Contextual Marketing: The Real Business of the Internet

Time for a painful admission: the Internet has been a letdown for most companies. Certainly, the Web is at the top of corporate America’s priority list—the $ 10 billion that large U.S. companies spent on Web site development in 1999 is evidence enough of that. Yet in any given month, only about half of the largest U.S. consumer businesses attract more than 400,000 site visitors—and a similar percentage of sites generate no commercial revenue at all. If the economic return is minimal, the strategic payoff is even lower. Less than half of these corporate sites capture any self-reported customer data. The few sites that manage to gather any information do a pretty poor job of it—we estimate that they compile meaningful profiles on less than 1 % of their customers. And despite all assurances to the contrary, the Web is rarely a low-cost customer acquisition channel. Most companies using standard “drive-to-site” Web marketing approaches, such as banner advertisements, quickly learn that their customer acquisition costs are greater than those in the physical world—often 1.5 to 2.5 times greater. Most corporate Web sites fall short of managers’ high expectations because of a fundamental mismatch—the dominant model for Internet commerce, the destination Web site, simply doesn’t suit the needs of most companies or their customers. For a destination Web site to make economic sense, it must attract repeat visits from customers, with each visit adding ever greater increments of information to a customer’s profile. For example, Amazon.com’s business model is based on retaining each customer for a significant number of years—up to an astonishing 12 years by some analysts’ forecasts. That is considered sufficient time to develop the deep, continuing relationships that will justify the company’s heavy investment in its site. Such a model is well suited to providers of financial services and travel services, whose dynamic, information-driven offerings generate, repeat site visits that yield an increasingly detailed customer profile. But at the other extreme, most consumer product companies face an insurmountable challenge in adopting the destination site model; they don’t provide enough value to induce consumers to make repeat visits, much less disclose intimate information. Does this mean the Internet is of no value to all but a handful of well-positioned companies? Not at all. What it does mean is that most companies need to discard the notion that a Web site equals an Internet strategy. Instead of trying to create destinations that people will come to, they need to use the power and reach of the Internet to deliver tailored messages and information to customers at the point of need. They need to become what we call contextual marketers. The Ubiquitous Internet Hastening the demise of the destination site model is the phenomenon we call the ubiquitous Internet. Within three to five years, the Internet will begin to be accessible from almost anywhere. Consumers will be linked to the Net via wireless telephones, personal digital assistants, interactive television, always-on DSL or cable, or laptop computers with wireless connections. Consumers will be constantly enveloped in a digital environment—a personal digital bubble, as it were. And the phenomenon extends well beyond personal devices. Car makers, shopping mall operators, plane manufacturers, retailers, airport officials, and bus station managers all have plans on the drawing board—or under way—to provide Internet access to their customers. A quick look outside the United States confirms that this ubiquity is approaching at warp speed: already in Japan, the largest Internet service provider is a wireless carrier. Before and After What Lies Ahead for Web Marketing In three to five years, the ubiquitous Internet will begin to unfold. Consumers will be constantly enveloped in a digital environment, and marketing strategies will have to change radically. Web sites, the centerpiece of most of today’s strategies, will be only one piece of a much larger and more complex puzzle. As the Internet becomes ubiquitous, companies will gain many new ways to connect with customers. This explosion of access will open up enormous marketing opportunities, but it will also pose big challenges. Designing a compelling Web site may be hard, and using personalization software to customize what individual consumers see may be tougher still. But these tasks pale in comparison to managing a pervasive electronic presence that senses and responds not only to who the customer is but where she is and what she’s doing. Think about airlines—they need Web sites so their customers can make reservations and check schedules online. But the airlines will also need much more. When a traveler needs to change plans midjourney, an airline must be able to provide for him an Internet-enabled mobile device while he’s still in the air or a computer terminal while he’s in the departure lounge or airline club. The passenger may also require related services—hotel reservations and ground transportation, for instance—that change as his plans change. For their part, retailers may use kiosks, Internet-enabled point-of-sale (POS) terminals, or mobile devices to digitally recognize loyal customers while they’re in a store. Then, before the customer has even reached the checkout counter, the retailer can devise special offers based on the customer’s purchase history and preferences. The companies that master the complexity of the ubiquitous Internet will gain significant advantages: greater intimacy with customers and more efficient targeting of market segments. And by offering customers a more valuable, more timely product, they’ll be able to charge a premium price. The crucial step is to recognize that the ubiquitous Internet will further reconfigure value chains that have already been shattered by the Internet’s first wave. As the ubiquitous Internet becomes a reality, a new kind of intermediary role emerges—we call it the mobilemediary. The mobilemediary will be able to break into the value chain at any point, bringing information and transaction capabilities to customers whenever and wherever they’re ready to buy a product or avail themselves of a service. Mobilemediaries might serve up your spouse’s wish list when you’re in the mall shopping for a birthday present. They might enable you to trade stocks when the market is plunging and your commuter train is stalled. When you’re with your family at a theme park, they might let you know that it’s your turn to ride the roller coaster. But whatever form these intermediaries take, they’ll be less about content and more about context. The Rise of Contextual Marketing Contextual marketing opens up opportunities for companies that, for various reasons, can’t form the ongoing digital relationships that are the lifeblood of a successful destination Web site—for example, makers of consumer packaged goods, single-product companies, and infrequent service providers. The most innovative of these Companies are already adapting their marketing strategies to take advantage of the ubiquitous Internet. Take Mobil’s Speedpass: the digital wand can be attached to a keychain and lets customers pay for gas and other purchases by waving it in front of an electronic reader at the gas pump or at the checkout counter. It has proved so convenient that some drivers go miles out of their way to find a filling station that accepts Speedpass. In Japan, wireless carrier NTT DoCoMo has signed up a staggering 10 million consumers for its i-mode service over the past 12 months. I-mode offers subscribers wireless access to restaurant locators, ski-condition reports, hotel reservations systems, on-line auctions, and thousands of other services. Some of this information is already available on the World Wide Web, but with i-mode, consumers can tee up the information they want when they want it, not just when they’re sitting at their PCs. Japanese consumer marketers are taking advantage of this situation—there are now almost 10,000 i-mode sites. As these examples suggest, the ubiquitous Internet will vastly expand marketers’ opportunities to reach customers. At the same time, it will destabilize the “four Ps” of traditional marketing: price, product, placement, and promotion will all be thrown into constant flux, depending on the customer and the context. The marketing goal will be the same as ever: deliver the right product to the right customer at the right time. Companies will still have to form a deep understanding of their customers’ needs and desires. But in many cases, instead of owning customer data or individual customer relationships, successful contextual marketers will borrow them. Recent initiatives by Johnson & Johnson demonstrate this kind of contextual marketing in action. Accepting that it was unlikely to develop a meaningful dialogue with most consumers about headache remedies, skin care products, and the like, the health-care-product manufacturer has chosen not to focus its strategies and investments on a Web site alone. Instead, it places its products in the most fruitful digital context possible. Banner ads for J&J’s Tylenol headache reliever unfurl on e-brokers’ sites whenever the stock market falls by more than 100 points. The brokerage firms own the customer relationships, but J&J breaks into the dialogue at the moment when its marketing opportunity is greatest. Or consider J&J’s campaign for Clean & Clear, a skin care product line for teenage girls. Resisting the temptation to create yet another ill-fated destination site, such as the definitive on-line source for all things acne-related, J&J establishes a presence within preexisting on-line teen communities. The company gives teenage girls, many of whom spend their free time chatting on-line, the chance to send one another talking electronic postcards that offer a free skin analysis and a sample of Clean & Clear. The campaign’s viral component—friend-to-friend referrals that multiply exponentially—significantly increases the product’s exposure at little additional cost. The result: a response rate that’s several times higher than standard Web levels, without any significant site investments. Once again, J&J inserts itself into a preexisting relationship at the optimal moment. Even companies with flourishing destination sites can benefit from contextual marketing. Dell Computer, whose own site is an e-commerce leader, recognizes that most on-line computer shoppers bypass Dell’s site and go straight to ZDNet and CNET for indepth product information—combined, those two sites have almost ten times the number of site visitors that Dell has. So instead of using costly and ineffective banner ads to divert sales prospects to its own site, Dell posts its detailed product information on ZDNet’s and CNET’s sites. Visitors at those sites can then compare the latest offerings from Dell and Compaq, pick the Dell machine, and launch the ordering process directly from the CNET or ZDNet site. By piggybacking on CNET’s and ZDNet’s relationships, Dell has significantly improved its customer acquisition economics. Beyond the Web Site For all their innovation and ingenuity, J&J’s and Dell’s contextual marketing efforts are still defined by, and confined to, the PC. But the “tethered” Web is just a limited slice of the Internet, and it is ill suited to the marketing needs of many companies. The latest Internet technologies expose points of contact that are infinitely more timely and relevant. The convergence of the Internet with broadband connectivity and with TV will let marketers integrate commerce and entertainment: if you like Regis’s suit, order it with a couple of clicks of your remote. Don’t laugh—although early experiments with interactive TV were an expensive bust, recent trials have been more encouraging. When an interactive TV performance by pop artist Melissa Etheridge included an on-screen promotion for her latest CD, it generated an astonishing 46 % click-through rate. The average click-through rate for a Web-based banner ad is only 0.5 % at best. Opportunities for contextual marketing extend well beyond the home. Mobile devices and Internet access in a broad range of public venues will let contextual marketers link real-life situations to virtual information and offerings. For instance, Unilever’s mobile recipe book concept, which will be available on digital phones in Europe, should influence consumers’ packaged-goods decisions far more than the company’s Web site ever could. Intended for use while shopping, the mobile tool suggests recipes and breaks them down into their ingredients—identified, wherever possible, by their Unilever brand name. Rather than try to establish an ongoing Web site relationship with European grocery shoppers, U.K.-based Unilever plans to give them a digital tool precisely when and where they need it, helping shoppers and promoting Unilever brands at the same time. Conceivably, the mobile recipe book could be used in connection with mobile e-coupons—electronic sales promotions that take into account the customer’s identity and location, among other variables, and that are issued as close to the point of sale as possible. These time-sensitive contextual promotions can influence consumer purchasing decisions. At the same time, they let companies vary their pricing in real time in response to market and supply conditions. Companies that practice contextual marketing should be guided by the following imperative: don’t try to bring the customer to a Web site, bring the message directly to the customer at the point of need. These are just some of the ways that consumer product companies can harness the power of the ubiquitous Internet. But however they reach customers, whatever the mobilemediary, these companies should be guided by the following imperative: don’t try to bring the customer to the site; instead, bring the message directly to the customer at the point of need. The Ubiquitous Relationship Even companies with enduring customer relationships and heavily trafficked Web sites need to master the tools of contextual marketing: electronic wallets, smart cards, mobile shopping lists, Internet-enabled POS systems, and many other electronic utilities and access technologies. These tools can extend the reach of relationship-oriented companies beyond their Web sites, capturing more information and improving customer service in the virtual and the physical worlds. Consider FedEx. The company never fell into the trap of designating its Web site as its only mechanism for managing digital customer relationships—not surprising given that FedEx was practicing contextual marketing before the Web even existed. As early as 1988, its proprietary PowerShip terminals, installed in customers’ mail rooms, brought digital interactions to the point of need. Today, FedEx is creating even deeper relationships. Its customers can use mobile devices to track packages or to locate the nearest spots to drop them off. Soon it will be possible for customers anywhere in the world to use a mobile phone to create a shipping label or a digital tracking record for a package. The FedEx mobilemediaries could alert the company’s customers to shipping problems encountered in transit. For instance, if a time-sensitive package is being held up at customs for lack of documentation, the mobilemediary could inform the customer and route the appropriate electronic forms to the customs office. FedEx also envisions customers using chip-embedded smart cards that can generate shipping labels and tracking information when swiped through a service terminal. Eventually, ubiquitous intelligence could move into the packages themselves; “smart packages” embedded with location-sensitive chips could transmit real-time tracking information to shippers and recipients, further expanding loyalty and raising competitors’ barriers to entry. American Express, for its part, recognizes that there’s far more to the digital relationship than the customer’s occasional visit to the company’s site to review a bill. Ideally, the relationship should deepen every time the customer uses his or her Amex card. That’s why the company has developed an e-wallet that automates the process of entering a customer’s on-line purchasing data, such as her credit card number and shipping information. The e-wallet fosters loyalty by relieving the customer of that tedious chore. Even more important, it could become a tool for capturing data and cross selling at the point of purchase. With explicit consent from customers, their e-wallet could follow them as they surf the Web or access the Internet through their mobile devices. The result would be a trove of customer intelligence. Amex’s recently launched Blue card is a potential predecessor to the ubiquitous e-wallet. With its embedded smart chip, the Blue card could extend beyond the Web site to the physical point of sale, bringing customer profile data not just to American Express, but also to the more than six million merchants that accept the company’s cards. But digital relationship management will involve far more than simply multiplying the points of contact. Ubiquity will enable bricks-and-mortar companies to convert physical customer traffic into digital relationships, introducing new combatants to the already fierce war for eyeballs. These companies will be able to use their physical access to customers to deliver precisely targeted messages—their own as well as those of companies that borrow the point of contact. Airlines, for instance, have a captive audience in the terminal club, the departure lounge, and the plane itself. They can exploit this advantage to offer contextual services beyond the reach of virtual agents such as Travelocity or Trip.com. Even quintessential bricks-and-mortar businesses such as parking garages and shopping malls will be able to turn their traffic into personal relationships and incremental revenue. The best-conceived Web sites in the world wouldn’t significantly improve the fortunes of those businesses. But ubiquity now allows garages and malls to manage customer relationships directly. In Sweden, garages now accept payment from the “digital wallet” of a Sonera cell phone. Embedded in the digital money is significant information about garage customers, including their names and when and how often they park. Garage owners can use the data to turn frequent visitors into monthly customers and to engage in dynamic pricing, charging more when the garage is nearly full and less when business is slow. For shopping mall operators, ubiquity creates an opportunity to manage the customer relationships previously owned by individual retail tenants. Simon Properties, the largest retail mall developer in the United States, gives some shoppers mobile devices that they can use to generate electronic wish lists or to order products for home delivery. Simon eventually will be able to track shoppers as they move through the mall, feeding tenant retailers the purchase data they need to offer timely and relevant promotions. No longer an anonymous provider of retail space, Simon can now add value to the retail experience by helping store owners better match their products and services with customers’ needs. Ubiquity creates opportunities wherever there is customer traffic. As an extension of its existing FastPass electronic ticketing system, Disney could win loyalty in its theme parks by creating virtual lines. Using a Disney-supplied mobile device, a customer could reserve a seat on a popular ride hours in advance, eliminating the time spent waiting in line. That would increase customer enjoyment (and spending) while deepening the information-based relationship. Drawing on the information gathered during the customer’s visit to the park, Disney could follow up with carefully targeted catalogs or promotions for movies, games, or merchandise. In similar fashion, some pretty unlikely candidates—from theaters to taxicabs—suddenly emerge as digital intermediaries. The automobile may present the richest new opportunity for digital relationship management. The ubiquitous Internet could enable GM, the world’s largest manufacturing company, to transform itself from an automaker to a communications intermediary. After all, drivers spend an average of 8.5 hours a week inside the approximately 70 million GM vehicles on the road today. By comparison, America Online’s 22 million subscribers spend 7.5 hours a week on-line. The information in every one of GM’s vehicles is immensely valuable to other marketers. Shell and Texaco, for instance, would pay good money to know how much gas is left in a car’s tank. Retailers and restaurateurs would pay to know when a vehicle is passing nearby. Mechanics would pay for access to a GM vehicle’s service history. By reconceiving the car as an information device, GM dramatically increases the amount of value it can capture from each vehicle, while providing services that tie car owners closer to the company. The New Corporate Agenda It’s tempting to take a wait-and-see attitude to the ubiquitous Internet. Wireless technologies are still in development. Interactive TV is years away from mass adoption. E-coupons and other methods of reaching the customer at the point of sale are in their infancy. But now is the time to begin building the skills needed to win in the age of ubiquity. Senior managers need to start by honestly assessing their business. Does it offer a service or a product that will generate repeat visits to a Web site? Does it stand a chance of forming an ongoing relationship with customers? If so, the company should spend what it takes to design and build a destination Web site. But for most companies, the customer relationship is a series of contextual interactions. Those companies shouldn’t be afraid to define an Internet strategy that de-emphasizes the site itself; there are better ways for them to spend their marketing dollars. Ubiquity will allow businesses to accompany their customers 24 hours a day, but not every business will be invited along for the ride. Customers will admit only the most relevant messages into their lives, so the concept of adding value to customers’ lives will change significantly in an always-on world. The companies that can anticipate and meet the real needs of their customers—based on where they are located, what they do, and which communities of interest they belong to—will be valued partners. The companies that can’t will be dismissed as pesky nuisances. Ubiquity will allow businesses to accompany their customers 24 hours a day, but not every business will be invited along for the ride. The winning companies will be the ones that master a few critical disciplines. First, database marketing tools will be essential. Whatever their industry, mass marketers will have to become direct marketers because the ubiquitous Internet will require companies to constantly retarget and retailor their messages. Second, new technology skills need to be mastered quickly: the companies that build new databases, upgrade their legacy systems early, and create the middleware necessary to tailor their messages to customers’ ever-changing needs and situations will move ahead of the competition. And finally, companies need to adopt the discipline of measurement. Winners will measure everything, constantly refining their messages to meet ever-heightening consumer demands for relevance. Mastering the contextual possibilities of the ubiquitous Internet will require a significant commitment of corporate resources. But the payoff is just as significant: Internet strategies that are truly relevant to companies and their customers. It will be neither cheap nor easy, but it will be a far better investment than pouring $ 10 billion into Web sites that few people visit.

Contextual Marketing: The Real Business of the Internet

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