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Our podcast brings you our latest insights and practical advice, helping you navigate change with confidence. Hear from diverse voices - from the UK’s top business leaders to athletes, psychologists and politicians - on the issues that matter today.
For more expert insights, or to find transcripts for all our episodes, visit our website, at pwc.co.uk/businessinfocus
Rowena Daines: Welcome to the latest episode of our Business in Focus podcast. I'm Rowena Daines and I'm your host for this episode. Challenging market conditions, a cost of living squeeze and shifting consumer behaviours, it all means that getting closer to what your customers want and how they buy from you is a vital part of ongoing business success and responsible growth. Data, cloud and digital transformation offer tools that lift the lid on what makes your buyers tick like never before, and, in turn, enable you to improve or elevate your customer experience to build brand loyalty, as well as competitive advantage but there's a balance to be struck. As individuals, we're all increasingly aware of how our data is being collected, used, as well as shared online, and so business leaders need to make sure that the excitement of digital personalisation doesn't get too personal from the point of view of their audience. Joining me to explore how to effectively stay on the right side of that line is Tom Adams, our experience, consulting and marketing transformation leader, and Sam Tomlinson, who leads our customer marketing and media insight team. Great to have you both here. Let's do a couple of intros before we get into this topic. Tom, do you want to kick us off?
Tom Adams: Hi, Rowena and everyone, it's lovely to be with you today. I'm a Partner in our customer-led transformation practice and specialise in experience design and marketing transformation in clients, well, across industries but with a particular focus on retail and consumer markets.
Rowena: Great to have you in the virtual studio, Tom, and, Sam?
Sam Tomlinson: Hi, I'm Sam Tomlinson, Partner at PwC and the team I lead specialises in customer insight, marketing effectiveness and the management and optimisation of media for advertising spend.
Rowena: Excellent, brilliant. So, let's get started. So, a common theme that we've discovered in many of those episodes of Business in Focus is the way in which so much of what we do, both in and outside of work, has moved online and we may be out of lockdowns but there's now inflation and challenging market conditions to consider and deal with. So, Tom, maybe you could help us set the scene for where we're currently at in the world of customer experience.
Tom: Yes, of course. Well, as you've said, it's a fascinating and dynamic time to work in customer strategy and experience, not least because of the accelerated shift towards digital channels since the pandemic but also, obviously, geopolitical inflationary pressures, they're influencing supply and demand across sectors. Actually got a couple of quick data-points for you from our recent global research to bring this to life. So, 96% of consumers intend to adopt cost-saving behaviours, for example, over the next six months, particularly in non-essential spending. They're quite concerned, as you might expect, about their finances overall, which leads to some brand switching and some trading down but it's also an opportunity, I think, to focus on what really differentiates brands and experience and drives loyalty with existing customers, helping them to choose. Now, despite this and while the peak has probably subsided in terms of digital commerce, now we have freedom of movement again, 43% of consumers said they plan to increase online shopping in the next six months. This is according to our global consumer insights survey, where we asked over 9,000 consumers across 25 territories worldwide about their views on consumption and everything else. Interestingly, those who spend more time in physical stores though, really want knowledgeable staff. They're looking also though, for more technology-enabled experiences, like self-checkouts or VR in appointment booking, and actually, another piece of work we did looking at consumer behaviours in the autumn of last year really illustrated, particularly for high-value goods, that consumer journeys and behaviours are increasingly unpredictable, particularly when it comes to channel choice, so between digital and offline. They make loopy journeys between those two channels, depending on their circumstances.
Now, I think this presents an opportunity but it's also an imperative actually to build a more connected customer experience across those channels, particularly one that's personalised and anticipates customer needs, you know, particularly in retail and consumer, we talk about that in terms of delivering something frictionless. Now, interestingly enough, consumers are willing to provide more data in exchange for reducing barriers and increasing convenience but, as you touched on, there's, sort of, a growing concern around data privacy, something Sam knows a great deal about and will talk about, no doubt, in a short while, which increases friction. There's a, kind of, contradiction here, isn't there? More seamlessness depends on making use of customer data but who controls that data and how it's used is also leading to consumers holding it back.
So, half of the people we spoke to said they don't share any more personal data than is necessary and quite a few, you know, nearly a third, opt out of receiving emails, texts and other communications. Now, just to reinforce that note of consumer unpredictability, more than half of consumers in our consumer reconsidered survey said they find online targeted ads, so those ads that, sort of, appear when you've searched for something in one place and seem to follow you around a little bit, they've said they find those targeted ads creepy but 24% said they'd click on them nonetheless. I think there's a, sort of, interesting set of contradictions and paradoxes, which, I guess, underscore the complexity that continues to emerge in consumer behaviours and expectations but actually I think that that, in terms of action to take, it points to the importance of actually really understanding and developing customer experiences around what makes people motivated to use, choose and recommend things, particularly in considering the use of data. So, we talk about four dimensions of that, that they should be these experiences, coherent and personal but also, sort of, make things work and to make them respond to individual needs, but also engaging and distinctive, and that those four dimensions are held in a different balance, depending on the circumstances.
So, a very special occasion, like booking a holiday or buying a car, say, customers want things to feel personal to them, tailored, anticipatory, inclusive, rewarding. On more everyday journeys, like checking your account balance or grocery shopping, they're looking for coherence, for things to be effortless, connected and effective. Now, getting the balance right actually pays dividends because you can look forward to improved revenue, retention and reputation. In some of the research we did, actually doubling the likelihood to recommend or to use again for another product or services but how data is used in each case varies and needs to be managed thoughtfully and responsibly actually, critically, with the needs of the customer, frankly, rather than the organisation, front of mind. Now, we'll touch on this perhaps a little more in a while but increasingly, this holistic look at the overall connected journey is something that marketing and customer experience leaders focus on, but they're also often working against organisational structures that separate out functions like communications, digital and retail. When they're connected up and, for example, when one function, like market leads, we know it improves performance but getting that done, it's not just a challenge of data and thinking about how it influences experience, it's how the organisation operates to deliver that in practice, to meet those changing consumer expectations and behaviours.
Rowena: So, some really exciting opportunities there then for those businesses that can really nail that experience, both inside and out, and I can't help noticing that data played a large part in your scene-setting there, Tom. So, Sam, this seems like the ideal time to bring you in to lift the lid on just how the use of data is evolving and what this means for marketing and brands more broadly.
Sam: So, I think that the history of digital advertising up to this point has largely been about audience targeting. There was this idea that, provided you were targeting your advertising at the right people, it didn't matter where they were. In other words, the context of the website didn't matter, what mattered was who the person was, and I think that that was always exaggerated. I think that context is important. There's lots of research that says if you see an ad in a premium environment, you will respond more positively to what's being advertised than if you see it in a downmarket environment, particularly one that you might think of as a website that's been made for advertising or MFA, which are, you know, horrible sites, lots of, frankly, plagiarised content and a heavy overload of ads. So, that was the history and what facilitated that audience targeting was the ability to track people from website to website to website, and that was done primarily through the use of third-party cookies. I think what we're now seeing is a shift back towards recognising the importance of contextual environments in planning and executing advertising campaigns. That's partly because I think there's a recognition of what I've just said, that the environment is important and shouldn't be ignored, and more prosaically, you've got the advent of GDPR, which, in turn, is leading to the deprecation of third-party cookies, which, in turn, makes it harder to chase those audiences around the Internet.
Just to dig into that part in a bit more detail, that, sort of, chasing and targeting of individuals, I think it's important to understand the distinction between relevant advertising and creepy advertising. So, to give a brief example, I'm a keen runner, if I am targeted with adverts for trainers, I would say that's relevant. I think that's a good thing. Conversely, if I'm suffering from some physical or psychological ailment and I go onto a free medical website and start browsing my symptoms, and, you know, usually, in those scenarios, you end up convincing yourself you have something really, really serious, I would feel pretty uncomfortable with that medical browsing history being packaged up and sold on, so that someone could target me. I would say that that falls into the creepy category. I think, instinctively, we can differentiate between relevant versus creepy advertising, enshrining that in regulation and marketing procedures and activities is the challenge, and it's that challenge that's leading to a gradual evolution of data privacy, which is about, 'Can I do something?' through to data ethics, which is about, 'Should I do something?'
Rowena: Thanks, Sam, that's a great summary, I think. So, let's look at the best strategic response to all of these changing factors, and given the external and internal drivers that we've already talked through, there's an obvious transformative opportunity here. So, what's the best way to proceed to generate responsible growth and get return on investment, given market pressures, Tom?
Tom: Well yes, so I guess the first thing to say is that, with ever greater understanding of customer needs and behaviours, organisations actually have an unprecedented opportunity to change for the better around their customer, to deliver both positive commercial but also social and environmental impacts. There's a chance to look at what isn't working for the customer in a sector or category and begin to innovate and improve it, perhaps a better chance than ever before, so from customer experience to product services and processes, even when this perhaps means a fresh look at your business model or ways of working. Now, we know, from the history of innovation, that those organisations closest to the customer and the market and actively sensing where to challenge the status quo and maybe even disrupt themselves are most likely to succeed. Historically, marketing is focussed on driving demand for products and services through improved brand awareness, consideration loyalty, to pick on Sam's point about, you know, really making sure that we are talking to the right customer at the right time about the right things. Now perhaps marketing in particular can start to use data and insight to set a broader agenda for change and transformation.
So, I mean, first of all, we know that, despite the potential offered by automation and data, there's still a vital need, isn't there, for insight, creativity and imagination in the work of marketing and customer experience. We know, for example, from our recent CMO study that organisations managing to balance this art and science, if you like, equation, deliver better performance over the long term. So, they reported better year-on-year improvement in customer experience. Nine out of ten achieved better performance against ESG objectives and those organisations that balance those two things are twice as likely to perform much better in terms of things like revenue growth and brand performance year-on-year. This, I think, depends though on a more holistic approach, as I touched on earlier on, to managing customer relationships, from data ownership and journey management, and incidentally, leaders tell us that when marketing, for example, owns this end-to-end customer relationship, it can have a net positive impact on revenue, brand performance, customer satisfaction, profitability, all the things that drive a better investment in an improved customer experience overall. Interestingly and perhaps from a challenge point of view, this is often inhibited by fragmented data ownership and functional silos.
So, customers, let's face it, really notice when their experience is inconsistent across digital and physical channels. You know, back to Sam's point, if you're speaking to somebody about where your delivery is or you have a question or a complaint and that conversation goes on over several channels, you want that to be consistent and to be recognised and for your concern or question to be progressed in sequence and logically, particularly, you know, if your case is passed between departments, like sales and aftercare. So, a single customer view is central to this but even more vital is a shared view of the target customer experience across recognised buyer groups, channels and needs. So, what is it we want to create for the customer? How do we work and operate in a more consistent, joined-up way and how does that express itself in a more joined-up customer journey? But you know, back to the challenging market conditions that you touched on at the start, we also know that marketers are not as far progressed in their transformation efforts as they'd like to be. They're still seen as a cost centre. A big proportion, you know, over 80%, are focussed on short-term performance marketing over the last twelve to eighteen months, which is not a surprise, given the circumstances, but can inhibit investments and longer-term brand growth and actually some of the investments on which transformation depend, investing in technology, people, processes that are fundamentally about changing and evolving your capability.
So, the antidote to this, lies in two areas, firstly, for customer and marketing leaders to begin to broaden their measures beyond commercial and customer, to social and environmental impacts and to do this in close collaboration with the board or executive group. So that marketing measures and, critically, return on investment is considered as, sort of, part of the overall business goal, not just something that marketing or customer experience, as a function, is doing, rather than just looking at reference points, like awareness and consideration or sales on their own. Secondly, to continue building the right talent across data, tech and operations to drive the, sort of, joined-up experiences that customers need and to use data to inform the strategy. Now, interestingly, 77% of the leaders we spoke to think organisations with a more data and automation-driven marketing approach are more likely actually to have a marketing leader with a seat on the board but conversely, only 27% of respondents say they have advanced levels of marketing automation skills in their team.
So, there are opportunities to improve and develop and make that case continually for evolving skills and capabilities. You know, in the end, whilst it's vitally important to deliver on the elements of coherence and personalisation and engagement I referenced earlier, actually, I think, more than anything else, where they're powered by more connected client or customer experiences, back to those drivers of choice and behaviour we mentioned earlier, a key factor for everyone to remember, I think, is the need for distinctiveness. Work out where it's okay to be the same as other brand experiences in the everyday, practical, routine contexts but really invest in signature moments across channels and journeys, surprise, delight and keep your customers coming back again and again over the long term.
Rowena: Some great, practical points there, thanks, Tom. Sam, thoughts to add?
Sam: I'll try and paint a picture about what I think the shift means, from third-party data to first-party data. So, we've done two widely reported studies within the UK into programmatic advertising, so that's these, sort of, automated, algorithmic buying of advertising on the Internet, and our first study in 2020 identified a lot of issues with those supply chains, many of which had, thankfully, improved by the time we published our second study earlier this year. One thing that hadn't changed was the extent of use of third-party data. In our first study, some advertisers were not using any third-party data in their targeting, others were spending up to a quarter of their programmatic budget on overlays of third-party data, and the average was around about 7%. In our second study, the one we published earlier this year, those data points were exactly the same. Now, we think that's interesting for a couple of reasons. First, our team, based on other work we've done, are, sort of, long-term sceptics about third-party data. We're sceptical about its accuracy and sceptical about whether it's properly permissioned but in any case, what we do know is that much of that third-party data will dry up at the end of next year, when Google deprecates third-party cookies from its Chrome browser, and that end of third-party cookies, that will have three major effects. It will affect retargeting, as I described in my last answer, it will affect frequency capping, since people are more likely to see the same ad multiple times across different sites, and it will also affect measures of attribution or effectiveness.
So, this is a big deal, the end of third-party cookies next year. How we would recommend advertisers start to prepare for this change is two things. We think they should do what we call journey mapping, so understand where they and their agencies currently rely on third-party cookies. That helps you, sort of, frame the scale of the challenge that you will face, and then secondly, we recommend that you carefully examine your own data, technology and operations, meaning your own customer first-party data, your mar-tech and your ad-tech, and operationally, how you drive value from that data and that tech. With those two things, the journey mapping and the diagnostic, we think a likely outcome is a need to invest more into first-party data, get close to your customer in the way that Tom's just described, and as you start to gather that first-party data and build up, operationally, how you will use it, that will then allow to continue to deliver relevant advertising and marketing messages but in a way that is properly GDPR-compliant, also complies with broader data ethical consideration. Ultimately, we think that advertisers should be making sure that they are investing their ad spend carefully, using that first-party data, matching that with publisher or first-party audience data, using those publishers to help identify people with similar characteristics. The publishers that have that, high quality, accurate, certified, permissioned first-party audience data in premium, high quality, contextual environments, you know, that is where we would want to be spending our money if we were a premium advertiser.
Rowena: Lots of different things to consider there. Thanks so much, Sam, and that's all we have time for today, so thanks so much, Sam and Tom, for being excellent guests and sharing some really fascinating insights on this topic. If you'd like to explore more about the CMO report findings that we've talked about, as well as other material on customer-led transformation, if you visit pwc.co.uk/beyondchange, you'll find all of the materials there. Please subscribe to keep up-to-date with all of our latest episodes, thanks, everyone, see you next time.