The State of Digital BusinessHow brands used digital in 2012 to grow their businessDecember 26, 2012

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The state of digital business 2012. The problem.

The opportunity.The task.The tool.

Design.Adapting to Humans........................................16Creating Context................................................. 17Solving a Need...................................................... 17

Disruption.Reinventing the Value Chain....................20 Creating new value.............................................21

The state of digital business 2012.

Addition.Mixing Content, Community and Commerce......................................................................8Brands as Curators, Tastemakers and Publishers............................................................9 Utility as Ads..............................................................10

Systems.Evolving Behaviors.............................................13..

Loyalty Beyond Points...................................14..

Meaningful Extensions........................ ....... .14

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The

Prob

lem.

three little pigs/youtube videoany youtube channel

Brands don’t often use digital beyond a communication channel.

And even when they do ...

They invariably think of digital only as a value-add to their existing business.

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The

Prob

lem.

This approach creates a disconnect between brands’ and agencies’ expectations from digital and their understanding of it.

They expect a groundbreaking, disruptive solution to come out of mass media-like communication inputs.

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The

Opp

ortu

nity.

Digital is a new source of value for your company.

Digital is a new revenue stream for your business.

Digital can transform your value chain.

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The

Task

. See which brands seized the opportunity in 2012 to use digital to grow their business.

Call out those who broke out of the mold.

Detect ways to use digital for business grow through creatively adding value to consumers’ lives.

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Transformative Value

Incremental Value

Market Focus User Focus

AdditionMaking legacy business more

valuable

DesignHuman-centered business solutions

SystemsConnecting products and services to create

new value

DisruptionCreating a new

value chain

The

Tool

.

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Digital is a value-add in the company’s traditional value chain.

Approach where brands’ legacy business is made more valuable through adding digital as sales and marketing channel to brands’ existing marketing and sales operations.

Addition.

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Mixing content, community and commerce.

Lucky Mag’s My Lucky offers a curated mix of products shoppable at the spot. Think the e-commerce Flipboard. Online magazines are becoming another direct sales channel in addition to its regular browsing experience,

Zappos’ PinPointing is a product discovery and recommendation tool that uses pins to filter the variety of Zappos’ product offerings. By adding a layer of social information around its products, Zappos makes browsing easier (with the effect of increasing conversions).

Flexible content formats, built-in community and social activity tools make Facebook a go-to destination for luxury fashion brands when it comes to live-streaming their shows. It’s another content distribution channel, too.

How brands use content and community to turn digital into a new direct sales and communication channel.

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Brands as curators, tastemakers and publishers.

Coca Cola’s “Happiness is...” Tumblr brings this brand’s core promise to life through diversity of curated and original content types and formats.

Target forayed into everyday style through its curated “On the Dot” Tumblr offering ideas, advice and inspiration.

Virgin Mobile went as far as to create “culture hub” in the form of a newsroom targeted to young audience. The newsroom features videos, memes, lists, photos, playlists and more. Think branded Buzzfeed.

Gap successfully used Tumblr to create its Styld.by destination, which brings in fashion editors, tastemakers and bloggers to contextualize GAP products.

How brands use the formats and flows of digital culture as a value-add.

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Utility as ads.

Ads don’t have to come in the form of banners. They can also be digital products.

Uniqlo’s GIFs, Calendar and Alarm Clock are examples of utility-as-ads: small digital products that bring the brand to life through interactive entertainment and service that also serve as the effective CRM tools.

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Invest in content that will bring your brand to life. Develop a content strategy that sets the parameters for creating, aggregating and filtering content relevant for your audience. Add a layer of social information over all your products and services. Money isn’t the only currency around. Become part of cultural conversation by involving online tastemakers and influencers. Everyone’s a curator these days, employ them. Be where your customers are.

Think beyond banners: use a big chunk of your media budget to create small, fun things that people would want to use. Distribute them through social channels.

What did 2012 teach us?

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Systems.

Digital creates value outside businesses’ traditional value chain and counts as a new revenue source.

In a systems approach, brands bundle their existing offerings together via digital technology. Here, products and services are connected to create new value.

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“The designer of the future will be the personal coach, the fitness trainer, the nutritionist.” - Phillippe Starck

American Express unveiled three initiatives this year: My Offers. Twitter Advertising for Small Businesses, and Travel Insider, all of which transform American Express from banking into a service that evolves its customers’ behaviors. Case in point: rather than just cheering on their small business customers via advertising messages, Amex is using Twitter as a small business solution that actually helps business owners to grow and evolve their customer base. It effectively builds a system between the card, its owner and the owners’ customers. With My Offers, Amex is using the wealth of data it has about each of Amex’s cardmembers to create tailored recommendations on deals and discounts. Amex is effectively giving personal data back to its card users by translating information into actionable items. It creates system that unites individual behavior, data and the card. Travel Insiders uses a similar system dynamics: it offers custom itineraries developed by experts and tailored to interests and passions by each individual cardmember - all within their designated budget.

Evolving Behaviors.

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Lufthansa is breaking the mold of the airline rewards programs. Instead of diligently accumulating medallions and moving between ever-multiplying tiers, Lufthansa tried something much simpler. It created an alarm clock app that uses sounds of different cities and rewards users that made a correct guess with airfare discounts. Lufthansa is using two behavioral drivers to achieve desired customer action: a) utility to integrate itself into an already existing behavior and b) rewards to create a habit. The system unites utility, reward and brand.

Kroger supermarket came up with a flexible coupon solution as a way of investing in customer loyalty. Based on each customers’ purchase patterns, Kroger comes up with individual prices. This means that there are no two customers who would pay the same price on selected items.The system integrates individual data, rewards, and a loyalty card.

Loyalty Beyond Points.

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Meaningful Extensions.

Instead of seemingly random and erratic brand extensions (think Richard Branson’s ice cubes, water purifier and space travel), IKEA invested in a new product that extends its brand promise and is part of the same core positioning pattern. Uppleva is a television set, but everything else about it is uniquely IKEA: assembly-at-home, customization, and variety of colors. Through behavioral and contextual integration, IKEA managed to venture into a new product line and make sure it contributes to its existing core business. Because it already fits into an existing system of brand and behavior, new product is easy to assimilate in and adopt.

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Use data on consumers’ behavior, preferences and purchases as a powerful connective tissue between your brand, products and customers. Give customers their data back by translating it into utility and service.Think of loyalty as a new monetization opportunity for your brand, not as a marketing tactic. Focus on making the existing brand offerings more valuable to its customers. Better brand experience is key for positive acquisition utility.Treat each customer as an individual. Be flexible and selective in offering rewards and discounts.Think of possible brand extensions not through the product lens, but through the lens of the customer context. Ask: what can I add to this system to make it better?

What did 2012 teach us?

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Digital is aimed at serving the existing customers better and/or overcoming the current consumer barriers in the category.

Design.In a design approach, brands start from the end-user in making their existing products and services better. Here, brands focus on customer-led business solutions to create incremental value-add.

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Art Series Hotels and Starwood Hotels & Resorts uncovered their customer pain point out and used it to streamline their guest service process. Instead of yielding to the rigid check-in and check-out times, guests can now can arrive and depart in a flexible manner, depending only on when the next visitor is scheduled to arrive. Through laser focus on the needs of their guests, these hotels came up with ways to adaptively manage their unsold inventory (rooms) and to direct resulting gains toward customer satisfaction.

“Above all else, align with customers. Win when they win. Win only when they win.” - Amazon Doctrine

Adapting to Humans.

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What are brands doing with all the consumer data they have? As it turns out, some of them are using it in smart ways. Hellman’s is taking information on all the groceries from consumer’s shopping cart and assembling recipes on the fly, printing them on the back of their receipt. While this works especially well for low-consideration items (like mayo, salt, flour, granola, etc), it also opens up the entire new area of immediate data processing. Its purpose is grouping isolated items into meaningful assemblies that are useful in the wider context of consumers‘ lives. This can especially well work on e-commerce sites.

“Always design a thing by considering it in its next larger context - a chair in a room, a room in a house, a house in an environment, an environment in a city plan.” - Eliel Saarinen

Creating Context.

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Solving a Need.

Great product and service solutions solve a need, but best solutions solve a need at the very moment it arises. Finding a parking spot when you need it, hailing a cab when you have to quickly get to a meeting or finding a nearby loo are all examples of perfect solutions for immediate needs. Now this need/solution mechanics is coming to the CPG industry. Evian’s Smart Drop is a digital product attached to the fridge door that allows users to quickly and easily order their new supply of Evian’s natural mineral water. Evian’s winning on two counts here: a) there isn’t a better time to order more water than when you realize you’re running out and b) incredibly simplified ordering process (“you press the button, we do the rest”) makes a seamless user experience. Not to mention the repeated sales impact.

“If there’s a simple, easy design principle that binds everything together, it’s probably starting with people” - Bill Moggridge

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Explore customer pain points in the service you offer. What problems are they grappling with? What are the sources of their dissatisfaction. Use your marketing to address these pain points.Look for gaps between customers’ needs and market offerings. Use them to differentiate your brand in the market. Don’t think value chain. Think customer experience flow. Break it down into separate stages. Ask what new revenue opportunities are possible at each stage. Make each stage of the experience meet user needs better.Focus on building a digital experience strategy. Navigation, user flow, defaults, and choice structure influence have a big effect on customer behavior. Good experience is good business.

What did 2012 teach us?

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In a disruptive approach, brands come up with solutions that create a completely new value in their industry.

Digital introduces a new value chain, different from the one a particular industry’s built around.

Disruption.

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Reinventing the value chain.

In an amazingly smart move, Tesla eliminated the weakest - and the most painful - link of the car buying process from its value chain. Yes, the car dealers are gone. Consumers who find themselves in a Tesla store are directed to Tesla website to fill out forms. The next step is for them to wait for their car to get built and delivered at their doorstep. This is just-in-time manufacturing at its best: supply reflects demand and there are no unsold vehicles sitting around and generating massive overhead costs in inventory. Best yet, Tesla gets to control the entire car ownership experience for its customers, effectively transforming what car purchasing process looks like. The key part of it is staying close to its customers.

“Innovation is the specific instrument of entrepreneurship. The act that endows resources with capacity to create wealth.” - Peter Drucker

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Creating new value.

Pepsi made a splash couple of years ago with its Refresh project. Now it unveiled an idea that again makes people’s lives better, albeit on a much smaller scale. Pepsi’s “Extra Hour” initiative, part of the “Drink It to Believe It” promotional effort for the new Pepsi Next drink, gives away 50 tasks a week to random winners as a curtesy of TaskRabbit. Instead of getting a tangible, material reward to its lucky winners, Pepsi is giving them the gift of time (and someone else’s labor). Product promotion or not, Pepsi is providing a new form of value for its audience.

“The best way to predict the future is to create it.” - Peter Drucker

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The solution comes first, product/service is secondary. Switch from a “what digital thing should I build” question to “why is this a problem and how can I use digital to solve it?” approach. Explore macro-trends that are happening because of digital (e.g.sharing economy, redistribution markets, sustainability, social consumption). Ask why those trends are happening. Ask what they mean for your industry.Focus on what’s going on at the edges of your industry. Look at the emerging economies to detect new value. What are the startups doing? Which extreme behaviors are you seeing? Who are your most extreme users? Learn from them.

What did 2012 teach us?

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The

Stat

e of

Dig

ital

Busin

ess

2012

. Transformative Value

Incremental Value

Market Focus User Focus

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Less

ons

from

201

2.

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In 2012, market focus is still dominant among brands when it comes to digital. Digital is still mostly regarded as a direct sales and communication channel, and most brands use it to expand their sales and marketing footprint. They still haven’t unlocked the full potential of digital as a new market for their products and services. Some are moving in this direction, however, through their initiatives to create value through content, communities, utility and data. Competitive strategy of choice is using these value-adds to make the existing offerings more attractive to consumers. Overall focus is still on preserving the existing, pre-digital value chain, instead of transforming the business through exploring emerging monetization opportunities in digital space. Very few brands in 2012 assumed a laser user-focus as a starting point in their growth strategies. Human-led, socially-driven and sustainability-oriented corporate behavior is an exception rather than a rule. Adapting existing offerings to consumers’ actual usage patterns, behaviors and values is still rare in business growth. Digital still hasn’t been widely recognized as a unique value-generating system, transformative to businesses and industries. Those few brands who adhere to digital values and business models are clearly willing to experiment with their value chains. They are also willing to infuse their marketing efforts with a broader business thinking.

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http://www.fastcocreate.com/1681792/what-marketers-are-getting-wrong-about-loyalty

http://vimeo.com/19634070

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