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Opportunities for Action in Consumer Markets
Darwin Pays a Visit to Advertising
Darwin 7/14/03 12:09 PM Page 1
Darwin Pays a Visit to Advertising
Marketing communications is rapidly evolving, andmany consumer companies—along with most advertis-ing agencies—risk being left behind. Trying to out-shout the competition in a mass-media environmentthat is increasingly expensive and cluttered can leadto frustration and low returns. Precision is the opera-tive word today: precision in targeting consumers,identifying their needs, analyzing their purchasingpathways and media behaviors, calculating the effi-ciency and effectiveness of alternative channels, and,most important, linking spending to results. To sur-vive this evolution, companies need to reallocatespending and acquire new capabilities for assessingtheir investments with greater quantitative rigor.
For the past several years, The Boston ConsultingGroup has been helping leading-edge companies takeapart the traditional marketing value chain and put itback together in ways that are more effective in thisnew environment. As a result, these companies haveadvanced their ability to turn consumers into loyalcustomers, achieving a measurably higher return oninvestment. In short, we have found a better formulafor effectiveness, efficiency, return, and share gain.
Clutter and Confusion
Three decades ago, the imperative of advertising wasrelatively straightforward: deliver a compelling mes-sage to consumers through the mass media. Segmen-tation wasn’t an issue, because there were fewer televi-sion channels and everyone watched them. Metricsdidn’t play a large part in the equation, either. Thelong-term benefits of brand building were so clearthat measuring short-term results—a difficult calcula-
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tion—was overlooked. Naturally, advertising agenciesfocused on their highest-value-added capabilities: cre-ating attention-getting ads and achieving the scalenecessary to negotiate deals with networks and othermass-media providers. The message was king. Themedium was network TV. The returns were com-pelling.
That world is gone. Proliferating media clutter hasled to declining advertising efficacy. From 1980 to2000, the number of ads that the average consumersaw per week increased by about 70 percent, to 475,yet CPMs (costs per thousand impressions) for prime-time TV nearly tripled. Massive channel fragmenta-tion (the average consumer watches 13.2 channelsper week) has made it easier to target specific seg-ments but harder to get broad reach. (See Exhibit 1.)When you take all these factors into account, theoverall cost of reaching consumers between the agesof 25 and 54 has increased 300 percent since 1995.No wonder marketers are finding that alternativechannels—such as public relations, guerrilla market-ing, and, of course, the Internet—can be more pro-ductive than TV advertising, especially when technolo-gies such as TiVo in its latest forms allow consumersconsiderable control over what they watch.
As a result of these changes in the marketing envi-ronment,
• most forms of advertising are less effective thanthey used to be
• channel efficacy can vary widely depending on thetargeted consumer, message, and campaign goal
• the ability to launch an integrated, holistic cam-paign across alternative channels has become criti-cal to reaching targeted consumers
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More ChannelsNumber ofchannels
90
80
70
60
50
40
30
20
10
1950 1960 1970 1980 1990 2000 2001
Average number of channels available
per home
Channelsviewed weekly
More AdsAveragenumber ofads seenper week
500
400
300
100
1980 1990 2000
Higher CostsNetworkprime-timeCPMs ($)
20
15
10
5
1975 1980 1985 1990 1995 2000 2003
200
SOURCES: Magazine Publishers of America; TV Dimensions; MediaDynamics; BCG analysis.
Exhibit 1. TV Fragmentation, Clutter, and Costs Are Increasing
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Most old-style agencies have adapted too slowly tothese changes. Even worse, they sometimes stand inthe way of alternative strategies that are potentiallymore successful.
The Reconstructed Value Chain
Today, both marketers and advertising agencies arebeing forced to rethink how they develop and exe-cute campaigns. Consider the value chain for market-ing communications:
Business strategy—Marketing strategy—Creative/Production—Media services—Measurement
Most companies still allocate the bulk of their market-ing investments to creative/production and mediaservices. But progressive marketers are taking apartthe value chain, reallocating investments, and experi-menting with new models. The most promising newmodel places greater emphasis on business strategyand directs investment to the two parts of the chainthat add the most value today: marketing strategy andmeasurement. (See Exhibit 2.) The shift in focus isdriven by the new requirements for innovation,insight, integration, channel experimentation, andmeasurable returns. Here’s how each section of thevalue chain is adapting for the future:
Business strategy is developing tighter links with mar-keting strategy because today the imperative to havesomething to say is more important than ever. Con-sumers tune out advertisements when the productinnovations they tout aren’t relevant to their needs. A company would be better off shifting marketing-communications dollars into new-product develop-ment or merchandising. An ad dollar spent introduc-
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ing Procter & Gamble’s Olay Daily Facials cleansingcloths is worth a lot more than an ad dollar spentreminding consumers that Ivory soap still exists.
Marketing strategy is receiving more attention andinvestment as well. In a complex environment, why acompany markets must be carefully aligned with what,when, where, and to whom it markets. Focus groupsand conventional testing won’t tell you what messagesto send to which consumers. Nor will they tell youwhen an alternative approach—such as a public rela-tions campaign—would be more effective than usingmass media. For example:
• Georgia-Pacific’s public relations campaign to find“the new Brawny Man” for its brand of paper tow-els generated millions of media impressions forroughly one-third the cost of equivalent televisionexposure, and it resulted in a significant salesincrease.
• Kraft Foods used a “viral” campaign to jump-startits U.S. launch of Altoids breath mints. It started inSeattle with billboards and creative print ads inalternative newspapers, testing to learn whatworked before moving on to other markets. Byfocusing its message, the company was able tobuild a brand that generates $125 million in salesannually while spending less than $12 million peryear on advertising.
• Vespa USA used brand ambassadors to createexcitement in the United States about its newscooters. It hired glamorous models to ride themto popular hot spots in Los Angeles and talk aboutwhy they loved their Vespas. The company spentonly $5 million—a minimal amount for market-ing—yet doubled its sales.
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Creative and production are still critical, but marketersare making them work in ways that will be moreattractive for today’s consumers. For example, a com-pany’s creative partners used to function more or lessindependently of one another. Now, because frag-mented channels call for more integration, all part-ners are being asked to coordinate with one anotheras well as with the company’s internal operations. In arecent poll conducted for Advertising Age by the NewYork American Marketing Association, three-quartersof the respondents considered the toughest aspects ofintegration to be executing strategy consistently in acampaign and measuring the success of each part.
Some companies are making a chief creative agencyresponsible for the creative strategy, while subordi-nate partners (responsible for direct mail, public rela-tions, and sponsorships) build on that strategy. Othershave found agency-led efforts at coordination andintegration unsatisfactory, so they are bringing thecoordination role in-house. That eliminates the needfor a chief agency and lets a company select the bestof the breed on a project-by-project basis. But itshould be clear who’s in charge. In the same pollmentioned above, most agencies said they were usu-ally in charge, but less than 5 percent of companiesthat hire agencies said that was the case.
Business andbrand strategy
Holisticmarketingstrategy
Old world
Tighter linkages Deeper capabilities,more investment
Commoditization:coordinated and aligned incentives
Deeper capabilities,more investment
Production
Robustmeasurement and
research
MassDirect
OnlinePR
Othercreative
Chief creative
Coordinated integration
Businessstrategy
New world
Marketingstrategy Creative Production Media services Measurement
Othercreative
Othercreative
Services
Production
Production Services
Services
SOURCE: BCG analysis.
Exhibit 2. The Evolution of the Marketing Value Chain
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Media services are being split into media planning andmedia buying, and media planning is becoming morescientific. Some companies are bringing it in-house tominimize costs, while others are asking for moreanalysis from their media-services companies. Thatmight include data on projected and actual reach, aswell as research that helps tailor billboard messagesfor specific neighborhoods or calculates the propor-tion of targeted consumers in each channel’s audi-ence. Meanwhile, media buying is being commodi-tized. Most companies are separating it from agencyactivities and managing it to minimize costs, whichmeans that time is bought and sold by the clock, andvalue is based on the popularity of time slots.
Measurement is getting much more attention andinvestment today—as much as 5 to 10 percent of totalinitial spending. What is being measured is changingas well. There’s no point in determining how manyconsumers have seen an ad if you don’t also measurehow effectively awareness leads to purchase. Manycompanies are experimenting with new ways to isolateand test the impact of such key factors as the advertis-ing mix, range of coverage, and message on each tar-geted segment. The results will go into a knowledgedatabase to help ensure that future campaigns pro-jected to generate high returns get ample funding,while those with lower projected returns get cut.
Delta’s New York City Campaign
The new marketing value chain suggests dramaticchanges to managers, especially in how they shiftinvestments to alternative channels.
Consider Delta Air Lines’ recent venture into alterna-tive forms of marketing. The airline industry is highlycompetitive and swimming in excess capacity—and no
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more so than in the New York City area. In 2002,Delta committed itself to improving its position inthat market. But rather than rush into a large andexpensive media campaign focused on its traditionalmessage and segments, it directed its resourcestoward understanding the critical purchasing driversof its most valuable potential customers. One of theinsights it gained was that speed is a powerful differ-entiator for the profitable business traveler. Whenother factors—such as ticket prices, flight routes andfrequency, and frequent-flier loyalty programs—areroughly equal, speed is key.
To lessen the time its business travelers spend in air-ports, Delta realized that it needed to invest in what itdid as much as in what it said. So it redesigned air-port flows and added electronic kiosks to speedcheck-in. It also improved online check-in by makingit possible, for example, to print boarding passes athome or at the office. Then, before it launched amass-media campaign to advertise these enhance-ments, Delta targeted a small subset of its best cus-tomers for a guerrilla marketing effort. Working withan outside partner, Delta brought its own data on itsmost valuable business customers together with datafrom a media buyer. Slicing and dicing the data byZip Codes and other factors, it was able to determineprecisely where in the city—down to the neighbor-hood level—its target audience lived and worked.
With that information, Delta directed the media-buying agency to the streets and phone kiosks whereposters announcing the speed message should go. Italso enlisted hot-dog vendors and restaurants in thoseareas to use coffee cups and bags imprinted with theDelta message. This was particularly effective: sincebusinesspeople typically take back to the office thecups and carryout bags they acquire with breakfast orlunch, the message received an even wider audience.
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Furthermore, it’s often during downtime—midmorn-ing break or lunch—that business workers make travel arrangements. And there is Delta’s messageabout speed right in front of them.
Finally, building on the momentum from the guerrillaeffort, word-of-mouth buzz, and good public relations,Delta launched a more efficient mass-media campaignwith precision targeting. It knew not only where NewYork business travelers lived and worked but also whattelevision and radio stations they listened to andwhich magazines and newspapers they read. Theresults: a 25 percent increase in the number of flierscalling Delta their “preferred airline” and a 200 per-cent increase in the number of fliers calling Delta“innovative.” Key brand equities increased by 7 per-cent, and brand preference rose from 15 percent to19 percent.
Imperatives for Success
As new advertising and marketing models take hold,the move to integrate business strategy with market-ing strategy and the added emphasis on research andmeasurement will be among the most importantchanges required of marketers. Some are alreadylooking for partners that can help them bring quanti-tative rigor to the front and back ends of the valuechain and align the value chain in a fully integratedmedia plan by segment, message, and channel.Others are restricting their current agencies to thesections of the value chain in which the agencies owna competitive advantage—focusing them on creative,for instance, rather than on strategy and research.Still others are planning to develop in-house capabili-ties. All of these companies are realizing that it’s thecombination of strategy and analytic tools that willgive them accurate data and optimal impact.
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Here are some of the critical issues and questions thatconsumer companies should consider as they preparefor a new marketing environment:
Assessing the Company’s Capabilities and Focus
• Are the product and service concepts in thepipeline competitive and sufficiently meaningfulfor consumers, or should marginal marketing dollars be reinvested in innovation?
• Do we understand our targeted consumers’ needs,purchasing behavior, and media habits, and do weknow how to reach these consumers?
• Was our last campaign integrated across channels?Did we get the right messages to the right con-sumers through the right channels, and were themessages consistent and reinforcing?
• Do we know the total ROI for our last marketingcampaign? By channel?
Assessing Partners’ Capabilities
• Do our agency and media companies understandthe efficacy of different channels for our targetedconsumers? Are they willing to recommend alter-native channels or do they default to the ones theyknow best?
• Are we optimizing the value chain and moving tobest-of-breed services throughout?
Reallocating Resources
• Are we increasing our allocation for marketingstrategy to ensure a complete understanding of tar-geted consumers and their lives?
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• Are we increasing our use of quantitative methodsof media planning and making it a part of market-ing strategy?
• Are we conducting holistic campaigns, and do wehave sufficient internal resources to maintain inte-gration throughout the effort?
• Are we spending close to 10 percent of our dollarson measuring efficacy and using what we learn tofine-tune our decisions?
Marketing communications is evolving from tradi-tional advertising to more strategic forms of commu-nication. From now on, a company’s survival willdepend on its ability to integrate business strategywith communications strategy and to accurately measure the returns. If today’s ads don’t add up toexpected returns, it’s because the equation is wrong.
Michael S. DeimlerMark Kistulinec
Tracy HankinRich Hutchinson
Joey Reiman
Michael S. Deimler and Mark Kistulinec are vice presidentsand directors in the Atlanta office of The Boston ConsultingGroup. Tracy Hankin and Rich Hutchinson are man-agers in the firm’s Atlanta office. Joey Reiman is CEO ofBrightHouse, an ideation firm, and formerly CEO of TheJoey Reiman Agency, an advertising firm.
You may contact the BCG authors by e-mail at:
© The Boston Consulting Group, Inc. 2003. All rights reserved.
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