The Century for Emerging Markets

In this week’s “The New Yorker” James Surowiecki wrote an interesting article about the “Tata Invasion”, referring to the most likely purchase of Jaguar and Land Rover by the Indian conglomerate Tata. He puts this whole deal in the context of the 21st century becoming the century for the emerging markets. Why? Marketers in the emerging market have transformed their previous disadvantage of low spend home markets into their biggest competitive strength: “How to earn a profit in markets where your selling prices are necessarily low forces a company to be innovative in thinking about how products are made and sold (James Surowiecki).” Cost pressure leads to innovation in all steps of the value chain, not just production as most economists have always declared.

Over the next years we should see similar events in our analytical marketing field. Currently emerging markets primarily copy the analytical efforts and practices of the US and the mature European markets. But this should rapidly change, similar to the car industry, where pure copying is replaced by true innovation and the ability to compete for the leadership position within a particular discipline.

I expect innovations from emerging markets in areas like:

• Professional Mass-Sourcing that combines labor intensive work supported by software solutions, e.g. text content analysis relying on individuals interpreting the text enhanced by software
• Cost efficient analytical software that enables individuals to use analytics for “home usage”, e.g sport enthusiasts expand their fantasy football engagement with additional customized statistics
• Codification of more data sets into analyzable data elements, e.g. coding of qualitative aspect of print ads to better understand the correlation between creative product and business impact

Today’s marketer needs to have an understanding of what is going on in the most important emerging markets (e.g. BRIC countries) to truly utilize the power of the global marketing community and practice. The protective bubble of the North American and European marketer is over.

Predicting Recession?

More and more economical experts agree that we are at the beginning of a recession in the US. One of the key indicators that is being frequently used to determine the likelihood of a recession is the Consumer Confidence Index. The two most prominent monthly indicators of consumer confidence are the “Consumer Confidence Index” (published by the Conference Board) and the “Index of Consumer Sentiment” (compiled by the University of Michigan Survey Research Center). Both Indicators are supposed to reflect the current and future psychological state of consumers. It tries to correlate a consumer feeling into likelihood of consumer spending with a 6 month horizon. It’s a very important index since approximately 70% of our GDP is consumer spending, the rest is capital and government spending.

The Conference Board surveys 5,000 U.S. households. The survey consists of five questions that ask the respondents’ opinions about the following: Current business conditions, business conditions for the next six months, current employment conditions, employment conditions for the next six months, total family income for the next six months. The Consumer Sentiment Index asks fewer consumers on a monthly basis but dives deeper into more dimensions.

If the consumer confidence index is a reliable recession predictor, then the consumer confidence index should have a time leading correlation to economic growth with a leading time of 3-9 months. Joseph Ellis, a leading retail analyst, makes a strong argument in his book “Ahead of the curve” that there is not such a case. There is a strong correlation between both indices but their pattern occurs concurrently with no leading predictive quality of any of the two consumer confidence indices.

So, what is then the value of a consumer confidence index, if it can’t predict a recession or an uptick in our economy? I see some interesting opportunities:

• First, we make the mistake of looking at the average consumer confidence index across the whole US population. It can be extremely insightful to build a segment specific consumer confidence index that allows a company to understand on which segments it should focus on during a recession. For us marketers it is difficult to act on averages.
• Second, we ignore too often the different consumer confidence levels in regards to different types of spending. There might be some decline in certain categories but not in all. The 2007/2008 holiday season saw a significant decline in most retail categories but not in technology gadgets and very high end jewelry. A better understanding of vertical specific consumer confidence would enable marketers to be smarter about product focus and launches at the right in an economical cycle.
• Third, it would be worth the experiment to transform the consumer confidence index into a stronger behavioral based index. It’s always difficult to use a survey as the foundation for predictive quality but we might be able to identify certain consumer behaviors that could stronger predict a likelihood for a recession.

This whole debate shows that the marketing discipline needs to better understand and leverage economical metrics that could improve our understanding of consumers.

Web Analytics in 2008

In my last week’s posting about key 2008 trends I mentioned Web Analytics as one of the most important areas for our marketing discipline that will get even more attention while the year progresses.

There will be three major issues that Web Analytics in 2008 has to deal with:

• Inaccuracy of current Web Metrics. There have been numerous reports about the high level of variance for simple metrics like Web Visitors across the major web reporting companies like ComScore or Nielson. Some of these numerical differences went as high as 50%, where one provider reports 1 Million Visitors while another claims 1.5 Million Visitors. This quality issue will hinder the growth of web marketing if it is not sufficiently addressed.
• Integration of Web Metrics into overall marketing metrics. Most Web Analytics work is been treated and managed like a totally separate universe with no apparent connection to any other marketing metrics. It’s not enough to state that two third of all consumer electronics buyer research online before any store visit, we have to get more detailed and sophisticated to understand the true causal correlation between Consumer’s Web Behavior and Offline purchase pattern. This lack of knowledge of channel interplay represents a huge opportunity to truly understand consumer behavior in a multi-channel world.
• Design of Web 2.0 Web Metrics: There does not exist a lot of break through work of how to measure the Web Social Community impact on marketing programs and consumer’s shopper behavior. Facebook and MySpace still feel like metrics virgins beyond the basic enumerations of visitors, visit frequency, and site visit durations. There is a strong need for more thorough Web 2.0 metrics that help a marketer with the decision if and how one should market at these social community sites. Web 2.0 needs new metrics.

In 2008 we will see how the Web Analytics discipline will improve its accuracy and deepen its understanding of web behavior while enhancing its meaning power across the whole marketing channel spectrum. Hopefully Web Analytics can even accelerate the sophistication of any other channel specific marketing metric.

Trends in 2008

In the first weeks of a new year almost every single major publication is publishing the key trends for the upcoming year. Some of them might even be relevant; most of them will be forgotten within a few weeks. Here is my suggested list of core trends that should be relevant for any data driven marketer who want to stay ahead:

• Accountability remains king: CMO will continue to ask (and be asked) about the truly incremental business impact of their marketing efforts. The total marketing spend of almost $300 Billion in the US will become even more scrutinized, especially with a weaker US economy and the demand for cost control in most companies.
• Big marketing agencies will do fine but their time to reinvent themselves is shortening: The commodization and automation of a majority of agency services will speed up throughout 2008 but this will not yet threaten the profitability and a moderate revenue growth for most agencies. But the time window of redesigning their value proposition is getting smaller. Most agency presidents will wake up on Jan 1, 2009, and will realize that 2008 was a ok year but that they have not done anything to get ready for 2010 and beyond
• Web Metrics under pressure: 2007 showed already an increasing number of concerns about the accuracy of a majority of Web Metrics (from unique web site visitors to the true cost of online customer acquisitions). This uneasy feeling will only accelerate with the increasing spend on web related marketing programs.
• More questions will be asked about the benefits of Integrated Marketing: Everyone has talked about Integrated Marketing (which is more than just using the same color scheme and logo font size across all communication channels) over the last 10 years but too often (meaning 99% of time) marketers don’t quantify its business impact. 2008 will be the year where the benefit quantification of integrated marketing will become more standard than ever before
• Visualization of Data: An important trend in 2007 that will continue gaining speed and relevance. More open source projects will enable marketers without large budgets to take advantage of utilizing their own data in a compelling and truly democratizing manner.

It should be an interesting year where increases in marketing spend will hover around the inflation rate and where Google (and like minded start ups) will further accelerate its entrance and territory grabbing into the agency universe. The clock is ticking for big marketing agencies to reinvent themselves or to be marginalized