Consumer Electronics CMOs Survey by IBM

Global Electronics CMO Study and AnalysisExecutive Brief The electronics CMO “version 2.0” Changing the OEM marketer’s role in the consumer electronics industry Lead author: Kanishka Bhattacharya, Sector Lead, Strategy and Market Insights, IBM Global Electronics industry Contributions by: Paul Brody, Partner, Global Electronics Industry, IBM Global Business Services Erika Asante, Director of Strategy and Marketing, IBM Global Electronics Industry

The electronics CMO “version 2.0” Rethinking the role of marketing in the translate that knowledge into novel, highly differentiated electronics industry solutions that enhance, perhaps even help define, targeted consumer lifestyles. Marketing stands at the vanguard of this A profound change in the way consumers research and buy change. electronics has begun. With the rise of the next-generation Web and the 3-D Internet, the number of consumer touch- This executive brief describes how electronics OEM market- points increases exponentially—posing both an opportunity ing has evolved and how it still needs to change. It is based and a threat for marketers in global electronics original on information from IBM interviews with chief marketing offi- equipment manufacturer (OEM) companies. Just as there cers (CMOs) of top consumer electronics companies world- are many more direct avenues available to reach consumers, wide, a 2008 IBM survey of multinational consumer there are also many more ways people can access and electronics marketers, and IBM secondary research. It high- share information about a company, its brand, and its prod- lights the challenges that CMOs and marketing executives ucts and services. face in: In response, the battle for consumer mindshare has intensi- ● Better supporting new consumer buying behaviors fied. OEMs are experiencing heightened competition from ● Successfully addressing channel conflicts retailers promoting their own private brands, as well as ● Enabling more complex product and service collaboration increasing pressure on profit margins at both ends of the arrangements value chain. In this environment, product innovation remains ● Redefining the marketing function in their own companies a high priority, but if electronics OEMs fail to engage consumers and provide more comprehensive solutions to their The report concludes by exploring how these marketers are needs, this innovation will be in vain. taking advantage of the changing trends, what strategic bets they are making, and how they are becoming more effective This new focus requires actively accounting for and manag- in conveying the voice of the consumer to all parts of the ing the full range of customer touchpoints—looking for more company. effective ways to interact with electronics seekers to learn what’s important to them. And it means teaming with companies both inside and outside the electronics industry to 2

Understanding the new breed of In contrast to online shoppers in general, online electronicselectronics consumer seekers are more often early adopters who are willing to pay premiums for products that save them time and that areFor research purposes, IBM conducted face-to-face and consistent with the image they want to project. They arephone interviews with CMOs and top marketing executives eager for new gadgets, but are less enamored with technol-of leading consumer electronics firms worldwide. IBM ran ogy for technology’s sake, as they are interested in how itsurveys to gauge consumer buying behavior. IBM also per- can enhance their lives. For that information, they rely heavilyformed secondary research and applied quantitative analy- on consumer opinion sites.ses of publicly available information to define a new breed ofelectronics consumer. To further validate its findings about this new breed of electronics consumers, IBM presented the research results to itsThis research effort found that the new breed of electronics CMOs and marketing executives in one-on-one interviews.seekers are skeptical of push ads and expect the product The executives confirmed that they are seeing the emer-research and buying experience to be more collaborative. gences of the same consumer behaviors, resulting in theExperienced with Web 2.0 and 3-D Internet capabilities, they need to address them directly—through relevant channels—are expressive online and influenced by peers. Many of their and altering the role of marketing in the process.perceptions about electronics companies and products areformed through user-generated content sites that include Exploiting next-generation Webwikis, blogs and YouTube, Internet social networking sites technologies to engage consumers onsuch as Facebook and MySpace, as well as interactive sites their termslike the virtual worlds in Second Life. The majority rely onWeb-based research to narrow the choice of brands, explor- Consumer sophistication and the weakening reach of someing dealer Web sites, online product reviews, and shopping traditional media mean that electronics companies cannotcomparison and price arbitrage Web sites—even eBay. In afford to neglect new marketing channels. Indeed, everyaddition to a greater voice in how and what they buy, elec- respondent to the CMO study by IBM was using at least onetronics seekers also expect a consistent experience, no mat-ter how many channels they cross in the process of learningabout and purchasing products. And many prefer to buyonline. 3

The electronics CMO “version 2.0” Web 2.0 channel to connect with customers. Their embrace radio and TV to online viral marketing or advergaming (the of Web 2.0 was not without misgivings, however, as more insertion of ads in video games and the creation of custom- channels mean more complexity in customer interactions sponsored games) to create buzz about an offering. Once and more technology complexity. interest is generated, marketers lead potential buyers to seri- ously consider the OEM solution by encouraging loyal customers to share their experiences with other consumers “We want to have a continuous, ongoing through blogs or by creating a space in Second Life where dialogue with the customer, and new Web people can immerse themselves in the brand experience. technologies enable us to do this efficiently. To help move the consumer from simple consideration to By having this conduit to the consumer, we actual preference for the OEM offering, 3-D modeling capabilities on the company Web site enable potential buyers to are also better able to manage our brand visualize products more easily and even collaborate on perceptions.” design. Some companies use simulations to allow for prac- tice interactions and to enable the buyers to get the most —VP marketing, global electronics company value from the offering after purchase. “Blogs, wikis and other user-generated media are absolutely essential to spreading our marketing messages through consumer brand champions. This network effect is most critical.” IBM survey participants’ responses to the question: “What Web 2.0 technologies are you currently using?” —CMO, global electronics company By examining how many channels a marketing message may need to cross these days, it’s easier to understand how and why complexity is increasing. To reach consumers and create awareness, OEM marketers are moving from print, 4

The CMOs and marketing executives interviewed by Managing retail channel conflictsIBM also indicated that their organizations use Web tech-nologies not only to interact with customers, but also to The addition of more messaging paths is not the only ele-interface with suppliers and business partners and manage ment of increasing complexity being managed in marketingcollaboration internally. The ultimate objective is to enhance departments. Consumer electronics and general retailersthe consumer experience—which helps create loyal cus- encroach more and more upon the core spaces of OEMs.tomers who become contributors to user-generated media Well-known examples are Best Buy and Circuit City. Bestthat positively affects the considerations of other potential Buy is moving into the product development and commer-buyers. cialization space with its market researchers, design engineers, manufacturing partners and usability experts creating a line of private label brands (including the Insignia, Rocketfish and the Geek Squad). Circuit City concentratesIBM survey participants’ responses to the question: “What are you usingWeb 2.0 technologies for?”As data from internal and external interactions is collectedand shared, new knowledge is created to further this objec-tive. For example, a sales support team can use a wiki tomonitor consumer concerns about product trends and fea-tures. It’s easier to find experts within the company andbusiness partner organizations to make decisions aboutsolution enhancements when blogs allow people to evaluateauthors’ opinions. IBM survey participants’ responses to the question: “How do you view the threat from retailers encroaching into OEM territory?” 5

The electronics CMO “version 2.0” on customer service with its firedog specialists who provide With electronics consumers showing a high readiness to retail support, PC support, and installation and integration move across both retail channels and marketing channels at services. More than three-quarters of IBM survey respon- will, OEMs are finding an opportunity to create a greater dents acknowledged the threat from retailers. impact and brand identity and achieve higher-margin sales through direct sales. If electronics seekers are going to OEM Web sites as part of their research, OEMs are also trying to “Retailers, in the long run, are not very make it easy for them to move right into the purchase phase loyal to manufacturer relationships, and we by providing a convenient, well-designed Web store as part of an immersive online experience. Because most electron- have realized that it makes sense to diver- ics seekers prefer to shop online, the OEM has a greater sify our channel options.” chance of capturing sales at this point—particularly when retailer Web stores fail to adequately serve the information —VP marketing, global electronics company needs of the consumer. Retailer encroachment results in revenue loss for OEMs and The incentives for direct sales channels are compelling. intensifying competition for consumer mindshare—justifying When an OEM sells indirectly, it usually has to provide a multichannel OEM strategies. Most OEMs no longer focus retailer discount of up to 24 percent, significantly decreasing solely on the retailer to distribute their products. They con- gross margins. Based on IBM analysis, the OEM stands to sider more direct channels—guiding electronics consumers gain five to nine times the profit margin by dealing directly to their own company Web sites and creating their own with the consumers—even after deducting additional operat- company Web stores. Some, like Sony and Apple, have ing costs for maintaining the direct channels.1 retail stores. In addition to bottom-line improvement, direct sales chan- This strategy makes sense in view of the fact that electronics nels enable OEMs to own the consumer relationship, creat- consumers switch channels at will when researching prod- ing the kind of experience that can make them loyal to the ucts to buy. They look at manufacturer and retail Web sites; brand. A significant majority of respondents in the IBM sur- they look at product and consumer reviews and online shop- vey indicate that there is a distinct advantage to better ping comparison sites. They may even visit the local retail stores and available OEM outlets. 6

managing their brands through direct marketing channels. All With a few notable exceptions, most electronics OEMs havecited the ability to obtain better customer analytics. Nearly been slow to capitalize on the beneﬁts of direct sales for fear80 percent said they were able to better frame brand mes- of angering their strategic retail channel partners. Just one-sages and 69 percent said that direct channels increased third of the marketers surveyed by IBM said their companythe chance of repeat business. currently has a direct online retail store and 11 percent have brick-and-mortar stores. Of those that don’t have a direct retail channel, however, 42 percent are planning on develop- “We will sell direct soon and we will deliver ing one in the future. content and services online. At this point, [if] there is a group of customers who want to buy direct, we should enable that. There are so many online sellers already, but this is not competitive with our main channel. IBM survey participants’ responses to the question: “Do you have a direct It’s low risk.” retail store? If not, are there plans to build one in the future?” —CMO, global electronics company Ultimately, for an OEM managing multiple channels, the challenge becomes: ● Through which channels should I sell? ● How do I make sure that I have the optimal channel mix to maximize my proﬁt?IBM survey participants’ responses to the question: “Is there an advantage to ● How do I get the consolidated channel information I needbetter managing your brand through direct online channels?” to successfully create and manage this comprehensive channel strategy?Other studies bear out this last point. An IBM Institute forBusiness Value study shows that nearly 80 percent of con-sumers commit to a deeper product or service relationshipwith a brand after a satisfying experience. And more than80 percent will recommend the brand to friends and family.2 7

The electronics CMO “version 2.0” Forging unlikely relationships for In response, consumer electronics OEMs are looking for competitive advantage more creative ways to sustain competitive advantage. Recognizing that consumers have little interest in putting Price pressures and product commoditization encourage together their own solutions, companies are creating mar- OEMs to forge nontraditional relationships to create keting relationships with other brands inside and outside the differentiation. The electronics industry revenue growth has electronics industry to address a range of consumer needs slowed considerably and OEM margins are hovering at 2 to and desires. The goal is for the jointly provided solutions to 3 percent. Compare that with margins of component suppli- enhance the consumers’ lifestyle and become part of the ers, such as semiconductor providers, at 23 to 25 percent image these consumers want to project. and to retailers between 4 to almost 6 percent.3 The OEMs are getting squeezed at both ends of the value chain. In addition, electronics product lifecycles are already very short. Products often become commodities within a few months of being introduced to the marketplace. Because most electronics products are built with standard compo- IBM survey participants’ responses to the question: “Apart from product inno- nents, competition centers on speciﬁcations, such as size vation, how are you trying to differentiate yourself in the market?” and weight, and most importantly, price. As with all commodities, demand becomes highly volatile—slight changes in LG has capitalized on this phenomenon quite well with its price and features can send demand for one brand soaring Prada phone. With an avant-garde design, and association and the others plunging. with a high-end fashion brand, LG has greatly improved brand perception and created a niche in the high-end fashion cell-phone market with a differentiated product. Another “Partnerships with companies outside our innovative brand relationship is that between Walt Disney industry are driven by two main reasons: and Nintendo. Disney’s animated ﬁlms help drive gaming sales, which in turn help drive DVD sales of movies that then reaching a broader base of consumers, and increase gaming sales—a virtuous cycle that increases rev- shortening our solutions development enues all around. Examples abound and can be complex, but the idea is that by associating the OEM brand with lifecycle time.” another positive brand, the companies are creating differenti- —VP marketing, global electronics company ated value in the eyes of the consumer. 8

Over 90 percent of respondents in the IBM survey said that Evolving the CMO’s role to become thethere was a decided advantage to associating their brands “voice of the customer”with other quality brands. They felt that such collaborativerelationships were beneficial for a number of reasons, includ- All this change has created the need for the marketing func-ing the ability to close more business, extend geographic tion to assume a more strategic role inside the organization.coverage and expertise, and expand the customer base. Increasingly, the electronics CMO must become the voice of the consumer in their companies. They must take a more influential role in determining what products, marketplaces, “We need to build a set of skills around geographies, channels and relationships to develop, and customer management. Companies like how. P&G [Proctor & Gamble] have big teams This new CMO not only has to be a creative person who that focus on nothing but managing big thinks about the brand definition and how to identify and interact with targeted consumers, but also the operational retailers like Wal-Mart and they do a great person who thinks strategically about how to effectively job. We need that.” manage conflicting channels, engage in profitable collaborative relationships, and help ensure a positive customer expe- —CMO, global electronics company rience at all touchpoints in the organization (most of which are out of the marketing department’s control). And they must be able to gently lead the organization to accept this new role for marketing. In the last few years, the proof that this can work is evi- denced in the recruitment by electronics companies of CMOs from consumer packaged goods companies likeIBM survey participants’ responses to the question: “Is associating your brand Coca-Cola, Proctor & Gamble, Kellog and General Mills. Thewith another quality brand an advantage?” message these cross-industry hires bring to consumer electronics is that the successful CMO achieves the right solutions the first time. Learning from IBM’s survey participants, there are four strategic responsibilities the CMO—and the marketing function supporting the CMO—must take on. 9

The electronics CMO “version 2.0” and new opportunities in customer experience management, including new research techniques (such as advocacy metrics), new design techniques (such as moment-of-truth analysis) and new modes of operation (such as using new media in creative ways). Essentially, the CMO is becoming a megaphone for the “voice of the customer” across the organization to make sure that each customer interaction is IBM survey participants’ responses to the question: “What aspects of marketing need to evolve the most within your company?” positive. By enhancing the total consumer experience, the CMO can improve the chances that consumers will become 1) Know the consumer advocates—contributing to the marketing effort by inﬂuenc- Successful CMOs track shifts in consumer expectations and ing product preferences among their peers on social technology. They keep up-to-date on new consumer networks. resources and are able to monitor what’s being communi- cated about the company, brand and products. And they are able to translate this information into the positive customer experiences that help boost market share. Product and market-segment marketing is being super- seded by a focus on the goals, attitudes and behaviors of different target marketplace groups—not just their demo- graphics. This requires active interaction with consumers— what they need to make their lives easier, what they like to do, how they perceive the OEM brand relative to competitive IBM survey participants’ responses to the question: “What are your priorities for marketing transformation in the next year?” brands, what groups they are part of, and how they seek information and share experiences. 3) Evolve the marketing structure Old-model customer electronics ﬁrms were usually driven by 2) Lead and coordinate the customer experience the highly developed research and development organiza- The effective CMO takes on the role of champion for the tion. The engineers developed the products and marketing customer across the enterprise and business ecosystem. promoted them to the marketplace. Now the consumer- This involves creating a vision for how the customer experi- derived requirements come from marketing. Even marketing ence can be changed, and involving partners and functional and divisional leaders in executing on the vision. The new CMO also understands and communicates breakthroughs 10

organizations are changing to better serve customer groups. ● Differentiated marketing executionThe pyramid structure is evolving to support closer interac- ● Business performance managementtion with the infrastructure that drives marketing and technol- Because the mix and level of enablement can differ for eachogy. And the metrics used to gauge marketing effectiveness company, a modular approach to marketing transformationare changing. They now revolve around how well marketing is being employed, allowing a dynamic choice of entry pointsis getting the consumer involved. and capabilities:4) Acquire a new framework of capabilities Assessing the current business model and operations →Essentially, the new marketing framework being adopted by “How are we doing it now?”electronics consumer marketers provides a comprehensiveview and perspective on building and aligning marketing Visualizing the future state business model → “What shouldoperations. Where the traditional view may have been limited we be doing?”to items such as brand, creative and campaign execution,the new framework includes sophisticated attributes of cus- Gaining deeper understanding of the organization’s con-tomer management, organizational design elements and sumer base and operational capabilities → “How should wemarketing infrastructure. This framework can be used to be doing it?”evaluate, understand and plan for marketing operations thatare forward-looking, flexible and responsive to both external Defining how to organize and prioritize strategic, processchanges and internal, organizational demands. and technology initiatives to deliver the desired future state → “When should we be doing it?”Based on the new consumer and competitive realities, elec-tronics companies are assessing the maturity of their mar- The resulting strategic framework is a solid starting point.keting organizations across five dimensions: CMOs are finding true success in how the strategies are applied and implemented in the boardroom, through the● Marketing definition and insight channels and in the field. How these perspectives manifest● Strategy and investment prioritization themselves in action is the true test of the CMOs’ skills and● Customer experience and dialogue abilities. 11

Lessons learned at IBM, experiences and the most differentiating © Copyright IBM Corporation 2008 IBM Global Servicesinternally and with clients brands rely on emotional appeal. Route 100 Whether they inspire loyalty or love or Somers, NY 10589If the challenge of marketing transfor- U.S.A. pride or a feeling of uniqueness, brands Produced in the United States of Americamation could be summed up in a single that make customers feel special are December 2008word it would be this one: complexity. the most valuable. The new online All Rights ReservedBuilding and maintaining a high-value channels have the same ability to cre- IBM, the IBM logo and ibm.com are trademarks or registered trademarks of Internationalglobal brand has always required a bal- ate an emotional experience as any Business Machines Corporation in theance between developing a strategic other medium. United States, other countries, or both. If these and other IBM trademarked terms are markedvision and managing the finest details of on their first occurrence in this information with acustomer experience. More channels Finally, and most importantly, it all starts trademark symbol (® or ™), these symbols indicate U.S. registered or common law trademarksand technologies are making that bal- and ends with the customer—a single owned by IBM at the time this information wasancing act more difficult. individual engaged with a brand. While published. Such trademarks may also be registered or common law trademarks in other coun- every company segments its customer tries. A current list of IBM trademarks is availableIBM has learned some key lessons in base, the enterprises that can paint a on the Web at “Copyright and trademark information” at ibm.com/legal/copytrade.shtml.our work: internally in our transforma- compelling personal portrait of their Use of the information herein is at the recipient’stion, in our external strategy and advi- customers—their needs, wants, and own risk. Information herein may be changed or updated without notice. IBM may also makesory work, and in our operational work. situation—are the ones that are able to improvements and/or changes in the productsOur lessons are based on the delivery forge the most consistent and high- and/or the programs described herein at any time without notice.of online experiences to a huge range value experience across channels. References in this publication to IBM products orof clients, from retailers to e-commerce services do not imply that IBM intends tospecialists to media companies. For more information make them available in all countries in which IBM operates.The first lesson is that marketers plan to IBM provides a wide range of marketing and strategy services to global electron- 1 IBM Electronics CMO Study: Analysis of elec-go—but customers are already there. tronics retailer and OEM operating margins,More often not, from blogs to wikis to ics industry companies. Our client serv- March 2008.video games, fans and critics are ice teams blend our experienced 2 IBM Institute for Business Value: Not Business As Usual – Changing Channels in Consumeralmost always the first adopters and consultants with IBM’s own internal Electronics, December 2006.that is not going to change. An marketing leaders and our technology 3 IBM India Research Hub Analysis of annual experts to develop solutions that can reports for selected panel of semiconductorapproach focused on collaboration and suppliers, consumer electronics OEMs andcommunication is much more likely to connect business strategy to detailed retailers where segment reporting was available.pay dividends than a confrontation or a execution.turf-war. To learn more about this IBM study andA second critical lesson learned from vision for the evolving role of OEM mar-multiple client engagements is that keting, visit: ibm.com/electronicswhether offline or online, in person orover the phone, differentiating ELE03003-USEN-00

Consumer Electronics CMOs Survey by IBM

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Consumer Electronics CMOs Survey by IBM Document Transcript