J U LY 2 0 11

m a r k e t i n g

& s a l e s

p r a c t i c e

How we see it: Three senior executives on the future of marketing
Steve Ridgway CEO of Virgin Atlantic Airways John Hayes CMO of American Express Duncan Watts Principal research scientist at Yahoo! Research

There is no quick path to success in the new era of customer engagement. Progress is likely to come incrementally—by listening to customers, making adjustments to engagement strategies, and learning through trial and error. Since diverse perspectives will be essential to mastering this new landscape, McKinsey’s Luke Collins, Tom French, and Paul Magill recently sought out three practitioners with very different vantage points on marketing’s future.
Virgin Atlantic Airways CEO Steve Ridgway talks about how his company recently has been pushing the boundaries of collaborating with customers, while experiencing the pleasant surprise of a successful mass-media campaign. American Express CMO John Hayes discusses what today’s “marketing revolution” means and describes some of the organizational steps he has taken to get ahead of it. Duncan Watts, principal research scientist of the Human Social Dynamics group at Yahoo! Research, explains how today’s data-rich environment exposes the limits of intuition in marketing and the need to take a scientific approach to understanding consumers. A summary of those conversations follows.

2

The CEO

Virgin Atlantic Airways’ Steve Ridgway
If we get our customers off the plane happy, and they go on to talk about it, that’s a huge marketing tool for us.

Steve Ridgway has been the CEO of Virgin Atlantic Airways since 2001. A native of England, he joined Virgin in 1990. Previously, he served as executive director of customer service and managed the company’s frequent-flyer program. In 2006, Queen Elizabeth II made Ridgway a Commander of the Order of the British Empire (CBE) in recognition of his service to British industry.

“

”

Where mass media still matter
It’s popular these days to say that television and other traditional forms of marketing don’t work—that it’s a fragmented world out there, and marketing is henceforth all about the thousands of little things that companies do in different constituencies, markets, and segments. I’m not sure that’s altogether right. Focused, laser-like efforts are certainly very valuable, but I worry that we might get all the “micro” things right and miss the bigger picture. I don’t want to lose sight of how important it is to have all of our marketing efforts somehow embodied in something bigger—something iconic, even. That lesson was driven home for me by the recent success of two of our, what would be considered traditional, “above the line” television campaigns.1 The first was in 2009, when Virgin Atlantic Airways was celebrating its 25th birthday. At the time, everyone was depressed about the world economy, and we just wanted to put a smile on our customers’ faces and on our own faces. The result was “Still red hot,” a TV campaign 2 that started in the UK, went viral, and had an
1 “Above the line” refers to marketing campaigns that use paid channels such as television,

newspapers, or magazines. Traditionally, in “below the line” marketing efforts no commission is paid to an advertising agency, such as with direct mail or other promotions. 2 Released in January 2009, the 90-second “Still red hot” commercial was set in London’s Heathrow Airport at the time of the airline’s launch, in June 1984. It featured a young businessman wearing suspenders and carrying a brick-sized mobile phone, who becomes spellbound by a group of Virgin Atlantic flight attendants wearing flame-red uniforms. The commercial is filled with other 1980s artifacts, including its soundtrack, Frankie Goes to Hollywood’s “Relax.”

3

absolutely massive effect in creating a positive halo for our brand not only among our customers but among our staff and suppliers as well. We’ve always focused heavily on brand and brand awareness, but this campaign sparked something more—it energized and engaged a whole new constituency out there before they’d even set foot on a plane. Of course, beneath the traditional campaign sat a series of related, “below the line” efforts in all the new mediums. But it was quite a revelation— and a surprise, frankly—for us to see how powerful it can be to put ourselves out there in the market with this really big, confident shopwindow, rather than concentrating on the fragmented world that everybody is telling us we have to be in. We simply wanted to reinvigorate our brand, to produce a powerful campaign to show that we were still alive and kicking and that our brand still had spirit, and it suddenly became more than that. The experience has spurred us to launch a second TV campaign, “Your airline’s either got it or it hasn’t,” and its success has taught us more still, while further convincing me of the need to have a traditional, big-hitting, resonant presence in the marketplace.

Catalyzing social-media engagement
Social media hasn’t required a huge investment from us thus far, in part because we’ve tried to build social networking into things that we knew we had to do anyway. We’ve also done some interesting things with outside “self-developer” groups, where we adopt the role of catalyst, or pump primer. VJAM is an open-innovation initiative we did with NESTA, the UK’s National Endowment for Science, Technology, and the Arts. We provided seed capital to support the development of an outside development group that has gone on to create some very useful applications for our customers. It created a taxi-sharing app, for example, that lets passengers on the same flight or on flights arriving at a similar time share a taxi ride if they’re going the same way. This saves people money and is better for the environment—and it was all done by developers who are themselves our fans, followers, and customers. Our f light tracker app was developed in a similar way and has also become very popular. It’s been really fun working with this group; they’re very fired up. Of course, we could have spent a fortune on a glitzier version of all this, but it wouldn’t have been better. What they’ve done is very good, and when you consider the speed at which it was done and the infectious enthusiasm they bring to the table—and the pride they take in the work—it’s just fantastic. And it’s all possible because there was sufficient motivation and engagement out there to convince these people to want to do this for us.

4

Customer experience as a marketing tool
Before we start marketing anything or talking about our brand proposition, we ask ourselves, are we being brave enough to get ahead of consumer expectations? One way we try to think ahead of our customers is through creating a superior customer experience. If we get our customers off the plane happy, and they go on to talk about that and get others to come and then come back again themselves— that’s a huge marketing tool for us. Making that happen requires having the elements in place to help the staff do their jobs and make our customer experience distinct from what other airlines are offering. Those elements include things like putting our clubhouses in a different design world than the other airlines’ lounges. Differentiation also is visible onboard the aircraft in all the design work we did in our upper-class suites to get the best flatbed possible and in taking the fit and finish inside the aircraft to a whole new standard. But getting the tools right isn’t enough. We were the first airline to put in-flight entertainment systems in our planes, for example, and now everybody’s got them. And, frankly, there are some airlines out there now—in the Middle East, for example—that have very deep pockets and spend lots of money. So we need to go further. The real key is people and developing the chemistry and the attitudes, in our staff, that create the right experience for customers. We’re constantly pushing this in our professional training because without the human element, all the rest counts for nothing. There’s massive complexity in doing this well because it extends from a customer’s first phone call to saying, “Goodbye. Come back soon.” When we get both things right—connecting the tools and the people— then our staff can really engage customers with attitude and spirit. They feel proud of what they’re doing; they like being winners. And at the end of the day, that really matters. After all, we f ly exactly the same planes as everybody else. We fly them under the same very strict safety rules. Yet if you go on one of our planes and experience the service, you’ll see it’s very different from many others.

5

The CMO

John Hayes has been American Express’s chief marketing officer since 2003. Previously, he was the company’s executive vice president of global advertising and brand management. Hayes joined American Express in 1995, after holding senior positions at the advertising agencies Lowe & Partners, of which he was the president; Ammirati & Puris; and Saatchi & Saatchi Compton.

“

American Express’s John Hayes

I haven’t met anybody who feels they have their organization completely aligned with this revolution.

”

A marketing revolution
We’re going through a revolution a whole lot like the Industrial Revolution. The change is that profound. I had a conversation recently with an employee about this new age of marketing. Basically, it went like this: “As we try to go to market with your idea,” I said, “the world is going to decide whether or not this has real value, talk about it, and then position it pretty much how they want to position it.” The person responded, “OK, so we really have lost control?” I said, “Yes, that’s right. I don’t get to control everything that’s said about us.” Then I said to the person, “But understand, you’re still 100 percent accountable for the outcome.” The reaction to me was, “That’s not fair.” And it’s not. But it’s the world we live in. It’s more exciting because if you really do have a great product or a great program, it can catch fire in the marketplace. That’s exciting. But the challenge for most people who are marketers today is, “How do you hold me accountable for the success of this when I can’t control what somebody might say about it or what somebody else might contribute to this conversation?”

6

Meeting the organizational challenge
I haven’t met anybody—and I talk to a lot of my colleagues in the marketing world—who feels they have the organization completely aligned with where this revolution’s going, because it’s happening so fast and so dramatically. Marketing is touching so many more parts of the company now. It touches on service; it touches on product development. We need to organize in a way that starts to break down the traditional silos in the business. We’re creating cross-business function groups and seeing how they work. If you’re not experimenting, you’re not learning. So we’ve created a marketing council with the key marketer from each business unit. At first we wondered, “What is this marketing council really going to do?” Well, when we got everybody together, it was clear that there were issues that the whole group was having, and there were issues that some parts of the group were having with other parts of the group. Taking folks out of their business unit environment and putting them in more of an enterprise-wide environment changes some behaviors because it helps people understand more clearly that we have shared customers. We need to talk about how to serve them better, and we may have synergies between two or three of our business areas around specific growth opportunities. We’ve done this now in a variety of areas, not just on a general marketing basis but also, for example, in areas that have to do with digital transformation. The result of some of this work is that we’re not just marketing and selling on Twitter and Facebook today, we’re servicing customers as well. When you bring these cross-functional teams together, people start to say, “Well, if people are asking questions on Facebook and Twitter about how to redeem Membership Rewards points, shouldn’t we be there answering them? Wouldn’t that help our marketing efforts?” When you start to see things come together like this, that’s when the light bulb goes on. These cross-functional teams—some may be temporary and some may be permanent—will play a very important role in creating more f luidity, more enterprise-wide understanding, and more initiatives that lead to a more cohesive outcome for our customer base.

Understanding and engaging customers
We’re fortunate to have a very passionate, action-oriented community of cardmembers. For example, they know—almost to a person— their “member since” date. Despite all those passwords and all the other things people have to remember in life, they’ll immediately

7

tell you, “Oh, I’m a member since 1991.” I can’t think of too many brands where people know their tenure as a customer. The strength of that relationship manifests itself in many different ways. Take the earthquake in Haiti that took place in January 2010. We made one small piece of communication to our cardmembers about what they could do to help relief efforts, and within eight weeks our cardmembers had donated over $100 million and 87 million Membership Rewards points. When you understand that this is a group of people who really feel a sense of belonging—that this brand matters to them—you start to build your marketing plans around the sense of joining a community. So if we find, based on your purchasing profile, that you love wine or you love dining out or you love golf, we can further engage you in the things you’ve already made clear are important to you as a person. It’s really a dialogue, which isn’t just us sending out an e-mail and somebody sending something back to us. The dialogue has to do with us guarding your privacy at all times but doing appropriate things to understand what interests you and then serving you better. That’s part of the dialogue; that’s how we listen. We also benefit from seeing what people are writing about us in blogs, what’s being said in the social space, and understanding the buzz out there. We’re at the point where we can actually monitor this pretty carefully by just reading what people are saying on the Web, understanding whether there’s a positive or negative sentiment, and how it compares with the buzz around our competitors. It’s become very useful because we learn, for example, not to overreact to something that is likely to dissipate very quickly. It has really helped to calibrate how we respond in different circumstances. We’ve created a group of measurements that are early indicators, which tell us we’re on the right track. And then we have business measures that give us the ultimate outcome. Consider a program like Small Business Saturday.3 When we asked ourselves, “Did it work?” we first measured the buzz—what were people saying about it in social media? There were nearly 1.5 million people who liked this effort on Facebook. That’s a lot of people and a positive early indicator. Then that support materialized into business: among all retailers that accepted our card on that day, sales increased 9 percent year on year. Among small businesses that participated in Small Business Saturday, sales rose 28 percent. Those are pretty strong numbers.
3 A US shopping promotion, created by American Express, that was first held on the Saturday

after Thanksgiving in 2010. It encourages consumers to shop at smaller, local retailers.

8

The Scientist

Yahoo! Research’s Duncan Watts
Once you accept that your intuition about how people behave is inherently flawed, then you really need a different model for learning about the world.

“

Duncan Watts is the principal research scientist at Yahoo! Research and director of its Human Social Dynamics group, which explores how information diffuses and how people influence one another online. The Australia-born researcher was a professor of sociology at Columbia University from 2000 to 2007. He is the author, most recently, of Everything Is Obvious: Once You Know the Answer (Crown Business, March 2011).

”

The data revolution
Marketing has long been data driven, with a lot of survey research and polling. But the volume and kind of data that we are beginning to acquire is vastly increasing, requiring better computing facilities and greater knowledge to handle. The kinds of questions that we can ask are much more sophisticated and require a whole new science. The study of social networks, for example, has long been something that sociologists and marketers have thought was important. But there really wasn’t much we could do, because a lot of the data simply was not available to us. Prior to a few years ago, you couldn’t have observed the ties that existed between hundreds of millions of individuals. Now we have Web services that provide exactly that kind of data.

The limits of intuition
One consequence is that we now need to start suspecting our intuition. We can’t help thinking that we know why people do what they do or what they’re going to do. But whatever hypothesis or intuition you

9

have, however self-evident it may seem, when you test it against the data, it’s wrong—not every time, but very often. So the marketing world is about to experience a shock. We have these spontaneous intuitions about why people do certain things and how we can make them do other things, whether it’s engaging with our brand or buying our product or evangelizing our product to other people. We tell ourselves plausible stories about how consumers are going to behave if we do x, y, and z. But then when you actually get the data, they don’t do that. They don’t do anything crazy; they just do something different from what you expected. A recent example of this strong intuition that seems to be wrong is word-of-mouth influence. We imagine information or influence propagating through a network in the manner of an infectious disease. We talk about viral videos and viral media, and we really think things spread this way. What we recently stumbled on is that almost nothing spreads. Instead, the vast majority of all adoptions happen within just one degree of the seed. This is shocking to people who study diffusion, and it’s shocking to viral marketers because it completely changes your premise of how things work in the social world. Research suggests that when we do see big events—things that we call viral—something other than word-of-mouth, peer-to-peer diffusion is happening. Once you think about it, in fact, it’s clear that this has to be true. If you consider the famous viral video of the little baby penguin that suddenly got 100 million views or the subservientchicken campaign, which was one of the first to be labeled a viral campaign, all of these benefited from tremendous mass-media coverage. Once you get your so-called viral video on the front page of Yahoo!, 100 million people see that. So this is not about viral anymore. This is mass media.

Measure and react
Once you accept that your intuition about how people behave is inherently flawed, then you really need a different model for learning about the world. Everything becomes data driven in a real-time, reactive way. A classic example in the Web industry is what we call bucket testing, where you might say, “I don’t know what to put on the front page of Yahoo!. I have very good editors who have plenty of ideas, and they can generate a pool of good candidates.” But if we want to optimize this, we actually have to go and show these different combinations of articles to buckets of people. Within a few minutes,

10

we’ve got a million clicks that we can use to tell us which articles are getting clicked on more. We can do the same thing for the display of advertisements, for the design of pages. All sorts of design parameters and choices that were once within the purview of intuition, of experts, are now tasks that can be distributed to the user population and learned empirically in real time. This kind of measure-and-react strategy, as I call it, is particularly powerful on the Web because the numbers are very large and the cost of generating multiple versions is very low. But, in principle, this is something that could be done in the offline world as well. We see it in the fashion industry with Zara and in the casino industry with Harrah’s or in retailing, where you can systematically rearrange product positions on shelves in stores.

Making better predictions
Grasping the limits of your intuition is not the same thing as saying the world is completely unpredictable. We have this irrepressible tendency to make predictions about the future. We see it in the media all the time—talking heads and experts and pundits constantly making predictions. There are some things that we can predict and others that we cannot. We need to be able to tell the difference between the two, and if it turns out that certain things are hard to predict, it’s better to know that. Advertisers, for example, create elaborate stories about representative consumers, and then they build a campaign around selling to this person that they’ve created in their minds. That, to me, is deeply flawed because what we’ve learned from many years of psychological research—not to mention what we should have learned from actual business experience—is that if any of these assumed factors that you’re including in your simulation are wrong, then the person may do something completely different. So this way of predicting behavior by simulating it in our own brains is a problem. But if you have data on billions of mouse clicks per day by hundreds of millions of users, there are empirical regularities. They can be modeled. They can be predicted—not deterministically, with 100 percent accuracy, but that’s not the point. The point is that you can do better than guessing. There are some things that are predictable. And we should learn how to predict them.

11

So by all means, make predictions. But record them. Nobody ever keeps track of the predictions they make. Our enthusiasm for making predictions is matched only by our reluctance to be held accountable for them. There’s a tremendous amount that can be learned—both about your own ability and about your organization’s collective ability to predict things—simply by measuring the track record over time. This is something that is difficult to do. But it would have a transformative effect on the way people think about their ability to predict and plan.
Luke Collins is a member of McKinsey Publishing and is based in McKinsey’s Chicago office, Tom French is a director in the Boston office, and Paul Magill is a principal in the Stamford office. They would like to thank Dieter Kiewell and Liz Hilton Segel for their help with these interviews.

Copyright © 2011 McKinsey & Company. All rights reserved. We welcome your comments on this article. Please send them to quarterly_comments@mckinsey.com.