From the July 2009 issue of Research Magazine • Subscribe!

July 1, 2009

Finding Your Next Customer Online

Brian Fetherstonhaugh of OglivyOne Worldwide talks about consumer trends over lunch at Thalia in New York.

Who:
Brian Fetherstonhaugh, Chairman and CEO, OgilvyOne Worldwide

Where:
Thalia, 868 Eighth Avenue, New York City, May 26, 2009

On the Menu:
Gazpacho, frittata and changing consumer attitudes



The global economic downturn may have begun in the housing market and the financial services industry, but the consumer remains the key to any economic crisis -- as well as subsequent recovery. Consumption accounts for more than two-thirds of America's GDP, making it impossible for meaningful growth to return while consumption remains in the doldrums.

As a global advertising and marketing powerhouse -- and part of an even larger marketing services company, London-based WPP Plc -- Ogilvy & Mather tracks consumer trends closely. It was well placed to notice the current crisis before it hit the headlines.

"We began to see it exactly one year ago," says Brian Fetherstonhaugh as we lunch across the street from his company's headquarters -- which, appropriately enough, is located in an office tower called Worldwide Plaza. Advertising has become a truly global industry, and Ogilvy has a global footprint. After at first manifesting itself as weakness in the U.S. consumer market, says Fetherstonhaugh, the company saw the recession spread to Britain and then all over the world.

Despite recent optimism in the stock market -- and better-than-expected consumer confidence figures released on the day of our interview, showing a second straight rise in the Conference Board's confidence index in May -- Fetherstonhaugh is yet to notice concrete evidence of a turnaround in consumer spending.

"I'm extremely bullish for the long run, but not for the next two or three years," he admits.

Apprehensive Consumers

Persistently high unemployment is a problem, says Fetherstonhaugh. It is exacerbated by the fact that consumers are not used to jobless rates hovering around the double digits. In the course of his career, Fetherstonhaugh notes that he has lived through a couple of major recessions -- which is a source of his conviction that we'll eventually pull through this one as well. But many people who have been in the workforce for less than two decades are used to nearly uninterrupted economic growth and mild, short-lived downturns.

For consumers, at least, another dip may come after the summer, when those who were laid off in the first wave reach the end of their severance packages or unemployment insurance payments without good prospects for getting another job.

Fetherstonhaugh sees a change in consumer attitudes already being wrought by this recession. In any downturn, people turn more apprehensive about spending and become focused instead on core values, such as their family and friends. Given the severity and length of the current slump, such trends have been more pronounced and may last longer than usual.

Sluggish demand in the coming years will greatly speed up profound changes which, according to Fetherstonhaugh, new technologies are already bringing about in the advertising and marketing industry. Digitization has been the name of the game, taking the consumer away not only from traditional channels for advertising and marketing, such as newspapers and television, but also from the conventional retail shop. It is creating a buyer's market, and if consumers now feel poorer and more careful about their spending decisions, sellers will find themselves at a considerable disadvantage.

Lagging Behind the Consumer

Thanks to the Internet, consumers now come to the store well-informed as far as product and price are concerned. But this is only part of the seller's problem. Increasingly, purchases are made in cyberspace, sight unseen. To illustrate his point, Fetherstonhaugh explains that technology allows the customer to run his own auction.

"If you are planning to buy an Audi A4, for example, you can contact a dozen Audi dealers in your area with a list of options and a delivery date, and invite them to bid on the deal."

The consumer is leading the way into cyberspace, while marketers are trying to keep pace with new trends -- and they all too often fall behind. The latest global data Fetherstonhaugh cites suggests that consumers spend nearly a third of their time with digital media, which includes not only the Internet but mobile phones, MP3 players and other devices. Yet, only 11 percent of marketing spending goes to such devices. Moreover, in the United States, the use of mobile telephony by marketers lags behind many countries in Europe and Asia, even though Apple's iPhone appears to be changing that rapidly.

The Internet creates an extremely efficient marketplace in which all participants have access to the lowest price. In order to grab the customer's attention and get a bit of a price markup, sellers need to provide something else. Fetherstonhaugh says that successful companies no longer sell products, they sell experiences. As a way of getting from point A to point B, an Audi is not a lot more efficient than a Kia, but it provides a superior driving experience, aesthetic pleasure and pride of ownership -- which is why it costs so much more.

Four Es in Place of Four Ps

While customers are flocking to discount stores, it seems only Walmart has done really well, while many of its bargain-basement competitors are reeling. Fetherstonhaugh finds the secret of Walmart's success in its ability to develop an image for quality, not just low prices.

This is what Fetherstonhaugh calls a shift from the concept of price to the concept of exchange in the new marketing environment. The transaction between buyer and seller is no longer limited to the straightforward exchange of money for a good or a service. It is a more complex interaction in which the buyer demands intangible value for his money.

Fetherstonhaugh studied marketing in the old days, when it was dominated by four Ps: Product, Place, Price and Promotion. Now, he says, Product has been replaced by Experience and Price by Exchange. Place has become Everyplace in the digital age, as consumers no longer sit passively in front of their TV screens but get their news and entertainment from a wide variety of channels, many of which are interactive and allow them to screen unwanted or non-essential information.

As for the final P, Promotion, it was replaced by another E -- Evangelism. Fetherstonhaugh points to Barack Obama's 2008 political campaign as a good example of a modern marketing campaign. It made use of all the modern marketing techniques Fetherstonhaugh identified and not so much spread the candidate's message as created a stable community of supporters.

"I'm a Canadian citizen," says Fetherstonhaugh who grew up in Montreal and studied at McGill. "I have no political position one way or another. But purely as a marketing campaign, it was the best for any product that I have ever seen."

Fetherstonhaugh is not alone in his admiration. Advertising Age named Obama its Marketer of the Year in 2008 and, says Fetherstonhaugh, many marketing specialists have been studying the 2008 presidential campaign for tips on how to run a diversified marketing campaign.

Easy to Cut

Advertising budgets are probably the easiest way to cut costs, says Fetherstonhaugh. They involve no negotiations with unions, no damaging write-offs and no fixed costs.

"Where else can I save millions with a single phone call?" he asks bitterly.

Cutting marketing expenditures may be easy, but it's not a good idea in a buyer's market. And especially not now, when marketing is changing in such a drastic way and when your customers are migrating from their cozy living rooms to the World Wide Web and other digital channels.

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Alexei Bayer runs KAFAN FX Information Services, an economic consulting firm in New York; reach him at abayer@kafanfx.com. His monthly "Global Economy" column in Research has received an excellence award from the New York State Society of Certified Public Accountants for the past six years, 2004-2009


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PHOTO By Leeza Semionova

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