The conversationloop july2011

Hakuhodo | Direct Partners The Conversation Loop: a New Marketing Platform

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The Conversation Loop: a New Marketing Platform

A collaborative whitepaper by Hakuhodo and Direct Partners.

Tasuku YamanokuchiJerry McRuerTyler GaulJonathan Rouse

The Conversation Loop: A New Marketing Platform

Executive Summary

We are witnessing an unprecedented shift in the ways consumers interact with brands. This shift represents both a threat and an opportunity for brand marketers.

At base, this shift represents a major loss in the effectiveness of traditional, linear media channels like TV, print, and radio. This is caused by the combination of two main factors: the rising consumer distrust of large-scale advertising and the rise of consumer-controlled communication channels, otherwise known as “social media.” Empowered by their own media channels, consumers have taken control of brand messaging, to the point that they feel like they are co-owners of the brands they consumer. Instead of passively "listening" to brand messages, they actively conduct their own "brand conversations" outside of traditional advertising channels — starting their own "fan" pages on Facebook and making their own product videos on YouTube. In some cases, these consumer activities reach a wider audience than most primetime media buys,1 and they do so more relevantly and effectively.

In this new environment, it is the brands that must do the listening. The new social media offers a rich source of data along with numerous new opportunities for direct customer interaction. This can provide a wealth of consumer/brand insights that were previously unavailable to marketers, allowing them to segment customers and communicate to them more cost-effectively.

Hakuhodo and Direct Partners have developed The Conversation Loop Marketing Platform to bring this approach into action. We are currently using this platform for a number of Fortune 500 clients, helping them to revolutionize the way they profitably relate to their consumers.


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1 See Impact of Social Media Channels for details

The Shift Represents Both a Threat (-) and an Opportunity (+) for Marketers


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(-) Erosion of Consumer Trust. Advertising is everywhere these days, and much of it appears in a context that is not relevant to the consumer. As consumers have become desensitized to marketing communications, they have raised their expectations for truth in advertising, product quality and brand relevance.

(+) Consumers as “Brand Owners.” Today's consumers are seeking to form a deeper relationship with their favorite brands by interacting with them on multiple levels. For example, consumers and companies are now “teaming up” to evaluate and improve products, or even create new ones. The same goes for advertising campaigns.

(-) Emergence of Social Media. Unlike traditional advertising channels (TV, radio, magazines), social media channels like Facebook and YouTube are controlled by the consumer. Because of their popularity, these sites can give a brand more exposure (negative or positive) than a well-financed TV campaign. Because consumers trust these channels, they can strongly influence buying decisions and brand perceptions.

(+) A Data Explosion. As consumers connect with each other and take ownership in brands, they become comfortable with sharing their views and actively participating in online communities. This online social environment represents a consumer data mine that allows marketers to connect to consumers in an instantaneous or real-time way for the first time in history.

(+) Greater Marketing Effectiveness at Lower Cost. Brand communications that are informed by these rich data sources are more relevant to consumers and, therefore, more effective. Digital media channels allow brand communications to be delivered in the right way, at the right time and in the right amounts. They can provide massive growth in brand equity at a fraction of the cost of traditional advertising channels.

Solution: The Conversation Loop PlatformThe Conversation Loop is an integrated platform designed to meet these threats and opportunities. It has database technology at its foundation, and a four-step process for leveraging the vast consumer data available in the post-shift environment:

LISTEN: to what customers are saying about their brands, not only in the new social media, but across a wide spectrum

of consumer behavior as shown on p. 10.

LEARN: how customers are behaving by collecting data from multiple sources

ANALYZE: this data to group consumers into the most profitable segments

ENGAGE: these highly profitable customers with more relevant messages

Throughout this process, the platform will inform and influence all business operations of the

company, not just the marketing department. PR, Finance, R&D, Distribution, etc. will all have a vital role to play in how The Conversation Loop actively engages the consumer with the brand.

The First Step to Taking the Conversation Loop Approach

We’re confident every brand can increase its profitability via the deployment of The Conversation Loop Platform. To receive an appraisal of the value of a Conversation Loop Platform to your organization, we encourage you to take a simple first step: participate in a 4Sight Marketing Audit. You will find details regarding the 4Sight Marketing Audit on p.14.


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Table of Contents:

6 A Massive Communications Shift in the U.S.

6 Four Main Factors Behind the Shift

Desensitization

Distrust

Technology

Ownership

8 The Impact of the Shift in Snapshots:

9 The Implication for Marketers

10 Summary

11 The Conversation Loop Marketing Platform

Learn

Listen

Analyze

Engage

12 Technical Requirement for The Conversation Loop

13 A Case Study: Sony PlayStation

16 The 4Sight Marketing Audit

17 About Direct Partners and Hakuhodo

18 Appendix


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A Massive Communications Shift in the U.S.For years, advertising agencies have been telling clients, "consumers are paying less attention to advertising these days." Typically, the agency then recommends either increasing the media budget or developing new "breakthrough" creative (both at the expense of the client). Neither of these approaches seems to be working anymore.

Historically, communication channels like TV, radio, print and even banner ads have been controlled and regulated by ad agencies, media companies and marketers using the “push” approach to messaging. Although campaign results were difficult to measure, it was assumed that they worked through a combination of awareness, repetition and persuasion. As channels expanded and marketers struggled to hold consumers’ attention, ads became even more prominent, more persuasive (or “pushy”) and, thus, more alienating to consumers.

At the same time, consumers began to shift their attention to emerging social media channels, where they could create and consume their own content. In this new environment, brands take on a life of their own, making consumers co-proprietors of your brand image. The upshot? Big ad budgets and "creative" campaigns are increasingly ineffective, while a whole new opportunity has emerged for brands to relate to consumers more profitably than ever before.

Four Main Factors Behind the ShiftDesensitization Due to advertising/information overload

Distrust Of corporate/advertising messages

Technology Making it easier to access information and share opinions

Ownership Consumers who self-identify with brands expect more value and honesty from them

Desensitization. In the last decade, marketing effectiveness has declined for almost all traditional media year over year. Experts say this change is due to consumer desensitization caused by too many marketing messages. The New York Times recently reported that the average American sees around 5,000 ads a day.2 65% of Americans feel continuously bombarded with ads.3 The Internet is not immune to the


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2 http://www.nytimes.com/2007/02/11/magazine/11wwlnlede.t.html

3 Wegert, Tessa (2004), "When Consumers Love Advertising," ClickZ Networks, (April)

problem. A phenomenon called “banner blindness” has lead to a constant decrease in click-through rates for online advertising.4

Distrust of Advertising. Consumers are not just ignoring corporate messages and advertising; they are questioning their truthfulness and relevance. Tired of meaningless, unsolicited advertising, they have turned to each other for reliable product information.

As the Edleman Trust Report shows, Americans see “a person like yourself or a peer” as the only trustworthy information source. This has now replaced “government,” “businesses,” “news anchors” and even, just recently, “doctors,” all of which were the top sources of information in the past.5

Technology. These behavioral changes are significant on their own. But they have been accelerated by new social technologies and platforms that, for the first time, give consumers the ability to create their own conversations about brands outside the traditional framework of advertising. These conversations are much more powerful than the old "word of mouth" effect, because one word can now be heard by millions.

Internet usage has reached a critical mass. A third of the world is now connected, and a large portion of these users has high-speed connections. In addition, consumers are now connecting, recording and making purchases through smart mobile devices at rapidly increasing rate. This connectivity has seen its greatest increase through the rapid growth in consumer participation on social platforms.6

Ownership. With this new technology at their disposal, consumers are taking a personal and active role in determining what their favorite brands stand for, and how much value they deliver.7 “Brand Positioning” (as defined by the marketer) is being replaced with the notion of “Brand Purpose,” a shared definition of the brand that must be earned by the company and accepted by the consumer in the social space.


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4 http://www.forrester.com/rb/Research/five_ways_to_improve_roi_of_behavioral/q/id/53643/t/2

5 http://www.edelman.com/image/insights/content/FullSupplement.pdf

6 http://www.forrester.com/groundswell/book.html

7 http://www.forrester.com/empowered/empowerednotes.html

The Impact of the Shift in Snapshots:For better or worse, social networks have become a dominating force in the U.S. commerce. As demonstrated in the following snapshots, this influence can sometimes have a significant and measurable impact on a company’s financial state.

(+) BlendTec. A small start-up kitchen appliance company called BlendTec launched a campaign on free social media called “Will it Blend”? Over the next year, it garnered over 110 million impressions (far exceeding the highest rated TV placements like the Super Bowl). Sales increased by 600%.8

(+) Pepsi’s Mountain Dew. As early as 2008, Mountain Dew utilized “collective intelligence” through their program, Dewmocracy, which was launched through social platforms. This program allowed Mountain Dew fans to vote on a new flavor of Mountain Dew soda. Within 10 weeks 1 million people participated in the vote. Mountain Dew saw a 3.7% increase in sales while all other competitors posted quarterly losses. Mountain Dew gained almost 1% market share instantly.9

(+) Walmart. Walmart launched a "Money Saving Tips" social media campaign as part of their renewed focus on “building connections” to increase their business. Within months, Walmart mobilized most of the key figures within the influential “mommy-blog” sphere who together reach an audience of almost 10 million.10

(-) United Airlines. United Airlines customer Jim Carroll uploaded a music video on YouTube with a song criticizing the way United mistreated his bags. Three days later, his video had over one million hits. As of July 2010, it had almost 9 million views. Within 4 days of the video being posted, United Airline’s share price fell 10%, costing stockholders around $180 million.11

The Implication for MarketersThese social networks now dominate the attention of the average American, and make up the majority of their media consumption. Audiences on YouTube are much larger


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8 http://www.socialens.com/wp-content/uploads/2009/04/20090127_case_blendtec11.pdf

9 http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=102488

10 http://www.slideshare.net/GasPedal/blogwell-social-media-case-study-walmart-presented-by-suraya-bliss-and-john-andrews-

11 http://www.forrester.com/empowered/empowerednotes.html

than most primetime TV audiences. More importantly, the content on these channels regarding products, brands and consumer experiences is timely, relevant and from a trusted source: other consumers. This development has weakened the effectiveness of corporate messaging by giving individual consumers more ways to communicate than the brands they consume.

In the past, consumers would verbally share a positive brand experience only to an immediate circle of friends and family. At most they would write an angry letter to the Customer Service Department. Except in the case of opinion leaders and media figures, “word-of-mouth” damage to a brand was limited to a small circle of friends.12 Today, consumers can reach thousands of “virtual friends” in seconds.

A single voice can overpower an entire campaign, cost a company millions of dollars, or even threaten the entire brand.13 Some examples of this are mentioned above. The consumer voice now rivals the company’s voice in both influence and reach.

Brands are now subject of intense and shared scrutiny by consumers, who have the power to recommend them to friends, but also publicize their shortcomings and even redefine their value in the marketplace. In this way, what was once considered just a marketing issue now concerns every aspect of the company. What was once corrected through a national TV campaign, in some cases can only be corrected through business operations such as product development or distribution practices.

That said, as is also apparent from the examples above, by simply taking a new approach to relating to consumers, companies can achieve controlled growth that was not possible before. Moreover, instead of resorting to the guessing-game that is national brand marketing, marketers can now engage in instantaneous, individual communications where the value and effectiveness is instantly apparent. This creates actual, authentic brand growth beyond that of mere “persuasion.” It forms a deeper consumer-brand connection and creates a more lasting competitive advantage.


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12 http://www.colloquy.com/files/2009-COLLOQUY-Talk-Talk-White-Paper.pdf

13 http://forrester.typepad.com/groundswell/2011/06/welcome-to-the-age-of-the-customer-invest-accordingly.html

SummaryBefore the Shift After the Shift

Company Dictates Brand Perception Consumer Creates Brand Perception

Linear, Top-Down Media Channels

• Set Media Schedule• Campaign-Based

Circular, Continuous Media Channels

• “Rolling” Media Schedule• Conversation-Based

One Media Plan for All Consumers One Media Plan for EACH Consumer

Immediate Revenue GrowthSales

Long-Term, Sustainable Growth

Marketing Department Concerned with Consumer Perception

Marketing, R&D, Customer Service, Finance and C-Level…etc. – All Concerned with Customer Perception

Customers are now co-owners of every brand, which reduces the effectiveness of traditional (impersonal) advertising but also creates an opportunity for brands to connect with consumers more than they ever could before.

In this new era of consumer-empowerment, marketers must find an effective way to listen, learn, analyze and engage with their customers.


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The Solution: The Conversation Loop PlatformThe Conversation Loop is an integrated marketing approach powered by a robust technology platform we have developed called M5. By using a combination of brand insights, database analytics and targeted promotions, the Conversation Loop and M5 enable the clients of Direct Partners to run a holistic marketing process based on four steps:

LISTEN: to what customers are saying and how they are interacting with the brand. This segment of the Loop is accomplished by tapping into the numerous customer data streams that can be found on:• Branded sites and forums• Social networks• Mobile platforms• Public forums

LEARN: by collecting and storing every traceable brand interaction in a real-time database infrastructure. By organizing this data onto a single data platform, we obtain a single, 360-degree snapshot of our clients' customers.

ANALYZE: this data using advanced statistical and analytical models to group consumers into segments. Through our M5 proprietary consumer database we can sort consumers by their preferences, likes, dislikes and behavior in an automated fashion.

ENGAGE: customers with the brand in real time (like a face-to-face conversation) and in a way that is the most relevant to them and the most profitable for marketers. This allows the brand to evolve in real time, becoming more effective and influential than its competitors.


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M5: The Technical Requirements for The Conversation LoopThe Conversation Loop requires strategy, planning and a robust platform design to engage each customer appropriately. Our M5 database takes account of the following technology requirements, which we customize for each of our clients:

• Increased data feeds into the Marketing Database, as many as possible in real-time

• Integration of the data back to the sources from where it came, to maintain 360-degree relevance

• Real-time algorithms to weight the value of the customer interactions taking place

• Real-time segmentation based on customer scores

• Automated emails triggered by consumers’ interactions, preferences and scores

• A content server allowing standard communications to be delivered with customized content blocks based on segmentation, interactions, preferences and scores

• A reporting engine to aggregate the data

• A data dashboard allowing clients to make program improvements on the fly


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A Case Study: Sony PlayStationTo demonstrate how this platform works for an actual client of Direct Partners,we would like to share a case study for a Fortune 500 company in the video game industry: Sony Consumer Entertainment of America (SCEA).

Listen: Beginning in 2006 with the launch of the PlayStation 3 and the PlayStation Network, Direct Partners worked with internal stakeholders at SCEA, SCEE (Sony Computer Entertainment Europe) and multiple related third parties to build a comprehensive network of data feeds tracking consumer behavior at nearly every brand touch point: within the game, on the console dashboard, at retail, on the web, via email, in social media, in ecommerce, via mobile devices, etc. The available data was both broad and deep; we were able to gain insight into where consumers preferred to interact, and uncover a wealth of information about the specifics of each interaction.

Learn: Such a vast array of information can become overwhelming without a robust system in place to separate the actionable information from "noise." With over a half dozen daily feeds of consumer activity arriving in real time, comprising hundreds of thousands of unique data points, simple items like identifying a consumer can become a chore. For example, is a consumer the same thing as a console? No, since one console may be shared among multiple consumers. Is a consumer the same thing as a PlayStation Network Online ID? No, since one consumer can (and frequently does) have multiple PSN IDs.

M5 is the name of Direct Partners’ proprietary data engine that collects all the disparate data feeds, performs hygiene on the data, unifies the information around a consumer profile, and sorts and stores that consumer's behavioral, promotional and response history. The M5 engine powers everything from higher analytics to SCEA’s quick view dashboards to triggered communications for ongoing CRM efforts and list selections for ad hoc contacts.


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Analyze: Once consumer data has been imported and organized within the M5 data hierarchy, the next phase involves segmenting consumers into pre-defined categories based on their observed behavior. PlayStation 3 consumers fall into a variety of categories, from low involvement consumers who purchased the device as an inexpensive connected Blu-ray player to hard core competitors who collect virtual trophies in as many games as possible and are highly active in the PlayStation Store.

We apply standard CRM models like RFM Scoring (Recency, Frequency and Monetary contribution) to group our consumers in tiers of value. Then we use propensity and surrogate set modeling to identify prospects across tiers for specific campaigns. To gauge the effectiveness of our targeting, we employ a holdout methodology on each campaign, as well as a global holdout. Consumers in the holdout look identical to consumers in the marketed audience in terms of all available data points. They live in the same metropolitan areas, they came on file at the same random points throughout the year, they are statistically identical in terms of age and gender, etc. These consumers form the basis for comparison to understand the impact of specific CRM initiatives.

Engage: Currently, CRM at SCEA involves a variety of communications that fall into three major categories. The first group, which is consumer lifecycle-driven, are contacts that occur when a consumer takes (or fails to take) a specific action. Everything from joining the PSN to failing to visit the store to becoming inactive can lead to a "communication nudge" to adjust the consumer's future behavior.

The second category of contact is business-driven. Calendared events like the launch of a new software title, or a new piece of hardware, will result in a manual select of the ideal consumers for that product in conjunction with a multi-step contact strategy. In the case of software, for example, contact runs from pre-sales through “accolades,” a post launch communication that goes to people who have yet to play the title, informing them of the awards and critical acclaim the title has received.

The third and final contact type is ad-hoc. From surveys to events and promotions to major announcements, there is a constant stream of consumer communication to keep the base


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engaged and interacting with PlayStation. Ad hoc selects can be regional (“make sure you visit the PlayStation booth at the San Diego Comic-Con”) or consumer behavior driven (target all active Store purchasers for the Spring PSN Store Sale) or driven by any number of other criteria. The M5 system has to be enormously flexible to handle selects driven by a very wide variety of consumer actions.


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Your First Step Toward an Evolved Marketing Approach?

The 4Sight Marketing AuditTo be effective, the Conversation Loop strategic and technological platform must be customized to the unique conversation patterns and behaviors of each brand’s customers. And although each aspect of the Conversation Loop process continues to optimize over time as more data is captured, we must begin with the correct strategic foundation, as well as an appropriate technology design and initial communications architecture. Therefore, the first step in constructing the Conversation Loop for any brand is Direct Partners and Hakuhodo’s 4Sight Marketing Audit. The audit requires the aggregation of historical materials and research to be reviewed by the audit team followed by 1-2 days of interviews with key stakeholders. These interviews focus on the four key areas most closely connected to a brand’s relationship to its consumers, with the results of these interview forming the sections of the final 4Sight Marketing Audit report.

BUSINESS AUDIT: The Conversation Loop provides precise measurement of customer value; therefore, we seek to discover in this phase the underlying business metrics of the brand and how these relate to the customer.

CUSTOMER AUDIT: Over time, the Conversation Loop platform delivers unequalled customer insight at the individual level. At the inception of the process, however, it is necessary for the platform design team to understand how the brand sees the target as well as to review all prior research the brand has conducted to understand its customers and prospects.

COMMUNICATIONS AUDIT: If customer information is the input to the Conversation Loop platform, customized communication is the output; consequently, we must begin with a clear knowledge of how the brand has been communicating historically. In this phase, the team reviews brand strategy documentation and the complete array of current and recent customer communication.

DATABASE AUDIT: Data is at the center of the Conversation Loop platform. In this phase the team seeks to discovers what sources of data already exists and what potential sources of data can be tapped to fuel the platform.

The audit is performed by our C4S Audit Team: a group of conversation marketing experts from both Hakuhodo and Direct Partners.


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Learn MoreTo learn more about the audit process, schedule an audit for your brand or if you have further questions regarding this whitepaper or of the Conversation Loop process, please contact

Established in 1994, Direct Partners is a leading CRM communications company in the U.S., serving multiple global companies from offices in Los Angeles and San Francisco. Their proprietary M5 database system is the foundation for customizing unique, effective platforms for clients in retail, packaged goods, and entertainment and consumer electronics. ROI-focused since its inception, Direct Partners helps clients focus their marketing communication budgets on areas and activities that will lead to the greatest growth and profitability.

Founded in 1895, Hakuhodo Inc. is the second largest advertising company in Japan, and the leading agency in the world's eighth largest agency group. Since its incubation, innovation and creativity have been at the heart of its operations. Hakuhodo shares with its clients an unmatched depth of knowledge about the relationship between people and brands, knowledge that has grown from the concept of sei-katsu-sha (= living people with lifestyles, aspirations and dreams), which Hakuhodo pioneered in advertising. Through its global network, Hakuhodo provides comprehensive marketing and communications services and solutions for some of the best-known brands in the world. Hakuhodo has 59 offices in 17 countries/ regions, and 3,107 employees (as of April 1, 2011).

Hakuhodo and Direct Partners have partnered together since 2009 in an effort to develop an advanced approach to real-time CRM on a global scale. The Conversation Loop was created as a part of this initiative.

Writers: Tasuku Yamanokuchi, Jerry McRuer, Tyler Gaul, Jonathan Rouse


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In Japan: Tasuku [email protected]+81-3-6441-7793

In the United States: Jerry [email protected]+1 310-482-4403

mailto:[email protected]




Appendix

Social Media Statistics

Facebook, YouTube and Twitter have helped to centralize consumer conversations in a single space. Participation on these platforms has reached high levels:

Platform Audience Key Communication Indicator

Facebook

YouTube

Twitter

Yelp

Amazon

550 million users

3 billion views per day

100 million users

41 million visitors/month

65 million customers/month

7 billion minutes per month

35 hours of video uploaded per min

55 million Tweets per day

15 million reviews

$34 billion annual sales in 2010


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Asian Social Network LandscapeJapan, India and South Korean have experienced over 4,000% growth rates of Twitter users. The Philippines, Indonesia, and Thailand have seen comparable growth among Facebook users. As the popularity of social sharing websites like YouTube continues to increase, Asian consumers will achieve the same communicative power as American consumers, if not more. While it is unknown when this shift will occur, it is almost certain that it will and to a much greater extent than in the U.S.

14


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14 All statistics in this section unless otherwise noted: Online Media in Japan Today, Nielson. August 2010, Issue #1.

COUNTRYMARKET SIZE

(GDP IN MM USD)

PENETRATION (SOC. NETWORK USERS/

TOTAL WEB USERS)

FACEBOOKSOCIAL TECH.

#1 SOCIAL NETWORK

SOCIAL GROWTH

% OF Internet

USERS IN ASIA

China $5,745,133

40% of users create original content; 221 million blogs, 117 million BBS and 176 million social network users (Internet users are 31.6% of population)

3.7MM(Hong Kong

only)High Qzone

Rapid, especially on Facebook. They use it as a way to get around censorship by the government

50.9 Medium

Japan $5,390,89775% (Internet users are 78.2% of population)

5.3MM High Mixi Rapid 12 High

India $1,430,02068.5% (Internet users are 6.9% of population)

18.8MM High Facebook,Orkut Omnipresent 9.8 High

Indonesia $695,05988.6% (Internet users are 12.3% of population)

34MM High Facebook

Facebook usage increased 3500% in 2 years

3.6 Medium

South Korea $986,25663.5% (Internet users are 81.1% of population)

3.4MM High Cyworld

Rapid - not so much in North Korea, though

4.8 Medium

Thailand $312,605 (Internet users are 26.3% of population) 7.3MM High Facebook Rapid 2.1 High

Singapore $217,37783.7% (Internet users are 77.8% of population)

2.3MM High Facebook Rapid 0.4 High

Phillipines $189,061

5th largest country on Facebook, 90% of entire web population use Social networks (Internet users are 29.7% of population)

20.8MM High Facebook

Facebook usage increased 4700% in 2 years

3.6 High

Malaysia $218,95084.7% (Internet users are 65% of population)

9.8MM High Facebook Rapid 2 Medium

The conversationloop july2011

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