer and, wherever possible, remove all third parties from the relationship.
Nirvana is the walled garden of direct marketing. It is captured in the mantra of “one to one marketing” – one vendor dealing individually with each customer.
A different approach will be required to succeed in a business landscape defined by the economic shifts described earlier. I describe this marketing approach “collaboration marketing” and define it in terms of three “A’s”:
- Attract – create incentives for people to seek you out.
- Assist – the most powerful way to attract people is to be as helpful and engaging with them as possible – this requires a deep understanding of the various contexts in which people might use your products and a willingness to “co-create” products with customers.
- Affiliate – mobilize third parties, including other customers, to become even more helpful to the people you interact with.
In contrast to the “one to one marketing” mindset of conventional marketing, collaboration marketing requires a “many to one” mindset. The winners in this new world will be orchestrators who can mobilize rich networks of resources to serve customer needs.
Move to a different brand promise
I have written about this before here, here and here. Conventional brands are built upon product or vendor-centric promises: “Buy from me because I have great products or because I am a great vendor.” These brands are generally eroding in value.
Brands will become even more important and valuable in this new marketing world, but they will be based on a very different customer-centric promise: “Buy from me because I know you as an individual customer better than anyone else and you can trust me to use that knowledge to configure the right bundle of products and services to meet your individual needs.” Note that this is different from customer segment brands like Nike or Disney – customer-centric brands require a deep understanding of the needs of individual customers. Not all companies can or should make the transition to this new kind of brand promise, but those who do will be richly rewarded.
Adopt new performance metrics
Given the shift in business economics defined earlier, companies need to move from measures of performance based on product or facility economics to measures based on customer economics. Two key questions will increasingly shape business performance. First, what is the average life time value of customers – how much does it cost to acquire a customer, what is the average length of a relationship with a customer, and how much profit is generated over the lifetime of the customer? Second, what is the 80/20 segmentation of customers – which 20% of customers generate 80% of the profitability and why? Few companies today can systematically answer these questions.
We will also move to a new form of ROA measure – this time, it means Return On Attention, both from a customer perspective and from a vendor perspective. From the customer point of view, the question that customers will increasingly ask is: “Of the total attention I allocate to a particular source, what is the productivity of that attention in terms of value received for effort and time invested?”
We’ll also see a new form of ROI measure – Return On Information, again from both a customer and vendor perspective. From a vendor point of view, the key question will be: “How much effort and cost did I invest in acquiring information about individual customers and how much value have I been able to generate in return, both for the customer and for me?” In this context, lead-times matter; the more quickly a vendor can turn around and deliver tangible value in return for information from a customer, the more quickly and effectively the vendor will be able to build trust and willingness to provide even more information.
Vendor response disappointing so far
Sorry to say, vendors are responding as vendors – old habits and old instincts die hard. While there is a broad recognition among marketers that attention scarcity is becoming a big issue, the response has been increasing desperation to get some of that scarce attention. Intrusive ads are appearing in more and more places – projected in lights on the sides of buildings at night, plastered on the sides of farm animals in fields and running on video displays above urinals. Rather than just focusing on how to get attention, vendors might also want to consider how they can help their customers receive attention that is important to them and not just from the vendor, but from others that matter to the customers.
Vendors also tend to commoditize attention, viewing attention as a fungible good that can be bought and sold. Successfully attracting attention requires an understanding that attention is highly context sensitive – it is both deeply personal and social at the same time. Attention is deeply embedded in, and shaped by, relationships. These relationships are not static, but increasingly dynamic. The key challenge and opportunity for vendors is how to participate in, and enrich, these relationships in order to construct more value for their customers and to amplify the value of attention.
Vendors also narrow the focus very quickly from attention to intention, asking “how can we more effectively intercept people who have already formed an intent to buy?” The missed opportunity is how to engage the attention of customers at a more fundamental level in ways that create more value for the customers and for the vendor.
Finally, vendors tend to develop a narrow focus on new, network-enabled marketing tools like blogs, wikis, virtual communities and social networks, treating them like a checklist to be deployed like artillery in a military campaign – “yes, we’ve set up some blogs.” Few of them systematically ask how these tools might be used to increase return on attention for customers. Even fewer ask who else already has deployed these tools and how they might help their customers find and connect to these resources and perhaps where they might participate in existing environments in ways that provide more return on attention.
Actions to take
To navigate through this fundamental shift in marketing, CMOs will need to recognize that this is an organizational change challenge, something that most CMOs are not very comfortable in confronting. They would much rather design and deploy a clever marketing program than figure out how to change the hearts and minds of people throughout the organization.
At its most basic level, adopting these new marketing approaches will require a shift in mindset. Rather than viewing markets as places where vendors seek out customers and try to sell them as much stuff as possible, successful players will recognize that we are increasingly participating in “reverse markets” where customers seek out vendors when it is relevant and then negotiate to get as much value as possible from the vendors they deal with.
To support this shift in mindset, CMOs will need to focus on three things in particular. First, find some ways to demonstrate impact through focused initiatives designed to demonstrate the power of new marketing approaches. Identify specific opportunities to be more helpful to some of the company’s most profitable customers. Find partners who can help to leverage the value of the firm’s resources and then define a set of near-term value exchanges with customers that can help build trust and earn the right to more attention from these customers. Measure and celebrate the results.
Second, and more broadly, change organizational roles where necessary so there are executives that have clear accountability for specific customer segments – and sufficient influence to mobilize the resources required to serve those customer segments effectively. Third, adopt performance metrics throughout the organization that recognize and reward initiatives designed to increase the life time value of customers and deepen relationships with the most profitable customers (while working to improve the profitability of the rest of the customer base).
Customers are rapidly gaining more power in dealing with vendors. Marketing practices have only modestly changed to reflect that new reality. There is still enormous opportunity to master the new marketing practices required to compete successfully in reverse markets. The change in mindsets and practices is significant, but there is a pragmatic migration path that companies can pursue.