The New Marketing and The Hidden Logic of Business Transformation

Jonathan Lakin, CEO Global Dawn August 2011 Abstract

Marketers are still learning how to manage the diversity of new communications channels websites, blogs, new subject matter websites, highly visited sites like YouTube, Facebook, LinkedIn, Xing communities, forums, Twitter, tumblr, Google Plus, and so on. In response to this proliferation, marketers are faced with a level of complexity, particularly in global campaigns that raise tough management and coherence challenges. Modern business platforms offer a way to address complex business challenges in a more holistic, simplifying way. Business platforms represent new operating systems for core functions in the firm. A platform-based approach to marketing can offer both a better way to engage and a more cost effective way of doing so. In order to understand the importance of a platform approach, however, we need to understand the hidden logic of business transformation. To some extent initiated by marketers, and in any event driven by innovation in marketing, the hidden logic of business helps us to understand where business, particularly marketing is headed. In this paper I want to explore that hidden logic. I want to explore what's really happening to business behind the headlines, and why integrated business platforms are the way to go in the ever more complex world of marketing. At Global Dawn we have created this new operating system, a customer engagement platform that reduces the complexity of global campaign management. It creates the possibility of more accurate audience targeting by harnessing big data to drive a new generation of insights into customer behaviour. The platform's data capabilities mean you can plan with a strong orientation towards your target audience. The platform offers game-centric design to make campaigns more engaging by involving people in activities they enjoy. In addition a real time adaptive content engine deepens engagement by adapting content to user preferences, in real time, so people see the content they most want to engage with. And the process from creative through to campaign review becomes easier to manage through a rich administrative dashboard.

Separating the assumptions from the hidden logic of business

The problems of marketing are well documented fragmentation of channels, tune out of customers. But clearly when something is so obvious and the answer so elusive, we need to ask ourselves are we being totally clear about the problem? The gradual rise of a simple to use and social World Wide Web has had a profound effect on how people consume media. That effect reverberates throughout the world of brand experience design. As media changes, and becomes more fragmented, the power of brands to engage people through great content visibly declines. Finding a response to this challenge defines the role of The New 1

Marketing Director. However, there is a hidden logic of business transformation underlying the changes we've witnessed in media and marketing. Marketing is changing not just because channels are more fragmented or because customers tune out. Something else is going on. The proliferation of channels would not be sustainable without other changes that make micromarkets viable, because that's what supports the majority of media channels today the micromarket. The micro-market represents something more than niche. Niche suggests that we have mass markets and then we have these smaller adjunct markets where we can serve leftovers to those who don't fit in with our categories. What micro-markets actually represent is a step beyond the traditional, low granularity of market segmentation that served marketing reasonably well in the mass marketing era. Micro-markets are the new demographic. They represent the new mainstream. And that change has pervasive consequences. If you want to understand the future of marketing you have to trace change back to the fundamentals of how business is transforming. And this is the big transformation. Micro-markets are now viable whereas in the past the only real story of manufacture and marketing was the mass market. We tend to think of change the other way round. We think of change as being driven by the channels and the technology. That narrative tells the story this way. We now live in a multi-channel world. Because of advances in communications technologies, because of digital convergence, we now have so many new ways of reaching people.... in fact people have so many ways of communicating with each other, than our role now is to combine mass communications with the many interventions that bring us closer to where people choose to interact. But communications is not necessarily the driver of change. All the new channels are viable because people are able to expand their universe of preferences. Customers haven't suddenly begun to demand or desire a whole new raft of products but they have been liberated to express their preferences, and that is leading to a fragmentation of markets that in turn make a multi-channel communications world viable. This actually means that we are seeing the evolution of a new preference engine, new channels that reflect the diversity of human needs and wants. This is the hidden logic of this business transformation it is vital to how we brand and sell. It's easier to say well we have to deal with fragmented markets, let's adapt to Twitter now. Or Tumblr is attracting an audience, let's get our agencies to go there too. An enduring problem of this chaotic approach to marketing is that success is highly unpredictable once you step outside the traditional channels. An amateur video clip can easily amass millions more views than a brand can and you just cannot figure out why. This random effect is crippling to 2

marketers because it says the amateur can do better and because it says creative skills are randomly distributed. We need to bring predictability into the mix. If you understand why the micro-market is now king you will also understand why you need to invest in platforms that specifically address fragmented customer needs, allow you to target brand promotion or messaging more accurately, and be part of the new deeper engagement being driven by customers, with better predictability of outcomes.

Welcome to the new preference engine

What is the evidence that these new micro-markets really exist? What is the evidence for a new preference engine? In its heyday Coca-Cola, long time king of global branding, had a handful of brands, all recognizably Coke. Coke produced hit songs like I'd Like to Teach the World (To Sing) that played out at the top of the single charts, on prime time TV and in your head. Today Coca Cola has 3,600 products, all with different branding needs, in markets as diverse as Thailand and Wales. Coke is global, big and powerful, Even so, even when you aggregate all the people in the world who want a dash of pomegranate juice in their fizzy water, instead of a can of diet coke, they still constitute a micro-market compared to what went before. Something has changed in the way markets behave, how customers interact and what they wish to buy. The new king of brands, Apple Inc., has an apps platform that brings over 300, 000 software developers under one roof (aggregation is the new game in town). Apple's iPhone now has close on to 500,000 apps. The beauty of the Apple paradigm is that both on the production side (developers) and customer side, there is huge diversity and many tens of thousands of micro-markets are work. Those apps sell successfully without old demographic market segmentation. Apple and its developers are not developing for an ABC1C2 audience. Each product finds its own micro-market. Apple's Apps Store illustrates this new reality. It shows that markets are self-forming. Apple did not segment its market and target messages at each of those segments. It did not look at the 16-24 cohort or the 65+ cohort and ask what apps do they need? Each of its apps producers created and formed a micro-market. Users are drawn to these and engage with each other through ownership of those apps. Many new, different micro-markets have been rapidly self-forming around the Apple platform. And the result is Apple's profits are like nothing we've ever seen, because it is master of the software micro-market space. The challenge for Coca Cola and the success of Apple reflect the need that businesses now have to create product for markets that segment in ways that might appear opaque. Because we can't rely on traditional segmentation techniques we need to rely on data on what we can find out about customers in the flow, from their behaviour, from data. The hidden changes we need to wake up to then are:

Markets themselves have changed, not just the way customers relate to each other There is a new preference engine behind customer choices, one where peer interaction and product preferences form new micro-markets 3

There is a bigger need for brands to aggregate audiences rather than having media deliver audiences to them

Let's look at this evolving story in more detail.

The simple media fragmentation story

The easiest part of the narrative for us to tell and absorb is the fragmentation story. Television broadcasting and marketing have lost a good deal of potency compared to their golden years. The changes behind that are complex, so complex that we tend to refer to them through a kind of shorthand that makes all this change seem easy. In fact I think the evidence is we are telling ourselves the media fragmentation story rather than the story of the new preference engine because we humans don't like to reframe our understanding of things that are familiar, and that we have trained ourselves to exploit. We package the change with phrases like 'consumer empowerment' or the 'fragmentation of media'. There, that sounds a lot less frightening than a new paradigm for marketing! What does media fragmentation really mean? Beginning twenty years ago the magazine market fragmented to meet a much broader diversity of reader interests and magazine staffing now reflects this. An editor, deputy and contributing writer. Three people turn out much of the magazine content we see on each of those titles on the racks, titles like Triathlon Plus or ProCycling, Computer Arts and Molly Makes. The exceptions are the old established names, like Vanity Fair, GQ and Wired. TV channels have also diversified in part to reflect the new cost realities of the business. By August of 2011 it was possible to watch an episode of American sitcom Friends once every five hours on a channel operated by the UK's Channel 4, even though friends had been out of production for eight years. Multiple TV channels exist as an uneasy compromise between being able to offer very cheap and readily available content on second, third and fourth runs, and the ability to attract an audience. Proud to be niche channels like Student Films or wannabe mainstream like Comedy4U, reflect a fragmentation of audiences reflective of the new preference engine, whereas broadcasters like Channel 4 have found a way to balance cheap product and small audience For the marketer this fragmentation is driven by the logic of branding. Over the past twenty years, as product became more and more commoditised, 'branding' became a weapon for retaining margins in businesses exposed to generic substitutes. This has meant that the number of brands competing for media exposure has multiplies. For consumers it means we are now exposed to 5,000 images day. For brands it means being stuck between two stools, on the one hand spending hugely on mass audiences with proven data i.e. it really does just about make sense to campaign to 10 million people to reach the 500,000 you really need to connect with. On the other trying to play the nich market game through social media and niche media. In the old days Coca Cola and Pepsi sold dark-colored sugar drinks. Walk into a supermarket now and browse the cooler shelf. You will see, pink, orange, purple, red.... several major brands of water, flavoured water, gassy, flat, premium, mass; vitamin waters, water that claim only to be pure and expensive, mineral waters, fruit drinks, fruit juices, from concentrates, not from concentrates, smoothie drinks, and of course Ribena and KiOra remember them? 4

Along with the logic of a new preference engine goes a decline in the marginal impact of advertising spend in all channels. Because brands have flooded the channels, it becomes more difficult to do branding more effectively. What marketers need to grapple with is how they address the new preference engine, rather than how they continue to hybridise their approach to the market. They need coherence.

The new preference engine and an even newer web

The fact is the market for everything is diversifying. The hidden logic of business lies in these micro-markets that I discussed earlier. They reflect customer preferences. Those preference also include customers communicating with their peers, customers receiving information from their social graph, and customers seeking outlets where they can be involved and take on interesting new roles. Customers do not care about our problems of course. The fact that we as marketers find it tough to get through to them might even be pleasing. The very best you can say is it is irrelevant. What they are concerned about it having more pleasure in life, if at all possible. But another hidden part of the new logic of business is that we are now very capable of understanding that. We are very capable of understanding customer behaviour on a very granular level. In fact the old market segmentation approach will die of because it is not as helpful as the data driven empirical marketing that will replace it. In old, old marketing we relied on market research to tell us about customer preferences. In old marketing we relied on loyalty programmes to allow us to infer possible emerging preferences. Now we can access data about what people are doing second-by-second. We can do some of that on websites. Combining websites with Facebook's social graph we can do some cross matching of consumer profiles. But there are two bigger plays in the pipeline. The first is a game-centric web. The second is big data and adaptive content

#1. The game centric web There's an argument out there at the moment saying we need to do more game centred marketing. I would challenge this. I believe all marketing is game centric and always has been. That's almost the definition of what we do. The real change I believe is we are now acknowledging the game-centric nature of most behaviour, particularly online. Getting onto the page 1 SERPS is, for example, a game. A very serious game but it is a game in every sense. We are competing against others, we have rules, we have our cheat sheets and we play to win. Recognising the game dynamics of normal web behaviour should change our perspective on marketing. We are not creating a gamified web. The web is gamified and we are just realising how to exploit that. The web is set up as a game because humans are very game centric. They fall into games very easily, whether explicit games like Foursquare or implicit games like SEO. But then again, marketing on TV is also a bit of a game. #2. Adaptive content engines What game-dynamics give us is a new way to understand people. In games people role play. That 5

means our knowledge of their psyche can go deeper. They don't just visit a website, they engage in all kinds of tasks and roles that reveal more about them. The more you know, the more you can deliver content that will engage and stimulate them, content that builds your relationship. To do that effectively online content has to be adaptive. We won't in future just create websites, We'll create game-centric sites backed by a content engine that adapts content (game content and marketing content) to the customers preferences. The changes we're witnessing give us access to one more new technique, much richer behavioural targeting that does not transgress the privacy expectations of customers. This will help us make campaign outcomes easier to plan and easier to attach an ROI to. So in a world where so much branding drives up the cost and complexity of branding, we need a solution that reflects the market realities brands have proliferated, consumer choice is paramount, preferences lean towards peer involvement, data is abundant. The new marketing director has to engage customers and manage campaigns but he or she also has new tools for doing so. The combination of new channels and a new preference engine delivers those tools.

The complex integrated marketing platform story

Business platforms have arrived as a business solution because of growing complexity. We do like to avoid complexity. Marketers currently face ad hoc complexity caused by market fragmentation, not media fragmentation. But taking an integrated platform approach can bring a holistic core back to the New Marketing Director's role. Business platforms provide one management environment for very complex processes. In this final section I want to summarise what's gone before and add a little topping. As well as micro-market and games I want to introduce also the issue or randomness and why we need to address random effects online. Taken together I believe the integrated marketing approach has four pillars that will help marketers become better creatives, with a more tightly focused spend, and a deeper level of engagement with customers:

1.

The new preference engine. Over the past few years it has become clearer that there is a parallel economy in what Chris Anderson called the Long Tail. What appeared in the past to be micromarkets not worth a brand's attention turn out to be significant, growing and real expressions of people's deep interests. We just were not geared to serve those needs in a market dominated by mass mass television, mass brand messaging, mass products. But micro is where the consumer heart lies. This is where the new preference engine needs to start ticking over. Game-based reality. We've seen the number of brands grow in number, probably by about three fold. This is in part down to companies recognising the risks of product commoditisation. Unless you can establish an emotional bond with an audience, your products will lose value. But it's also due in part to the growth of micromarkets. Brands that previously sold, for example, fizzy drinks, now have a portfolio of spring waters, vitamin waters, and juices, all of them in need of promotion. That also means that, along with the proliferation of channels, people are exposed to that mythical 5,000 images a day. Branding 6

2.

is literally self-defeating at a certain point on the curve because consumer attention or emotion is limited in supply, and tends towards the micromarkets we've already mentioned. In this crowded world people, brands, professionals of all kinds, customers, searchers, increasingly HAVE TO game the system to get noticed. Game-like behaviour is the new reality. You can argue that gamification is the new poetry and that people really like games. Both are true. But more importantly people need to game in order to gain reputation and reputational benefits. There is nothing unusual or corrupt in this negotiation for example is a game. Being noticed by Google is a game. Entertainment increasingly draws on game mechanics. In an environment characterised by many messages and limited attention gaming is inevitable, desirable and can be turned to good advantage.

3.

The new relationship between random and predictable events. Add into this turbulence a growing recognition of random, unpredictable factors in the broadcast/marketing/customer relationship. Writers like Dan Ariely and Daniel Pink have been reminding us that behaviour is not logical and predictable, like the old economics told us, but is irrational and needs motivating by more than just profit.

The best expression of that in the world of content and marketing is YouTube popularity. Rebecca Black is a nobody, a poor singer with a weak video. She garnered 160 million YouTube views within days. She represents a number of new phenomena: the ability of an individual to outshine established celebrity and brand power the unusually unpredictable nature of content distribution today our dependence on just plain hoping that brand assets will go viral like Rebecca did We've assumed over the past few years, the YouTube years, that virality is where it's all at with content. Just get the initial traction with a campaign and watch it fly. Increasingly though it seems content does not go viral. It goes stepwise. It stops in a million deadends called people who are not interested. If it is lucky, odd, or quirky enough, it gets picked up by the mainstream and then it goes large. In the Global Dawn view of marketing there are strong predictive elements. It is possible to target micro audiences, it is possible to reach the right people with the right messages and that's partly to do with how people respond to content in a game-centric environment and partly to do with the power of data.

4. The rise of data and understanding. So finally during this period we've seen the irresistible rise of data, often very big data sets and data analysis, as a tool for understanding some of that random behaviour. It's said that we create more data each day now than we did in the whole of history prior to 2006. Who's counting? Whether the figures are precise or not is irrelevant. We have a lot of data and that means we can understand as well as engage with and serve people in whatever type of market or community they want to hang out in big sugar drink markets, small niche vitamin drink market, growing wholefood markets and giant processed food markets.

Data is malleable, it is plastic. In the old days marketers created data from market surveys, then they developed big data sets from loyalty programmes. Neither of these is as potent as capturing data about how people behave, as they behave, as they interact with your content. And no campaign planning process is as potent as being able to adapt a campaign in real time because the campaign is fundamentally empirical in nature, driven by real data about real actions in real time.

Conclusions
There is no need any longer to be frightened of market fragmentation. Global Dawn's mission when it set off was to create a platform that at least made the new Marketing Director's role holistic again, all of a piece. As I said earlier the new marketing director needs to take account of four major changes: markets have changed, there is a new preference engine that drives customer choices we are beginning to uncover the game-centric nature of much behaviour and that in turn will alter how we design campaigns we are exposed much more to replace random effects that we need to address with predictive, targeted campaigns where we can boost the ROI more cost effectively data will allow us to replace traditional segmentation techniques with deeper understanding

Two other conclusions Marketers need aggregation skills and an integrated platform to help them manage the new complexity

A platform that combines data-driven, empirical marketing with game-based aggregation and engagement strategies, and supports marketers to aggregate audiences, goes a long way to giving you one great, adaptable campaign, one strategy, and one visible, predictable ROI.