Brett King

Posts Tagged ‘Strategy’

What The Beatles’ success on iTunes means for Banking…

In Customer Experience, Economics, Media, Retail Banking, Strategy on November 26, 2010 at 03:01

The Beatles are arguably one of the most successful bands of all time, but their foray into the digital music space has long been frustrated. In their first week on the iTunes store, however, the Beatles amassed a staggering 2 million individual song downloads and over 450,000 in albums sales. Not bad for a band who stopped recording music 30 years before the iPod was even invented. Their success is evidence of something else entirely, and it should terrify banks mired in physical methods of banking.

Apple versus The Beatles (also Apple)

The fact that The Beatles held out on launching their ‘content’ into the digital space for so long is sadly typical of many very traditional businesses confronted with changing modality and business models. The Beatles conflict intellectually with the digital space actually commenced as a legal battle between Apple Computers and Apple Corps (The Beatles Holding Company) that started more than 30 years ago in 1978. At that time The Beatles filed a lawsuit against Apple Computers for trademark infringement. In 1981 the initial case was settled for just $80,000. Conditions of the settlement were that the two “Apples” would not infringe on each other’s businesses, i.e. Apple Computers would not enter the music business, and Apple Corps would refrain from selling computers. Thus, in 1986 when Apple allowed users to record songs to their computers, it was perceived they were in breach of that agreement. The legal jostling continued until February 2007, when a reported settlement of some $500 million was reached over the trademark dispute in favor of Apple Corps.

Modality shift kills physical music distribution

Confronted with the digital age most of the recording industry bristled. They saw changing modality, a shift to digital music as a threat to their entrenched distribution channels. Rather than embrace digital distribution the likes of the RIAA, when confronted with innovation in their sector, lashed out with lawsuit after lawsuit, starting with the famous case against Napster. The RIAA’s strategy was built on the sole premise of trying to prevent people from using file sharing networks so their existing distribution networks could be propped up indefinitely, and they celebrated Napster’s decline into bankruptcy as a sign of success for this strategy.

Clearly most saw the writing on the wall, but rather than change, the RIAA and the industry as a whole buried their head in the sand, hoping to limp along till change was absolutely inevitable, or worse thinking that they were immune to change. By all accounts, the RIAA was woefully unsuccessful in this strategy. Today, new artists live or die based on their ability to move product in the digital space, and The Beatles move at long last into the digital space singles that the last bastions of support for traditional, physical music distribution is crumbling. In fact, physical “record” sales peaked in 1999 at $14.65 Bn. By 2007 Physical sales of music content were already less than in 1993 having reduced to around $10 Bn, and by then end of 2010 it is expected digital music sales will finally overtake physical sales all together. Clearly the sector was in massive trouble with its decision to resist digital sales and the hundreds of millions spent by the RIAA on legal bills were largely a complete and utter waste of money. Those precious funds should have instead been put into revitalizing the industry digitally. The RIAAs actions in this light were reprehensible.

The RIAAs attempt to kill off digital distribution failed dismally

It’s not just ‘physical’ music that’s at threat

Others have faced similar battles in recent times, including Blockbuster who filled for Chapter 11 in September of this year, clearly signaling the near death of physical distribution of DVDs. Encyclopedia Britannica faced the same type of troubles when Microsoft introduced Encarta to show Windows’ multimedia capability in the mid-90s. This almost spelled the end of Britannica’s 300 year old business overnight.

What is under attack here is not DVDs, it’s not The Beatles, RIAA, Books or CDs and vinyl – what is under attack is Physical Distribution of goods that can easily be digitized. In that sense, the bank sector is in massive trouble because almost everything a bank does can be digitized.

Much of what our banking experience today means is wrapped up in the banking sector’s love of physical distribution. The centre of retail banking from an organization structure perspective in most cases remains the branch, which started life arguably as a physical distribution point for cash. Branch P&Ls exceed ‘digital’ by a factor of 50-100 times in most retail banks of today – an inequity that speaks volumes to ghastly outmoded thinking in bank boardrooms. Cash, Cheques, Plastic Cards, Branches themselves are all inevitable victims of this modality shift.

The Financial Times reported last week the following sentiment in the banking sector:

Banks across the UK, Europe and the US are now bringing service centres back into their local markets and investing heavily in their branch networks. More significantly, many are attempting to restore their battered reputations by putting customer satisfaction at the heart of their business
Financial Times, November 17, 2010

Physical banking is dead (at best dying)

This strategy is massively flawed. While improvements in customer service should be applauded, the fact is, based on distribution metrics, take up of mobile banking, internet banking, mobile payments, and other such indicators, the investment should be going into improving customer journeys, experience and service in the digital space. Most banks need to increase their investment in the digital space ten fold in the next 3 years at a minimum.

Like The Beatles, most banks when threatened with this modality shift, will find it extremely uncomfortable. The reality is, though, if they embrace the change revenues will follow. To give you some indication of the vast gap between shifting modality and the reality of bank distribution strategy, most banks still classify Internet Banking as a ‘transactional platform’ for saving distribution costs. For most customers today, though, they are 30-50 times more likely to visit your bank by logging in to Internet or Mobile Banking than visiting a physical branch. The problem with bank strategy in this respect is, if you come to a branch a core strategy is to try to sell you a new product. Today, most banks don’t sell anything through Internet Banking. If they did, most banks would be shocked to find out that they’d be actually selling more product online than through their entire branch network today.

It’s not branches that is under threat today – it is physical distribution. Banks can take the music industry approach and stick their head in the sand until things are absolutely inevitable, or they can adapt.

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Digital versus Traditional Advertising? Wrong Question

In Media, Retail Banking, Strategy on May 5, 2010 at 05:15

There is a debate that has been raging in Advertising quarters for almost a decade now – which is better Digital Media or Traditional Advertising. The fact that this question is being asked at all shows that most advertisers and institutions don’t get consumer behavior in the interconnected world. Considering that agencies are in advertising, you’d think they would get it right? Considering the declining ROI in traditional marketing approaches, you’d think marketing staffers would get it too right?

Over the last couple of years the debate on Advertising spend has centered on where the money is going. In March 2008 General Motors shocked the traditional advertising world when they announced they were shifting US$1.5Bn of ad spend to the digital space and while some shift towards digital has been hailed as ‘game changing’ most advertising spend is still heavily biased towards traditional media. Susan Wojcicki, Google’s vice president of public policy and communications, was quoted in Digital Media Buzz as arguing that Ad spending has not caught up with consumer behavior.

“U.S. users spend 12 hours per week online, which represents about 32 percent of their media time. However, online advertising makes up only 13.6 percent of advertising spend in the U.S.”
Susan Wojcicki, VP – Public Policy and Communications, Google

This is accurate, but what is holding back the shift? Long entrenched marketing behaviors, lack of digital skills in-house, lack of agency drive away from traditional media buy, or lack of understanding of changing consumer behavior…

It’s probably a combination of all of these. The fact that most financial institutions, for example, have minimal social media or mobile advertising spend today shows either a complete lack of understanding of consumer behavior, a lag in internal adaptation of ‘digital’ or organizational inertia that is just too hard to shift?

I think all of the above contribute, but the real problem lies in the ‘campaign’ mentality. Brand marketing is very well suited to traditional media, because it is about creating a ubiquitous recognition of your brand, logo, image or message. To fit broadcast mediums for product ROI advertisers created the campaign – really mini product or service branding initiatives designed to create recall at a time when customers are compiling their ‘evoked’ set of purchase alternatives. But while the campaign worked in the 70-90s utilizing broadcast, this is no longer the case in the digital world.

The question over Digital or Traditional is the wrong question. The question should be, how do we better engage customers today so that they are compelled to buy?

Campaigns on traditional media are struggling in the one area that digital is increasingly effective – measuring ROI. Measurability is a strong advantage in the new world because the ability to understand why, when and where customers need a product or service should be considered the Holy Grail. But traditional broadcast methods such as TVC, Radio, Newspaper, Direct Mail, and static outdoor, only work efficiently when it is a static message directed at a wide audience that doesn’t need to change.

It was for this reason that Pepsi started its shift to Direct Response Marketing this year as they moved their entire SuperBowl TVC budget to online and social media. At the Sears Annual General Meeting Edward Lampert explained that even a major retailer is having to conceptualize a shift away from broadcast methods to much more targeted conversations with customers, something that static media can’t deliver.

“It’s not just us broadcasting to customers any more, he said. “It has to be interactive, and it has to be relevant.”
Edward Lampert, Chairman of Sears

Retail organizations, whether banks, financial institutions, or retailers like Sears need to understand that Brand advertising can survive and thrive with traditional media, but campaigns are effectively dead in the IP-conversation space. Companies need to re-gear their marketing teams toward conversations, not just telling their customers a message and hoping for brand recall at purchase time.

In the next 5-7 years TVCs will largely disappear because consumers aren’t watching them, why? Because we’ll either be downloading or TiVo’ing and Ads won’t be a part of the experience. Newspaper will shift to digital format so that ads in that space will go from static to just like web banner Ads. Radio will survive, but perhaps be delivered differently based on subscription feed models. Billboards just like Newspaper will move to digital format also. The question over Digital versus Traditional is kind of redundant. The way media is morphing everything is going digital, even traditional.

What marketers and advertisers need to work on is the conversation, not broadcast. It takes a lot more competency internally, and initially the cost of delivering conversation marketing is alot more expensive than traditional broadcast production. However, the ROI in direct response, permission or conversation marketing blows anything in the traditional media measurability space away. We have the technology now to target messages at customers at the right time, across the right channel, but we’re not using it because we can’t fit campaigns into this model. It’s tough – but reengineering our approach to customer engagement is the only way through this discussion.

Bank marketing staffers better go back to school, and fast…

Bank CEOs, It’s Time for Social Media (InternetEvolution)

In Blogs, Groundswell, Media, Retail Banking, Social Networking, Strategy, Twitter on February 23, 2010 at 14:05

As posted on Internet Evolution (http://www.internetevolution.com/)

Internet Evolution Blog

I’m dealing with two of the largest banks in the world right now, engaging them in discussions about customer experience innovation. One of the things that invariably comes up is the phenomenon of social media. To some banks, this is just one of those newfangled Internet “thingies” that comes along from time to time and gets people all excited — but banking doesn’t really change… does it?

What is unique about the social media movement at the moment is that everything you might expect it would be about — it’s not about. Firstly, you might assume that it’s a medium that is used by “Generation Y” (those born from the mid-1970s through the 90s) almost exclusively to trade photos, videos, and witty anecdotes about what they are doing right now.

It might surprise you that by a long margin, the Baby Boomers and “Generation X” (those born after the postwar Baby Boom but before the Y-Gen) are far more into social media than the Y-Gen. In fact, the Y-Gen will probably skip the current generation of social media and go totally to some sort of mobile-based social media and mapping over the next few years, but that’s another story.

Getting back to the banks: These two banks I’m talking about, household brands, don’t have a single senior executive responsible for social media. There are pockets of innovation or customer experience teams trying to do something, but there is no senior manager that has social media in his job title, and there is no high-level sponsor to mobilize around this. Is that such a bad thing?

Continue reading my blog posting on InternetEvolution…

Banking’s biggest challenge – Marketing 2.0 (HuffPost Blog)

In Blogs, Media, Retail Banking, Social Networking, Strategy, Technology Innovation, Twitter on February 11, 2010 at 13:09

See the original entry on Huffington Post

Point-of-impact MMS offer

A location-based offer at the retail point-of-sale is 550% more effective than Direct Mail 3 weeks before

There are some massive changes occurring in the banking space today, but none so dramatic as what is happening in marketing and advertising.

Direct mail offerings have been declining rapidly since 2006. In 2009, less direct mail was sent by banks than in the year 2000. Direct mail has declined 32 per cent since 2007 alone.

In 2008 the Internet surpassed all media except television as the primary source for national and international news; this has taken its toll. In March 2009, the Seattle Post-Intelligencier or the “PI” as it was known, a 146-year old newspaper, closed down, citing rising costs, falling revenues and declining circulation. Since just January 2008, at last count, 55 regional newspapers in Britain have folded. Of the top 25 newspapers in the U.S. in 1990 (the year newspaper employment peaked), 20 of those newspapers have seen declines (on average reporting circulation down by more than 30per cent), and two have been closed down or declared bankrupt. New York Times reported a 30 per cent fall in advertising revenue, resulting in a $35.6 million loss for the 2009 third quarter alone.

In 2009 TV advertising revenues in Australia fell by more than 12.6 per cent in the first half of the year. In the first quarter of 2009, the U.S. recorded losses of more than 14 per cent in TV ad revenues in normally stable locations such as the Bay Area and New York, and is expected to suffer a total decline of 22 per cent for the year. Declines of 27 per cent and more were recorded in radio ad spend for the U.S. for the first half, even worse than the decline in TVCs. Yet, in a recent report commissioned by UK’s OFCOM forecast the value of TV ads in the U.K. could fall from £3.16bn in 2007 to just £520m in 12 years’ time. That’s an 83 per cent decline.

Bank’s are finding their brands are no longer able to just get by with brand marketing, after all BofA and Citibank have great brand marketing, but are being hammered by customers on Twitter, YouTube and elsewhere. Thus I find it amusing that ‘digital’ or interactive marketing still makes up only a fraction of marketing budgets for banks in 2010. The very fact that banks separate ‘digital’ in respect to budget or spend, signifies the challenges of changing a culture that is so dependent on direct mail, print, radio and TV – all broadcast mechanisms.

Let’s play Devil’s advocate for a moment. What will the advertising space look like in 5-10 years? It’s more than likely that TVCs will be gone – with declines in revenue we’ll have to find another way to pay for TV either through subscription or download, but there is no business model that indicates Free-to-air TV can survive with out Ad revenue. Direct Mail will be relegated to very specific segments, and then only for loyalty promotions. Newspapers will be on iThingys with paywalls – we’ll subscribe to newspapers and virtually every newspaper will be digital. Billboards will be all digital, but not based on TVCs – they have to be even more efficient. Physical magazines will be a luxury item, most magazines will be digital. In this space nearly ALL advertising will be digital within 10 years..

TiVo already strips out TVCs. SPAM filters on our phones and email ensure the eDM ain’t going to work. We need something more. In my book BANK 2.0 I call this “Point-of-Impact” marketing. Banks need to insert their ‘value’ message into the transaction where it will have an effect, not send out millions of messages hoping for ‘brand recall’. Brand marketing will still exist, but campaign marketing needs to shift to point-of-impact. To illustrate, when you are on BA.com, United.com or CathayPacific.com and I’m booking a flight, that is where you need to sell me travel insurance. When I’m on a real-estate website, that is where you can target me with mortgage deals. When I walk into Bloomingdales, Marks and Spencer, or Armani Exchange send me a location-based MMS coupon on my mobile offering me a discount using a specific card. Get me when I’m interested, when I need it.

But this requires a complete rethink of the structure of the marketing department, and a complete new set of tools. This is the biggest fundamental change to the marketing department of the bank…well ever. I’m not surprised that quite a few of the banks I’m talking to are not sure how to make this transition, but that doesn’t make it any less likely.