AberdeenGroup A Harte-Hanks Compeny Send to o Friend away Mobile Marketing Going Direct to Consumers’ Hips, Pockets and Purses October 2008 Jeff Zabin, Stephen Lawrence ~~ Underwriteen, in Part, by ~ a mfentix®Mobile Marketing: Going Direc onsumer’s Hips, Pockets and Purses et Aberdeen Group Executive Summary Given the series of recent advances in mobile devices and related technologies and standards, it's no surprise that a growing number of ‘companies are seeking to capitalize on mobile marketing as an intimate yet Ubiquitous way to reach consumers on the go in a relevant, engaging, and profitable manner. While many companies have already achieved notable success with their mobile marketing efforts, what works and what doesn’t is not always certain, and the related business processes and performance metrics remain somewhat experimental. Aberdeen research for this report explores how Best-in-Class organizations engage in anytime, anywhere marketing through mobile devices in ways that yield positive business ‘outcomes. Aberdeen examined the use, the experiences, and the intentions ‘of more than 150 diverse enterprises between September and October 2008 to create a roadmap for companies that aim to leverage the mobile channel to drive marketing improvement. Aberdeen used four key performance criteria to distinguish Best-in-Class ‘companies from the overall survey respondent population. The results show: in-Class Performance ‘© 91% customer satisfaction rate = 89% customer retention rate ‘© 17% year-over-year improvement in customer engagement ‘© 13% year-over-year improvement in ROM Competitive Maturity Assessment Survey results show that companies enjoying Best-in-Class performance share several common characteristics with respect to mobile marketing + 71% use a content management system ‘+ 47% have defined performance metrics for measuring mobile marketing effectiveness Required Actions In addition to the specific recommendations in Chapter Three of this report, to achieve Best-in-Class performance, companies must Ensure that the target audience has the type of handsets required to support the technology (e.g. MMS) or application (e.g. wallpaper) and that the campaign is compatible across carriers and networks ‘© Leverage cross-channel media integration that goes beyond simply including a short code on a billboard or in a TV advertisement Send to a Friend ay © 2008 Aberdeen Group. Research Bi ‘Aberdeen's Research Benchmarks provide an in- depth and comprehensive look into process, procedure, methodologies, and technologies with best practice identification and actionable recommendations Telephone: 617 854 5200 Fox: 617 723 7897Mobile Marketing: Going Direc insumer's Hips, Pockets and Purses ne Aberdeen Group Table of Contents Executive Summary. 2 Best-in-Class Performance. 2 Competitive Maturity Assessment. 2 Required Actions 2 4 4 4 5 Chapter One: Benchmarking the Best-in-Class Business Context. The Maturity Class Framework. The Best-in-Class PACE Model Best-in-Class Strategie: 7 Chapter Two: Benchmarking Requirements for Success, "1 Competitive Assessment. 2 Capabilities and Enabler: . B Chapter Three: Required Actions 19 Laggard Steps to Success. 9 Industry Average Steps to Success 9 Best-in-Class Steps to SUCCESS ssn 20 Appendix A: Research Methodology. 2 Appendix B: Related Aberdeen Research. 24 Featured Underwriters. 28 Figures Figure |: Top Pressures - All Respondents. 7 Figure 2: Strategic Actions - All Respondents. 9 Figure 3: Mobile Marketing Technology Enablers. Is Figure 4: Metrics for Measuring Mobile Marketing Effectivenes: 15 Figure 4: Encryption Technology Usage in Mobile Marketing 7 Tables Table I: Top Performers Earn Best-in-Class Status. 5 Table 2: The Best-in-Class PACE Framework 6 Table 3: The Competitive Framework. 2 Table 4: The PACE Framework Key... Table 5: The Competitive Framework Key Table 6: The Relationship Between PACE and the Competitive Framework . ssn 23 © 2008 Aberdeen Group. Telephone: 617 854 5200 deen com Fox: 617 723 7897Mobi le Marketing: Going Direc onsumer’s Hips, Pockets and Purses Chapter One: Benchmarking the Best. -Class Business Context According to estimates, the number of mobile subscribers worldwide is more than three billion. Many of them use their mobile devices as their primary means of communication. Through a confluence of technologies and standards related to mobile devices, including third generation (3G) networks and data packages, the mobile Internet has now reached a critical mass. And as more consumer brands are discovering, the mobile Internet ‘can now enable large-scale mobile marketing activities capable of engaging ‘consumers in unprecedented ways. When it comes to mobile marketing, few companies can tout a long track record of experience. In fact, only 22% of survey respondents indicate that their companies have implemented mobile marketing for more than two years, compared to 36% of respondents that report that their companies have made their initial forays into mobile marketing only within the past six months. The Maturity Class Framework By extending marketing communications beyond traditional media, mobile marketing delivers a broad range of benefits for driving brand awareness, engaging with consumers - and, ultimately, increasing revenues and profitability. According to Aberdeen research, companies employ a variety ‘of metrics to track and measure the success of their mobile marketing initiatives. For the purpose of this benchmark report, Aberdeen used three key performance criteria to distinguish Best-in-Class companies from Industry Average and Laggard organizations. The criteria are: + Customer engagement, It's no easy task to win the attention of ‘customers that are inundated with marketing messages and offers and that suffer from what industry pundits now commonly refer to as “marketing fatigue.” When used effectively, the mobile channel has proven to be an effective way to cut through the clutter and to elicit positive consumer responses to "call to action" messages - culminating, in many cases, in long-term customer relationships. ‘+ Customer satisfaction. By delivering an array of messages, offers, coupons, games, sweepstakes and access to exclusive content that many consumers deem valuable, and by engaging them in meaningful interactions on an ongoing basis, mobile devices can serve as an effective channel for improving the customer experience and driving positive sentiment with respect to a company or brand. ‘+ Customer retention. While recent business literature suggests that the correlation between customer satisfaction and customer retention may be overstated, it nonetheless stands to reason that positive customer engagement via mobile devices with a company © 2008 Aberdeen Group. ne Aberdeen Group \ Bestin-Class companies experince customer engagement levels that are more than twice as high as Laggards 1 Best-in-Class companies experience return on marketing investment rates that are 6.5-times higher than Laggards Telephone: 617 854 5200 Fox: 617 723 7897Mobile Marketing: Going Direct to Consumer's Hips, Pockets and Purses nes Aberdeen Group or brand will lead to increased customer loyalty while mitigating customer attrition. + Return on Marketing Investment (ROMI). Relative to traditional mass media buys, a small percentage of which generate positive ROI, mobile marketing has been shown to be a cost- effective way for a company to achieve key marketing objectives around revenue growth and profitability ‘Taken together, customer engagement, customer satisfaction, customer retention, and ROMI speak not only to some of the most compelling benefits that can be realized through mobile marketing activities but also to the key value drivers of practically any company competing in today’s business environment, Table I illustrates how Best-in-Class, Industry ‘Average, and Laggard companies stack up against one another across these four performance criteria in-Class Status Table |: Top Performers Earn Best Pry Ror Dee ea! = 91% current customer satisfaction Best-in-Class: | + 89% current customer retention Top 20% of aggregate | * 112% current return on marketing investment Performance scorers | « |3% year-over-year change in return on marketing investment = 17% year-over-year change in customer engagement = 80% current customer satisfaction Industry Average: | "79% current customer retention Middle 50% | «51% current return on marketing investment of aggregate | « 4% year-over-year change in return on marketing performance scorers | investment * 13% year-over-year change in customer engagement = 67% current customer satisfaction egeerai = 64% current customer retention Bottom 30% | = 3% current return on marketing investment of aggregate = 2% year-over-year change in return on marketing performance scorers | investment 17 8% year-over-year change in customer engagement, Source: Aberdeen Group, October 2008 The Best-in-Class PACE Model The performance disparities that exist between Best-in-Class organizations and Industry Average and Laggard companies are striking, Consider that Best-in-Class organizations enjoy customer satisfaction rates that are 1.3- ‘times higher than Laggards and customer retentions rates that are I.4-times higher. The increase in customer retention speaks to the value of mobile marketing in terms of maintaining and enhancing the value of a company's © 2008 Aberdeen Group. Telephone: 617 854 5200 deen com Fox: 617 723 7897Marketing: Going Direct “remorse Aberdeen Group relationships with existing customers. Best-in-Class Companies also experience customer engagement levels that are more than twice as high as Laggards and ROMI rates that are 6.5-times higher. ‘The ROM factor is the most compelling consideration from a cost justification perspective, and made even more compelling by the fact that survey respondents cite ROM as the top factor driving their organizations to implement mobile marketing initiatives, in the first place (Table 2). The declining effectiveness of traditional marketing programs is due to channel proliferation, audience fragmentation, advertising fatigue, and various other factors. Any opportunity to drive incremental improvement in ROM is cause for celebration in the corporate boardroom, ‘Aberdeen found that 41% of Best-in-Class companies, compared to 23% of Laggards, rank their experiences with mobile marketing as successful. More telling is the fact that 0% of Best-in-Class companies, compared to 8% of Laggards, consider their initial forays into the realm of mobile marketing to be unsuccessful. Why some companies fall short of achieving their business objectives around mobile marketing may be attributed to any number of reasons, from a lack of adequate business processes and organizational resources to a failure to put the right performance metrics in place to track and measure progress in a meaningful way. Table 2: The Best-i ey ey Process for mobile marketing campaign development "Increase the ROM! | Identify the most * Content management system effective mobile marketing strategy * Data mining and analytics solutions + CRM suite (marketing automation, salesforce automation, customer service) * Campaign management system * Encryption technology Hire outside consultants with mobile marketing expertise = Process for allowing consumers to optin / opt-out of mobile advertising / marketing campaigns Process for mobile marketing campaign management * Defined performance metrics for measuring mobile marketing effectiveness * Ability to analyze mobile marketing cost / benefit Ability to analyze mobile marketing activities = Dedicated department for executing mobile marketing Source: Aberdeen Group, October 2008 © 2008 Aberdeen Group. Telephone: 617 854 5200 wovw.aberdeen.com Fax: 617 723 7897Mobile Marketing: Going Direct to Consumer's Hips, Pockets and Purses ne Aberdeen Group Best-in-Class Strategies While ROMI ranks as the most important factor for Best-in-Class ‘companies, “improve customer engagement” emerged as the number one pressure compelling all companies, including the Industry Average and Laggards, to allocate resources toward mobile marketing activities, This is ‘no surprise, given the challenge most companies face in capturing consumer mindshare and the role that mobile devices can play in not only increasing market awareness but in driving two-way conversation. The ability to interact with customers on an ongoing basis, regardless of their physical location, is every marketer's dream. Other top pressures, which are shared almost equally by Best-in-Class, Industry Average, and Laggard companies, are shown in Figure |. Taken together, these pressures speak to the need to move beyond traditional marketing tactics and to find new, creative ways to reach existing and prospective customers across multiple touch points, including the mobile channel. Figure |: Top Pressures - All Respondents rrerove customer engagement Improve precision marketing (Sending the right message othe right consumer) Reach consumers ‘onthe go" lnprove customer experience brerease customer retention brerease he return on mertng investment (ROW o% 25% 50% 75% % of Respondents Source: Aberdeen Group, October 2008 According to survey respondents, a confluence of other, tangentially related factors are also compelling companies to embrace mobile marketing as a viable channel for reaching customers. These factors include the decreasing effectiveness of traditional marketing channels, the increasing mobility of the target audience and the changing demographics of the target audience. An equally important catalyst is the vastly improved functionality and usability of mobile devices. Indeed, only now with the advent of 3G wireless service, which provides high data speed and always-on data access, are we beginning to witness the real potential of mobile marketing as a way to deliver high- fidelity, high-impact brand experiences. © 2008 Aberdeen Group. Telephone: 617 854 5200 deen com Fox: 617 723 7897Mobi le Marketing: Going Direc onsumer’s Hips, Pockets and Purses ores Pa ee heey There are four basic categories of players that inhabit the mobile marketing value chain, or ecosystem. While the terminology varies, the categories may be best labeled as follows: |) consumer brands (and the marketing agencies that represent them); 2) application solution providers and technology enablers: 3) aggregators and mobile carriers / wireless operators; and 4) media properties. ‘The value chain begins with the consumer brands (and the agencies that represent them), which develop the content and place the paid promotion or marketing program, usually for the purpose of attracting, retaining and / or leveraging profitable customers. Application providers play an essential role by providing network-based software and various ‘types of and mobile management systems as well as downloadable applications that deliver the business logic behind mobile marketing activities. Aggregators act as an intermediary between application and content providers on the one hand and mobile carriers on the other. They provide single-point connectivity with all the different mobile operator networks. Media properties, which include broadcast networks, online publications and entertainment portals, draw the eyeballs. Until a few years ago, mobile services tended to be “bundled” within the wireless operators’ technology network. Known as a “walled garden,” the services were controlled entirely by the operators. Increasingly, however, these services have become “unbundled,” making it possible for brands and content owners to implement mobile marketing campaigns on their own, without the need to actively involve the wireless operator. This unbundling of services has unleashed a plethora of opportunities for application providers and aggregators. Consumer brands and marketing agencies are now at liberty to use mobile networks for direct customer engagement, in what is called "off deck" as opposed to "on deck” content distribution. In other words, campaigns need not run on a carrier's ‘mobile marketing platform. According to Aberdeen research, 43% of Best-in-Class companies view off deck distribution as the most effective approach while 6% view on deck distribution as the most effective. More ‘than half (56%) of survey respondents report that they have experienced no difference between on deck and off deck content distribution in terms of effectiveness. To alleviate the broad mix of pressures outlined previously, companies are taking various strategic actions. As shown in Figure 2, the top actions they are taking ~ or are likely to take in the future — focus on putting into place the right business processes and organizational resources, including outside consultants with mobile marketing expertise. © 2008 Aberdeen Group. es ° Aberdeen Group "The needs and behaviors that customers engage in when they are on the move and using their mobile devices are very different from when they are sitting at home or at work in front of a computer or opening ‘mail or watching TV. The ‘mobile channel gives us the ability to bring some new tools online to solve specific customer needs and to lace various vehicles together. Mobile isn't the next TV or radio or Internet. Inherent in ‘the channel is a pull-versus- push capability. We want to Use mobile pieces of technology +o help customers solve needs in the moment, whether it's related to stock availability, price check, access to special deals, access to other content they've requested, or even a storage locker of past purchases to ensure compatiblity with new purchases. ~ Mate Smith, Vice President of ‘Customer Insight, Best Buy Telephone: 617 854 5200 Fox: 617 723 7897