Consumer Electronics CMOs Survey by IBM

8/8/2019 Consumer Electronics CMOs Survey by IBM

1/12

Global Electronics CMO Study and Analysis

Executive Brief

The electronics CMO version 2.0

Changing the OEM marketers role in the consumer electronics industry

Lead author: Kanishka Bhattacharya, Sector Lead, Strategy and Market

Insights, IBM Global Electronics industry

Contributions by:

Paul Brody, Partner, Global Electronics Industry, IBM Global Business

Services

Erika Asante, Director of Strategy and Marketing, IBM Global Electronics

Industry


2/12


2

Rethinking the role of marketing in the

electronics industry

A profound change in the way consumers research and buy

electronics has begun. With the rise of the next-generation

Web and the 3-D Internet, the number of consumer touch-

points increases exponentiallyposing both an opportunity

and a threat for marketers in global electronics original

equipment manufacturer (OEM) companies. Just as there

are many more direct avenues available to reach consumers,there are also many more ways people can access and

share information about a company, its brand, and its prod-

ucts and services.

In response, the battle for consumer mindshare has intensi-

fied. OEMs are experiencing heightened competition from

retailers promoting their own private brands, as well as

increasing pressure on profit margins at both ends of the

value chain. In this environment, product innovation remains

a high priority, but if electronics OEMs fail to engage con-

sumers and provide more comprehensive solutions to their

needs, this innovation will be in vain.

This new focus requires actively accounting for and manag-

ing the full range of customer touchpointslooking for more

effective ways to interact with electronics seekers to learn

whats important to them. And it means teaming with com-

panies both inside and outside the electronics industry to

translate that knowledge into novel, highly differentiated

solutions that enhance, perhaps even help define, targeted

consumer lifestyles. Marketing stands at the vanguard of this

change.

This executive brief describes how electronics OEM market-

ing has evolved and how it still needs to change. It is based

on information from IBM interviews with chief marketing offi-

cers (CMOs) of top consumer electronics companies world-

wide, a 2008 IBM survey of multinational consumerelectronics marketers, and IBM secondary research. It high-

lights the challenges that CMOs and marketing executives

face in:

Better supporting new consumer buying behaviors

Successfully addressing channel conflicts

Enabling more complex product and service collaboration

arrangements

Redefining the marketing function in their own companies

The report concludes by exploring how these marketers are

taking advantage of the changing trends, what strategic bets

they are making, and how they are becoming more effective

in conveying the voice of the consumer to all parts of the

company.


3/12

3

Understanding the new breed of

electronics consumer

For research purposes, IBM conducted face-to-face and

phone interviews with CMOs and top marketing executives

of leading consumer electronics firms worldwide. IBM ran

surveys to gauge consumer buying behavior. IBM also per-

formed secondary research and applied quantitative analy-

ses of publicly available information to define a new breed of

electronics consumer.

This research effort found that the new breed of electronics

seekers are skeptical of push ads and expect the product

research and buying experience to be more collaborative.

Experienced with Web 2.0 and 3-D Internet capabilities, they

are expressive online and influenced by peers. Many of their

perceptions about electronics companies and products are

formed through user-generated content sites that include

wikis, blogs and YouTube, Internet social networking sites

such as Facebook and MySpace, as well as interactive sites

like the virtual worlds in Second Life. The majority rely on

Web-based research to narrow the choice of brands, explor-

ing dealer Web sites, online product reviews, and shopping

comparison and price arbitrage Web siteseven eBay. In

addition to a greater voice in how and what they buy, elec-

tronics seekers also expect a consistent experience, no mat-

ter how many channels they cross in the process of learning

about and purchasing products. And many prefer to buy

online.

In contrast to online shoppers in general, online electronics

seekers are more often early adopters who are willing to pay

premiums for products that save them time and that are

consistent with the image they want to project. They are

eager for new gadgets, but are less enamored with technol-

ogy for technologys sake, as they are interested in how it

can enhance their lives. For that information, they rely heavily

on consumer opinion sites.

To further validate its findings about this new breed of elec-tronics consumers, IBM presented the research results to its

CMOs and marketing executives in one-on-one interviews.

The executives confirmed that they are seeing the emer-

gences of the same consumer behaviors, resulting in the

need to address them directlythrough relevant channels

and altering the role of marketing in the process.

Exploiting next-generation Web

technologies to engage consumers on

their terms

Consumer sophistication and the weakening reach of some

traditional media mean that electronics companies cannot

afford to neglect new marketing channels. Indeed, every

respondent to the CMO study by IBM was using at least one


4/12

4


Web 2.0 channel to connect with customers. Their embrace

of Web 2.0 was not without misgivings, however, as more

channels mean more complexity in customer interactions

and more technology complexity.

We want to have a continuous, ongoing

dialogue with the customer, and new Web

technologies enable us to do this efficiently.

By having this conduit to the consumer, we

are also better able to manage our brand

perceptions.

VP marketing, global electronics company

By examining how many channels a marketing message

may need to cross these days, its easier to understand how

and why complexity is increasing. To reach consumers and

create awareness, OEM marketers are moving from print,

radio and TV to online viral marketing or advergaming (the

insertion of ads in video games and the creation of custom-

sponsored games) to create buzz about an offering. Once

interest is generated, marketers lead potential buyers to seri-

ously consider the OEM solution by encouraging loyal cus-

tomers to share their experiences with other consumers

through blogs or by creating a space in Second Life where

people can immerse themselves in the brand experience.

To help move the consumer from simple consideration toactual preference for the OEM offering, 3-D modeling capa-

bilities on the company Web site enable potential buyers to

visualize products more easily and even collaborate on

design. Some companies use simulations to allow for prac-

tice interactions and to enable the buyers to get the most

value from the offering after purchase.

Blogs, wikis and other user-generated

media are absolutely essential to spreadingour marketing messages through consumer

brand champions. This network effect is

most critical.

CMO, global electronics companyIBM survey participants responses to the question: What Web 2.0 technolo-

gies are you currently using?


5/12

5

The CMOs and marketing executives interviewed by

IBM also indicated that their organizations use Web tech-

nologies not only to interact with customers, but also to

interface with suppliers and business partners and manage

collaboration internally. The ultimate objective is to enhance

the consumer experiencewhich helps create loyal cus-

tomers who become contributors to user-generated media

that positively affects the considerations of other potential

buyers.

As data from internal and external interactions is collected

and shared, new knowledge is created to further this objec-

tive. For example, a sales support team can use a wiki to

monitor consumer concerns about product trends and fea-

tures. Its easier to find experts within the company and

business partner organizations to make decisions about

solution enhancements when blogs allow people to evaluate

authors opinions.

Managing retail channel conflicts

The addition of more messaging paths is not the only ele-

ment of increasing complexity being managed in marketing

departments. Consumer electronics and general retailers

encroach more and more upon the core spaces of OEMs.

Well-known examples are Best Buy and Circuit City. Best

Buy is moving into the product development and commer-

cialization space with its market researchers, design engi-

neers, manufacturing partners and usability experts creatinga line of private label brands (including the Insignia,

Rocketfish and the Geek Squad). Circuit City concentrates

IBM survey participants responses to the question: What are you using

Web 2.0 technologies for?

IBM survey participants responses to the question: How do you view the

threat from retailers encroaching into OEM territory?


6/12

6


on customer service with its firedog specialists who provide

retail support, PC support, and installation and integration

services. More than three-quarters of IBM survey respon-

dents acknowledged the threat from retailers.

Retailers, in the long run, are not very

loyal to manufacturer relationships, and we

have realized that it makes sense to diver-

sify our channel options.


Retailer encroachment results in revenue loss for OEMs and

intensifying competition for consumer mindsharejustifying

multichannel OEM strategies. Most OEMs no longer focus

solely on the retailer to distribute their products. They con-

sider more direct channelsguiding electronics consumers

to their own company Web sites and creating their own

company Web stores. Some, like Sony and Apple, have

retail stores.

This strategy makes sense in view of the fact that electronics

consumers switch channels at will when researching prod-

ucts to buy. They look at manufacturer and retail Web sites;

they look at product and consumer reviews and online shop-

ping comparison sites. They may even visit the local retail

stores and available OEM outlets.

With electronics consumers showing a high readiness to

move across both retail channels and marketing channels at

will, OEMs are finding an opportunity to create a greater

impact and brand identity and achieve higher-margin sales

through direct sales. If electronics seekers are going to OEM

Web sites as part of their research, OEMs are also trying to

make it easy for them to move right into the purchase phase

by providing a convenient, well-designed Web store as part

of an immersive online experience. Because most electron-

ics seekers prefer to shop online, the OEM has a greaterchance of capturing sales at this pointparticularly when

retailer Web stores fail to adequately serve the information

needs of the consumer.

The incentives for direct sales channels are compelling.

When an OEM sells indirectly, it usually has to provide a

retailer discount of up to 24 percent, significantly decreasing

gross margins. Based on IBM analysis, the OEM stands to

gain five to nine times the profit margin by dealing directly

with the consumerseven after deducting additional operat-ing costs for maintaining the direct channels.1

In addition to bottom-line improvement, direct sales chan-

nels enable OEMs to own the consumer relationship, creat-

ing the kind of experience that can make them loyal to the

brand. A significant majority of respondents in the IBM sur-

vey indicate that there is a distinct advantage to better


7/12

7

managing their brands through direct marketing channels. All

cited the ability to obtain better customer analytics. Nearly

80 percent said they were able to better frame brand mes-

sages and 69 percent said that direct channels increased

the chance of repeat business.

We will sell direct soon and we will deliver

content and services online. At this point,

[if] there is a group of customers who want

to buy direct, we should enable that. There

are so many online sellers already, but this

is not competitive with our main channel.

Its low risk.

CMO, global electronics company

Other studies bear out this last point. An IBM Institute for

Business Value study shows that nearly 80 percent of con-

sumers commit to a deeper product or service relationship

with a brand after a satisfying experience. And more than

80 percent will recommend the brand to friends and family.2

With a few notable exceptions, most electronics OEMs have

been slow to capitalize on the benefits of direct sales for fear

of angering their strategic retail channel partners. Just one-

third of the marketers surveyed by IBM said their company

currently has a direct online retail store and 11 percent have

brick-and-mortar stores. Of those that dont have a direct

retail channel, however, 42 percent are planning on develop-

ing one in the future.

Ultimately, for an OEM managing multiple channels, the chal-

lenge becomes:

Through which channels should I sell?

How do I make sure that I have the optimal channel mix to

maximize my profit?

How do I get the consolidated channel information I need

to successfully create and manage this comprehensive

channel strategy?

IBM survey participants responses to the question: Is there an advantage to

better managing your brand through direct online channels?

IBM survey participants responses to the question: Do you have a direct

retail store? If not, are there plans to build one in the future?


8/12

8


Forging unlikely relationships for

competitive advantage

Price pressures and product commoditization encourage

OEMs to forge nontraditional relationships to create

differentiation. The electronics industry revenue growth has

slowed considerably and OEM margins are hovering at 2 to

3 percent. Compare that with margins of component suppli-

ers, such as semiconductor providers, at 23 to 25 percent

and to retailers between 4 to almost 6 percent.3

The OEMsare getting squeezed at both ends of the value chain.

In addition, electronics product lifecycles are already very

short. Products often become commodities within a few

months of being introduced to the marketplace. Because

most electronics products are built with standard compo-

nents, competition centers on specifications, such as size

and weight, and most importantly, price. As with all com-

modities, demand becomes highly volatileslight changes in

price and features can send demand for one brand soaring

and the others plunging.

Partnerships with companies outside our

industry are driven by two main reasons:

reaching a broader base of consumers, and

shortening our solutions development

lifecycle time.


In response, consumer electronics OEMs are looking for

more creative ways to sustain competitive advantage.

Recognizing that consumers have little interest in putting

together their own solutions, companies are creating mar-

keting relationships with other brands inside and outside the

electronics industry to address a range of consumer needs

and desires. The goal is for the jointly provided solutions to

enhance the consumers lifestyle and become part of the

image these consumers want to project.

LG has capitalized on this phenomenon quite well with its

Prada phone. With an avant-garde design, and association

with a high-end fashion brand, LG has greatly improved

brand perception and created a niche in the high-end fash-

ion cell-phone market with a differentiated product. Another

innovative brand relationship is that between Walt Disney

and Nintendo. Disneys animated films help drive gaming

sales, which in turn help drive DVD sales of movies that then

increase gaming salesa virtuous cycle that increases rev-

enues all around. Examples abound and can be complex,

but the idea is that by associating the OEM brand with

another positive brand, the companies are creating differenti-

ated value in the eyes of the consumer.

IBM survey participants responses to the question: Apart from product inno-

vation, how are you trying to differentiate yourself in the market?


9/12

9

Over 90 percent of respondents in the IBM survey said that

there was a decided advantage to associating their brands

with other quality brands. They felt that such collaborative

relationships were beneficial for a number of reasons, includ-

ing the ability to close more business, extend geographic

coverage and expertise, and expand the customer base.

We need to build a set of skills around

customer management. Companies likeP&G [Proctor & Gamble] have big teams

that focus on nothing but managing big

retailers like Wal-Mart and they do a great

job. We need that.

CMO, global electronics company

Evolving the CMOs role to become the

voice of the customer

All this change has created the need for the marketing func-

tion to assume a more strategic role inside the organization.

Increasingly, the electronics CMO must become the voice of

the consumer in their companies. They must take a more

influential role in determining what products, marketplaces,

geographies, channels and relationships to develop, and

how.

This new CMO not only has to be a creative person who

thinks about the brand definition and how to identify and

interact with targeted consumers, but also the operational

person who thinks strategically about how to effectively

manage conflicting channels, engage in profitable collabora-

tive relationships, and help ensure a positive customer expe-

rience at all touchpoints in the organization (most of which

are out of the marketing departments control). And they

must be able to gently lead the organization to accept this

new role for marketing.

In the last few years, the proof that this can work is evi-

denced in the recruitment by electronics companies of

CMOs from consumer packaged goods companies like

Coca-Cola, Proctor & Gamble, Kellog and General Mills. The

message these cross-industry hires bring to consumer elec-

tronics is that the successful CMO achieves the right solu-

tions the first time. Learning from IBMs survey participants,

there are four strategic responsibilities the CMOand the

marketing function supporting the CMOmust take on.

IBM survey participants responses to the question: Is associating your brand

with another quality brand an advantage?


10/12

10


1) Know the consumerSuccessful CMOs track shifts in consumer expectations and

technology. They keep up-to-date on new consumer

resources and are able to monitor whats being communi-

cated about the company, brand and products. And they

are able to translate this information into the positive cus-

tomer experiences that help boost market share.

Product and market-segment marketing is being super-

seded by a focus on the goals, attitudes and behaviors of

different target marketplace groupsnot just their demo-

graphics. This requires active interaction with consumers

what they need to make their lives easier, what they like to

do, how they perceive the OEM brand relative to competitive

brands, what groups they are part of, and how they seek

information and share experiences.

2) Lead and coordinate the customer experience

The effective CMO takes on the role of champion for the

customer across the enterprise and business ecosystem.

This involves creating a vision for how the customer experi-

ence can be changed, and involving partners and functional

and divisional leaders in executing on the vision. The new

CMO also understands and communicates breakthroughs

and new opportunities in customer experience management,

including new research techniques (such as advocacy met-

rics), new design techniques (such as moment-of-truth

analysis) and new modes of operation (such as using new

media in creative ways). Essentially, the CMO is becoming a

megaphone for the voice of the customer across the

organization to make sure that each customer interaction is

positive. By enhancing the total consumer experience, the

CMO can improve the chances that consumers will become

advocatescontributing to the marketing effort by influenc-ing product preferences among their peers on social

networks.

3) Evolve the marketing structure

Old-model customer electronics firms were usually driven by

the highly developed research and development organiza-

tion. The engineers developed the products and marketing

promoted them to the marketplace. Now the consumer-

derived requirements come from marketing. Even marketing

IBM survey participants responses to the question: What aspects of market-

ing need to evolve the most within your company?

IBM survey participants responses to the question: What are your priorities

for marketing transformation in the next year?


11/12

11

organizations are changing to better serve customer groups.

The pyramid structure is evolving to support closer interac-

tion with the infrastructure that drives marketing and technol-

ogy. And the metrics used to gauge marketing effectiveness

are changing. They now revolve around how well marketing

is getting the consumer involved.

4) Acquire a new framework of capabilities

Essentially, the new marketing framework being adopted by

electronics consumer marketers provides a comprehensiveview and perspective on building and aligning marketing

operations. Where the traditional view may have been limited

to items such as brand, creative and campaign execution,

the new framework includes sophisticated attributes of cus-

tomer management, organizational design elements and

marketing infrastructure. This framework can be used to

evaluate, understand and plan for marketing operations that

are forward-looking, flexible and responsive to both external

changes and internal, organizational demands.

Based on the new consumer and competitive realities, elec-

tronics companies are assessing the maturity of their mar-

keting organizations across five dimensions:

Marketing definition and insight

Strategy and investment prioritization

Customer experience and dialogue

Differentiated marketing execution

Business performance management

Because the mix and level of enablement can differ for each

company, a modular approach to marketing transformation

is being employed, allowing a dynamic choice of entry points

and capabilities:

Assessing the current business model and operations

How are we doing it now?

Visualizing the future state business model What should

we be doing?

Gaining deeper understanding of the organizations con-

sumer base and operational capabilities How should we

be doing it?

Defining how to organize and prioritize strategic, process

and technology initiatives to deliver the desired future

state When should we be doing it?

The resulting strategic framework is a solid starting point.

CMOs are finding true success in how the strategies are

applied and implemented in the boardroom, through the

channels and in the field. How these perspectives manifest

themselves in action is the true test of the CMOs skills and

abilities.


12/12

Lessons learned at IBM,

internally and with clients

If the challenge of marketing transfor-

mation could be summed up in a single

word it would be this one: complexity.

Building and maintaining a high-value

global brand has always required a bal-

ance between developing a strategic

vision and managing the finest details of

customer experience. More channels

and technologies are making that bal-

ancing act more difficult.

IBM has learned some key lessons in

our work: internally in our transforma-

tion, in our external strategy and advi-

sory work, and in our operational work.

Our lessons are based on the delivery

of online experiences to a huge range

of clients, from retailers to e-commerce

specialists to media companies.

The first lesson is that marketers plan to

gobut customers are already there.

More often not, from blogs to wikis to

video games, fans and critics are

almost always the first adopters and

that is not going to change. An

approach focused on collaboration and

communication is much more likely to

pay dividends than a confrontation or a

turf-war.

A second critical lesson learned from

multiple client engagements is that

whether offline or online, in person or

over the phone, differentiating

experiences and the most differentiating

brands rely on emotional appeal.

Whether they inspire loyalty or love or

pride or a feeling of uniqueness, brandsthat make customers feel special are

the most valuable. The new online

channels have the same ability to cre-

ate an emotional experience as any

other medium.

Finally, and most importantly, it all starts

and ends with the customera single

individual engaged with a brand. While

every company segments its customer

base, the enterprises that can paint a

compelling personal portrait of their

customerstheir needs, wants, and

situationare the ones that are able to

forge the most consistent and high-

value experience across channels.

For more information

IBM provides a wide range of marketing

and strategy services to global electron-

ics industry companies. Our client serv-

ice teams blend our experienced

consultants with IBMs own internal

marketing leaders and our technology

experts to develop solutions that can

connect business strategy to detailed

execution.

To learn more about this IBM study and

vision for the evolving role of OEM mar-keting, visit:ibm.com/electronics

Copyright IBM Corporation 2008

IBM Global Services

Route 100

Somers, NY 10589

U.S.A.

Produced in the United States of America

December 2008

All Rights Reserved

IBM, the IBM logo and ibm.com are trade-

marks or registered trademarks of International

Business Machines Corporation in the

United States, other countries, or both. If these

and other IBM trademarked terms are marked

on their first occurrence in this information with a

trademark symbol ( or ), these symbols indi-

cate U.S. registered or common law trademarks

owned by IBM at the time this information was

published. Such trademarks may also be regis-

tered or common law trademarks in other coun-

tries. A current list of IBM trademarks is available

on the Web at Copyright and trademark infor-

mation atibm.com/legal/copytrade.shtml.

Use of the information herein is at the recipients

own risk. Information herein may be changed or

updated without notice. IBM may also make

improvements and/or changes in the products

and/or the programs described herein at any

time without notice.

References in this publication to IBM products or

services do not imply that IBM intends to

make them available in all countries in which

IBM operates.

1

IBM Electronics CMO Study: Analysis of elec-tronics retailer and OEM operating margins,

March 2008.

2 IBM Institute for Business Value: Not Business

As Usual Changing Channels in Consumer

Electronics, December 2006.

3 IBM India Research Hub Analysis of annual

reports for selected panel of semiconductor

suppliers, consumer electronics OEMs and

retailers where segment reporting was available.

ELE03003-USEN-00
http://www.ibm.com/electronicshttp://www.ibm.com/electronicshttp://www.ibm.com/electronicshttp://www.ibm.com/http://www.ibm.com/legal/copytrade.shtmlhttp://www.ibm.com/legal/copytrade.shtmlhttp://www.ibm.com/legal/copytrade.shtmlhttp://www.ibm.com/legal/copytrade.shtmlhttp://www.ibm.com/legal/copytrade.shtmlhttp://www.ibm.com/http://www.ibm.com/electronics

Documents

Consumer Electronics CMOs Survey by IBM