Feature
Demand-Side Innovation: Where IT Meets Marketing
The Web has transformed how consumers interact with brands, look for products, and relate to one another. How companies market their offerings both online and off is just as important as the products themselves. Rather than simply build a better mousetrap, CIOs must understand and embrace a variety of forces, social media, online connectivity, broadband, and virtual communities.
Remember the Better Mousetrap? That was the old theory that marketers used to share with one another to explain why their profession was so critically important to their companies. It referred to the fond belief, still held dearly by many, that if you build a truly better mousetrap, the world will beat a path to your door.
If only it were true! As marketers know, a better product without a marketing plan is like a tree falling in a forest that no one can see or hear.
Recent history suggests that this marketing lesson is as apt as ever in today's business world. Just ask the nearly 200 other video-sharing sites on the Web why YouTube sold for $2 billion, and they didn't; or the dozen other makers of hard-drive-based MP3 players why Apple's iPod has 70% global market share, and they don't. Ask Apple itself about the crushing dominance of Windows over Mac OS.
Maybe these are better products. But one thing is certain: How companies market their offerings—online and offline—has as much to do with their success as the products themselves. In this age of social media, we're experiencing the most profound instance yet of the Better Mousetrap fallacy. Unless consumers can find our brands, share them with one another, and make our brands their own, we may wind up with the wrong markets, the wrong buzz, and the wrong mousetrap.
What's more, technology, not marketing, has created this new reality—so it's technology executives, in conjunction with their marketing counterparts, who can effectively address the new market requirements.
Consider the dramatic impact that technology has had on media and consumer behavior in the past few years. In what seems like record time, the Web has gone from a focused, if galvanizing, revolution limited largely to activities performed online to a force that's transforming how consumers interact with brands, search for products, and relate to one another. A variety of forces are afoot, including pervasive social media, online connectivity, broadband, and virtual communities. Here's how each is rocking IT and marketing:
Social media is increasingly predominant. A recent Word-of-Mouth Marketing Association study found that 26% of Google search results on the world's top 20 brands provide links to consumer-generated media (CGM) or comments. With 70 million blogs on the Web and nearly 100,000 new ones added daily, this trend is accelerating. Consumers are turning increasingly to one another to understand which brands they should care about and which products they should buy.
Of course, consumers have always talked to one another over the proverbial backyard fence, but spreading the word that way occurred one fence and one conversation at a time. Online CGM are scalable in a way that face-to-face interactions aren't. Nor does this online content ever go away. Therefore, what was once an ephemeral, if powerful, marketing medium now vies with the most expensive brand campaigns for consumer attention—and consumers are quickly becoming preferred sources for perspectives on major brands.
Online connectivity is critical to offline community. Online chatter used to matter most to people who just wanted to connect online. No longer. Online communities now serve to organize offline interactions. Facebook initially limited membership to users who already belonged to offline communities like universities and colleges. Facebook wasn't designed to create new virtual communities, but to wire pre-existing physical ones.
That might sound like a recipe for redundancy—why meet someone online when you can get together in the dining hall? But experience has proved otherwise with today's digital youth. Some 85% of currently enrolled college students in the United States have profile pages on Facebook, and they spend an average of 20 minutes checking it twice a day. That means marketers focused on reaching consumers 18 to 24 years of age can't afford to ignore the site—or sites like it.
Online transactions are small, but their influence is big. The promise of E-commerce to change the world by eliminating brick-and-mortar retail was, of course, hugely overblown. Indeed, the sector has plateaued at roughly 10% of total retail activity—roughly equivalent to the penetration of catalog direct marketing two decades ago. But unlike catalogs, the influence of online commerce sites on offline activity has proved enormous.
That influence is growing. Recent data indicates that while online transactions may account for only 10% of U.S. sales, they shape the preferences and behavior of consumers in nearly 40% of offline sales. Integration of the two channels has clearly become an imperative for most businesses.
Social networks are critical new channels of media distribution. More and more, online users are getting information about brands on social networking sites. Social filtering sites also enable communities to sort information according to their collective point of view. That's why MySpace.com, with its tens of millions of intensely engaged teen users, has become a valuable platform for promotion of teen-oriented products like consumer electronics and pop music. It's why Digg, which populates its site with headlines posted and ranked in importance by a dedicated community of tech-oriented users, has attracted the attention of Silicon Valley giants and startups alike seeking to understand trends in technology before individuals acting alone can spot them.
It's no wonder that Procter & Gamble could quickly amass a circulation of more than 4 million for its Home Made Simple E-newsletter by appealing to young moms and homemakers—dwarfing the reach of most women's books and the nation's premier magazines. Similarly, Coca-Cola drives online consumer engagement by letting consumers create online ads and share them with one another.
Broadband is making online media more engaging. When Facebook made its photo-sharing feature available, users quickly began uploading at a rate of 1.5 million images a day, making it the largest photo-sharing site on the Web practically overnight. When YouTube made video sharing easy, its usage spiraled geometrically—to 70,000 uploads and 100 million views daily.
Put simply, video is rapidly becoming the new lingua franca of online media. As a result, the most powerful medium ever invented is now in the hands of consumers to create as well as distribute content and much of it comments on the world's leading brands. Just ask Diet Coke's brand-management team how it liked the online video created by consumers to show how the product interacted with Mentos.
Immersive virtual environments are taking hold. Even as video becomes the Web's latest breaking news headline, 3-D virtual-reality worlds are entering the marketing mainstream. Consider a firm such as Massive, which places advertising inside massively multiplayer online games, tapping into a medium that's become influential based on a growing population of online gamers around the world.
Or take a platform like Second Life from Linden Lab, with its 2 million "residents" and alternative economy based on a floating FX rate relative to the U.S. dollar. Second Life has become a locus of commercial activity, including a pavilion created by Sony BMG for its recording artists, a Toyota Scion dealership, and a Reuters News Bureau—all open for business in very real ways.
Taken together, these trends mean that CIOs in every consumer-facing industry, and most B2B sectors, too, must become more engaged in a new competitive business arena that brings IT into lockstep with marketing and customer-relationship activities. They need to fully grasp the changing nature of the interactions and relationships that their brands can orchestrate with customers and help provide the means both to promote and to benefit from these interactions.
That's the lesson of Apple's success with iPod. You could argue that iPod harnessed just about every one of these trends. Apple drove online sales (iTunes) with an offline device (iPod); it turned the usage of a consumer-electronics device into a form of self-expression (the distinctive white earphones); it created a platform for consumers to create their own media (playlists) and share their creations with one another; it allowed consumers to complete the product by stocking it with their own music; and it jumped on the appeal of video (the video iPod) as soon as broadband access became a reality for two-thirds of U.S. online users.
And more is on the way: Last month, the company announced plans to release its iPhone in June. Once the phone debuts, the peer-to-peer dynamics among Apple users that are already vibrant online will likely amplify dramatically in the wireless realm.
It's never been more important for CIOs and chief marketing officers—not to mention others in the executive suite—to reorient their definition of innovation from what a company sells to how it interacts. Put differently, it's not just innovation on the supply side that matters; it's what we call demand-side innovation that's rapidly becoming an imperative for any company seeking to own its strategic future. For those providing customer-facing IT tools and services, the imperative to adapt and change is greater than ever.
If only it were true! As marketers know, a better product without a marketing plan is like a tree falling in a forest that no one can see or hear.
Recent history suggests that this marketing lesson is as apt as ever in today's business world. Just ask the nearly 200 other video-sharing sites on the Web why YouTube sold for $2 billion, and they didn't; or the dozen other makers of hard-drive-based MP3 players why Apple's iPod has 70% global market share, and they don't. Ask Apple itself about the crushing dominance of Windows over Mac OS.
Maybe these are better products. But one thing is certain: How companies market their offerings—online and offline—has as much to do with their success as the products themselves. In this age of social media, we're experiencing the most profound instance yet of the Better Mousetrap fallacy. Unless consumers can find our brands, share them with one another, and make our brands their own, we may wind up with the wrong markets, the wrong buzz, and the wrong mousetrap.
What's more, technology, not marketing, has created this new reality—so it's technology executives, in conjunction with their marketing counterparts, who can effectively address the new market requirements.
Consider the dramatic impact that technology has had on media and consumer behavior in the past few years. In what seems like record time, the Web has gone from a focused, if galvanizing, revolution limited largely to activities performed online to a force that's transforming how consumers interact with brands, search for products, and relate to one another. A variety of forces are afoot, including pervasive social media, online connectivity, broadband, and virtual communities. Here's how each is rocking IT and marketing:
Of course, consumers have always talked to one another over the proverbial backyard fence, but spreading the word that way occurred one fence and one conversation at a time. Online CGM are scalable in a way that face-to-face interactions aren't. Nor does this online content ever go away. Therefore, what was once an ephemeral, if powerful, marketing medium now vies with the most expensive brand campaigns for consumer attention—and consumers are quickly becoming preferred sources for perspectives on major brands.
That might sound like a recipe for redundancy—why meet someone online when you can get together in the dining hall? But experience has proved otherwise with today's digital youth. Some 85% of currently enrolled college students in the United States have profile pages on Facebook, and they spend an average of 20 minutes checking it twice a day. That means marketers focused on reaching consumers 18 to 24 years of age can't afford to ignore the site—or sites like it.
That influence is growing. Recent data indicates that while online transactions may account for only 10% of U.S. sales, they shape the preferences and behavior of consumers in nearly 40% of offline sales. Integration of the two channels has clearly become an imperative for most businesses.
It's no wonder that Procter & Gamble could quickly amass a circulation of more than 4 million for its Home Made Simple E-newsletter by appealing to young moms and homemakers—dwarfing the reach of most women's books and the nation's premier magazines. Similarly, Coca-Cola drives online consumer engagement by letting consumers create online ads and share them with one another.
Put simply, video is rapidly becoming the new lingua franca of online media. As a result, the most powerful medium ever invented is now in the hands of consumers to create as well as distribute content and much of it comments on the world's leading brands. Just ask Diet Coke's brand-management team how it liked the online video created by consumers to show how the product interacted with Mentos.
Or take a platform like Second Life from Linden Lab, with its 2 million "residents" and alternative economy based on a floating FX rate relative to the U.S. dollar. Second Life has become a locus of commercial activity, including a pavilion created by Sony BMG for its recording artists, a Toyota Scion dealership, and a Reuters News Bureau—all open for business in very real ways.
Taken together, these trends mean that CIOs in every consumer-facing industry, and most B2B sectors, too, must become more engaged in a new competitive business arena that brings IT into lockstep with marketing and customer-relationship activities. They need to fully grasp the changing nature of the interactions and relationships that their brands can orchestrate with customers and help provide the means both to promote and to benefit from these interactions.
That's the lesson of Apple's success with iPod. You could argue that iPod harnessed just about every one of these trends. Apple drove online sales (iTunes) with an offline device (iPod); it turned the usage of a consumer-electronics device into a form of self-expression (the distinctive white earphones); it created a platform for consumers to create their own media (playlists) and share their creations with one another; it allowed consumers to complete the product by stocking it with their own music; and it jumped on the appeal of video (the video iPod) as soon as broadband access became a reality for two-thirds of U.S. online users.
And more is on the way: Last month, the company announced plans to release its iPhone in June. Once the phone debuts, the peer-to-peer dynamics among Apple users that are already vibrant online will likely amplify dramatically in the wireless realm.
It's never been more important for CIOs and chief marketing officers—not to mention others in the executive suite—to reorient their definition of innovation from what a company sells to how it interacts. Put differently, it's not just innovation on the supply side that matters; it's what we call demand-side innovation that's rapidly becoming an imperative for any company seeking to own its strategic future. For those providing customer-facing IT tools and services, the imperative to adapt and change is greater than ever.
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