Data Eats Brand For Breakfast
European Straits #34
Dear all,
Last Monday, I participated in a conference at Sciences Po Paris where experts were grilled by graduate students eager to learn more about the “Data Revolution”. The event was sponsored by the Technology, Policy, and Institutional Innovation chair that I’m co-heading within the Sciences Po School of Public Affairs. To prepare and clear up my ideas, I worked on a few key points.
Studying the history of business helps us see that large corporations have not always expressed an interest in consumers. The steel industry, which formed the vanguard of the third technological revolution from 1875 onwards, didn’t sell steel to consumers, but to other, smaller businesses that used that cheap and robust commodity to manufacture goods or build infrastructures for the general public. The Standard Oil Company, with John D. Rockefeller’s obsession with vertical integration down to the end consumer, was a notable exception in the late 19th century.
It all changed with the fourth technological revolution, that of the automobile and mass production. In the 1920s, large companies began to produce complex goods for the general public. Industrial pioneers such as Henry Ford had to face many challenges: lowering production costs; improving product quality and robustness; facilitating credit to consumers. This led corporate executives to a critical question: how can large corporations forge a bond with the end consumer?
There have since been four main corporate touchpoints with consumers:
Counter—Serving an individual directly from behind a counter is a powerful way to connect with them. However, it is hard to operate at a large scale. This is the reason why the counter function is often delegated to franchisees or other intermediaries (including call centers), which eventually weakens the relationship of large corporations with their end consumers.
Financing—Designing financial products to help consumers buy goods or services serves two important goals. First, it makes it possible to buy certain goods, such as houses and cars, that far exceed the amount of cash that middle class households have on hand. Second, financing is a powerful lever to improve retention. With financial engineering, you can turn a one-time transaction into a recurring one, tying up customers over the long term and making sure interaction becomes more frequent. Financing is easier to operate at scale, as proved by car manufacturers, chain stores and later telcos investing a great deal in that powerful touchpoint.
Brand—From the 1950s onward, the growth of mass media turned brands into the most powerful way of interacting with lots of consumers. It eventually became so important in business life that today many people in the advertising business still talk about ‘brands’ instead of ‘companies’ or ‘businesses’. The power of brands makes it easier to sell on mass markets without having to bother about what individual consumers actually want.
Data—Collecting data about individual consumers used to be very hard. To do it at a high enough frequency, corporations needed to enroll their customers in loyalty programs. A marginal group in advertising, direct marketers (of whom David Ogilvy was a great admirer), pioneered the science of interacting frequently with individuals, instead of masses, to try and know the customer better and tailor their offer in terms of pricing, size, color, etc.
Virtually every large-scale business still involves these four touchpoints. Large corporations operate counters to serve customers, arrange financing to facilitate purchasing their product, market brands, and collect data. The combination of the four depends on the industry. In the car industry, it’s mostly about the brand and financing. In luxury, it’s about the brand and world-class service from behind the counter. In banking, it’s counters (branches) and all the data that go through personal bank accounts.
But now the digital transition has radically changed the relative importance of the four touchpoints in every industry. As consumers are more connected, it has become easier for businesses to collect their data and get to know them better. And as consumers are more connected with one another (they form a multitude of networked, active individuals), the flow of data keeps on growing and speed of circulation keeps on increasing, making it ever easier to know consumers as individuals.
Hence data is gradually becoming the center of gravity in customer relationship management—with the counter, financing, and even the brand relegated to the second row. In that new context, organizations must tackle two challenges:
They must redesign their product to collect data whenever possible (and redesign their entire supply chain to make the most of that data through positive feedback loops).
They must inspire trust in consumers, because collecting data requires permission—and consumers give that permission only to businesses they trust (or, sadly, to ones, such as Equifax, that they feel obliged to use, and for which there isn't yet a viable alternative).
This, in my view, is the key challenge that legacy organizations have to tackle: because they were long unable to collect data, they had no choice but to bet everything on other touchpoints, notably counters and brands. Meanwhile, forcing their mass production, one-size-fits-all approach onto consumers generated frustration and ultimately mistrust.
So now those companies not only must reinvent themselves. They also need to reverse a long history of suspicion that arose due to the mode of production that prevailed in the previous technological age. As the Sciences Po chair is intended to conduct research work on trust in the economy, I’ll make sure to share more ideas on that in the future!
Warm regards (from London, UK),
Nicolas