Digital transformation is typically the domain of technologists: those fluent in the intricacies of software and app development, data analytics and machine languages. Occasionally, when business users are brought into the conversation, mobile-savvy social-media visionaries and IT leaders may be included.

 

Increasingly, however, business executives are taking the reins and recognizing that digital transformation affects every aspect of their operations. At BMW, for instance, “marketing is really embracing digital” and becoming a key part of the corporate transformation under way, according to Steven Althaus, Senior Vice President, Director, Brand Management and Marketing Services.

 

Althaus (pictured), who joined the German luxury carmaker in 2013, has a business degree and was CEO of a communications firm before he arrived at BMW. That background lets him take a wide-angle, integrated view of the auto industry and the current state of digital technologies. He isn’t thinking of digital transformation as a one-off communication strategy where ad dollars are spent on different media than in the past.

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“We think about how digitization affects our business model” and the future of the auto industry. “We are no longer just car sellers,” he said at a recent MIT IDE annual meeting, “People think differently about getting from point A to Point B; they consider cost, comfort, the environment and lifestyle. This requires new business models.”

 

For example, BMW now is considering new ways to provide mobility services, not just producing cars—a revolutionary idea for a 100-year-old company. That includes rethinking basics like R&D, manufacturing, sales, design and classic supply-side product development. “There is a transformation of marketing” taking place, too, Althaus said, where the definition of customers and their role has changed dramatically.

 

For instance, BMW is selling directly to customers for the first time, which Althaus calls a “game-changer” precipitated by the Internet. Customers pre-shop on the Web and have huge expectations and knowledgeability which are “redefining retail.”

 

And while BMW is taking aggressive, bold actions with its the BMW i3 all-electric car and i8 hybrid cars, a corporate restructuring and revamped sales plans, it must keep pace with competitors that are also taking swift actions to hold onto profits in a fickle marketplace. BMW has long been in a horse race with its two German rivals, Daimler’s Mercedes Benz and Volkswagen’s Audi for the high-end market. But new competitors, such as Tesla, and even Cadillac and Volvo, are luring customers with features like semi-autonomous driving, safety sensors and smart apps, that are often more appealing to customers today than leather headrests and reclining seats. IT’s what one New York Times blog calls a new tipping point in transit.bmw-i3-amsterdam-341.jpg

 

Althaus noted that demographic shifts-- such as the resurgence in urban living, emergence of car-sharing and the idea of car ownership as a burden—are causing some of the disruption to traditional car companies.

 

So is digital technology. The goal is to use these technologies and Web services—such as twitter and personalization—to connect directly with customers; car producers, like most other producers, are rapidly becoming service providers. How quickly they get there will be the difference between driving competitive advantage rather than lagging behind the curve.

 

(Also see this recent interview with Althaus and CMO.com here for more background information.)

Given the plethora of mobile apps on the market today and the estimated $60 billion revenue stream they are expected to generate by 2017, why would businesses spend resources on non-product-specific apps?  To build trust and brand awareness, according to new research released this month by MIT’s Center for Digital Business.

 

Two studies aimed at assessing the impact of so-called “benevolent apps” on consumer brand preferences, found “strong value” for the business in developing customer-centric apps where product messaging may be absent or very subtle. The research, conducted by CDB chair and MIT Sloan Professor Glen Urban and Fareena Sultan, Professor of Marketing at Northeastern University, found that the apps “provide consumers with helpful information that can increase trust in and preference for a company.”

 

In fact, “companies should devote resources to developing, testing and promoting” these apps along with others, the researchers conclude in an article in the Winter 2015 issue of the MIT Sloan Management Review.

 

Advancing Consumer Interests

While many companies’ smartphone apps and advertising today successfully “focus on pushing product sales,” the authors write that one of the most effective uses of mobile media “will be apps that are designed to build trust.” Urban and Sultan call these benevolent apps because “their value is not directly tied to selling products but rather to advancing consumers’ interests and advocating for their needs ahead of a company’s own corporate profits.”

 

Apps --such as Kraft Food offering recipes, or The North Face offering snow reports-- build trust by providing consumers with information that help them solve problems or make decisions. Indirectly, the authors say, advice, services and conveniences can improve users’ image of the brand and increase their willingness to purchase products. A wide spectrum of benevolent apps exists. (See chart).Benevolent Apps.Urban Exhibit 102314.jpg

 

At the left end of the spectrum on the chart are apps whose goal is to sell product. On the right end are apps that provide benevolent service. In between are apps that display differing degrees of benevolence.

 

Case Studies

Two cases were studied in depth to evaluate the effectiveness of various approaches.  For Liberty Mutual Insurance in Boston, researchers set out to determine if and how a benevolent app could build brand, customer preference and sales potential. In the second study, for Suruga Bank in Japan, they attempted to determine the impact of benevolent apps in a global setting with a different cultural context. To do this, they developed a mobile app to help Suruga customers select new homes.

 

Specific analysis and results can be found in articles and blogs here and here, but in both cases, customers surveyed after the apps deployed were much more likely to purchase services from the company than they were previously. The authors conclude that: “Using mobile apps that exude benevolence can significantly impact sales at a low cost — and thus improve profitability,” even in diverse cultural contexts.

 

“Benevolent apps lead to increases in perceptions of trust, thus promoting consideration, preference and intention to use the brand. These are powerful forces that can lead to increased revenue from trusting consumers who perceive that the brand has their interests in mind.”

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Glen L. Urban is the David Austin Professor of Marketing at the MIT Sloan School of Management and chairman of the MIT Center for Digital Business. Fareena Sultan is a professor of marketing at Northeastern University’s D’Amore-McKim School

On November 21 I participated in a Think & Do workshop at USC’s Annenberg Innovation Lab (AIL).  AIL was founded in 2010 as part of USC’s Annenberg School of Communications and Journalism to study the transformational impact of technology and cultural changes on the media industry.  I’ve been a member of AIL’s Advisory Board sinceits founding.

 

The Lab conducts research projects in a number of areas at the intersection of media and technology.  From time to time it hosts what it calls Think & Do events that bring together students, faculty members, research staff, industry executives, artists, entrepreneurs and policy makers to collaboratively explore new research ideas.  The topic for this particular workshop was Leveraging Engagement.  It was aimed at exploring new frameworks for fan engagement in a variety of media, including entertainment, music and sports.

 

Like few others, the media industries have been severely disrupted by the digital revolution and the forces of creative destruction.  Everything seems to be changing at once, from the way content is produced and delivered, to the sources of revenue and profits.

One of the major changes is the relationship between the creators and distributors of media content and their audience, especially their most committed audience members or fans.

 

What do we mean by fan?  The briefing book prepared for the workshop draws a distinction between an audience of relatively passive listeners/spectators and fans.  Fans are “enthusiastic followers or admirers… have a passion, are emotionally connected to the object of their passion, and experience their passion through their own subjective lens.”

 

The Internet, smartphones and related technologies, are enabling fans to play a more central and active role in the evolving media ecosystem.  They are active participants in social networks.  They are critics, co-creators, and brand influences.  They are also potential consumers of all kinds of goods and services related to their passion.

 

 

AIL’s Leveraging Engagement project is taking advantage of all the data we can now access and analyze - including from social media and mobile devices - to get deeper insights into the drivers of fan behavior.

“It is no longer enough to divide fans into classic demographic segments such as male and female or young and old,” notes Erin Reilly, lead project researcher.  “Instead, we need to understand the unique emotional investments of fans in order to better comprehend their motivations and map (or, more pragmatically, predict and encourage) their engagement with media.”

 

This is particularly important as media companies struggle to come up with new business models.  “By understanding how fans engage with content, media companies can better understand what motivates fans…  and determine the most effective strategies to market, develop, distribute and offer content to fans, not only in a cost-efficient manner but also in a way that respects what fans enjoy and how they like to participate in it.”

 

To continue reading the full blog, see my Dec. 10 post here.

In another digital marketing presentation at the recent MIT CDB/IDE annual meeting, Sebastian Schwiening of BMW, and MIT Assistant Professor, Renee Gosline, explained how social media can yield positive business effects as a result of consumer-to-consumer story telling.

 

Brand marketing is totally transforming in the digital world where consumers and loyal “fans” are generating content and co-creating brands with the company. For example, BMW is often joining—not leading—online discussions about its products, Schwiening said. In order to benefit from the buzz about its products, the company has created #BMW hashtags onTwitter, Instagram and Pinterest. As a result, there are Tweets every three seconds, more than 2 million #BMW Pics on Instagram and more than 1 million #BMW Pins on Pinterest.com –all spurring conversations and interest in the luxury cars.

 

Moreover, by identifying and harnessing the most passionate influencers/consumers—in addition to corporate experts--to tell the “right” brand story, engagement, trust and ultimately, purchase consideration will increase, Gosline said.

 

“We can harness the power of "outlier" stories — those exceptional experiences that we can't all recreate, but can't help watching and sharing,” she said. “It's not about everyone telling an amazing story, it's about the right people sharing those exceptional stories that gain them social currency and become viral in a network.”

 

 

For more on the event and digital marketing spending strategies, read this blog.

 

Additional video from the presentation can be found here and here.

Here’s a pop quiz to test your digital marketing savvy: What’s the most effective way to spend $1 million in advertising that goes beyond brand exposure to yield click-throughs and sales? Answering that question, according to Professor Glen Urban, Chairman, MIT Center for Digital Business, is the Holy Grail for marketing today. But the solution is not as straightforward as you may think.urban.jpg

 

CDB’s Digital Marketing Group has examined the impact of allocating funds among multi-channel, old- and new-media platforms. The research also aims to determine how this spending maps to sales. Discussing the results of the three-year study conducted jointly with General Motors and INSEAD, Urban described five options that U.S. Chief Marketing Officers face daily about which media, or mix of media, will garner the most bang for their (million) bucks. For instance, they could buy 125 million views on Facebook; two 30-second ads on American Idol; two days on Yahoo’s featured home page; 6.5 pages of color ads in People magazine, or 10 full-page, color ads in the New York Times, as illustrated below.

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Naturally, the type of product and the demographics of the target audience would be key considerations, as well as the business’s budget and strategy for how much to spend on new versus traditional media. Also to consider: Which traditional media, if any, should be dropped in favor of new approaches, and whether to keep or change total spending.

 

While CMOs currently invest about 25% of their budgets in new media--and the amount is growing--the CDB Digital Marketing study, Measuring the Effectiveness of New Media vs. TV, also examined whether that investment links directly to increased sales, and which specific new media works best.

 

TV Strong, but Softening

The data show that TV is still important in purchase decision-making over banner ads, though its impact is declining a bit worldwide. Facebook is significant among social media platforms, but it is more influential in the U.S. and among those who are close to making their purchase choice. In China, social media has greater influence than in the U.S., and there is also more synergy between new media and TV. In summary, the research shows that:

 

  • TV response remains strong, but audience is declining in the developed world.
  • Social media is effective.
  • Building synergy across TV and new media – e.g. coordinated campaigns –is advised.
  • Global segmentation by culture (and not country) is an opportunity.

 

Nevertheless, “All the rules are changing in marketing,” Urban said, and continued study is needed to find ways to make digital ads even more valuable. Clearly, the challenge is to accelerate cross-country/cultural learning in a rapidly changing digital media landscape, and to implement tactics that best support business growth.

 

 

For more on social media and digital marketing, read this related blog.

When business revenue is lost to piracy and theft, many want swift action taken to stop the offenders. Yet, when the U.S. government abruptly pulled the plug on an online video site, some worried about the chilling effect on innovation and customer buying patterns. And new questions were raised about whether thieves are deterred or actually emboldened by harsh anti-piracy law enforcement.

 

Michael D. Smith, Professor of Information Systems and Marketing at Carnegie Mellon University and co-director of CMU’s Initiative for Digital Entertainment Analytics (IDEA), set out to address these and other concerns in his recent research, “Gone in 60 Seconds: The Impact of the Megaupload Shutdown on Movie Sales.”smith.jpg

 

At a recent MIT Initiative on the Digital Economy (IDE) lunch seminar, Smith said that there is growing proof in the academic literature that piracy does harm sales, but the more complex issue is what to do about it. Many businesses are resigned to hackers and illegal knockoff products, saying that they “can’t compete with free,” he noted. Nevertheless, the international business community wants to deter and stop the spread of these site and remedies are sparking discussion and debate.

 

According to Smith:

“The growth of Internet-based piracy has led to a wide-ranging debate over how copyright policy should be enforced in the digital era.” His research analyzed “the impact of the U.S. government’s shutdown of a major piracy site — Megaupload.com — on digital sales and rentals of movies.”

 

The study concludes that:

“The shutdown of Megaupload and its associated sites caused digital revenue for two major motion picture studios to increase by 6.5%-8.5%. The results suggest that some consumers will turn to legal channels when a major file-sharing site is shut down, and by extension that illegal file-sharing displaces digital movie sales.”

 

Megaupload was accused of trafficking in pirated copyrighted content, prompting the Department of Justice to shut it down globally in January 2012. By exploiting cross-country variation in Megaupload usage, Smith and his co-author Brett Danaher determined that shutting down Megaupload caused a change in digital movie purchase patterns that resulted in an 8% increase in digital sales and rentals for three major film studios in the 18 weeks following the shutdown.

 

The impact of similar policy interventions on consumer behavior is an important policy question as numerous other countries, such as the U.K., are adopting policy measures in the hopes of controlling digital piracy.

 

In his paper, Smith says that enforcement approaches vary widely, with some involving policies designed to deter consumers from filesharing though incentives or penalties, while other approaches target the supply of piracy by shutting down Internet sites that serve as major conduits for pirated content.

 

Smith said that while the study was narrow in focus, it was one of the first to examine real-world sales data to analyze the impact of anti-piracy interventions on sales. Moreover, it “provides a methodology and approach that could be applied to other similar anti-piracy interventions in future research.”

You could say that in the age of Big Data, advertising is downsizing. Some online ads, at least, are using social media sites and personalization data to target very narrow audiences—even individuals-- for better marketing results. That’s one finding of new research presented by Catherine Tucker, MIT Sloan Professor of Marketing, at the recent MIT CDB conference on Big Data.

 

Speaking about her latest studies of social advertising, Tucker said that "with people spending 20 percent of their time online on Social Networks, online advertising needs to adapt to this new environment." In particular, ads are increasingly being displayed only to a social network, say on Facebook, on the theory that Friends are interested in similar things. Even without a formal endorsement, the ad appears to have support from the social network.

 

To find out how effective these ads are, Tucker ran a/b tests with a million viewers and found that social ads attract nearly twice as many clicks and conversations as non-targeted ads [see chart]. The biggest impact was targeting ads only to a social network, she said.

 

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She cautioned that the advertising not be too overt in mentioning friendship because “intrusion gets pushback” or viewers go elsewhere. For more details on her presentation, view the slides here.

 

Tucker is the Mark Hyman Jr. Career Development Professor and Associate Professor (with tenure) of Marketing at MIT Sloan. Her research examines how technology allows firms to use digital data to improve their operations and marketing and in the challenges this poses for regulations designed to promote innovation. She has particular expertise in online advertising, digital health, social media and electronic privacy.

 

Here are some vidoe clips from Tucker's presentation at the MIT CDB Big Data event.

Will Cukierski and his fellow data scientists at Kaggle take the concept of crowdsourcing very seriously. In fact, and they’ll hold a contest for your company–and offer cash prizes-- to prove its effectiveness.

 

And many global organizations are signing on. In two years since Kaggle has offered its service, at least 40 companies, governments and researchers have ‘crowdsourced’ their toughest problems to Kaggle’s network of experts. The solution-seekers get answers and the problem-solvers get prize money for the winning model. Both sides seem to like the arrangement.

 

Cukierski, himself a data scientist with a degree in physics from Cornell University and a Ph.D. in biomedical engineering from Rutgers, told a group of MIT CDB faculty and guests recently about Kaggle and “how organizations are using predictive modeling competitions to surpass their best efforts.” His presentation was titled, Crowdsourcing Predictive Analytics: Using 50,000 Heads Without Losing Yours.

 

To be sure, Kaggle is not American Idol, nor is it aimed at just anyone looking for a part-time job. It does, however, adhere to tech executive and venture capitalist Bill Joy's adage that the best minds may not be working at your company. Kaggle's community is comprised of thousands of PhDs from quantitative fields such as computer science, statistics, econometrics, math and physics. “They come from over 100 countries and 200 universities. In addition to the prize money and data, they use Kaggle to meet, network and collaborate with experts from related fields.”

 

According to its Web site, “most organizations don't have access to the advanced machine learning and statistical techniques that would allow them to extract maximum value from their data. Meanwhile, data scientists crave real-world data to develop and refine their techniques.” Kaggle hopes to bridge the gap with its "flavor" or crowdsourcing as noted below:

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Cukierski said that the contests are not intended to replace domain knowledge expertise, but to tap into resources not otherwise available. To me, it’s interesting to compare this discussion to another recent seminar presented by Jonathan Zittrain at MIT CDB. In his presentation of Minds For Sale, Zittrain noted that while it may be quite acceptable—and even “hyper-efficient marketing” -- to offer payment for people to solve everyday product problems, intellectual property (IP) and security concerns have to be addressed as well.

 

At Kaggle, IP ownership and contest rules vary with the sponsor, Cukierski said. Some, like banks, want to keep the results proprietary, while others are more open and transparent about the solutions they get. Kaggle also hosts private competitions where contributors must be invited to participate and are placed under nondisclosure agreements. I can see those options becoming even more popular given regulatory constraints and other restrictions that many businesses and public-sector agencies must address.

 

Here are some results that they have found with predictive models so far:

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What are your thoughts about this crowdsourcing model? Is it one you would consider as a research organization? As a data scientist? Share your ideas with this community.

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