• by Dave Morgan , Featured Contributor, October 11, 2007

The annual meeting of the Association of National Advertisers (ANA) is kicking off today in Phoenix and, as you would expect, everybody is talking about digital. Today's Wall Street Journal, in a headline about a research report released to coincide with the event, went so far as to suggest that "digital" was the password to this year's meeting.

The research, unsurprisingly, found digital marketing expenditures to lag significantly in the shift in consumer behavior from offline media to online. No surprise to anyone in this industry. Of course, the report, released by consulting firm Booz Allen, cites several of the frequently trotted-out reasons for the lag in digital marketing expenditures, including the lack of experience in digital and dearth of digital talent.

And, as usual, the study specifically called out consumer-goods companies as being particularly behind when it comes to digital marketing, especially when compared to marketers in the technology, travel and financial services industries. While I think that the lack of experience and talent play a big part in the lag between digital and analog marketing, I don't think these are the primary reasons for the slow commitment to digital by these companies. I think that there is a more fundamental market and industry structure issue going on here. What is it? By and large, consumer-goods companies don't sell goods to consumers. Yes, it's true. The largest soft drink companies don't sell soft drinks to consumers. No. Quite the opposite. Most of them sell soft drink syrup to bottling companies that then sell soft drinks to distributors that then sell soft drinks to retailers that do, ultimately, sell soft drinks to consumers. Cereal companies don't sell cereal to consumers, they sell cereal to distributors and retailers. Adhesive bandage companies don't sell adhesive bandages to consumers, they sell adhesive bandages to distributors and retailers as well.

Many, if not most, of these companies do not sell their goods to consumers. As much as they try, they don't really know their consumers, certainly not at the level that retailers do. Sure, they do focus groups and consumer surveys and run direct-to-consumer promotions, but that only gives them some sample data and is not always representative of their total consumer base.

Thus, I think that a big reason consumer-goods companies have been slow to adopt digital marketing is that it is so direct and immediate and personal when it comes to dealing with consumers. Most of these companies have built and sustain their market advantages not on being more preferred by consumers, but by being more efficient at manufacturing or distribution, or by having more and greater pricing leverage with distributors and retailers. Many times, the true effectiveness of consumer-goods advertising in driving the business has more to do with its impact on those intermediaries during contract negotiations than on its ultimate impact on consumers. Am I overstating and oversimplifying this issue? Certainly. But, is it still a very important issue that must be addressed.

I believe that all marketers, and particularly consumer-goods marketers, need to use digital marketing not only as a new and powerful marketing and media channel, but also as a catalyst to change the way they think about and interact with consumers. No longer can they be successful on old post-World War II command and control and mass production and distribution techniques to build and sustain their market positions. They now need to build and sustain their franchises on consumer relationships, and that means talking and listening to their consumers. It means meeting and interacting with customers.

This is new. This is very, very different. This is hard.

This is certainly a key reason that many have been slower to embrace digital marketing; it means coming from out of the backroom and into consumer-facing roles. It means hearing things that are uncomfortable. it means responding to what is heard and trying to anticipate what might be heard tomorrow. This is an awesome opportunity. Over time, I think that many will find that it's not so daunting. Over time, they may even find that they like it. We'll see. What do you think?