Written By

Tim Perlstein Group VP, Strategy LinkedIn
Web site
Bio

With Contributor

Bethany Fenton VP, Experience LinkedIn
Bio

Follow the Conversation

#beyondbanner #orv10

Beyond the Banner —
Unleashing the Power of Digital to Drive Topline Growth

Industry leaders have to reinvent themselves periodically to maintain their preeminence. But as the rate of technology-driven change continues to increase over time, the speed and frequency with which companies must reinvent themselves also increases. And unfortunately for industry incumbents, technology-driven disruption tends to favor new entrants, who are often faster, hungrier and unencumbered by legacy systems and processes. We believe digital should be at the core of any industry leader’s growth strategy, and we’ve identified three ways digital can drive step-change improvement in topline growth — above and beyond efficiency maximization of existing efforts.

The first wave of digital disruption came crashing into the business world about 15 years ago, when the Internet first exploded as a consumer technology. Since then, leading companies across industries have been scrambling to master the art of marketing and selling online. Most large companies now maintain multiple Web experiences and marketing programs — all of which require periodic upgrades in the form of redesigns and replatformings, as well as ongoing testing and optimization. (All bread and butter for digital agencies, of course.)

Meanwhile, in what sometimes seems to be a parallel universe, pure-play digital startups continue to spawn, swarm and thrive, often squeezing out weaker competitors and overturning established industry structures in the process. Industry leaders have had to reinvent themselves periodically to maintain their preeminence. But as the rate of technology-driven change continues to increase over time, the speed and frequency with which companies must reinvent themselves also increases. And unfortunately for industry incumbents, technology-driven disruption tends to favor new entrants, who are often faster, hungrier and unencumbered by legacy systems and processes.

Now, as companies emerge from the recession looking to deliver step-change improvements in revenue growth — and as growth becomes harder and harder to find within existing markets — digital channels, programs and agencies must do more than deliver incremental improvements from evolutionary change. Optimizing your way to greater efficiency is good, but not enough. Digital can and must do more.

Digital should be at the core of any industry leader’s growth strategy. In fact, given the relative maturity of established platforms and programs — and the ever-increasing competitive pressure from new entrants — now is the time to ignite a new round of digital innovation within your organization. To begin the conversation, we’ve identified three ways digital can drive step-change improvement in topline growth — above and beyond efficiency maximization of existing efforts.

1. New markets

As domestic growth in core segments becomes harder to come by for U.S. companies — and as emerging markets continue their dramatic expansion — we expect industry leaders to seek new growth from markets that are new to the company and/or broadly underserved by their industry. Digital can and should be a powerful, cost-efficient method of reaching and serving these markets.

That said, leveraging digital for new market entry isn’t as simple as launching a version of your Web site in your target market’s local language, although this might not be a bad start. Localization means more than translation. For online retailers, serving international markets means dealing with foreign exchange rates, taxes, sizing systems and — of course — fulfillment. Despite the complexity, retail giants Macy’s, Barneys New York, PBteen, and JoS. A. Bank all extended their ecommerce operations internationally this year. Macy’s now has an ecommerce presence in 90 countries, although its physical stores are all within the U.S.[1] The logic is obvious: With domestic growth stalled, foreign markets offer an appealing opportunity to extend brands and capture growth while requiring only minimal capital investment (compared to rolling out more brick-and-mortar operations).

Of course, overseas growth isn’t just for retailers. Even manufacturers for whom digital is not a direct sales channel are using digital tools and partnerships as a cornerstone of market entry strategy. As always, deep knowledge of local players and local infrastructure is key. For example, given the relatively high adoption of mobile phones (versus desktop PCs) in developing countries, some Consumer Packaged Goods (CPG) companies are looking to advance by partnering with local telecom operators to expand mobile coverage — in exchange for marketing access to consumers. Other firms, such as General Mills, leverage digital for insight and customer collaboration, as well as outbound communication. In China and other markets where standard retail channel data is inconsistent or nonexistent, General Mills is building a proprietary database of consumer households, and using real-time digital communications tools to allow consumers to voluntarily share data on their preferences and behaviors.[2]

These are just some of the ways in which digital can support successful new market entry — well beyond the banner ad. We expect to see much more innovation in the coming year, as early initiatives prove successful and best practices begin to emerge.

2. Enhancements for existing products and services

“Digital” can be more than a marketing or sales channel; it can fundamentally transform a product or service by providing additional functionality and consumer value. Even companies accustomed to delivering tangible, “real world” value propositions should treat digital as a core component of product strategy — not just marketing or sales.

The most obvious example of this dynamic is the ongoing upheaval within the media industry, where traditional core “products” have been entirely digitized, radically expanding the dimensions of competition and dramatically increasing the importance of distribution channels and the overall “experience” of content access. The list of recent digital product innovations within the media industry seems endless. It encompasses multiple new access platforms, ancillary or “exclusive” premium content options, user-generated or participatory content development, sharing, commentary, other social features, and on and on.

A more subtle but equally interesting evolution is happening within the hardware and networking industries that typically support content delivery. Digital TVs are becoming “smart,” adding Internet connectivity and their own application platforms. Network providers are delivering increasingly integrated digital services with new, digitally enabled functionality (set TV recordings from your smartphone, view caller ID on your TV, manage call routing and voicemail settings from your PC, etc.). Add in a host of innovative new hardware options (Roku, Boxee, Slingbox, Apple TV, Xbox 360) and service providers (Netflix, Skype, Google TV), and you have a full-on battle for control of the digital home.

More established providers of “traditional” products and services cannot help but be affected by this domestic, digital landscape and the new consumer behaviors it generates. Home security and automation providers must inevitably develop new strategies and products to compete within the increasingly networked home. (ADT’s Pulse product is a good, early example of this trend.) Consumer electronics manufacturers may find ways to embed digital “smarts” in appliances beyond TVs. Even supposedly staid utility companies may get in on the act, with more efficient and convenient controls, monitoring and service solutions.[3]

For service providers outside the home, digital enhancements are becoming just as commonplace — and perhaps even more important. The ability to conduct secure online banking or day trading from our smartphones is something many of us already take for granted. (Can you even imagine opening a new checking account that didn’t offer free online bill pay? We can’t.) Travel providers, from airlines to cruise lines, are scrambling to provide ever-more convenient digital applications for booking, trip management and customer service — both during and after travel. Even brick-and-mortar service providers are finding ways to integrate digital add-ons within their core experiences, whether it’s providing access to a vastly extended assortment (JCPenney’s in-store kiosks) or free, premium digital content (Starbucks’ “Digital Network”) while on-premises.

The lesson behind all these examples is the need to view digital as an arena for fundamental product innovation, not just marketing communications. Rapid technology change continues to open up vast, uncharted whitespace for products and services yet to be invented. And as new and established players across multiple industries continue to extend their offerings into the digital realm, the consumer’s digital ecosystem becomes an ever-richer environment within which to innovate.

3. Entirely new businesses

This brings us to the third major digitally driven growth opportunity: the development of entirely new business lines. Although it’s still early days, we’re seeing more and more companies in “traditional” industries using digital to launch new businesses and ventures that are adjacent (or even outside) their core comfort zones. An even greater number of companies now maintain digital innovation skunkworks, with a mission to identify and pursue promising opportunities outside the umbrella of the main organizational structure and brand.

Just a few examples should help paint the picture. GameStop, the leading physical retailer of video games, made a splash this summer when it announced its move into online streaming of console games — clearly a hedge against declining physical retail sales of a fundamentally digital product. It’s a move that requires fundamentally different capabilities and processes from the core retail business, and will likely benefit if managed separately from store operations. Additionally, GameStop maintains a vibrant portfolio of digital properties, including Kongregate.com and GameInformer.com, which could form the seeds of future for all-digital ventures.

There are plenty of other examples of companies launching new virtual or cloud-based business models. Microsoft, reacting to the market’s move away from boxed software, launched Office 365, the cloud-based version of its dominant office suite, available on a subscription basis. In a completely different category, Gourmet magazine was shuttered as a print magazine but resurrected as an online-only publisher — a fundamentally different business model for parent company Condé Nast. And in the world of financial services, H&R Block has found value in monetizing free online tax prep services, which, despite living under the same brand umbrella, involves digital skills and tactics that are quite different from the company’s traditional brick-and-mortar business.[4]

Finally, it’s worth remembering a “classic” example of digital business innovation: Gap Inc.’s creation of the Piperlime brand in 2006, as an online-only shoe retailer. While not a primary revenue engine for the parent company, the Piperlime experiment was deemed successful enough to remain a separate branded entity, and has grown beyond shoes to include branded women’s apparel and accessories and, as of this summer, menswear as well. It was also no doubt a key reference point in Gap Inc.’s decision to purchase Athleta (another online-only retailer) in 2008.[5] We view this as a model for successful experimentation with online-only business models and digital-only brands, and are aware of similar trial ventures in the works within the retail sector and others.

For companies willing to experiment in this way, we see significant potential to create new profit centers. Of course, we also recommend that these initiatives be managed closely and nurtured carefully, as beta is high. Of the three digital growth strategies presented here, this “new business” category typically carries the highest risk, as well as the highest potential reward.

Getting started

If you’re now sold on the power of digital as a driver of growth outside your current core, here are some general recommendations to keep in mind as you’re plotting strategy and laying the foundation:

Look around. Given the rampant, technology-driven innovation happening across industries, you’ll want to keep an eye (or several) on developments outside your own category — as well as a constant focus on the ever-changing technology landscape. Network with colleagues, partners, and functional peers to get real-time insight into what’s working now, across many types of organizations. This kind of insight should help drive shorter cycles and higher hit rates for innovation initiatives and other kinds of change programs.

Look ahead. When it comes to both business strategy and technology, evaluating the current landscape is rarely sufficient to inform plans and roadmaps with a time horizon longer than six months. It’s essential to take a longer view, and include not just competitors but also disruptive factors — which, defined broadly, should include technology-driven substitutes as well as potential new entrants.

Look within. Take a fresh look (or ask a genuine outsider) to help identify “buried treasure” within your current business — underleveraged assets that digital technology can help unleash in unexpected ways. This could include products (lesser-known SKUs, niche offerings, an extended “long tail” assortment), processes (ancillary services, product development or innovation capabilities, insight generation), people (internal experts and influencers, underexploited partnerships, underserved customers, etc.), IP (contents, patents, other forms of internal knowledge) and who knows what else. New, unexpected connections between assets and markets are often areas where digital can help unlock additional business value.

Partner early and often. No single team or company can do everything well, all the time. To build new capabilities quickly and share risk, look within and across industries to find unexpected partnerships that unlock new value by creating entirely new value propositions. By partnering with companies in adjacent — or even seemingly unrelated — industries you may gain access to new pools of assets such as content, technology, or data (always fulfilling commitments to protect consumer privacy, of course). These can help power new kinds of digital experiences — or even full-fledged new ventures — while leveraging your own internal assets and capabilities in more productive ways.

Consider buying. Sometimes it just makes more sense to purchase assets, capabilities and talent outright, rather than partner. (Allstate’s pending acquisition of Esurance, as of August 2011, is a particularly good example of this as it applies to digital strategy.) Establishing a solid strategic foundation, with a shared internal vision and a clear view of your desired future state, can help reveal your most critical current gaps and aid in evaluating possible acquisition targets for digital initiatives.

Hopefully we’ve convinced you that “digital” is much more than your Web sites, banner ads, search keywords and mobile apps. At its core, it is technology-enabled growth, innovation and transformation of existing business models. As the other articles in this report make clear, we believe the next major cycle of technology-driven disruption has only just begun. And the future belongs to those companies who look beyond the importance of near-term optimization — as important as that is — and move decisively to put digital at the center of their strategies for long-term business growth and differentiation.


 

Notes

  1. ˆ Allison Enright, “Macy’s Goes Global,” InternetRetailer.com, June 27, 2011.
  2. ˆ 2011 Financial Performance Report, PWC/Grocery Manufacturers Association, page 43.
  3. ˆ See for example: M2M and Embedded Strategies, Juniper Networks, May 2011, page 81-85.
  4. ˆ H&R Block 2010 Annual Report, page 4.
  5. ˆ “Piperlime Brand Adding Zest to Gap,” Marketwatch.com, September 17, 2010.