25 Sep 2000  Research & Ideas

Cyber-Marketing: Scouting the Digital Communications Frontier

Marketers have a whole new game to learn in the digital revolution, and the greatest benefit, says HBS Professor John A. Deighton, will go to those who comprehend and embrace the new medium most quickly. But, adds Deighton, that's unlikely to be a simple task.

 

Seated before a computer with an Internet link, consumers today can flip through an estimated 800 million Web pages of public information by merely clicking a mouse. Add to this that television, now in 98 percent of American homes, is moving, albeit slowly, toward digital transmission, and it becomes evident that digital communications will fundamentally reshape the way businesses market, and often deliver, goods and services.

The current communications revolution is hardly the first to be encountered by marketers. Prior upheavals occurred with the dawn of radio, television, and database marketing (namely, direct mail and telemarketing). Each significantly altered the marketing communications process and, in so doing, reshaped the advertising industry. However, unlike its predecessors, digital communications promises to revolutionize marketing communications by increasing marketers' ability to select and interact with consumers with little regard for time or geography. As with earlier media transformations, the greatest benefit will go to those who comprehend and embrace the new medium most quickly, as well as predict the form and pace of its development.

In a chapter of the forthcoming book Digital Marketing (John Wiley & Sons), edited by Jerry Wind and Vijay Mahajan, John Deighton and coauthor Patrick Barwise of the London Business School identify three qualities that distinguish the Web from other mass media. First, the Web fragments its audience's attention. Where television brings people together and lets advertisers build giant brands and promote broad cultural trends, the Web segments the audience into small pockets of interest. Mass marketers have a whole new game to learn if they aspire to integrate across these fragments of attention.

Second, as the already-low cost of digital communications declines toward zero, the Web's radical interactivity presents new challenges to marketers, who must now learn how to build and sustain intimate customer relationships on a far larger scale than ever before. Take Yahoo!, for instance. For committed users, this portal is a tool for everyday life, something they click on dozens of times a day. But unlike a telephone or a directory, it is an intelligent, radically interactive tool that can customize itself to each user's needs, building a relationship that's quite personal with each of the portal's tens of millions of customers.

The third distinctive quality of the Web is something of a handicap. To be frank, the authors say, it is a boring medium when compared with television, lacking TV's power to engage fantasy and arouse emotions. Instead, the Web is an instrumental medium, a tool for getting things done. Much of its future will lie in the background of consumer life, where, like plumbing, it will be indispensable but seldom conspicuous.

Deighton and Barwise see digital communications as the most recent in a series of advances that have expanded the power and precision of advertising media. "We began," says Deighton, "with mass media—print, radio, and television—where the audience was largely unknown to advertisers. Next came 'addressable' media such as direct mail, telemarketing, and e-mail, where selected individuals, organizations, and market groups could be targeted. Then, we saw the addition of a new dimension, interactivity—that is, the ability to take account of millions of individual consumer responses with the aid of electronic databases," he continues. "By using toll-free telephone numbers and business-reply mail, marketers could indirectly converse with individual consumers and follow through with messages adapted to their unique needs and interests. Direct mail and the telephone, however, have been relatively expensive to employ on a mass-market scale. Now, digital communications is driving down the cost of mass customization."

Looking ahead, the authors investigate two possible scenarios for the unfolding of the digital revolution, each stemming from a different well-established medium. Television, they point out, is belatedly attempting to enter the digital age. Transmission of digital television signals has begun on a limited scale in the United States and is being introduced in many other countries as well. While transmitting digitally offers many significant advantages over the current analog method, it also requires specially designed broadcast equipment and receivers—changes that are likely to take several years to implement broadly.

In contrast, the most familiar digital communications technology today is a personal computer linked to the Internet. Unlike the ubiquitous television set, however, Internet-linked PCs are still found in less than half of American homes, although the percentage continues to grow. Consequently, despite a sense that digital communications is bearing down on us at breakneck speed, the reality may well be otherwise.

In fact, Deighton and Barwise predict that the march toward high-speed digital communications will be a slow one. They cite several studies to support their view, including one centered on the acceptance of high-speed Internet cable access by residents of a middle-class Toronto suburb during the past four years. That community, they say, is typical of many throughout the United States. To date, only 10 percent of the town's cable TV customers have subscribed, despite rates comparable to or better than those offered in this country. Deighton and Barwise also warn that interacting digitally with marketers may not remain a favorite use of consumers' scarce leisure time, especially after the novelty is no longer part of the attraction.

The researchers also provide insights for marketers and the advertising industry. Until as recently as last year, for instance, most Internet advertising had been Web-sponsored, promoting firms such as Internet service providers, search engine developers, and Web site hosts. This is now changing, as established companies increasingly fold Web advertising into their media mix. Deighton and Barwise categorize current Web advertisers as either incumbents, traditional brick-and-mortar organizations that have ventured onto the Internet, or pure-plays, firms that were born and subsist almost exclusively in the Internet environment. While incumbents must learn and adapt to the new communications medium if they are to profit from it, pure-plays face the daunting task and expense of quickly building a new brand from ground zero to a profit-generating level before funding runs dry.

The authors present three significant observations that help define the future of digital communications. First, they point out that the medium is unique in that the cost of producing and disseminating information is low, while the cost of reception (an Internet-linked computer) is high. An advertiser's cost to produce and air a television commercial, for example, can be hundreds of thousands of dollars, while a viewer pays just several hundred dollars for a television set that lasts many years. On the other hand, a Web advertising banner might cost just a few thousand dollars to create and launch, while the price of a PC with an Internet link is typically $1,000 or more plus monthly connection fees. This cost reversal leads to an abundance of information being offered to a relatively limited Internet audience.

Going forward, digital's interactive capability assures it a prominent role in the future of consumer communications, even if that role proves slow to evolve. The ability of consumers to obtain information instantly about the products and services of greatest interest to them and to interact directly with marketers is of tremendous advantage to buyers and sellers alike.

Finally, say Deighton and Barwise, the medium's effectiveness will derive more from its abundance of selectable information than from its ability to stir viewer emotions. A consumer can now order a new car online, for instance, selecting from a lengthy menu of carefully described options. But motivating an emotional purchase decision with such a catalog-like presentation is much more difficult than with a captivating commercial on television.

"These are the critical attributes of the current communications revolution," Deighton concludes. "And while the new economy may be easy to enter, it is a deceptively difficult environment in which to grow. Participants also discover that the technological development of the medium itself continues to outrun the capacity of its audience to adapt. Profitable long-term marketing in the new economy is unlikely to be a simple task."

From Working Knowledge: A Report on Research at Harvard Business School, Vol. IV, No. II