The case for Continuous Commerce
Rory Sutherlandon 09 January, 2014 at 12:01
Economists have long noted that business models are a hit-and-miss proposition. “All models are wrong,” the saying goes, “but some of them are useful.”
Recently, scholar Nassim Taleb took it a step further:
All models are wrong,
he commented, “but some of them are dangerous.”
For about seventy years, the traditional model that sustained sales and marketing worked fairly well. It was never perfect, of course—no model ever is, as we’ve already noted above. This one’s flaw was in its extreme oversimplification. It pretended, for the purposes of both mental simplicity and organizational neatness, that different parts of the customer experience were separate and independent. It assumed you could have a debate about channels without discussing the brand, or that it wasn’t necessary for specialists in search-engine optimization to consider any other paths to purchase. Rather than considering the whole equation, seeing commerce as a continuous ecosystem, the old way treated the different parts as a series of independent, orthogonal practices—as though you could optimize one without affecting the others.
Most of the time the approach worked rather well because it was good enough. It was a useful fiction, a convenient untruth. But we contend that, in the Internet age, this simplified approach to human behavior and business models has gone from being a useful mental aid to a potentially dangerous delusion.
We need a new approach to markets and commerce. If in the past the model was designed around basic physics, this one will be closer to biology in its thinking. It’s designed as much around agility as it is the search for perfection. And it accepts that human behavior and nature do not operate to a fixed set of preferences or a set schedule.
We call this new approach Continuous Commerce™.
Speaking to the Life Insurance Agency Management Association in 1965, David Ogilvy said:
I myself have life insurance policies with three companies. Not one of them has ever written me a letter suggesting that I buy more insurance from them. All they ever send me is premium notices. Bloody fools.
What David was describing, in essence, was the Madmen era analog equivalent of a far more acute digital issue we face today: To put it simply, the ways in which people buy and the ways in which companies sell are often badly out of alignment with each other.
Why is the problem worse now? In 1965, most advertised products were sold in stores or face to face. The term “customer journey” was reasonably accurate because, in that era, buying or selling usually involved exactly that—a physical journey. Back then, or so we believed, people’s behavior followed a prescribed and unwavering path: They became aware of products, formed preferences, and then acted on (or modified) those preferences from among a clearly defined set of choices at some clearly defined place and time. Typically these decisive moments occurred when people were exposed to advertising media, specialist media, or point-of-sale communication. There was typically one default channel for every given purchase—a single path that customers would faithfully and unwaveringly tread. Word of mouth was important, but it was hard to quantify and harder still to influence.
It was, of course, never that simple. Human behavior has always been immensely complex, and we do a gross disservice to our predecessors in advertising and marketing when we pretend their jobs were easy. In fact, as case studies such as de Beers and Alka Seltzer show, in many ways our forefathers were more sophisticated in their thinking than their modern-day counterparts.
No, things weren’t that simple. They never were. But what mattered, it most cases, was that it didn’t make much difference if you pretended they were. The customer journey and other models, such as the “sales funnel” of St. Elmo Lewis, were convenient fictions—but they were useful fictions, and quite sufficient in many cases. Media metrics such as “reach” were also similarly flawed—but they were also good enough most of the time. Even if you had built a far more accurate, nuanced, and complex model of human behavior, it’s not actually clear how much it would have helped, since you were fairly limited in the channels you could use in response to this greater sophistication and thus were similarly constrained in terms of the degree of personalization, targeting, or timeliness you could bring to your interventions. The opportunity to influence behavior and choices was confined to a set number of moments and places; beyond those, human behavior and attitudes may have been changing greatly, but it was often beyond your capacity to detect those changes, much less influence them.
When David Ogilvy effectively proposed direct mail as part of a channel-optimization strategy (though he would never have called it that) to the distinguished members of the Life Insurance Agency Management Association, it was one of those relatively rare cases where such a plan could be deployed. A mixture of advertising, direct mail, and direct sales was the omnichannel marketing of its day. And it was based, like all good marketing, on a very simple insight into human behavior—that it is much easier to up sell or cross sell than to cold sell.
With this as in so many things, David was a visionary. He saw long before most people, and decades before it was fashionable, that an advertising agency could never be great if it were just an advertising agency. It needed to be able to serve its clients in many more ways than just through conventional advertising. In order to live up to the dictum “We sell, or else,” you could not confine yourself to one or two specialties—you had to cover the waterfront. He not only created a direct-marketing wing for his agency, he also put his own name above its door. He was an avid, early enthusiast for research (his former employer George Gallup was, in many ways, his greatest influence). And he also was an early advocate of those forms of advertising that were measurable and therefore testable, from direct marketing to offthepage selling. “We sell, or else” at its most immediate.
This form of advertising, though historically less celebrated, still holds great lessons for the digital age. It is based on continuous, responsive interactions, and incremental improvements rather than on fireandforget campaigns. It is stochastic rather than deterministic in its approach. And, at its best, it tries to operate according to the timescale of the consumer rather than at the behest of the advertiser. It is as much about target moments as target markets. And it aims as far as possible not to generalize but to disaggregate.
At the time, however, it was expensive and narrow in its applications. What has suddenly changed is that what David recommended in 1965 is now something almost every business needs.
Far more products today are effectively services with a physical component. Customer journeys, if you can even call them that any longer, start and stop and reverse and continue 24 hours a day, and certainly do not end with the sale. Treating customers as though they are traveling down a funnel is no longer a useful fiction, it is an obvious nonsense. And treating channels as though they were discrete is clearly unworkable—depending on mood, mode, moment, need and whim, consumers may shift the channel on which they interact with you frequently, and in any direction. In fact, the possible paths to purchase may number in the millions—for any single sale.
Products are no longer always clearly fixed and differentiated—in fact, they may even be customized by the buyer. The environment within which your customers make choices is no longer beyond your control—you can design it yourself. Even something once as simple as a menu board in a fast-food restaurant can now change in real time depending on the locality, the hour, or the day of the week.
Getting these things right—or at least making them less wrong—means the difference between standing on a sideline and winning on the major battlegrounds of marketing. If you don’t believe this, just think for a moment of the venerable brands that were masters of an old channel but failed to adapt to new ones: Jessops or Blockbuster, Waterstones or Woolworths, M&S. And consider, by way of contrast, the successes of those who get this right—like Argos, Nespresso, and the best airlines.
Success and failure in this game are starkly different. Surprisingly so, perhaps. Until you realize that human behavior, contrary to what economics suggests, is highly context-dependent and path-dependent. We do not always 1) decide what we want, and then 2) choose the means or channel through which we acquire it. On the contrary, the channels through which we pass have a profound influence on our choices. Brands that may be salient and “mentally available” in one context—Waterstones, say, on a meandering downtown shopping trip in London—may fail to come to mind at all in another, for example when you are sitting in your kitchen, searching for a book online. Moreover, the comparisons we make in our minds are lexicographical in form—so that the order of our decision path and the choice of architecture we are presented with have an immense effect on which product we choose, and on the price we’re prepared to pay for it.
In 1999 I heard an extremely wise and intelligent advertising luminary point out that Amazon was doing well, but then predict, “Once Barnes & Noble takes online seriously, it will easily win though its superior brand.” How could someone so intelligent be so wrong? Simply because he was relying on the old model, in which brand preference existed independent of channel and context. When there was only one channel, that assumption worked by default. What we now know (and should have known then) is that the mental availability of a brand, as Professor Byron Sharp observes, is context-dependent and channel-dependent: “A brand’s mental availability refers to the probability that a buyer will notice, recognize and/or think of a brand in buying situations. It depends on the quality and quantity of memory structures related to the brand… So this is much more than awareness, whether that is top-of-mind awareness, recognition or recall. Indeed all of these [conventional marketing] measures are flawed by the use of a single, a-situational, cue.”
In other words, regardless of the overall fame or reputation of various retail brands, context matters. When I’m in a shopping center, I am perfectly content to wander into Waterstones. But when sitting in front of a computer and thinking of buying something, it requires less cognitive effort for me to think of Amazon than anything else. It has become a mental default.
Moreover, we have now learned that our online behavior is far more driven by habit than our offline behavior. Given the absence of geographical constraints upon loyalty in the online environment, and the ease of reordering through devices such as “1Click,” people tend to be disproportionately loyal in their digital behavior. And in many categories, we are also driven by herd behavior, in which we default to the behaviors that seem most common in the people around us. This leads to an exponential winner-takes-all effect. Both these network effects mean there is little middle ground online—you either compete, or you confine yourself to a tiny niche .
What the successful exponents of omnichannel marketing and selling seem to have mastered is what we call Continuous Commerce™. This term applies not only in chronological terms, but also from the consumer’s standpoint. Purchasers can move at will, at a time that suits them, between any mode of interaction, and find the information and tools they need to make an instinctive, easy, informed choice. Then they can act confidently on that choice and to feel content with it afterwards—even sharing their satisfaction with others. The natural urge after each experience is to repeat it—even to share it. It is an experience that becomes more rewarding and more trustworthy with each iteration.
From the provider’s point of view, there is a different kind of continuity—involving a much broader definition of a customer’s value than most companies presently employ. If you look at the whole equation, the value of a transaction needs to be understood not only in terms of its immediate financial value, but also on its wider effects in the continuous ecosystem of commerce. Customers and touchpoints should be seen and evaluated holistically, for their contribution to the health and prosperity of the overall business, not through narrow financial metrics. Enhancements and changes (which, in a complex system, don’t need to be big to be important) should be judged for their ultimate effect, not for their proximate impact. A brand’s trust-building or generous act should be evaluated for its effect on loyalty, reciprocation, and customer value, not just on its immediate short-term cost.
This requires a special kind of continuity in the agency that offers it. The mix of knowledge, skills, and capabilities will be enormous—from behavioral economics to systems integration to data analysis to customer-experience design.
So what would a Continuous Commerce™ offering look like? At its simplest, it would cover these four bases.
1. Propositions and innovation: understanding or learning (or machine learning) your consumer’s needs and ﬁnding innovative ways to match and exceed those needs, in a way that delivers lasting, incremental business value.
2. Creating experiences: designing and building (and sometimes co-creating) and testing the content, environment, and choice architecture that make it easy and appealing for customers to buy from you—for the first time—and make it even easier and more appealing with every subsequent transaction.
3. On shelf, last-mile optimization, whether digital or physical or both: converting demand into sales wherever it is found—in owned, earned, and paid media. And converting one sale into a series of them.
4. Maximizing customer value in its fullest sense: creating a better, more granular understanding of customer value—one which includes not just the money generated by any transaction but also the effect it may have on trust, reputation and repeat business.
If this sounds impossible, it is worth remembering that the best small local businesses—shopkeepers, plumbers, restaurateurs—already do this. They do it instinctively.
Small businesses instinctively practice Continuous Commerce™ because they are not siloed or compartmentalized. If you run a restaurant or pub, you are simultaneously responsible for your financial fortunes, your reputation, and your brand. You know the value (present, future, financial, and reputational) of your customers—and you act in accordance with that knowledge. You know that your midweek regular customers are much more vital to your fortunes than your occasional, splurging Saturday-wedding-anniversary crowd, even if the regulars spend less money during the course of each visit. And you know that locals are more likely to hurt your business if disappointed than passing travelers.
Our job is to do this at scale.
We don’t have everything we need—that mix of technological and psychological capabilities—to fully do this yet. But, like David Ogilvy in 1965, we have more of it than anyone else. Thanks to our founder, too, we have one other attribute that will help us achieve it. We know there will never be an individual talent that can cover every skill. Some degree of specialism is essential, but like a successful larger restaurant, we employ the type of people who are culturally disposed to working together. Continuous Commerce™ demands continuous conversations. An econometric modeler and a web designer will always have different personalities—but a common culture is vital.