The CMO's Imperative

1. Report The CMO’s Imperative Tackling New Digital Realities

2. The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 71 offices in 41 countries. For more information, please visit www.bcg.com.

3. The CMO’s Imperative Tackling New Digital Realities Ed Busby Dominic Field Patrick Forth Jens Harsaae John Rose Henri Salha November 2010 bcg.com

4. © The Boston Consulting Group, Inc. 2010. All rights reserved. For information or permission to reprint, please contact BCG at: E-mail: bcg-info@bcg.com Fax: +1 617 850 3901, attention BCG/Permissions Mail: BCG/Permissions The Boston Consulting Group, Inc. One Beacon Street Boston, MA 02108 USA

5. Contents Executive Summary 4 Back to the Future 7 An Inflection Point: Why Now? 10 Change on Every Front 12 Social Media 12 Mobile Advertising 14 Television and Online Video 16 Print Media and the Promise of the Tablet 18 Measured Internet Media 19 The Marketer’s Response 21 Planning and Budgeting 22 Internal Capabilities 24 Outsourcing Decisions 25 Agency Navigation 26 Launch Your Mission 28 For Further Reading 32 Note to the Reader 33 The CMO’s Imperative 3

6. Executive Summary N ew digital media—including online video, ◊ The balance of investment is shifting as companies social media, and mobile advertising—are spend less on media purchases and more on labor-in- transforming the marketing landscape. The tensive tasks such as managing digital content. Boston Consulting Group has spoken to doz- ens of chief marketing officers (CMOs) and As the list of digital-marketing options grows, compa- other leaders who realize that 50 years of marketing-man- nies are reshaping their media expenditures. agement approaches must change dramatically. These marketers don’t need a call to action. Rather, they are actively ◊ Newer digital media are finally meeting marketers’ seeking to build a twenty-first-century marketing capability main criteria for investment: scale, audience targeting, that can navigate whatever comes next. standards, a common marketplace (for the buying and selling of ads), and measurement. In this report, BCG offers new insight derived from The BCG Future of Marketing and Advertising Study, 2010, which en- ◊ Dollars are actively shifting to digital media: around compasses a quantitative survey of marketing executives, one- 90 percent of our survey respondents expect to spend on-one industry interviews, and benchmarking research. This more on Internet, social-media, and mobile advertis- report is a follow-up to our 2009 White Paper, The CMO’s Di- ing over the next three years. lemma: Can You Reach the Masses Without Mass Media? It is also the second release in our new Marketing in the Digital ◊ However, traditional media—in particular, television— Economy publication series. Over time, this series will exam- still garner the majority of spending and will for years ine a variety of digital-marketing topics: word-of-mouth ad- to come. vocacy, digital listening, organizational capabilities, multi- channel implications, and more. Making the right tradeoffs across digital- and traditional-marketing vehicles today depends on under- After years of evolutionary change, emerging digital standing how each media category will evolve. media have brought marketing communications to a breakpoint. ◊ Companies have been surprisingly quick to adopt social-media vehicles such as Facebook, Twitter, and You- ◊ The new watchwords for marketers are transparency, Tube as part of their media mix. But there are real risks authenticity, and engagement—a significant change if companies execute poorly in these areas. Companies from centrally created, custom-crafted broadcast mes- are starting to build better internal capabilities to deal sages. with the specific challenges of social-media marketing. ◊ The sheer complexity of marketing vehicles and ◊ Mobile advertising, long a fixture of advanced markets the rapid pace of changes in the field are overwhelm- such as Japan, is finally beginning to realize its poten- ing the traditional approaches to marketing man- tial in Western countries. More than 80 percent of sur- agement. vey respondents plan to increase their spending on 4 The Boston Consulting Group

7. mobile advertising, albeit from a very small base. Driv- ◊ Although all marketing activities tend to be decentral- ers of growth include the proliferation of smartphones, ized today, marketers shared sincere ambivalence the development of advertising marketplaces, and a about the best organizational “home” for digital activ- host of new start-ups. Now is the time to take these ities. media seriously. No one has yet developed the winning formula—but ◊ Television still remains one of the few mass-marketing some patterns are emerging that suggest how compa- vehicles that can reach millions of consumers at once. nies could build their digital capabilities. But the shift from traditional television viewing to online video viewing will happen more quickly than ◊ The executives in our survey who were most commit- many observers expect, as Internet-connected televi- ted to digital marketing share several traits in com- sions roll out over the next few years. Marketers must mon. Their companies establish minimum levels for rethink their approaches to traditional television—and digital investment firmwide and possess the tools re- experiment actively with online video. quired to make tradeoffs across media vehicles. And they believe that digital marketing is important to ◊ Print media stand at a crossroads. While print has lost their personal success. a massive share of ad spending to the Internet, tablets and e-readers offer some hope for the future—at least ◊ To lower barriers to digital investment, brand-building for magazines. As the ecosystem of tablet advertising businesses (such as those in the food and beverage begins to form, marketers and the publishing industry sector) may need to rethink their emphasis on metrics must work together to help shape the future. that track short-term increases in volume sales. They will also need to look at return on investment (ROI), ◊ Measured Internet media, such as search and display customer engagement, and word-of-mouth referrals. advertising, is among the more stable categories now. True, online targeting technologies have improved ◊ A good rule of thumb is to develop digital-marketing somewhat ahead of marketers’ abilities to utilize strategies as closely as possible to the business unit. them—and they raise some privacy concerns. But lead- The center, however, should own standards of excel- ing companies are increasing their allocation to meas- lence, best-practice sharing, and the basics of techni- ured Internet ads and cautiously taking advantage of cal execution (such as the coordination of e-mail the new opportunities to target consumers. blasts). Marketers understand the urgency to adopt digital Instead of trying to guess the perfect marketing mod- media—but need answers on many issues including el in a fluid landscape, companies need to think about optimizing spending, budgeting, organizing, and nav- maintaining maximum flexibility and adaptability. igating agencies. ◊ A more dynamic approach to strategy—one that em- ◊ Only 46 percent of our respondents said they have phasizes iterative experimentation in order to keep the tools required to make tradeoffs across media ve- pace with incessant change—delivers what BCG calls hicles. “adaptive advantage.” ◊ Respondents were comfortable with their companies’ ◊ To determine what works, companies should start by planning approaches for most media vehicles, but they piloting a 360-degree digital-marketing plan for a ranked planning processes for social-media and mo- brand or category in a single region. Experimentation, bile advertising at or near the bottom. at this point, is preferable to inaction. ◊ Only about one-third of our survey respondents said ◊ Over the next five years, we anticipate a significant they felt their advertising agencies were helpful in skills-based battle to define the next generation of making the right tradeoffs between digital and tradi- marketing leadership. Your company can’t stay on the tional media. sidelines. The CMO’s Imperative 5

8. About the Authors managing director in the firm’s Copenhagen office and Ed Busby is a partner and managing director in the New global leader of BCG’s marketing topic. You may contact York office of The Boston Consulting Group and leader of him by e-mail at harsaae.jens@bcg.com. John Rose is a The BCG Future of Marketing and Advertising Study, senior partner and managing director in the firm’s New 2010. You may contact him by e-mail at busby.ed@bcg. York office, global leader of the Media sector for BCG’s com. Dominic Field is a partner and managing director Technology, Media & Telecommunications practice, and in the firm’s Los Angeles office and U.S. leader of the Me- global leader of the firm’s special iniative on conver- dia sector for BCG’s Technology, Media & Telecommuni- gence. You may contact him by e-mail at rose.john@bcg. cations practice. You may contact him by e-mail at field. com. Henri Salha is a partner and managing director in dominic@bcg.com. Patrick Forth is a senior partner and the firm’s Paris office and global leader of BCG’s Internet managing director in BCG’s Sydney office and leader of Advantage topic. You may contact him by e-mail at salha. the firm’s Technology, Media & Telecommunications henri@bcg.com. practice in Asia-Pacific. You may contact him by e-mail at forth.patrick@bcg.com. Jens Harsaae is a partner and 6 The Boston Consulting Group

9. Back to the Future I magine the year is 1960. In the United States, the early days of television, is that no one yet has the for- there are only three television networks: NBC, mula for success. In addition, the challenge now is even CBS, and ABC. Most programs are still broadcast tougher than it was then. live and sponsored by advertisers. The now-ubiquitous “30-second spot” has yet to be standard- To develop a snapshot of current changes and future ized as an ad unit. Radio is still a powerful force. plans, The Boston Consulting Group launched The BCG Future of Marketing and Advertising Study, 2010. We Marketing in this era seems simple and straightforward tapped into the views of almost 100 industry experts, to us today, but for consumer marketing companies and leaders at advertising agencies, and marketing executives for Madison Avenue’s ad agencies then (currently show- across industry sectors. We conducted a quantitative cased in the popular Mad Men series on cable television), survey, one-on-one interviews, and research on best prac- it was not. Television was an emerging medium, not yet tices.1 found in every home. No one knew how television would evolve, or which advertising formats would break through. While our participants were based primarily in the Unit- Marketers had limited syndicated data—from The Niels- ed States, the study has relevance for all global compa- en Company or elsewhere—to guide decision making. nies, and our work includes many examples from other However, some companies, such as Procter & Gamble, regions. The findings help to scope the current media worked closely with their ad agencies and took bold steps landscape, anticipate what’s coming next, and under- to invest in new and untested brand building via televi- stand how companies are reallocating budgets and build- sion. Even amid massive uncertainty, they shifted market ing capabilities to prepare for the future. share and created powerful brand positions, setting the foundation for 50 years of competitive advantage. After 50 years of evolutionary change, BCG’s analysis shows, we are at a breakpoint in marketing communica- Today, some companies are shifting their spending from tions. television and traditional media to Facebook, blogs, and their own purpose-built websites. They are experiment- The watchwords of the new marketing environment ing with advertising on computer tablets and with loca- are transparency, authenticity, and engagement. This tion-specific mobile targeting. What’s more, consumers shift represents a significant change over centrally creat- are having real-time online conversations with one an- ed, custom-crafted broadcast messages. Digital-marketing other about marketers’ products and messaging. vehicles enable interactive communication: between marketers and consumers (sending messages down the In short, we believe that it is 1960 all over again. Those marketers that figure out not only how to use the new 1. We had 56 survey respondents and interviewed 45 experts from tools but also how to integrate them with traditional me- various types of companies including advertisers, venture capital firms, media firms, and ad networks. Most of the respondents and dia will build brands and shift market share just as in the experts worked in the United States; however, many represented days of the gurus of Madison Avenue. The problem, as in multinational companies with global experience. The CMO’s Imperative 7

10. historic one-way path); between consumers and advertis- or externally. Advertisers are struggling to integrate func- ers (engaging in a dialogue); and among consumers (com- tional capabilities within brand teams; agencies and spe- menting on and calibrating the messages being received). cialty third-party service providers are struggling to pro- Such interaction is changing the nature of marketing vide integrated advice and services. communications from crafting one-to-many brand messages to curating conversations about the brand among Companies are shifting the balance between internal consumers. and external spending on marketing. Managing an effective communications program in a real-time, interac- The sheer complexity of marketing vehicles and the tive way requires extensive company- and brand-specific rapid pace of new communication opportunities are information. With traditional advertising, the require- overwhelming chief marketing officers. (See Exhibit ments for internal staff and spending are low since most 1.) This is true whether marketing is managed internally activity is outsourced to agencies and most cost is gener- Exhibit 1. CMOs Face an Increasingly Complex Set of Options Car parking lot Gigantic National Free Urba Loca formong- Ne L pres l n at a ws ilin sed M pap g s d madres ag in ted az er Sy ail ge Ad in g nd m -tar e e g ica Ca on tin o Outdoor Ge bl Ph pec te Radio Cin e d Ne os pr e em tw tlin Pr ork Ho int a ail Ba Te ail nne M r le vis E-m ion e Pop on ite -up Ph ebs Traditional nd w et/ Bra Paid media ern l cation s earch Inter net Int -mai Geoloile ad e Customer mob e relationship SMS lin ive Digital the marketing Digita l Interact on Mobile televisi ove ? ? ? (CRM) Editorial Ab ? ? ? insert Public relations ? Loyalty VIP card CMO ? ? program Product of Awards Public ? Personal the year ? t relations/ ? ? ? lin e One reward emen the -sho rity/ Endors viral low t Sam Maga Celeb ert rshi p Be ple exp nso samp zine Spo nt ling Re t ce me In-th even lat port Pla Off er same-stree ion S of plin t Material g ed ord h al Im ipt how W out Po m Scr ion s cou ediat in ev m g s t o en evi pon e sin De tel f d ts fer di isp g red an Blo In- viso g Pr la ad ch off gin y od Point sto rs ds er er ons uc M c ka ien re td Fr Ne em Promoti Pa o t w en os f sale sto an Br t en re rm an ev la Pe Re da un ch ure uct ck a l tai dv ch un Stor e pa ysic Wind ag iso ffers la pict prod La Brand web s dvi rs Ph e de ack o ow dis Discount ine sor Gis sign Onl s On-p play site Marketing categories Marketing vehicles Marketing tactics Source: BCG analysis. Note: We defined measured media expenditures as “above the line” marketing categories; all other marketing categories were defined as “below the line.” 8 The Boston Consulting Group

11. ated by the purchasing of media. In the new world, com- formance. The mission control center allows Gatorade to panies invest less in media purchasing and more in devel- identify conversations in progress and proactively engage oping content and maintaining customer dialogue—and in discussions with consumers. the cost of managing and updating digital content can be high, whether companies outsource it or manage it them- Companies outside traditional consumer goods are also selves. For example, while some companies assign their building their social-marketing capabilities. Even main- public relations firms or digital agencies responsibility for stream banking firms such as Wells Fargo and Bank of maintaining a brand’s Facebook presence, others view America actively leverage social media with activities this as a critical brand touchpoint to be controlled inter- that include soliciting user-generated product reviews on- nally. line, providing customer service on Twitter, and developing online communities for small business owners. Take the example of the beverage brand Gatorade, which has made significant investments in social media and dig- Chief marketing officers (CMOs) are tackling a critical ital listening (monitoring consumers’ online comments). mission: transition from the marketing organization that Gatorade maintains an actual “mission control” center in worked in 1960 to a twenty-first-century marketing capa- its Chicago headquarters, featuring a panel of screens bility that can navigate the future. To pursue this goal, reminiscent of NASA. Relying on five full-time marketing companies are taking widely different approaches, even employees, the company tracks a wide variety of conver- within the same industries. Some best practices, however, sations through blogs and Twitter conversations, online- are starting to emerge. media performance, sports trends, and social-media per- The CMO’s Imperative 9

12. An Inflection Point Why Now? A s digital-marketing options expand, com- Scale. Digital vehicles are finally reaching the point at panies are reshaping their media expen- which they deliver sufficient reach with targeted audi- ditures—and reshaping them so pro- ences. Before CMOs in most major corporations are will- foundly that we can no longer accurately ing to invest heavily in a medium, they need to be able project spending trends based on the past to reach 40 to 60 percent of the target population through five decades of experience. that medium. They can accomplish their goals today through most online display advertising and through We expect that traditional spending on above-the-line some social media, such as Facebook, with its 500 mil- (mass-market) “measured media” will not continue its lion global members. In order to experiment with new past pattern of rising and falling in sync with the econo- media, however, CMOs may require a minimum reach of my. Instead, as developed markets continue their slow re- only 1 million to 5 million adults—as long as there is a covery, we believe overall ad spending will anchor near visible path to broader reach in the near future. Mobile current levels and grow at a lower rate than it historically advertising and other social media are beginning to hit, has. Companies will permanently replace big-dollar ad and in some cases vastly exceed, these thresholds. purchases in television and print media with less-expen- sive, unmeasured investments in digital media. And they Targeting. The clear advantage in audience targeting will reallocate marketing budgets from media spending goes to online and mobile media, since, compared with to spending on the head count and technology needed to traditional media, they offer marketers access to more so- support digital marketing in-house. phisticated, context-driven, and location-driven targeting. Traditional media such as television and print have got- The marketing executives we surveyed cited decisive ten by for a long time with targeting that is based on sim- plans to increase spending in social-media, measured In- ple demographics linked to the type of content, but mar- ternet, and mobile advertising over the next three years.2 keters are starting to see the advantages of trading broad The move to these categories will come at the expense of reach for deeper relevance. print newspaper and magazine advertising, and, to some extent, traditional television advertising. (See Exhibit 2.) Standards. As technologies, formats, and ad-serving Few of the executives we surveyed are ignoring social mechanisms in mobile advertising mature, the barriers to media: at least 80 percent—and as much as 90 percent— marketer commitment will fall. The lack of standards for of our survey respondents told us they are using, experi- ad units and creative formats, such as standard sizes for menting with, or planning to try social-network and viral banner-ad displays, has hindered the development of mo- marketing. bile advertising. However, a few smartphone winners are Why has this shift become more pronounced? What’s really changed? In fact, a number of marketers’ criteria for 2. Measured Internet advertising refers to traditional online-advertising spending that is tracked by third-party research firms. It in- investing in emerging marketing vehicles—such as social cludes online search advertisements and display ads—such as ban- media and mobile—have finally been reached: ners, videos in static webpages, and pop-up ads. 10 The Boston Consulting Group

13. Exhibit 2. Nearly All Respondents Plan to Accelerate Spending on Digital Media How do you think your company’s allocation will change over the next three years? Percentage of respondents at companies that will increase spending in the category Measured Internet 95 Social media 94 Mobile 85 Direct marketing 51 Public relations 42 Cable network television 34 Sponsorships 30 Promotions 27 Magazines 25 Outdoor 21 National broadcast television 17 Radio 13 Newspaper 4 0 10 20 30 40 50 60 70 80 90 100 Percentage of respondents Increase signiﬁcantly Increase somewhat Stay the same Decrease somewhat Decrease signiﬁcantly or stop Source: The BCG Future of Marketing and Advertising Study, 2010. Note: The data reflect 53 responses. now emerging, reducing market fragmentation and es- vestment (ROMI), and we expect this practice to become tablishing greater certainty around standards. more widespread. However, marketers simply don’t have the same wealth of historical benchmarks to project the Marketplace. Another coming-of-age sign for digital me- revenue impact of digital-advertising efforts that they dia has been the emergence of well-defined places for possess for traditional media such as television or radio. marketers to access aggregated advertising inventory. Only time and experience can fill this gap, and companies Measured Internet advertising offers ad exchanges and must be willing to experiment in order to learn. networks that perform this service; similar models are now emerging in mobile advertising as well. Digital me- The ongoing progress within these five investment crite- dia are also benefiting as marketers embrace and adopt ria suggests that an inflection point is at hand. Yet it is their unique pricing models: performance-based metrics important to keep in mind that, while much is changing, such as cost per click, cost per visitor, and cost per action much also stays the same. Traditional vehicles such as (lead, order, or engagement) support a more general em- television still comprise the majority of total global spend- phasis on return on investment (ROI). ing on measured media. While some companies are mov- ing aggressively into digital marketing, others are taking Measurement. CMOs still struggle to holistically meas- a much more cautious approach. And traditional media ure results from integrated campaigns across traditional are not disappearing; vehicles such as radio, outdoor, and and digital media. We see a few companies starting to ad- television still work for specific marketing objectives. dress this issue by incorporating newer marketing vehi- They will continue to command the largest expenditures cles into their efforts to model return on marketing infor years to come. The CMO’s Imperative 11

14. Change on Every Front M aking the right tradeoffs across market- years. A few pioneering companies, such The LEGO ing vehicles today depends on under- Group in Europe, can point to social-marketing efforts as standing how each media category will a cornerstone of recent successes. (See the sidebar “Trans- evolve tomorrow. Does measured In- forming Marketing Brick by Brick.”) ternet advertising still have the capac- ity to grow? Is mobile advertising finally poised to take Across the social-media and marketing landscape, a few off? Can tablets rescue print media? Is television dead? social-media sites have emerged as the current front- runners. We hear very little agreement within the marketing community on these issues, even among the most successful Facebook. Almost all the respondents in our survey said business leaders. Few executives have a holistic and de- that their companies have built a presence on Facebook. tailed view of how the media landscape is changing in The site now boasts 500 million users and extensive glob- every key category, how various media are converging, al reach. The social-networking site is translated into 60 and how the entire media ecosystem is likely to evolve in languages and draws 70 percent of its users from outside the future. the United States. Given its draw, advertisers feel unable to sit on the sidelines, and CMOs are working Facebook Some of the following findings may seem old hat to some activities into integrated media campaigns. Facebook is CMOs, but when considered collectively, they suggest the now developing applications, games, and commerce en- contours of the new world. We hope that many leaders gines (such as Deals for Facebook Places) that expand op- will want to engage broadly on the integrated perspec- portunities for marketers. tives that follow—and in such an uncertain space, we hope that many different opinions will abound. Twitter. Another ubiquitous social-network-marketing opportunity is Twitter, which boasts more than 100 million user accounts. Limited to 140-character messaging Social Media bursts, Twitter is ideally suited for promotional activity such as announcing new-product introductions and spe- Companies have been surprisingly quick to begin experi- cial events, driving word of mouth, and responding to menting with and, in some cases, adopting as part of their consumer complaints. Humphry Slocombe, a 14-seat ice- media mix such social-media vehicles as social network- cream shop in San Francisco, announces its new flavors ing, viral videos on YouTube, blogs, and branded web- in edgy and entertaining Tweets (one printable example: sites. In our survey, 61 percent of the marketing execu- “Oh Carrot Mango, I thought love was only true in fairy tives we interviewed said that they were already tales, meant for someone else but not for me”). These experimenting with social media, and 27 percent had ad- have gained the store more than 300,000 followers on opted the vehicle as a core part of their media mix. More Twitter, compared with fewer than 25,000 followers for than 90 percent of executives in our survey planned to national chains Dairy Queen and Baskin-Robbins com- increase spending on these activities in the next few bined. 12 The Boston Consulting Group

15. Transforming Marketing Brick by Brick The LEGO Group is the owner of an iconic brand, a recipi- ◊ The next stage of the journey features the launch of ent of multiple awards for marketing excellence. Yet, as LEGO Universe, a multiplayer online world created to recently as 2004, the company was struggling. Since then, offer fans from all over the globe opportunities to safe- under a dynamic, young leadership team, the company ly build, play, and socialize together online. has accelerated out of the downturn stronger than ever. Transformation of marketing has been a key contributor Although some of these initiatives may sound sophisticat- to its success. ed, the company is acutely aware that digital integration must not become a barrier to experiencing the brand. To Traditional marketing to children will continue to play a succeed, it must balance aggressive expansion of digital crucial role, but The LEGO Group has increasingly made media with continued exploitation of traditional media. social media, viral media, and networks an integral part of the mix. The purpose of the evolving approach is not The LEGO Group considers internal capabilities a critical merely to add another medium but also to enhance the asset on this continuing journey. The company seeks both experience of physical play and build brand loyalty. Creat- to work with external partners and to develop internal re- ing platforms for communities also builds customer advo- sources. Standard technical platforms are also critical. cacy for the brand. Management of digital marketing has been fairly central- ized until now, but it will increasingly become a distribut- ◊ Online mini-movies, featuring properties such as Star ed capability. Wars and Indiana Jones, provide inspiration for play. This experience illustrates how the new digital reality re- ◊ “Design byME” enables online users to design unique quires a companywide perspective that fosters working products and ship them directly to their homes. across functional silos to encompass traditional marketing strategy, product development, and supply chain ca- ◊ LEGO Club, with more than 3 million members, offers pabilities. even very young aficionados access to the brand. ◊ Legoclick.com is an online community platform with posts, Tweets, and a link to an iPhone application. YouTube. YouTube is one of the most popular websites Groupon. Groupon became the most-visited coupon des- in the world, with more than 2 billion views a day. Of tination online in August 2010, with more than 6 million the top 100 advertisers (as measured by Advertising Age), unique visitors. The site combines elements of traditional 94 have run a campaign on the site. YouTube offers both promotions, digital media, and social networking by en- an advertising platform and—increasingly—a social- couraging users to bring their friends on board. Groupon networking opportunity through the active comments has been embraced by major retail chains such as Gap, section and extensive links with other social sites and along with smaller local businesses. The number of on- blogs. In September 2010, YouTube’s number-one spon- line visits and redemption rates at Groupon are high, in sor (measured by page views) was the skin care brand part because consumers commit by purchasing coupons Old Spice. The reason? The brand posted more than up front. 100 customized video responses to individual user comments taken from Facebook, Twitter, and blogs; each re- In the emerging category of social media, we’ve observed sponse was personally delivered by the actor playing the a few best practices. “Old Spice Guy” in television commercials. The campaign has gained wide recognition as a best-practice Listen to what consumers are saying. Companies have illustration of social-network marketing: it deploys shown they can gain valuable consumer input from on- humor, rapid response, and personalized customer en- line communities to drive innovation, customer service, gagement and taps the viral nature of Internet commu- and other critical operations. There is an increasing num- nities. ber of tools to help companies monitor consumers’ con- The CMO’s Imperative 13

16. versations on blogs, social networks, and other places on tial marketing and ethical issues, companies that engage the Internet. with customers via social media and blogs may face a real and increasing threat of legal action. Last year, the Begin to (cautiously) curate conversations with con- Federal Trade Commission issued guidelines that require sumers. To take advantage of blogs and use them as a companies to disclose “material connections” to bloggers, marketing vehicle, marketers must adopt a new role in a and the agency began initiating investigations against dialogue, becoming the curators of consumers’ conversa- companies that crossed into gray areas, such as offering tions—participating, sparking discussion, and shaping bloggers the opportunity to win prizes for their postings positive word of mouth. Maintaining dialogues with and without providing sufficient instructions about the need among consumers is often a very resource-intensive activ- for disclosure. ity. These dialogues can also entail a degree of risk if they are not monitored properly. Mobile Advertising Integrate social media online with your offline strategy. Both social media and blog conversations present Mobile advertising is a fixture in some advanced markets, excellent ways to amplify a brand, but it is quite difficult such as Japan and South Korea. (See the sidebar “Mobile to scale up efforts in these areas. Therefore, the most suc- in Japan.”) However in the United States and Europe, mo- cessful strategies integrate social-media initiatives with bile telecommunications has long been known by most other, more traditional media strategies to extend the marketers as the medium whose future is always around brand. Examples include using targeted television cam- the corner yet never quite arrives. Mobile advertising en- paigns to drive users to Facebook pages or linking spon- compasses several categories of ad vehicles, including sored events to social-media outlets. SMS/text messaging, mobile display and in-application advertising, promotional applications, and sponsored ap- Ensure that conversations are authentic and trans- plications. parent. Consumers demand honesty. In fact, in a survey of 5,000 consumers that BCG conducted across five coun- For most Western companies, mobile advertising has ac- tries earlier this year, respondents selected transparency counted for a very small percentage of the marketing (from a list of 12 options) as the top priority for online budget (typically less than 2 percent for our survey re- advertising. In addition to exposing themselves to poten- spondents) and often has been the first victim of budget Mobile in Japan Throughout much of the world, the mobile medium has their food orders. McDonald’s can even push targeted been—up to now at least—an insignificant piece of the coupons to the users based on their purchasing patterns. advertising puzzle. Not so in Japan, where mobile pay- ments have been used for about five years and have been Another DoCoMo innovation is its i-concier offering, a mo- adopted by more than 20 percent of consumers. These bile personal-assistant service that provides weather, payment technologies have several implications for ad- transportation, sports, and, of course, coupons to more vertisers: they provide a wealth of targeting data; allow for than 5 million users. With i-concier, users can customize point-of-purchase promotions and next-generation loyalty their services and manage their loyalty programs in a way programs; and enable much better measurement of ROI that minimizes unwanted spam. The service incorporates on mobile campaigns. data from a variety of sources including user preferences and GPS location-based data to ensure that the right of- NTT DoCoMo has been one of the leaders in this space. In fers are targeted to the right people. 2007, the company created a joint venture with McDon- ald’s to manage McDonald’s mobile communications to its loyalty club, including e-coupons and mobile campaigns. Consumers can download coupons to their phones while waiting in line, and then use them when they place 14 The Boston Consulting Group

17. cuts. Globally in 2009, the tracking service TNS reported alty program that allows users to check into locations in only $1.7 billion in expenditures on mobile advertising, return for special promotions. Another example, Shop- including both SMS and mobile display ads, compared kick, launched its application earlier this year, enabling with $182 billion spent on television advertising. its users to receive special promotions depending on where they are in its retail partners’ stores. Most of these We believe, however, that mobile media appear at long applications are still in the very early stages of develop- last to be coming of age, even in the United States. In fact, ment, and it still is not clear who the winners and losers more than 70 percent of survey respondents said they will be. Even the success of Foursquare has been called plan to increase their allocation to mobile advertising into question after the launch of Facebook Places, the so- over the next three years. As one participant explained, cial-media giant’s competing platform. “Mobile is a small area of our overall inventory, but it is a big investment area.” Some companies are even designing or sponsoring mobile applications of their own to appeal to consumers. Growth in mobile advertising has been boosted by the The most successful applications manage simultaneously proliferation of smartphones. Now that there are more to offer value to the consumer and closely reinforce brand than 50 million smartphones in use in the United States, equity. For example, Procter & Gamble’s Charmin part- marketers are getting excited about mobile display, such ners with Sit or Squat, an application that provides user- as mobile banner ads, and in-application advertisements. generated listings of public restrooms, complete with These advertisements allow companies to deliver an in- hours of operation and user ratings. credibly rich media experience to consumers using very specific targeting at the individual level, including geo- Given this type of news-catching “sizzle” in the mobile- specific, demographic, and even behavioral targeting. advertising market, many marketers are still asking, One major driver behind growth in mobile display adver- “Where’s the steak?” Admittedly, the large-scale effective- tising has been iAd—Apple’s mobile advertising network. ness of mobile advertising is still largely unproven. But (See the sidebar, “The $60 Million Experiment.”) given the recent developments, companies should con- sider a few critical steps: Now, a host of new start-ups are taking advantage of the uniquely mobile nature of the mobile device. The biggest Revisit your segmentation. Mobile phones offer an in- star has been Foursquare, the mobile application and loy- credibly rich set of targeting options, including not only The $60 Million Experiment Earlier this year, Apple completed the acquisition (and natural fit for coupons, promotions, and location-based subsequent closure) of Quattro Wireless, one of the larg- services. However, it remains an open question whether est mobile ad networks in the United States. The compa- the new displays and formats will be effective media for ny soon after announced the creation of iAd, an effort to brand advertising. Progress has been cautious, as Apple, create more-effective mobile advertising to drive revenue advertisers, and creative agencies learn to work together to its application developers. effectively on developing appropriate mobile campaigns. The new ad units would enable users to view ads without If the results of this $60 million experiment are positive, leaving the applications and would feature very rich me- several developments could finally take mobile advertis- dia. Apple attracted more than $60 million from premium ing off the sidelines. First, advertisers experimenting now advertisers, each of which pledged a minimum of $1 mil- have expressed a willingness to increase their commit- lion, for the second half of 2010—essentially doubling the ments. Moreover, other advertisers will likely begin to size of the mobile display market. make greater use of these mobile ad vehicles. And we would expect other ad-based platforms, such as Google’s The early demos have been visually impressive, but ques- AdMob, to follow in iAd’s tracks to develop new types of tions remain about the relative effectiveness of these new innovative ad inventory as well. ad vehicles. The mobile medium is widely perceived as a The CMO’s Imperative 15

18. traditional demographics but also, in some cases, behav- lions of consumers at once, making it ideal for awareness- ioral and geographic targeting. Understanding how the building campaigns. primary target segments line up against your mobile-targeting capabilities could have a dramatic impact on the Several key challenges are emerging, however, to the pre- effectiveness of your marketing programs. eminence of television media. Begin a program of planned experimentation. Ad-skipping behavior by consumers is on the rise. Ac- Because these are the early days of mobile cording to Nielsen’s Three Screen Report for media, it is not clear which programs will the first quarter of 2010, 37 percent of U.S. work—and which won’t. CMOs should be- Mobile advertising households now own digital video record- gin investing to understand which pro- may not be vital today, ers (DVRs), representing an increase in grams really “move the needle.” The first adoption of 6 percent per year over the but the learning curve targets should be mobile-advertising vehi- last two years. Media and reporting agen- cles that take advantage of the unique na- is steep—and it will cies have tried to downplay this develop- ture of the mobile phone: individual-level take time to get right. ment. For example, Nielsen’s numbers targeting and GPS- and location-based pro- claim that the time-shifted viewing of com- motions such as coupons. mercials has remained steady, with about 45 percent of commercials watched—even on DVRs. Hire an expert. In the field of mobile advertising, solid execution is both vital and very difficult. For example, an The consumer audience is fragmenting. Of course, advertisement may be rendered differently on different consumers are dividing their time across a wider array of devices. Messaging in mobile advertising is extremely im- media—often viewing several media simultaneously. But portant—limited space means that simple messages work even within the array of television offerings in the United best. Find an agency or hire someone internally who has States, we see a “trifurcation” of the broadcast and cable experience with these nuances. world. (See Exhibit 3.) At one extreme, popular content is becoming even more popular, thanks in part to the abil- Actively monitor developments in the market. The ity of consumers to time-shift viewing (although of course, world of mobile advertising is very dynamic. New en- this raises questions about whether ads placed in these trants, new experiments, and new competitive moves media are actually being watched). At the other extreme, emerge almost every day, and many of these develop- the explosion of niche content with high viewer engage- ments could provide incredible opportunities for your ment has helped attract those viewers at the long end of marketing programs. the tail. This will mean decreased viewing for the remain- ing “middle of the road” content; for example, far fewer Winners and losers in the mobile-advertising market will viewers will watch dated reruns of The Golden Girls. begin shaking out over the next couple of years. And while mobile advertising may not be vital today, the Advertisers desire flexibility in spending. Television learning curve is quite steep—and it will take time to get “upfronts”—the annual ritual in which networks pitch right. So now really is the time to begin these experi- their lineup of new programs to advertisers in hopes of ments if you hope to get a jump on your competitors. selling ad inventory in advance—are becoming increasingly challenging to maintain. With audiences fragmenting and new alternatives both on and off television aris- Television and Online Video ing practically on a daily basis, most marketers are not looking to make annual commitments many months out. Television—the epitome of mass media—is under pres- In fact, quite the opposite: savvy marketers expect to sure, but it continues to offer many advantages for tradi- evaluate their television ad campaigns in real time and tional marketers. Television still accounts for more than reallocate expenditures that are not achieving impact. 50 percent of global spending on measured media, making it by far the largest media vehicle. It remains one of Taking all the challenges into account, we expect televi- the very few mass-marketing vehicles that can reach mil- sion to undergo massive changes over the next five years. 16 The Boston Consulting Group

19. Exhibit 3. Television Viewing Will Shift to Top-Rated and Niche Content Future viewing patterns Number of consumers reached Consumer engagement with the content Future viewers Niche sporting events Lifestyle Current viewers channels Cable reruns Foreign-language Big three channels television networks Headliner events Exclusive and Broad, nonexclusive Unique “long-tail” top-rated content market offerings content Source: BCG analysis. Underlying all these changes is the ongoing shi from tra- form and oen user-generated content. Companies must ditional television to online video. Already, almost 50 per- ensure that their advertising appears only on brand-ap- cent of the U.S. population watches video on the Inter- propriate sites and that the video advertisement formats net—although the time spent viewing still averages only themselves are of a brand-enhancing quality. Over the around three hours per month per viewer. We expect this near-to-medium term, the combination of marketer pres- measure to rise, particularly as the proliferation of con- sure, the likely consolidation of video ad networks, and sumer electronics enable consumers (even nonengineers industry efforts—such as those by the Interactive Adver- and those over the age of 21) to easily access Internet tising Bureau in the United States—will likely help allevi- content directly through their televisions. ate these concerns. Right now, marketers are struggling with two extremes In online video advertising, marketers will continue to with regard to online video. At one extreme, premium struggle with measuring performance and, in particular, content is scarce in online video, as many premium net- creating the predictive models that link online ad spend- works have held back inventory to keep the cost per 1,000 ing to overall sales. As one marketing executive in a con- impressions or “ad views” (known as CPM) high. We sus- sumer-packaged-goods company explained to us, “Click- pect that this scarcity is likely to abate over the next cou- through rates aren’t really meaningful to my business. ple of years as premium cable-network content prolifer- With television advertising, I can clearly track the link be- ates on the Internet—particularly if the cable operators’ tween my media spending and sales volume li in a giv- “TV Anywhere” and “TV Everywhere” initiatives gain en week.” traction—and as television networks gradually increase the amount of inventory available online. As a result, marketers are not yet ready to move significant dollars away from television. In fact, overall televi- At the other extreme, marketers are overwhelmed by the sion expenditures are still high, although they continue to incredible amount of long-tail video offerings—that is, shi from broadcast to cable. The networks are still criti- the high volume of unique online videos, each one viewed cal for their ability to deliver a major number of eyeballs by relatively few consumers—many of which are short- in the mass market, as demonstrated by continued adver- T CMO’ I 

20. tiser support for large-scale audience events such as the ly crippled by the loss of classified advertising to Internet World Cup. applications. In response to these dramatic changes, we recommend If the past is any indication of the future, print advertis- that companies take the following actions: ing (in its traditional format) will continue to struggle over the next five years. In our survey, about 44 percent Move to a “zero-based-budgeting” approach for tele- of respondents said they planned to decrease spending vision advertising. Companies need on print magazine advertising in the next to understand what the real return on three years, while 62 percent said they television expenditures is. Building mar- Can tablets and planned to decrease spending on newspa- keting budgets from scratch—rather than e-readers rescue per advertising. Industry veterans also re- continuing to add annual increases to ex- ported seeing massive changes on the ho- isting advertising allocations—will help print magazines and rizon. In a recent interview with BCG, one them discover and reflect the new digital newspapers? senior executive from a leading fashion realities. Television will continue to have magazine predicted, “We believe that its place in the marketing mix, but too there will be no such thing as a magazine many of our clients have become overly reliant on tele- in five years.” vision over the years. Can tablets and e-readers rescue print magazines and Experiment with over-the-top video advertising. Mar- newspapers? For newspapers, the answer is maybe. For keters should try both long-form and targeted short-form magazines, however, tablets hold clear potential, given advertisements in online video. However, be careful to their ability to make rich content completely accessible ensure that your messages are associated only with video anywhere. content that is consistent with your brand. Tablets like the iPad, in particular, are strong vehicles for Work with cable multiservice operators and content magazine publishing, since they allow more creative fea- aggregators to create ad formats that work. The basis tures and color imagery to gain prominence. In addition, for the next generation of television advertising is being a tablet has the potential to deliver an inventory of ad- laid now. New technologies can help avoid ad-skipping vertising that combines the best of video, high-quality and create new ad formats that are more effective. Al- still graphics, and interactivity. ready, we have begun to see some experimentation, particularly in some areas of Europe—and some of it is more These are still the very earliest days of the tablet, howev- successful than others. To ensure that their voices are er, and the ecosystem for tablet advertising has yet to heard, marketers need to participate in the industry con- form. Through our analysis, BCG predicts that the in- versations that are now taking place. stalled base of tablet devices will reach approximately 100 million in the United States alone by 2014—and could rise substantially higher if corporations transition Print Media and the Promise business-use laptops to tablets. (For more on this topic, of the Tablet please see BCG’s 2010 White Paper Tablets and E-Readers: The Last, Best Chance for Digital Content?) Even a quick glance at the facts makes it clear that print media are in trouble. According to the tracking firm TNS, Once the installed base exists, both marketers and the print media fell from 41 percent of global advertising publishing industry will need to address several questions spending in 2003 to 33 percent in 2009, and almost all over the coming years, chief among them: the share lost shifted to the Internet. ◊ What are the standards for creative formats? Print magazines were slow to exploit their depth of content online, fearing cannibalization of subscription and ◊ How will all these creative formats be rendered on the newsstand sales. Meanwhile, newspapers were financial- individual devices? 18 The Boston Consulting Group

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