What does it take for brands to go digital. Same but different
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This document discusses what it takes for brands to succeed with digital transformation. It argues that brands need to take a consumer-centric approach and integrate their online and offline presences. The document outlines key elements brands should consider, including gaining consumer insights, designing products/services based on insights, engaging consumers across channels, activating purchases both online and offline, evaluating digital investments, and organizing company structures to support a multi-channel strategy. Successful brands are adapting to changing consumer behaviors by meeting customers wherever they are - both online and offline.
What does it take for brands to go digital. Same but different
- 1. perspective JUNE 2014 What does it take for brands Thomas Wu, Runhan Sun, Ralph Wu to go digital same but different
- 2. What does it take for brands to go digital: same but different Published by Value Partners Management Consulting 1402, 14/F, Harcourt House 39 Gloucester Road, Wanchai Hong Kong June 2014 Written and edited by: Thomas Wu, Runhan Sun, Ralph Wu If you would like an electronic copy or more information on the issues raised in the report please contact: thomas.wu@valuepartners.com If you would like to subscribe or to be removed from our mailing list please write to: subscription@valuepartners.com valuepartners.com Copyright © Value Partners Management Consulting Limited All rights reserved
- 3. introduction With e-commerce continuing to pene-trate consumers’ daily lives and drawing attention from investors in the capital markets, brands are reacting differently to the digital trends. Some of them em-brace e-commerce and invest heavily on their digital presence, while others take a more conservative approach manag-ing e-commerce as a new sales channel. Many brands acknowledge that being present online goes beyond making products available for online purchases. It means, in fact, being visible and engaging consumers online over new media formats. However, there is often confusion in how much a brand should invest in online marketing activities and sales activities versus the traditional offline counterparts. perspective What does it take for brands to go digital This will remain a dilemma for many brands, but we believe that by taking a consumer oriented approach, brands could allocate investments and align their organizations more effectively to adapt to their increasingly online and mobile customers. There is often confusion in how much a brand should invest in online marketing activities and sales activities versus the traditional offline counterparts
- 4. The momentum of e-commerce will continue Despite representing a relatively small por-tion 4 – 5 of retail sales, e-commerce has been growing quickly, especially across consum-er goods categories, and is expected to continue expanding. With a faster growth rate than brick-and-mortar stores, e-com-merce is expected to increase its portion of all retail sales in the U.S. from 8% to 10% by 2017, reaching US$ 370 billion. In particular, consumer electronics, apparel & accessories, health & personal care, toys & hobby, as well as food & beverages are all expected to experience double-digit growth. In fast developing economies, such as China, e-commerce is expected to grow even faster, driven by the rapid adop-tion of mobile technologies, the increasing penetration of digital payment, and the advancements in logistics and delivery services. Exhibit 1 Forecasted US online retail sales (USD bn), 2013-2017 US online retail sales (USD bn) Share of total retail sales (%) Source: Forrester 262 291 319 345 370 2013 2014 2015 2016 2017 8% 10%
- 5. E-commerce is becoming more and more consumer centric E-commerce has followed a rapid growth over the past two decades, starting with technology based innova-tion and then consolidating into a more business driven stage. Now it is entering what we call a Re-invention Stage. In this phase, e-commerce players have shifted from building critical revenue masses to designing a value proposition based on multiple interactions with their audience. Accordingly, key features for this stage have become customer cen-tricity and multi-channel presence. On the consumer front, the devel-opment of digital technologies has brought fundamental changes to con-sumers’ lives and shopping behaviours. They are free to shop virtually anywhere over the Internet by using their PCs, tablets, smartphones and other port-able devices. They can compare prices over the Internet in a physical store and check reviews of products before they leave home for the mall; they can try on clothing in the mall and decide to shop online for the same item. perspective What does it take for brands to go digital There has never been more transpar-ency to consumers on the variation in brand presence and prices across vendors and geographies. Moreover, consumers are travelling more and more, be it for leisure or business. The concept of segmenting markets by country or geographic areas of trade is becoming dated. In this context, digital opportunities for manufacturers and brands are not only limited to sales, but should focus on creating an omni-channel brand pres-ence that is consistent across online and offline, and across geographic markets.
- 6. Exhibit 2 The development stages of e-commerce Key goals • Market visibility • Market share • Critical mass 6 – 7 • Revenue • Profitability • Audience and social community growth • Revenue • Profitability • Pure online business, technology-driven • Mixed “bricks-and- clicks” • Disintermediation • Reduction of transaction costs • Convergence of online & offline • Strong branding efforts • Reduction of price discrepancies • Leverage on social network • Features of the current stage of e-commerce: • Customer-centred • Multi-channel presence STRATEGY Innovation Stage Consolidation Stage Reinvention Stage
- 7. The role of social media Today, digital media play a pivotal role in many consumers’ daily lives. Out of which, social networking is by far the biggest single task occupying people’s online time. Manufacturers and brands are trying to connect directly or in-directly with end consumers through website advertisements, social networks and mobile apps. Brands hope to follow consumers across different occasions and locations by engaging them on multiple digital platforms. In reality, the line between traditional and online media is becoming blurred, as consumers have the choice of using the same type of media either online or offline, such as newspapers versus news portals and cable TV versus online video streaming portals. The media industry is also adapting as we see operators such as TV broadcasters going into multi-window formats through over-the-top platforms. As a result, brands can use the same video advertisements across television and Youtube, and the same content for magazines and online blogs. The question is then how to optimize the investments and how to make the most out of them. perspective What does it take for brands to go digital The best way for brands to align invest-ments and build a truly omni-channel presence is to understand thoroughly consumers, their purchasing behaviour, their media consumption pattern and also the key purchasing drivers across offline and online media and venues. An investment strategy can then be formu-lated starting from such understanding.
- 8. Exhibit 3 Key elements of the multichannel approach for brands Comprehensive integration of online and offline platforms along the purchasing cycle 1 Insights 8 – 9 2 3 4 5 DESIGN EVALUATION ACTIVATION ENGAGEMENT 6 ORGANIZATION
- 9. Winning the digital battle While brands take consumer-driven ap-proaches in building their omni-channel presence, we observe that the formula-tion and execution of such approaches do not deviate much from the traditional commercial approach taken by brands as we characterize the approaches into key building blocks. However, integrating online media and channels into the conventional thinking of each step of the process is something that most brands often overlook. Many of them run their internet business as a small standalone unit within commercial functions, or even under the disguise of an innovation team, rather than as everyday business. We propose a fully integrated approach because the new e-cosystem is moving from a controlled push system to an uncontrolled interactive one, character-ized by a myriad of influencers such as social networks, consumer’s word of mouth, online-to-offline (O2O) activities, etc. This means that brand discovery, engagement and purchase can hap-pen either online or offline. Therefore, a brand must invest according to its target consumers’ purchase journey and follow them online and offline along the different steps, as illustrated below. perspective What does it take for brands to go digital INSIGHTS How can you obtain and extract un-derstanding of consumers’ behaviour, both online and offline? Successful brands know well who their target customers are and are able to understand their needs and motiva-tions. Traditionally, brands rely on consumer researches, brand tracking and other means to follow end consum-ers’ affinity to them. Digital media and e-commerce have provided the brands with much more direct means to track and follow their consumers. For exam-ple, social networks allow a two way interaction and also access to real-life information on potential customers or fans. Likewise, e-commerce gives, to those brands that manage their own online shops, access to customers’ phone numbers and addresses through delivery details. The challenge here is to come up with meaningful parameters and practical CRM design, so to be able to track and combine the insights col-lected both online and offline. UNIQLO is promoting its lifestyle ap-plications, like UNIQLO Wakeup and UNIQLO Recipe, to strengthen its brand awareness over mobile platforms. And it uses them as means to attract young potential customers to sign up for its digital platforms outside the domain of apparel. Shopkeepers also encourage customers to download the apps during check out. They claim to have captured more than 10 million users across the UNIQLO family of mobile apps. Informa-tion collected is then used for targeted promotions.
- 10. DESIGN Given knowledge and access to con-sumers, 10 – 11 how can you create the most effective value proposition? After gaining comprehensive customer insights, brands should design or tailor their value propositions to best meet customer requirements. Digital channels offer great opportunities for brands to provide interactive and customised of-ferings, to boost new revenue streams. Information collected over digital means can also influence new product devel-opment. Brands that listen to consum-ers tend to come up with products and services that engage them. The extreme of this would be crowd-source ideas or customized products. L’Oreal China uses the WeChat platform, the leading mobile social network in China, for information sharing, consum-er engagement, followers recruiting as well as m-commerce. Through WeChat, L’Oreal identifies its target customers as young middle-class users of cos-metics across both male and female genders. Their CRM system aggregates information on customers from various e-commerce platforms and integrates it with WeChat. L’Oreal is able to create a closed loop that links purchase infor-mation and social media activities. By analysing the information obtained, and combining it with the insights collected via traditional brand tracking methods, targeted marketing and promotional offerings can be designed, tested and measured. Investment levels can then be fine-tuned based on the measured effectiveness. New product develop-ment also benefits from this information loop. ENGAGEMENT How can you make sure that your consumers stay with you both online and offline? Successful brands engage customers across all channels, and increasingly lev-erage on digital ones as their consum-ers become more online. To integrate digital and conventional marketing thoroughly, brands need to establish a bi-directional marketing strategy between online and offline, integrat-ing then social media and mobile as a mean to acquire and engage targeted customers. They also have to ensure that the advertising efforts and con-tents are integrated at the channel level through traditional trade marketing and integration with e-tailers. To pursue this approach, a rebalance in market-ing expense between online and offline is required, based on how the target customer groups evolve. Nike, with a marketing budget of $ 2.4 billion in 2011, has dropped its spending on TV and print advertising in the U.S. by 40% in just three years. It is instead going where the customer is, spending nearly $ 800 million on non-traditional advertising in 2010 and foregoing $ 100 million-plus sponsorships and tradi-tional media buys to focus on online campaigns. As a result, the company’s revenues increased by $ 3 billion, while its net income went up by over $ 500 million over the same period.
- 11. ACTIVATION Can we get consumers to buy more? Besides getting the product proposi-tions and the prices right, brands should seek to maximize their presence across online and offline to convert the liking of their brands into real sales. There are two ways to achieve that: either improv-ing the shopping experience or extend-ing it. For both levers, consistency is crucial. Burberry has posted record results for financial year 2013, with an 8% increase in pre-tax profits, commonly believed to be aided by an advanced digital trans-formation. That effort began eight years ago by former CEO Angela Ahrendts, now head of retail at Apple. They are the pioneer in improving the shopping experience by embedding technology and digital content in-store. The com-pany has extensively used technology to run real-time analytics and to improve how it profiles customers. Retail staff can use tablets to create customer profiles and showcase products as well as their preferred choices. Provid-ing customers with iPads in store have helped, in fact, increasing sales conver-sion within its retail outlets. A focus on mobile commerce has also played a part as an extension of the shopping experi-ence. perspective What does it take for brands to go digital Nike gained an online sales increase of 31% in 2013 thanks to its NIKEiD plat-form, whereby customers can custom-ise shoes and accessories. Noticeably, NIKEiD is a successful case of online and offline integration. Customers can shop online and then pick up the goods in physical stores. They can also customise their shoes and accessories through computers located in the physi-cal stores. UNIQLO in China pushes notifications of new items and promotions of discount items in store over their large user base of the UNIQLO lifestyle apps. The apps also drive traffic to their e-commerce portals via in-app links for online purchases. The objective is to boost both online and offline sales through the same customer groups. In Japan, UNIQLO just launched UTme!, an online only product, whereby consumers can design their own T-shirt prints over a mobile app and have the actual T-shirt printed and delivered after paying over the app. These examples clearly show the improvement and extension of shop-ping experience in Nike’s and UNIQLO’s digital initiatives.
- 12. EVALUATION What to monitor and how? Brands continue to find ways to justify investments, starting with the days of traditional media using programmes like ad recall surveys. Now, thanks to digital media, results are easier to track and monitor. Most metrics can be quanti-fied automatically with the aid of social networks and browser cookies, such as number of fans, number of clicks or impressions, sales generated by online ads, etc. The choice is close to unlimited and can be as sophisticated as key word tracking on social media with integra-tion of CRM with other digital platforms. Many find monitoring exercises costly and taking up management bandwidth. Nevertheless, if a brand spends a signifi-cant amount of money on the previous four steps, and have been tracking performances on traditional media and sales channels before, there should be no reason not to extend this exercise to non-traditional investments. All brands should start now and align KPIs to the new digital needs. The use of digital media and mobile Internet will continue to penetrate consumers’ lives, and will continue to be dynamic as new tech-nologies 12 – 13 emerge. Without tracking and monitoring, it would only be by chance that a commercial strategy would stay aligned with changing consumer’s needs and habits. It is by evaluating the effectiveness of today’s strategy that brands can continue to go back to step 1 and revisit how to better align their strategies with consumers. ORGANIZATION Someone has to do it. The question is who and how? A consistent organization to execute the multichannel approach is most essential. Whether to build an e-commerce function centrally in the organization or distribute it into busi-ness units, whether to merge digital and traditional marketing functions, and whether to combine digital marketing and e-commerce departments are open questions. Based on best practices in several sectors, the trend is that func-tions of digital and traditional activities should no longer be separated. In some brands, digital marketing is part of the e-commerce team, which is integrated under the same commercial department as traditional channels. There is no silver bullet in this as whatever form this takes, a brand or company needs to have an organization that is true to its DNA, while incorporat-ing the multi-channel approach. It is not advisable to change a decentralized matrix organization into a centralized one, purely because of multichannel. However, by integrating the multichan-nel approach, companies need to build on existing organizations and identify which parts of the approach present gaps and disconnections such that ad-justments can be made in organization, KPIs and processes.
- 13. CONCLUSION It would be very interesting to see how brands compete in today’s arena across traditional and non-traditional media and channels. The World Cup in Brazil sets the stage for mega brands to battle it out. Official sponsors such as Coca Cola, McDonald’s and Budweiser are launching massive digital campaigns to fully capitalize on their investments in this top event. Coca Cola is releasing small collectible bottles that can be activated through an augmented reality Facebook ap-plication, accessed through consumers’ phones. It also plans to release a photo sharing campaign and digital sticker program in lieu of its traditional physical sticker book. Budweiser is set to launch a digital campaign backed by a 17% increase in marketing spend due to the World Cup games. The beer giant is launching a dedicated website and mobile app for the event. The site will aggregate social media activities and will launch a branded video series around football during the event. The app, instead, will allow users to find the closest bar pour-ing Budweiser beer and showing the game. Adidas has followed more or less the traditional form of sponsorship with clothing outfits, match ball, etc. Digital media play a supporting role for the brand as consumers are invited to fol-low it over the period of the event over Twitter and e-mail when they visit the Adidas website. perspective What does it take for brands to go digital Nike, on the other hand, strategically sponsors the home team Brazil. It has also successfully created a lot of buzz as its Winner Stays online video – star-ring Cristiano Ronaldo, Neymar Jr., Wayne Rooney, Andres Iniesta and other football demigods went viral. The video, without mentioning World Cup at all, generated 41 million views and more than 85,000 tweets within 5 days of its launch. Adidas’ all in or nothing online video, instead, launched 3 weeks after Nike’s ad, generated less than 30 million views in 5 days. What drives Nike’s success: content, execution, timing, or all of the above? No one can precisely tell, but the results indicate that by investing smartly across multiple channels, brands can ambush traditionally huge campaigns and the possibilities are unlimited. What about you? Have you already started acting or are you still spectat-ing?
- 14. 14 – 15 AUTHORS Thomas Wu Partner, Hong Kong Office thomas.wu@valuepartners.com Runhan Sun Engagement Manager, Shanghai Office runhan.sun@valuepartners.com Ralph Wu Associate, Beijing Office ralph.wu@valuepartners.com
- 15. By investing smartly across multiple channels, brands can ambush traditionally huge campaigns and the possibilities are unlimited perspective What does it take for brands to go digital
- 16. Copyright © Value Partners Management Consulting Limited All rights reserved About Value Partners Value Partners is a global manage-ment consulting firm that works with multinational corporations and high-potential entrepreneurial businesses to identify and pursue value enhancement initiatives across innovation, international expansion, and operational effectiveness. Founded in Milan in 1993, Value Part-ners’ rapid growth testifies to the value it has created for clients over time. Today it draws on 25 partners and 280 professionals from 23 na-tions, working out of offices in Milan, London, Istanbul, São Paulo, Buenos Aires, Beijing, Shanghai, Hong Kong, Singapore and Dubai. Value Partners has built a portfolio of more than 350 international cli-ents from the original 10 in 1993 with a worldwide revenue mix. Value Partners combines methodo-logical approaches and analytical frameworks with hands-on attitude and practical industry experience developed in an executive capacity within each sector: telecommunica-tions, new media, financial services, energy, manufacturing and hi-tech. Value Partners’ consumer and retail practice provides advisory services to fast moving consumer goods, ap-parel, retail chains and luxury brands in supply chain management, cost and budget control, go-to-market and market entry strategies. We also support companies inter-ested in investing in the sectors, particularly during the business due diligence phase. Besides the fashion industry, Value Partners also provides services in telecommunications, media, finance, energy, manufacturing and high-tech industries. In 2007 Value Partners acquired Spectrum Strategy Consultants – a leading UK company specialized in publishing, broadcasting, entertain-ment, IPTV and mobile – thus further strengthening its international presence. Today Value Partners is a leading advisor in the consumer goods, re-tail, telecom, media and technology sectors worldwide. For more information on the issues raised in this note please contact the authors. Find all the contact details on valuepartners.com Milan London Istanbul São Paulo Buenos Aires Beijing Shanghai Hong Kong Singapore Dubai