24 July 2009

In a turning bay: some questions on the future of brands in social media.

This is a conversation I had recently on the future of brands and social media with Jenni Beattie, Director at Digital Democracy, a Sydney based digital communications consultancy.

Stephen Byrne: I want to start with some work Forrester did in April last year when they outlined the five phases of the social web. They are:

1) Era of Social Relationships: People connect to others and share

2) Era of Social Functionality: Social networks become like operating system

3) Era of Social Colonization: Every experience can now be social

4) Era of Social Context: Personalized and accurate content

5) Era of Social Commerce: Communities define future products and service

Forrester study found that the technologies will trigger changes in consumer adoption, and brands will need to follow, resulting in these five distinct phases.

I don’t think technologies are going to be the only triggers for new consumer adoption. My view is that the marketing of brands as we know it in a state of flux. What we are seeing, to use a French phrase, is an “eventment”, where for example, social media and technology are combining to mitigate against many of the old marketing paradigms. You only have to look at what’s happening on the agency level.

Jenni Beattie: I believe the marketing of brands as we know it has fundamentally changed. Today consumers expect to have a say, be able to feedback and make a mark on a brand. This can be as simple as using review features on websites to user generated content such as naming a brand.

After spending time in digital market research, you can see how the social web is impacting that discipline. In the past it was very much a parent-child relationship with the researcher asking a very set question and the respondent answering. Today, more interactive forms of research such as online community research are taking place with a more ‘organic’ flow to the questioning i.e. the participants driving and forming part of the research. Good examples of innovative research can be seen from international companies such as Fresh Networks and PeanutLabs.

SB: In the final phase Forrester projects consumers will rely on their peers as they make online decisions, whether or not brands choose to participate. Socially connected consumers will strengthen communities and shift power away from brands and CRM systems; eventually this will result in empowered communities defining the next generation of products.

I’m not sure if I accept this phase. It’s like the worst effects of crowdsourcing and consensus politics. I don’t think we’re going to get an entirely technology driven brands, as Forrester’s analysis implies, but there is certainly some dramatic changes occurring with regards to consumer empowerment and in terms of brand preferences.

JB: There will be an increase in consumers defining products and services. Online branded communities created by Dell, Starbucks and P&G are already helping give customer feedback and in turn helping to define the future products and services.

A good international example of innovation and consumers defining brands was when The Grocery Manufacturers Association (GMA) of the USA awarded Kettle Foods, Inc. one of the two 2008 Awards for Innovation and Creativity. Kettle Foods, Inc. won the award for its “People’s Choice” campaign. The campaign combined “consumer interaction, PR and R&D into one program. According to the press reports the company has had than 11,000 new business leads, more than 7,000 new flavour suggestions, and 75,000 unique Web site visits all for a low cost investment”

As far as power shifting away from CRM systems I don’t believe that to be the case. CRM will reinvent itself, Gartner refers to this as Social CRM. Gartner analysts say “There’s operational CRM, analytical CRM, and now there’s collaborative or social CRM”. Today CRM budgets are looking towards more social applications such as Twitter that are at the coal-face of customer service.

SB: Right now there seems to be a lot of confusion between social media and the definition of community. The idea of community is right now as fairly elusive one and is being bandied about like it’s some sacrosanct term. Community built around consumption is, for me fairly transitory. It reminds of an unruly mob during the time of the Paris Commune. We’re not going to get a whole lot of sense out of this right now.

Then there’s these dire warnings coming from people like Forrester, that brands will be excluded from consumer choice because somehow they are now being defined by communities and no longer by the brand owners themselves. I think this is both disingenuous and untrue. Forcing brands out of their hands via social media created communities is only part of the story. While even as early as 2005 Tomi Ahonen and Alan Moore warned marketers, in their prescient work Communities Dominate Brands, that if they didn’t cut loose the shackles of the traditional advertising agency and TV network model they would lose their brands. I’m seeing many of the same warnings again this year, particularly in the wake of the great financial crisis. But what real, if any, changes have we seen to this paradigm? No brands have fallen by the wayside because they didn’t have a social media strategy or because they continued advertising in traditional media.

JB: Brands may not fall by the wayside as such but brands will become stronger because of their consumer engagement strategies. For example, the well known Dell Hell scenario certainly impacted on that organization negatively but by engaging with the community they have come back stronger and more relevant to their client base. If they hadn’t done that who knows where that organisation will be.

Some brands come to social media like Dell in a ‘reactive’ fashion knowing they now need to engage with consumers due to a negative event/issue. Other brands initiate the online engagement strategy ‘proactively’, understanding it will add value to their knowledge base, understanding the client better, product development and customer service.

SB: Ahonen and Moore predicted the consumer and their connected communities, would select the products and brands that are engaged in the most relevant dialogue with them. Somehow this would become the centre of a new modern and sustainable marketing model. While I think there are some massive shifts occurring, I don’t think we’re quite there yet with this because I’m not sure anyone understands these kinds of ROIs yet.

JB: First of all, it is important not just to focus on ROI but measurable goals and each company will have varying goals. Social media marketing is typically a long term investment so to set short term ROI goals is going to be difficult. Setting ROI for a specific short-term campaign is more logical i.e. we spent X dollars taking this campaign to the market place and X dollars in sales. There are many intangible benefits from social media marketing such as increased loyalty from customers, insights and R&D innovations and better customer service many of these are hard to equate with a dollar value.

There is a balance when setting ROI expectations. Many social media audits have an AVE advertising value equivalent metric assigned. This stems from the AVE metric that the public relations industry used but discredited about a decade ago saying it was simplistic and backward looking rather than useful for future strategic planning. Unfortunately, just as in the traditional PR world many c-level execs still want the $ figure and so in the social media marketing world the metric is still used but with some hesitation.

SB: There’s already a view that Web 2.0 and pervasiveness of new community archetypes make demographics dead, but I don’t see this is as too different to these axiomatic definitions of community.

JB: If companies were using demographics as the only avenue for ‘understanding ‘ their customer then, yes demographics are dead. Companies need to have a relationship with the customer rather then simply put them in isolated boxes. Let’s face it boomers today don’t act like middle-aged people years ago – times have changed so the context for those demographics has to change as well.

As far as using demographics to reach consumers via social media marketing, that is still relevant but rather than just understanding income levels and postcodes we need to understand how they relate online and what sites they are using. We need to understand their technographic profile. For example, women 55 plus and men 55 plus operate differently online understanding this will mean you can engage with them more effectively.

Gartner published research on what they call Generation V (virtual) indicating that the generation isn’t defined by specific demographics but by the way they use technology i.e. a behavioural categorisation. Elements of this categorisation incude accomplishments, how they build and share knowledge and their preference for different media channels.

Let’s not throw out the ‘baby with the bathwater’ demographics are not dead but demographic elements need to be relevant to social media marketing.

SB: One of the things I am seeing is the built around the question of measuring influence in social networks and communities. I’m not sure if brands are really measuring this and how much use, if any, they are making of influence metrics.

JB: There are a myriad of ways to measure influence in social networks and the impact of social media marketing. Normally there is a mix of qualitative and quantitative measurements.

To set your measurements you need to set your marketing objectives and relate the metrics to those. For example, if you want to raise awareness of a new product or service attention metrics such as the amount of views of your content are important if you are after sales metrics than you need to look at actionable clicks rather than just views.

I like to break the metrics down into Visibility Metrics (i.e. getting seen) and Engagement Metrics (what people do once they see your content site). So, for example. engagement metrics would include items such as links shared, comments on blogs etc.

SB: I don’t think we’re really in a position to say that brands and companies without a social media strategy are going to find that customers will go elsewhere.

JB: Yes, It may not be quite as apocalyptic as that but recent research looking at brand relationships has shown that on average they are 15% stronger for digital consumers. Even products such as motor fuel and hair care (as shown below) can be impacted favourably by engaging with the consumers online.

Some brands will have more synergy with social media marketing than others. A good example is the non-profit area, where there is already a lot of passion and energy around their company or cause. For example, the United Nations Refugee Agency recently launched their Causes page on Facebook. They reached 50,000 members in just under seven days, raised just over $50,000 and boosted their Facebook fan page to 20,000 fans.

Having said that even brands that you would think would have less ‘talkability’ in social media such as tax (think H&R Block) have done well using social media strategies.

Let’s not forget that while some may think that social media marketing is radical and very new in reality Doc Searls and David Weinberger (the founders of The Cluetrain Manifesto) were spouting social media marketing many years ago.

SB: One of the problems is how social commerce is really going to work. Given the growing failure of traditional advertising in almost all media forms, the real question now is how are brands going to be sold in the future.

15 July 2009

Facing the break boundary: how advertising agency models no longer work.

I attracted a lot of traffic recently to this blog from some comments I made on AdAge on the commoditisation of agencies. One of the things I said was that the traditional agency model was no longer relevant and agencies needed to either adapt or die. And as the makers of a new season of MadMen announced this week its to premiere in the fall, I began to look around for some new thinking on the traditional agency model and found, as market analysts might say, there’s not a lot of guidance. So here’s mine:

1. The agency model as we know it now well over 70 years old and is tied to media types whose basis was honed during the 1930s and 1940s. Agencies are now at a significant break boundary.
2. On the basis of measured spending alone, there is a question over the continued viability of agency models as billable spends are in significant decline across all segments, except digital, research and PR
3. The full service agency model is no longer a differentiator
4. Increased concentration of agency ownership into massive global networks enshrines the traditional agency model to it's detriment
5. Vertical integration of the agency model and its assumption from within by client organisations foils agency growth expectations
6. Enhanced technologies disintermediates agencies and enables client side assumption of agency value add services on a lower cost basis
7. The increasing ineffectiveness of traditional agency work is a direct consequence of a fractured and media environment

Now let’s look at the foundation of all this sturm and drang.

1. The traditional advertising agency model is dying because traditional media advertising and marketing is in state of extreme fragmentation and change.
What we are seeing is what media theorist Marshall McLuhan described in his seminal 1967 work Understanding Media what economist Kenneth Boulding called a "break boundary, a point at which the system suddenly changes into another or passes some point of no return in its dynamic processes” .

Understanding Media 38

“One of the most common causes of breaks in any system is the cross-fertilization with another system, such as happened to print with the steam press, or with radio and movies (that yielded the Talkies). Today with microfilm and micro-cards, not to mention electric memories, the printed word assumes again much of the handicraft character of a manuscript. But printing from movable type was, itself, the major break boundary in the history of phonetic literacy, just as the phonetic alphabet had been the break boundary between tribal and individualist man.

In the last ten years we have seen a number of significant break boundaries as traditional media forms, in particular, newspapers and magazines, largely abandoned by both readers and advertisers in favour of screen based digital delivery of both content and advertising alongside increased usage and proliferation of connected screen based devices.

While many agencies have tried adapt to this with development of digital arms, media planning and more recently, social media – the traditional agency has distinctly failed and is failing. The “MadMen” of the synonymous television series are now mere nostalgia.

2. In the first quarter of 2009 measured ad spending in the US declined by 14%.

Media Type (shown in rank order of 2009 spending) % CHANGE

Network TV -4.2%
Cable TV -2.7%
Spot TV -27.5%
Syndication - National 0.2%
Spanish Language TV -15.4%

Consumer Magazines -19.2%
B-to-B Magazines -25.5%
Sunday Magazines -23.7%
Local Magazines -25.3%
Spanish Language Magazines -20.5%

Newspapers (Local) -25.1%
National Newspapers -28.5%
Spanish Language Newspapers -21.6%

INTERNET (display ads only) 8.2%

Local Radio -26.8%
National Spot Radio -31.7%
Network Radio -11.2%

OUTDOOR -14.6%

TOTAL -14.2%
Source: TNS Media Intelligence 2009

According to TNS, the old media triumvirate of radio, newspapers and TV are the most heavily impacted. The global financial crisis has had a more profound effect on the advertising and marketing industry than predicted, a survey released in February by the US Association of National Advertisers revealed 93 percent of companies were identifying cost savings and reductions as opposed to 87 percent in a similar survey conducted by the ANA six months previously. Further, 37 percent of respondents planned to reduce budgets by more than 20 percent, up substantially from the 21 percent of respondents in the first survey. The top five areas where marketers planned to reduce costs or expenditures in marketing and advertising efforts were:

i)Departmental travel and expense restrictions (87 percent, versus  63 percent in the previous survey)
ii)Reducing advertising campaign media budgets (77 percent, versus 69 percent in the previous survey)
iii)Reducing advertising campaign production budgets (72 percent, versus  63 percent in the previous survey)
iv)Challenging agencies to reduce internal expenses and/or identify cost reductions (68 percent, versus  63 percent in the previous survey)
v) Eliminating or delaying new projects (58 percent versus  61 percent in the previous survey)

In this respect, agencies can no longer rely simply on expanding revenues from media and production budgets. The likelihood that these budgets will return to pre-GFC levels is unlikely given a number of break boundaries have now been crossed.

3. The mass commoditisation of the full service agency model is now increasingly contributing to its decline. The "full service" agency model is an anachronism belonging to 1950s MadMen, when creative and placement were the two axis under which an agency billed. The continued adoption of full service agency models are a failed attempt to roll all aspects of marketing and communication into a single place. Few agencies now succeed because now most can never competently and completely deliver on the whole service offer. Words like “360”, “holistic” and “integrated” are bandied about like some kind of emblematic imprimatur but there are 1000s of these agencies in the world and they all say and do the same thing.

4. In 2008 nearly 40% of all global advertising was managed by just four companies Omnicom ($13.359 billion), WPP ($12.27b) Interpublic ($6.693b) and Publicis ($5.1b) but according to a 2008 Harvard Business School study on concentration levels in the US advertising and marketing services (A&MS) industry concluded “the four largest holding companies captured between a fifth and a quarter of total revenue from the A&MS industry, a share that remained quite stable over the period 2002-2006. These estimates are lower by an order of magnitude than estimates often cited in the trade press.” However, the same study estimated that for US government censuses conducted between 1977 and 2002, the actual number of firms and establishments in advertising and marketing services increased at compound annual growth rates of between two and four per cent. But in 1997 long-term growth (coinciding with exponential digital growth) ended and the number of firms and establishments actually decreased from their 1992 levels. This decline continued in 2002 and continues.

So this decline in long-term industry growth is not only forcing concentration from within the industry at the network level but also to a further concentration of service offering to meet revenue expectations and as the number of firms with billable work continues to fall.

5. Increasing backward integration of marketing and advertising functions by client organisations poses a significant threat to agency survival. Last year the US Association of National Advertisers (ANA) released preliminary findings from a survey of large national advertisers and found 42 percent of ANA member firms had established internal advertising units. Cost efficiencies and savings were reported as the major reasons for pursuing the in-house route. The most effected areas, according to a 2008 Harvard Business School study on bringing advertising agency functions in-house, were technology industries (e.g., electronics, instruments) and the creative industries (e.g., publishing, motion pictures).

6. In a post on his blog in 2007 Scott Carp ex- Atlantic Monthly head of digital and founder and publisher of publishing website 2.0 announced:

“Madison Avenue should be afraid — very afraid. Online advertising is all about scaling the infinite complexity of thousands of media channels and thousands of micro targeted ad messages — yeah, like AdWords and AdSense. Sure, it’s going to be much harder for Google to pull this off with video and brand advertising, but in order for Madison Avenue to compete it’s going to have to be completely dismantled and rebuilt .

Of course, Yahoo and Microsoft (and let’s not forget WPP) are also competing with Madison Avenue — and with Google to become the ultimate vertically integrated media and advertising company .

But the game is all about scaling — and when it comes to scaling, Google will be hard to beat.”

Carp’s right on most counts. Google might be failing with YouTube but does beat agencies at their own game. Last month it even opened Agencyland, an educational portal for advertising agencies designed to educate agency staff on Google Advertising and also help bridge the gap between Google and the agencies. But Google’s global advertising system which its built on Adwords and DIY model is designed to bring a better ROI to advertisers, and for easier monetization for TV, cable, gaming and online publishers. Microsoft is already heading down the same route and places like LinkedIn and Facebook already allow users to effectively create, place and track limited but highly effective micro-targetted campaigns.

7. Not only is traditional advertising effectiveness in decline but the work of agencies themselves is being increasingly called into question. Even as far back as 2005 advertising and marketing theorist Philip Kotler predicted advertising agencies needed to transform themselves into communication agencies. Though many agencies say they have gone down this track, from the 90s its been largely media and digital agencies who have done this, while network owners have resorted to broadening skill reach usually via acquisition to offer clients the benefits of a full integrated agency network. In the end, the traditional agency, has been left largely untouched as have been the measures of its effectiveness. Awards nights for advertising effectiveness or creative design being seen to somehow assuage client incredulity over campaign success and fail. I don’t know how many pieces of creative work I have seen that lack any real ROI, even when it’s been a specific assessment criteria or when a campaign has been deemed a success largely on the basis of viewership figures alone. Set this against the granularity of data offered from digital, where every week one agency or another goes out to market with a new measure of advertising effectiveness such as Compete who launched yet another digital advertising effectiveness measurement system. Still traditional media doesn't seem to giving up. Just this week MRI in the US debuted its AdMeasure report, which aims to put magazine publishing ad effectiveness on the same level as digital.

Earlier this week Forrester Research reported that 60% of marketers surveyed would increase their digital spend by shifting funds from traditional spend. Direct mail most cited by 40% of marketers as being one being cut followed by newspapers (35%), magazines (28%) and television (12%). And while many agencies and their clients continue to create “interesting” advertising as in a recent Harris/AdWeek poll, interesting doesn’t quite equal influence. Nor purchase. Nor survival.