E-journey: Digital Marketing And The "path To Purchase"

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Telecom, Media & High Tech ExtranetE-journey: Digital marketingand the “path to purchase”No.22RECALLA publication of the Telecommunications,Media, and Technology PracticeJanuary 2013Copyright McKinsey & Company, Inc.

3401E-journey: Digital marketingand the “path to purchase”By: Francesco Banfi /// Paul-Louis Caylar /// Ewan Duncan /// Ken Kajii

RECALL No.22 – Digital marketingE-journey: Digital marketing and the “path to purchase”35Telecoms players can gain significant top-line benefits and cost savings by emphasizing digital channels in their sales and marketing.Telecommunications players helped spawn thedigital age, but today many lag behind the curvewhen it comes to fully exploiting digital channelsand platforms to shape their marketing and salesstrategies. That’s troubling because the nature ofthe digital challenge is evolving rapidly and challenging traditional business models. The initialwave that propelled the dramatic rise in consumerdigital usage has already turned into a transformative surge – reshaping the ways consumers buynew products and services. This transformationhas deep implications for telecoms marketing andchannel strategies.The dawning of the digital age has made thisalready complicated process even more complex.For example, the traditional channels that typically influence consumers during the considerationphase include the “big three” above-the-line (ATL)media – TV, radio, and print advertising – alongwith word-of-mouth recommendations fromfriends and family. With the advent of digital channels, the list expands to include brand Web sites,mobile apps, online advertising, social networks,price comparison engines, as well as blogs andforums. For telcos prepared for this sea change,the upside potential is major.The challenge today is much bigger than simplybuilding an efficient online sales engine. Instead,it involves creating brand engagement throughdigital media and platforms, turning that brandengagement into brand preference, and leveragingit to drive sales and loyalty.A clear example of turning this shift into a sales advantage at the very first stage of the CDJ – consideration – is the fully digital launch of Free Mobile,a French mobile operator that entered the marketin early 2012. Free Mobile was able to generatesignificant online “buzz” and attract massive flowsof visitors to its Web site. The company couldthen apply its conversion skill to gain 700,000new subscribers in its first week and 2.6 million inits first quarter – all without spending a dime onATL media. This untraditional marketing and salesmove will save Free Mobile about EUR 500 millionannually in distribution costs and commissions.The consumer decision journeygoes digitalWhen shoppers decide to buy a product or aservice, what might seem like a simple transactionis actually a fairly intricate set of interactions thatconsumers undertake with a spectrum of competing brands. They embark on what McKinsey callsthe consumer decision journey (CDJ), which describes the iterative and circular process shoppersgo through today when selecting brands, products, and services. In essence, the CDJ has fourphases: consideration, evaluation, purchase, andpost-purchase. Incumbents who can understandhow to influence and direct consumers at eachphase – and make the necessary operational andorganizational changes – can strengthen theirposition versus attackers.Pulling this tangled knot of complexity even tighter,digital touch points themselves have spread farbeyond traditional personal computer platforms toinclude those behind smartphones, tablets, gaming devices, TVs, and even smart applications.For telcos, the issue boils down to two questions:Which combinations of channels and platformswill prove most effective when it comes to driving brand consideration and preference, and howcan these be harnessed to create value for theircompany and for their customers?

36TheCDJradicallyshiftedtowarddigital touch pointsThe CDJhashasradicallyshifted towarddigitaltouch pointsDerived influence indexConsiderationDigitalInbound commercial hotlineEvaluation233918221398301530Word of mouthDirect marketing368Traditional mediaStoresPurchase1085998SOURCE: McKinseyTo answer these questions, McKinsey developed aspecific methodology to study one Western European country’s mobile market. Results show thatthe CDJ has shifted radically toward the new digitaltouch points – now predominantly influencingconsumer brand preferences (Exhibit 1). Only a fewtraditional touch points remain important, typicallyonly at specific stages – for example, during the initial consideration phase – while digital touch pointsprove extremely relevant throughout the CDJ.Digital touch points are not created equalIn order to examine individual touch points at amore granular level, McKinsey assigned a scoreto each of these based on the ability to positivelyinfluence a consumer’s choice of brand over thecompetition. The analysis also measured eachtouch point’s audience penetration – i.e., the shareof the population exposed to it. The combination of these two factors determines each touchpoint’s overall importance during a specific CDJphase to the extent of its influence on a consumer’s brand preference (Exhibit 2).Exhibit 1This exercise revealed, for example, that a brand’sWeb site has by far the highest touch point“quality” – or the ability to positively influence acustomer toward a particular brand. Brand Website quality exceeds that of traditional TV by morethan three times – and even if its penetration ratelags behind that of conventional TV, the Web site’soverall importance remains far higher. With brandWeb site penetration among consumers still relatively limited compared with TV – around 25 percent of the target population versus more than40 percent for TV – a clear management priorityshould be driving penetration by attracting moreconsumers to the company’s branded Web site.Mobile apps also show solid potential becausetheir intrinsic quality is fairly high: 1.5 times that ofTV. In this case, reach is very low – roughly 10 percent of the target population – since only few customers are currently using their mobile operators’branded applications. Consequently, operatorscan get ahead of their competitors by investingin boosting the penetration of their own brandedapplications in areas such as enhanced self-care,network quality monitoring, and store apps.

RECALL No.22 – Digital marketingE-journey: Digital marketing and the “path to purchase”37AA brand’sWebis themostdigitalinfluentialdigital touch pointbrand’s Website issitethe mostinfluentialtouch pointDerived influence index (at consideration stage)DigitalTraditionalQuality (unit impact; indexed, 100 brand Web site)120110100Increase reach to leveragehigh qualityBrand Web site908070Blogs andforums6050Mobile apps30Socialnetworks20Invest in reach and qualityto get ahead of the packStoresComparisonengines40Online advertisingTV advertising100Utilize mainly for retentiongiven low reach and quality01020304050Reach (percentage of population exposed)Exhibit 2SOURCE: McKinseyFinally – and somewhat counterintuitively givensuch impressive growth and strong hype – socialnetworks do not appear to drive brand preferenceamong consumers. Their intrinsic quality indexscores in particular are very low, possibly due tothe fact that consumers visiting social media platforms are not open to direct brand sales pitches.Digital prompts a new role for storesPhysical retail stores have long been consideredboth places to research and to purchase products. Digital channels began primarily as “retail”research tools, but increasingly are also used forpurchases. One of the key discontinuities emerging from digital CDJ research is the evolution ofphysical distribution from mono- to multi-brandedstores. The shift in dominance from traditional todigital customer touch points has also become apparent in stores, which have been one of the mostpowerful and trusted brand preference drivers.In today’s digital era, the role of stores has evolvedsignificantly. When analyzing customer decisionNOT EXHAUSTIVEjourneys for retention versus acquisition activities,it becomes apparent that stores are essentially“retention machines” (Exhibit 3). In other words,while their influence on non-customers is ratherlow due to very low penetration rates (in the 10to 20 percent range), they retain strong influenceover current customers considering purchasing the same brand again. Such customers visitstores more reliably, with penetration rates in the25 to 45 percent range. From a CDJ perspective,it seems that the role of physical distribution as akey consumer decision influencer might be lowerthan expected, particularly when non-customersare considered. This has profound implications ona telecoms player’s sales and channel strategy.Of course, this does not mean stores are less important in harnessing “brand preferences” generated elsewhere and turning these into profitablesales transactions. Retail and mobile commercewill have an increasingly important role in influencing the evaluation phase of the consumer decisionjourney. Mobile digital commerce, for instance,continues to merge digital with physical retail viainnovations such as location-based mobile com-

38InIn thenewdigitalera,arestoresfirstaandforemostthe newdigitalera, storesfirst andareforemostretentionmachine a retention machineAcquisitionMost influentialtouch rchaseWord of mouthInbound commercialhotlineInbound customercare hotlineBrand Web sitePhysical storesrank (out of18 touch points)7620%25%313Physical storereach (percentage of evaluatorsexposed)10%45%SOURCE: McKinseymerce apps. Consumers are alsoable to research andexperiment via theirsmartphones. A shiftin the way OEMsare targeting theire-commerce andm-commerce investments results. Now, the focus is not only on driving online sales, but also on influencing customerpurchase decisions for their retail channels.Stores are taking ona retention role, butwill gain influence inthe evaluation stagewhen merged withmobile commerceThe journey continues: Digital’s role inrepeat purchasesThe consumer decision journey is not a onetimeprocess. Customers are continuously engagedand in various stages of multiple processes at anygiven point in time. For an individual brand, theimportance here is its ability to keep customerscoming back. Active loyalty plays a significant rolein driving repeat purchase decisions – particularlyin most developed markets. A broad shift in theExhibit 3way consumers are engaged online becomesapparent – even after the purchase. This canpositively influence the repeat purchase decision.Doing well across the CDJ’s consideration, evaluation, and purchase stages will prove critical to atelco’s brand success, but companies also needto recognize the iterative nature of digital brandselection and purchase. The direct implicationis that the ongoing customer experience with abrand will have major impact on that customer’sfuture brand selection choices.This places tremendous importance on managingrelationships with current customers and steeringthem to the telco’s Web site on an ongoing basisby offering special deals. Once there, the telcocan provide marketing messages, obtain permission to send new alerts, and use those alertsto trigger the appropriate dialog about contractrenewal. Telcos need to support this shift witha similar swing in marketing investments andsubsidies. This all seems fairly straightforward, butMcKinsey believes many incumbent telcos have apronounced advantage here that they are clearlyfailing to exploit.

RECALL No.22 – Digital marketingE-journey: Digital marketing and the “path to purchase”Key considerations in the pursuit of adigital strategyAs the new digital sales and marketing paradigmtakes hold, telcos need to grasp its new opportunities such as building consumer brand preference,setting channel investment and priorities, andspecifying brand positioning across touch points.To fully exploit this shift, telecoms leaders mightcarefully consider a few fundamentals as theyrelate specifically to their organizations’ customerbase, competitive position, and retail footprint.Digital vis-à-vis traditional. Telcos should considertheir digital strategies within the context of theiroverall marketing mix. After identifying the mostcritical touch points across the consumer decision journey for their own products and services,telcos can then determine the degree to whichthese “sweet spots” can be enhanced by a digitalstrategy and, ultimately, where they should focustheir attention and investments.Channel role reinvention. A solid strategy will havea multichannel orientation and not focus on one39digital channel exclusively or on digital at theexpense of traditional channels. It will also reimagine the purposes of these various channelsin an enhanced marketing and sales strategy – forexample, by determining a new function for retailstores in customer research or a revised role foronline channels in closing final sales.Balancing retention and acquisition. Since theconsumer decision journey applies to both theretention and the acquisition phases, the relative focus on digital in either of these phases isorganization-specific. Telcos will need to considerthe investment balance that is right for them. Oneexample might be a close look at the role of onlinechannels when it comes to supporting retentionactivities and building a digital community. Telcos interested in enhancing their digital sales andmarketing prowess have a wide variety of proventools and processes to choose from. To get there,however, they’ll need to carefully consider the evolution of the consumer decision journey when orchestrating all channels – both traditional and digital.Francesco Banfiis a Principal in McKinsey’s Paris office.francesco banfi@mckinsey.comPaul-Louis Caylaris an Associate Principal in McKinsey’sParis office.paul-louis caylar@mckinsey.comEwan Duncanis a Principal in McKinsey’s Seattle office.ewan duncan@mckinsey.comKen Kajiiis a Principal in McKinsey’s Tokyo office.ken kajii@mckinsey.com

RECALL No.22 - Digital marketing E-journey: Digital marketing and the "path to purchase" Key considerations in the pursuit of a digital strategy As the new digital sales and marketing paradigm takes hold, telcos need to grasp its new opportuni-ties such as building consumer brand preference, setting channel investment and priorities, and

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