The New Rules of Engagement Cmos Rethink Their Marketing Mix

The New Rules of Engagement CMOs Rethink Their Marketing Mix

In association with:

To gain a deeper understanding of how marketers are defining and acting on customer engagement, Forbes Insights, in association with experience marketing agency George P. Johnson, surveyed more than 300 marketing leaders of large companies.

Key findings of the study include:

• As traditional “interrupt and repeat” advertising models are fading as brand-defining tools in favor of customer “conversations” and advocacy, engagement is becoming the way marketers are creating brand experiences worth discussing.

• CMOs are building their customer-facing programs with engagement in mind, and making it a KPI in their dialog with top corporate management.

• Coming up with a definition of customer engagement appropriate to their organization and brand—and the accompanying metrics to measure it—is a core responsibility of the CMO.

• In assessing engagement, experiential and digital opt-in methods are frequently rated as the methods that engage with customers most deeply. Yet CMOs aren’t necessarily aligning their marketing budgets to these priorities.

• Companies may be getting in their own way when it comes to drafting their engagement strategies. Among the top inhibitors: lack of a well defined approach to engagement, and poorly articulated benefits for loyal customers.

• Despite an understanding of the importance of engagement, more than a quarter of companies don’t have a specific engagement strategy in place. More than a third believe their companies are doing only a fair or poor job engaging their audiences.

• For most marketing executives, effective engagement translates into greater sales, higher margins, and repeat purchase behavior. Still, given the value they place on engagement, a high number are not measuring its impact.

• Employees are an important element of the engagement formula; inspiring employees and equipping them to over-deliver to customers is crucial to success.

• Marketing channels that emphasize engagement are increasingly favored by executive marketing decision makers.

© Copyright Forbes 2010 2 As customers’ attitudes and expectations change ads—continue to fade as brand-defining tools. Instead, con- towards the companies they do business with, sumers, empowered by the Internet and social media, are speaking their minds more freely about what they buy and the concept of engagement is becoming more use. They are driving the brand conversation and marketers crucial to marketing success. At the same time, need to understand they must “join” the conversation instead marketers are trying to justify their efforts of shouting over it. To gain a deeper understanding of how marketers are across an ever-broadening spectrum of media defining and acting on customer engagement, Forbes and increasing number of customer touchpoints, Insights, in association with experience marketing agency while customers are raising their expectations George P. Johnson, surveyed more than 300 marketing leaders at companies with annual revenues of more than of what they want. $500 million. The respondents clearly have been putting a Even so, “engagement” remains an amorphous concept laser-like focus on engagement—not just of their custom- for many marketers. While academics continue to dis- ers, but also within their own organizations. But they are cuss the topic and debates rage over a proper definition, at often at odds over how to do it correctly and how to mea- its essence, engagement is a way to get customers to con- sure its impact. nect more deeply with a brand. For this study, engagement is defined as the interactions, experiences, and context that create and Many proposals for getting engaged nurture enduring, profitable customer relationships. There’s little doubt that marketing executives are now Why is this important? Customers are gaining greater building their customer-facing programs with engagement control over how brand values are communicated. Traditional in mind. In fact, nearly all survey respondents (97%) said “interrupt and repeat” advertising models—such as broadcast their companies viewed the issue of engagement as very

FIGURE 1: The role of engagement At your company, how important is the issue of engagement? Is engagement part of your ongoing conversation with the CEO, board of directors and other corporate leadership?

14%

30% • Very important • Yes • Somewhat important • No • Not important

67%

86%

© Copyright Forbes 2010 3 FIGURE 2: Which of the following results are integral to your definition of (67%) or somewhat (30%) important. In addition, 86% said successful customer engagement? engagement is part of the ongoing conversation between marketing and top corporate leadership. (Fig. 1) Repeat purchase behavior Still, marketers don’t have a consistent approach to what 72% they expect from engagement. They know that engagement Customers become brand advocates who market on your behalf is intrinsically linked to customer loyalty and retention. 69% They want repeat sales. They want stronger word of mouth. Customer willingness to pay a premium And they want customers who are less price-sensitive. 48% When asked what results they thought were integral to Customer resistance to competitive products and services their definitions of engagement, more than seven out of ten 38% marketers (72%) chose repeat purchase behavior. (Fig. 2) That was followed closely by customers becoming brand Customer support for the brand reduces marketing and sales costs advocates (69%). In addition, nearly half of the respondents 28% (48%) cited a customer’s willingness to pay a premium as sign Customers volunteer time and talent to improve brand’s products and services of successful engagement. Fewer saw the economic implica- 14% tions of engagement, with 38% noting customer resistance to 0% 50% 100% competitive products and services, and 28% indicating that engagement could reduce marketing and sales costs. With no industry-wide definition of engagement in place, FIGURE 3: How can the CMO/marketing function best encourage customer it’s little surprise that marketing executives are approach- engagement? ing the issue from different angles. For more than one-third By taking a leadership role to ensure authentic, consistent brand experiences (35%), engagement is primarily about creating authen- 35% tic brand experiences, while a quarter (24%) have given up observation in favor of interaction. (Fig. 3) Another quarter By creating campaigns based on customer interaction, not observation (23%) are involving customers in the product development 24% cycle or designing tools to empower brand advocates. By creating systems that involve customers in the product development cycle No matter the approach, it’s clear that engagement isn’t 12% just an outward-facing challenge. For 61% of marketing By designing tools and assets that brand advocates can use to evangelize executives, employee engagement is also a priority. (Fig. 11% 4) And that’s just the beginning. Like many of the execu- By increasing employee education and training to create rich brand experiences tives surveyed, Joanne Smith, director of customer loyalty 10% for DuPont, sees many important targets. “Engagement across a host of audience groups is critical to success,” she By designing “big idea” marketing campaigns to express brand values said. “We engage customers and employees, but also policy 9% makers, NGOs, community members, the scientific com- 0% 50% 100% munity, to name a few.”

Getting in their own way While the need to engage customers is a given, marketers remain unclear about how to accomplish this. They want to add value to their brands, deepen their customer relationships, and protect their profit margins. But they are running into roadblocks—some of which they may be erecting themselves—that keep them from reaching these objectives.

Customers 95% 4%

Employees 61% 27% Partners • Yes • No 39% • Don’t know Distribution/retail network 35% 69%

Media 22%

Shareholders 19%

Analysts FIGURE 6: Overall, how successful is your brand organization at engaging your audiences? 18%

0% 50% 100% 4% 10% For example, more than a quarter of the companies surveyed indicated they have no specific strategy related to customer engagement. (Fig. 5) Without a plan in place, • Excellent 30% these marketers will be challenged to understand their • Good objectives and gauge their results. Perhaps that’s why more • Fair • Poor than a third of marketers rated their companies’ current engagement efforts as just fair or poor. (Fig. 6) 56% What do marketers expect from engagement? It ulti- mately depends on who the company’s primary customer is.

MTV: Holistic Engagement to a Real World Audience

Though best known for its namesake cable channel, MTV Networks—a any and everything in the digital space, as it relates to customer engagement.” division of Viacom, Inc.—is comprised of several dozen cable networks world- But blogs, fan pages and iPhone apps are not enough. “We want to be wide, including MTV, VH1, Spike, Comedy Central, Logo and Country Music in the spaces and places where our viewers hang out—whether that’s on Television. The audiences for these channels are diverse and subject to turnover Facebook, or at summer festivals,” noted Exarhos. “While it might not be a as they outgrow individual properties. direct pathway to ratings, we believe that staying top-of-mind with consum- How do MTV’s marketing executives engage such moving-target consumers? ers is critical.” For Tina Exarhos, executive vice president of marketing and multiplat- Real-world engagement is also crucial for Niels Schuurmans, executive form creative for MTV, the challenge is “to constantly reinvent ourselves for the vice president of brand marketing and creative at Spike TV, the network’s current MTV generation.” Right now, that happens to be millennials, broadly male-oriented channel, even when the returns can’t be measured. In 2009, defined as viewers born between 1982 and 1995. It’s a very tech-savvy gen- Spike sponsored live Supercross motorcycle races—though a rival network eration, so MTV prioritizes online and mobile engagement efforts. “We’re not was broadcasting the events. Said Schuurmans, “I want the Spike brand to be scared to experiment,” said Exarhos. “We’ve committed ourselves to testing everywhere guys are… Those are our guys.”

© Copyright Forbes 2010 5 (Fig. 7) For business-to-business marketers, adding incre- Choosing the right tactics mental revenue by selling product extensions and additional Another potential roadblock to engagement is finding services topped the list at 68%. But business-to-consumer the right mix of tactics, and supporting those tactics in marketers, generally more sensitive to brand messaging, see an integrated manner with adequate budgets. Certainly engagement as a way to cut through the marketing clutter marketers are under greater pressure than ever to justify to increase sales (48%). their expenses. But a review of the survey results indicates Yet even with their objectives in view, marketers are hav- that marketing budgets don’t always align with engage- ing trouble spelling out how they should go about fostering ment priorities. deeper engagement with their brands. Asked about what Asked to assess their various marketing tactics in terms inhibitors their companies face in terms of customer engage- of how deeply they engage customers, marketers surveyed ment, external forces such as economic factors and competition leaned towards in-person and permission-based methods top the list. (Fig. 8) But marketers are also getting in their own as opposed to more traditional “interrupt and repeat” tac- way—a surprisingly high percentage cite not having a well- tics. Experiential events topped the list with 48% rating it defined approach to engagement, difficulty in articulating as having high/highest engagement. (Fig. 9) Opt-in email benefits for loyal customers or negative customer experiences. was second.

FIGURE 7: What are your company’s top business objectives related to FIGURE 8: What are the leading inhibitors your company faces in terms of customer engagement? customer engagement?

Cut through the marketing clutter to increase sales Economic factors 48% 44% 33% Competition Add incremental revenue via product extensions and additional services 42% 47% 68% Benefits for loyal customers not clearly articulated 30% Open up new market segments 40% No well defined approach to engagement 42% 30%

Increase resilience in the face of negative economic pressure Negative customer service experiences 35% 28% 31% Frequent changes in market needs/wants/behaviors Penetrate emerging markets 23% 33% 48% Fragmented media/information sources 15% Resist downward price pressure from increasing competition 31% Lack of great ideas from marketing agencies and internal teams 38% 11%

Reduce marketing and sales spend Inventory control 16% 9% 10% Poor purchase experience 4% • B-to-C • B-to-B

0% 50% 100% 0% 50% 100%

Experiential events Direct mail 31 17 48% 19 8 27%

Opt-in email Virtual event sponsorship 29 7 36% 20 5 25% High engagement Highest engagement Live event sponsorship Online fan communities 26 10 36% 19 6 25%

Trade shows Print ads 22 11 33% 18 6 24%

Webcasts/podcasts Broadcast ads 24 5 29% 18 4 22%

Direct email Mobile apps 22 7 29% 17 4 21%

Social networking sites • High engagement Twitter • High engagement 22 6 28% • Highest engagement 15 4 19% • Highest engagement

0% 50% 100% 0% 50% 100%

FIGURE 10: Please approximate the percent of your marketing budget attributed to each of the following channels:

4% 2%

7% • Advertising 25% Volkswagen: Mapping the Brand Experience • Direct 11% • Experiential More than ever, global brands must understand their customers’ purchas- • Digital ing behavior in order to engage them effectively. To that end, Volkswagen • Public relations of America has created a comprehensive map of customer touchpoints. “This • POS/in-store 15% map,” said Tim Ellis, vice president of marketing, “provides us with a basis by 20% • Social media • Mobile/SMS/apps which we build our customer engagement strategies.” 16% For brands with a large family of products, engagement efforts must be tailored to different customer needs. Brand consistency can therefore be a challenge. Volkswagen of American turns to its customer map. “Our customer But marketing budgets don’t necessarily align with engagement strategy across the VW brand in the U.S. is very consistent,” these methods. Print and broadcast ads are toward the bot- noted Ellis. “Again, because we have developed a customer touchpoint map, tom of the engagement list, but spending on traditional we know better how the brand is interacting with customers across all depart- advertising makes up close to a quarter of marketing bud- ments—and this helps inform how we consistently deliver a seamless customer gets. (Fig. 10) experience moving forward.” What is clear is that for many companies, using an Still, a unified approach is not always possible. “We recognize that many integrated approach that reaches customers across various customers want to be interacted with differently, on different topics, and during media may be the most engaging option. For example, live different stages of the customer lifecycle. Therefore, we strive to design cus- events can be augmented with digital feeds. Print ads can tomer engagement strategies for different customer needs groups,” said Ellis.

© Copyright Forbes 2010 7 link to in-person community events. Mobile apps can be FIGURE 11: Does your company currently measure customer engagement? customized to deliver information based on users’ specific locations or what they likely are doing. To build a broadcast audience for the MTV Movie 5% Awards and MTV Video Music Awards, Tina Exarhos, executive vice president of marketing and multiplatform creative for MTV, leveraged the channel’s online proper- • Yes ties. “We were successful in getting people who weren’t 36% • No • Don’t know watching those shows to tune-in because we were taking 59% real-time content and feeding the digital space,” she says. “Quarter hour ratings growth can be attributed to how we engaged consumers after the shows began.” The live space remains highly engaging, but reality must be augmented with digital efforts.

Figure 12: What are the primary metrics you currently use to assess customer Wanted: consistent, universal metrics engagement? As the recession continues to impact business, marketing executives are under greater pressure to deliver concrete Customer retention returns and develop “fresh ways” to reach consumers. For 58% the vast majority, effective engagement translates into Sales greater sales, higher margins, and repeat purchase behavior. 44% Still, marketers are often unsure about exactly how to Revenue per customer measure the impact of engagement. Fully 36% of respon- 35% dents said their company does not measure customer Repeat purchases engagement, a high number given the value marketers 33%

Customer conversion 29% Intuit: First, Engage Your Employees

Marketing and sales cost While most engagement efforts revolve around customer conversion and reten- 17% tion, 61% of the marketing executives surveyed also strive to engage their own

Campaign opt-ins/downloads employees. For Intuit, internal engagement has always been a priority. 15% “We know there is a very high correlation between happy and engaged workforce and when they believe they are doing right by customers,” said Harry Customer appetite for new products and services Pforzheimer, chief communications officer and marketing leader for Intuit. As 11% a business metric, Intuit knows that employee engagement translates into a Social media activity “delighted customer base.” 10% “We’ve been laser focused on identifying and solving important problems Length of sales cycle for our customers for the last 26 years,” said Pforzheimer. “This mission has 5% also driven the development of value statements that define the company’s core ideology… Intuit employees strive to live out these values each day, especially 0% 50% 100% in interacting with and serving our various customer bases.” They must be doing something right. The Silicon Valley-based company is not just a market leader for financial software and services, it’s also regularly listed among America’s “best companies to work for.”

© Copyright Forbes 2010 8 place on this strategy. (Fig. 11) regarding measurement could pay immediate dividends. So what metrics do they use? Customer retention tops the list, followed by sales and revenue per customer. (Fig. 12) Choose lasers, not carpet-bombs If marketing executives are universally under pressure While economic factors and competition inhibit engage- to deliver measurable returns, and they agree that better ment efforts for nearly half of all top-level marketing execs, engagement can bring those returns, why the measurement it’s the lack of strategy that bears further examination. The disconnect? data shows that a clearly defined, highly focused strategy is For starters, every industry has its own set of priorities. critical to effective engagement. At American Express, for example, engagement is all about The survey asked executives to describe their market- referrals. “Our primary measure is what percentage of cus- ing strategy as either “wide and shallow,” where they use tomers would recommend American Express to a friend,” a wide range of brand experiences to promote their brand said Beth Lacey, senior vice president for customer expe- but don’t fully engage in any one method, or “narrow and rience. “We’ve been able to translate increasingly positive deep,” where they focus marketing on just a few highly answers to that question into increased use of the product.” specific brand experiences and go deeper with customers. This data is collected via a short survey that’s sent via email Those who use the “narrow and deep” strategy were after every service call. much more focused on overall engagement. They were: On the other hand, Niels Schuurmans, executive vice • More likely to have an engagement strategy president of brand marketing and creative at Spike TV, part • Less likely to be hampered by not having a well defined of MTV Networks, can sometimes put an actual price tag approach to engagement on his engagement efforts. “Last year, we did some out- • More likely to feel they are doing an excellent or good door for Star Wars,” he said. “We did a bus shelter outside job of engaging their audiences of Madison Square Garden [that] cost us $8,000, but it got • More likely to measure customer engagement covered in the news. What cost us $8,000 gave us back in In other words, carpet-bombing a branding message $250,000 in media.” isn’t seen as effective in a marketplace with a growing num- Measurement doesn’t just vary across industries, but ber of customer touchpoints. within companies. One executive reported being hamstrung But don’t confuse brand experience engagement with by competing metrics in place across different groups. This channels. Even laser-focused campaigns must be conducted would suggest that greater interdepartmental communication across platforms. According to Beth Lacey of American

American Express: Engage Customers Through Service

Five years ago, American Express realized it needed to leverage its customer refer to ‘average handling time,’ our customer care professionals call it ‘cus- service experience to engage its customers. But how? tomer handling time’.” “We went back to the heritage of this company,” said Beth Lacey, senior Isn’t there a risk of alienating customers who are wary of sales tactics? vice president for customer experience. “Service has been core to the brand for “This is not selling,” said Lacey. For example, if a customer calls to change the 160 years we’ve been in business. How do customers talk about American his or her address, the customer service representative might mention a rewards Express and talk about the products they have with us? They don’t talk about program at Home Depot—without pushing any new products or services. “We the card in their wallet. They talk about the relationship with the company.” want to make sure our customers understand how the card they’re carrying can In an era when many customer service departments have been converted give them more value.” to profit centers, American Express launched Relationship Care, which empha- According to Lacey, every interaction “is an opportunity to deepen loyalty sizes conversations over transactions. and engagement in order to help customers understand how to use their prod- “We don’t want our care professionals to aim for the shortest amount of uct. That loyalty is evidenced by increases in spend, customer retention, and in time spent on the phone with customers,” said Lacey. “As other companies our customers recommending American Express to a friend.”

© Copyright Forbes 2010 9 Express, an industry leader when it comes to engagement, Whether the endgame is increased sales, greater customer “You need multiple channels to take care of your custom- retention, increased employee satisfaction, online brand ers. There are segments of our customers who don’t want advocacy—or a combination thereof—marketing executives to talk to anyone; they want to do everything in an online agree that the loyalty that arises from targeted engagement environment.” Even then, the online environment is fur- directly correlates to business performance. ther segmented still. “The customers we engage with on The good news is the budgetary purse strings may be Twitter,” for example, “want sound-bite answers to their loosening up. In 2010, 42% of executives saw modest or questions, and this is a way to reach them.” significant budget contractions; just 17% expect the same To be competitive tomorrow, today’s marketing exec- looking forward to 2011. (Fig. 13) In fact, exactly half of the utives must pick an engagement strategy that suits their respondents expect modest or significant budget increases. industry—preferably, one with a narrow focus—and imple- Considering that the economy—not competition, not mar- ment it aggressively and across multiple channels. ket fluctuations—was identified as the most significant factor inhibiting engagement, healthier marketing budgets The future will be targeted can only help enhance brand engagement efforts. “Targeted customer engagement in the U.S. is more critical But where should marketing executives focus their than ever,” said Tim Ellis, vice president of marketing for spend? Integrated marketing based on a deep understand- Volkswagen of America. As the automaker seeks to grow ing of customers. its U.S. sales, “effective and targeted customer engagement “With all of the buzz around social media, mobile market- will build our business by delivering messages to customers ing, user generated content, interactive innovative marketing that are more relevant.” tactics, there is something to be said for the basics,” said Ellis.

FIGURE 13: How will your marketing budget change year-to-year?

50% • Significant contraction • Modest contraction 46% • No change • Modest increase • Significant increase

32% 32%

30%

24%

15%

10%

4% 5%

2% 0% 2010 vs. 2009 2011 vs. 2010

Moving ahead Taking a holistic, integrated approach can be the key to effective customer engagement. While specific tactics will vary based on marketing and sales priorities, the new engagement model requires more insight into audience needs, habits, and preferences, as well as a concerted effort to engage what could potentially be a brand’s most influen- tial advocates—the company’s employees. Only then can a brand deliver consistent and seamless experiences across the plethora of customer touchpoints. Companies that factor in engagement when setting marketing objectives and determining campaign goals stand to achieve greater success than those that do not. To go deeper with their customers, marketers must understand how they engage with their brands, and use that knowledge to create the most optimal marketing mix.

Methodology The information in this report is based on the results of a survey and one- president. The remaining 54% held the title of director of marketing. on-one interviews conducted by Forbes Insights in April 2010. Of the companies involved, 40% had annual revenues of $5 billion or Forbes Insights surveyed 314 marketing executives at businesses with more. 44% said they sell primarily to consumers, and 56% said they sell pri- more than $500 million in annual revenues. 46% of respondents held titles marily to other businesses. of either C-level executive (e.g., CEO, CMO), executive vice president, or vice

Christiaan Rizy Stuart Feil Brenna Sniderman Jeff Koyen Director Editorial Director Research Director Writer