• by Sarah Mahoney , Staff Writer @mahoney_sarah, March 2, 2012

If companies are learning anything, it’s that done right, modest investments can produce big wins: Think of it as digital democratization. Here’s a closer look at how the smart money is testing those investments, and some of the surprising best practices that are coming out of the lab.

If there’s one thing that’s shaped marketing in the digital age, it’s metrics. In less than a decade, those in the business of selling anything have found themselves awash in data, numbers and analysis. And yet, experts say, with digital marketing still in its relative infancy, most companies are wielding those digital tools kind of like cavemen, as clubs and cudgels instead of as lasers and scalpels.

“We recently finished research on CMOs at global marketers and found that 77 percent of them aren’t sure where best to reach their customers. And that’s a critical component of any digital strategy,” says Kate Sayre, a partner at Boston Consulting Group. “But it’s changing. Digitally evolved, which we’ve defined as those spending 20 percent or more of their marketing budget on digital initiatives, are creating what is a true test-and-learn culture. Not only are they showing genuine commitment to a variety of digital channels, they’re developing systems to report back quickly, across brands, functions and geographical regions. That way, what works can be shared, and what doesn’t can be shut down quickly.”

As understanding of digital platforms grows within a company, those issues become increasingly complex. “It’s not like people are saying any more, ‘Should we use mobile?’ They know they should,” says Amy Shea, executive vice president and global branding expert at Brand Keys, a market research company based in New York. “It’s more about hierarchy. All 14 of the digital platforms we track have a place in a marketing plan. It’s just some of them work better than something else, and that varies tremendously by category.”

But deciding how much money to put behind any one platform or program is still more of a guessing game than it needs to be: The majority — 55 percent of those in the bcg study — say they have only “minimal or informal metrics to measure the impact and return on investment of digital marketing efforts.”

That’s malarkey, says Eric Bradlow, a marketing and statistics professor at the Wharton School of the University of Pennsylvania and codirector of its Wharton Customer Analytics Initiative. “What has changed today for every cmo and cfo is that everything can be tracked, and everything can be measured. So that old excuse ‘we don’t know if this is effective’ just doesn’t cut it anymore.”

Whether it’s cookies or Web tracking, “technology has caught up, and it’s completely changed their role. I’ve drunk the empirical analytical Kool-Aid, and my view is that, while marketing will never be purely science, there is a lot less art and more science in it today.”

Hypothesis No. 1: We’ve been wrong about how customers make decisions

All good scientific revolutions involve debunking long-held theories, and perhaps the biggest digital breakthrough so far is the realization that marketers have been pretty clueless about how and when customers make purchase decisions.

“Most companies don’t look at the complete integrated experience of the decision-making process,” explains David Edelman, partner and coleader of McKinsey’s global digital marketing strategy, who’s worked extensively on figuring out the decision journey consumers follow. “In the vast majority of companies, 80 percent of the budgets are spent in brand advertising or sales promotion. Yet when you look at customer research, across many categories, the biggest influences on who will buy your product are those in the evaluation process, when they are reading product reviews and sampling and looking at what your brand has to say, and when they have actually bought the brand.”

The confusion is so severe, he says, “that our research found that 30 percent of shoppers who had actually done online research on tv sets were so baffled by what they found in the store — model numbers were different, terminology was different — that they actually walked out without making a purchase.”

So companies who are doing well, he says, are those asking themselves questions like, “Where are our decision rules? When do we stop? Where do we still need to test?” More and more, they are realizing that too much of their marketing muscle is aimed at people who would have bought their product anyway, he says.

But that kind of thinking is a little heretical to traditional marketers, “who have been trained so thoroughly to think in terms of demographics, like 'Where can I find the most males between 18 and 25?’, or attitudinal, as in 'How can I find people most likely to use coupons?’” says Shea. “They’re still not connecting the way consumers integrate information across platforms, and the fact that none of us shop for cars the way we shop for cola. Blogs, for example, are tremendously important in the automotive category, but what kinds of blogs build loyalty? Should I be blogging about design? Reliability? The environment? Blogs about shampoo will matter less and will require a completely different tone.”

“What’s happening is that companies are developing this digital toolkit to reinvent marketing, with more centricity around the consumer,” says Matthew Egol, a partner in Booz & Co.’s digital and media practice. “If you focus on your goal, as the cmo, it helps you to integrate and see what capabilities are required, rather than just what tactics and shiny objects to use.”

For example, for many companies, it’s increasingly important to go beyond paid media and into owned and earned media, he says. “You create this environment that is very immersive, and build a relationship with the consumer. What is the experience you want them to have? And then how do you deliver content that allows you to engage them on the path to purchase?” Such brands as Nike, Johnson & Johnson, and Procter & Gamble are investing heavily, “and communities are springing up around the brand,” he says. “That’s a strategic focus.”

Realistically, he says, there will likely be three or four digital platforms that matter most to a brand, “a few things you want to be very good at. Maybe it’s branded content, deals platform and events. With this kind of focus, platforms aren’t things in and of themselves — they’re just tools meant to get past the shiny bell and whistle problem.”

“As companies become clearer on which platforms are the most relevant to them. So then questions like 'How do Foursquare or Shopkick fit in?’ make sense,” he says. “But if you don’t have the overall strategy first, you can’t see the forest for the trees.”

Hypothesis No. 2: We’ve taken consumer goodwill for granted

Amid this evolution, Shea is quick to point out it’s also a big mistake to assume that marketers and media are the only things that have been changing: Consumers have undergone some transformations, as well. For one thing, they like marketers less than they used to. “One of the things that gets overlooked is that in the recent economic meltdown, there was this incredible destruction of trust in institutions, such as banks. And to consumers, banking institutions and the Madoffs are still all connected to each other and to brands. So marketers are facing a customer who is increasingly distrustful, savvy and cynical. And that’s happening just at the same time they are trying to reach out to them in new platforms, such as mobile or location-based advertising. And it is definitely shaping the way consumers react.”

Still, Shea says, many companies are off base with efforts, which is often easiest to see in social media. “It’s amazing the hubris companies have about their Facebook pages,” she says. “So you have friends or fans — what do they do there? Believe me, even the most rabid Apple fan isn’t checking the Apple Facebook page every day. It’s just not what consumers do.”

Hypothesis No. 3: We need to rebuild our teams

In many ways, cmos have the same job they always have: Nurturing their brands. And while that central role hasn’t become less important, it’s become more fragmented, as execs scramble to come up with strategic solutions based on digital insights. That requires a solid understanding of technology, which many top-level marketers lack. Ad agencies, of course, can have a seat at the table. “But you need a set of skills and talent within the company,” says Egol. “So what do you have to grow inside? What measurement capabilities, what nascent things like relationship marketing, content development?”

Many cmos, bcg found, struggle with getting funding for more personnel. “We need to catch up,” one confided during the research. “We outsource more than our competitors do and need to figure out what we do internally.” And that comes with a high cost, since managing those outside relationships is time consuming and frustrating. “We are working with so many agencies, and the amount of attention and time they demand is obscene,” said another.

Overall, 29 percent of those in the bcg survey, which included execs from 31 global companies, say that hiring or retraining these digital employees is a “top pain point.” And 69 percent concede that they lack adequate training programs.

And just as there often aren’t enough trained people in place, there is the ongoing problem of expertise being needlessly duplicated within a company. “A great example is search,” says Sayre. “Just as you don’t want everyone in the company thinking about the next platform, if you let everyone go out and buy their own search firm, for example, you end up bidding against yourself. But once you get guidelines in place, it is possible to say, 'OK, this is what works best for us in search now,’ and report that back throughout the company. There’s no point in learning something, and then not communicating it well.”

Among big marketers, she says, there is a growing realization that you can’t just hire a whole new team versed in a certain platform. “But how do you find the balance between hiring in the right talent, training people you’ve already got, then working with agencies?”

While a few companies have gotten it down, most are limping along. It isn’t fun: Almost a third of the bcg study say that in their companies, the friction that arises about marketing decisions between silos is a major problem.

Hypothesis No. 4: We have to stop looking for the next big thing

Another change, these experts say, is that marketers have developed a more holistic approach to evaluating new digital opportunities. They are less likely to see any new technology — whether it’s augmented reality, nearfield technology or geolocation — as a thing onto itself, but rather, another tool in the marketing set, bolstering efforts in other platforms.

Wharton’s Bradlow describes it as context dependent marketing. “For a hundred years, marketers have understood that people are different, but it’s often underappreciated how different we are, even in ourselves. We don’t serve the same kind of food or wine in the same way for a quiet meal at home as we do when have a dinner party, and it’s the same with marketing.”

For that reason, he believes geolocation will become integrated into more and more marketing efforts. “Random coupons from Starbucks might irritate me,” he says, “but if I’m steps away from a store and can smell the coffee, it’s more appealing.”

Edelman thinks we’ll soon see geolocation marketing make its way into our cars. “We’ll see that penetrate even things like the dashboard, providing offers based on where you’re going.” Getting there will be interesting, he says, “because I suspect many consumers, walking around getting offers from stores, will find it creepy and annoying.”

But as each technology emerges, Bradlow is convinced it will quickly reveal its value based on metrics, turning every cmo and cfo into an empiricist. “If you don’t measure it, it’s like it didn’t happen,” he says. “The point is not looking at any one platform or technology as the thing itself, but seeing it as an opportunity to measure and engage. The companies that will be most successful will be those that adopt that mentality.”