From Mass Markets to Mass Customization

The fragmentation of the mass consumer market into market segments, clusters and niches has been underway for decades. So too has the fragmentation of media platforms and multiplication of media channels. But did you realize how far it has come? Consider:

* The average US household now receives 100 TV channels, compared with 27 in 1994. (Nielsen Media Research)

* Cable TV channels now command a 52% audience share in prime time; broadcast TV channels command a 44% share, (ibid.)

* In the 1960s, an advertiser could reach 80% of US women with a spot aired simultaneously on the three national TV networks. Today an ad would have to run on 100 TV channels to duplicate the feat. (Forrester Research)

* Prime-time ratings of TV broadcast networks fell by 41.5% between 1977 and 2003, from approximately 51 million viewers to 30 million. (Veronis Suhler Stevenson)

* From 2003 to 2010, ad revenues of narrowcast media (cable TV and Internet) will grow 13.5% a year, while those of mass media will grow only 3.5% a year. By 2010, marketers will spend more for advertising on cable TV ($27 billion) and the Internet ($22.5 billion), than on network TV ($19.1 billion) or on magazines ($17.4 billion). (Sanford C. Bernstein & Co.)

* Digital video recorders will be in 25 million homes, or 20% of US households, by 2008 (The Yankee Group); or in nearly half of American households by 2009 (Forrester Research). Between 65% and 75% of DVR households fast-forward through commercials.

* Readership of daily newspapers (ell from a high of 81 % of households in 1964 to 5 5 % of households in 2002. (Business Week, 7/12/04)

* Total magazine circulation has dropped by 6.9% since 1999. Although thousands of new consumer magazines have been founded over the past decade, virtually all have been narrowly targeted, and the total number of titles has dropped by a third in the last five years. (Veronis Suhler Stevenson)

* Video games are a $9.4 billion business in the US, bigger than the domestic movie box office. There are 100 million gaming consoles in households, 60 million hand’held games, and millions of game’enabled cell phones. Sales of video game software may reach $15 billion annually by 2007; online video game revenue is projected to be more than $1 billion by 2006. (Interactive Digital Software Association)

The combination of atomized consumer markets and digitized media technologies are spreading and speeding this process. When tens of millions of consumers live individualized lifestyles, and utilize individualized media and technology (PCs, PDAs, DVRs, iPods, cell phones, etc.), we are well on the way from mass markets to mass customization – markets of one.

Business. Marketing and Media Responses

Consumer product and service companies are attempting to adapt to this new environment with various strategies. Individualizing offerings is one approach, but is difficult to pull off. Marketers are increasing their spending on telemarketing, direct mail, email, in-store displays and other forms of targeted outreach. Advertisers are experimenting with product placement, single sponsorship of shows, “contextual” advertising, and “permission marketing.”

According to a recent series of articles on “The End of the Mass Market” in The Financial Times of London, the media industry’s responses have fallen into three main strategies: horizontal integration, vertical integration, and the search for new sources of revenue. Authors Tim Burt and Simon London explain the three approaches.

Horizontal integration means huilding or acquiring media properties across a broad range of platforms, so as to be better able to reach a large audience in aggregate (as opposed to reaching a large audience at one place and time). Examples of this approach include HBO and its myriad offerings, and Tribune Group, which publishes the Chicago Tribune, several tabloids, the Spanishlanguage Hoy, and also owns television and radio stations and has a stake in Careerbuilder.com, a classified employment advertising internet site.

The New York Times and other publishers have followed suit, adding TV assets and web sites to their core product. By stretching across titles and channels, they hope to reach an audience broad enough to satisfy advertisers. It is an approach that favors large companies with deep resources.

Vertical integration, the marriage of content with distribution, is an alternative approach. Comcast’s unsolicited bid for Disney was, among other things, an attempt at vertical integration: marrying Comcast’s national cable TV network to Disney’s content-producing movie studios and ABC television network. It was not the first of its kind. AOL merged with Time Warner; Rupert Murdoch’s News Corp last year added DirecTV, the satellite broadcaster, to its Fox studios and TV assets.

The argument for vertical integration is based on market power. Distributors might hope to strike better deals with content providers if they have content of their own to offer in return. The snag is that content creation demands different management skills from the asset-intensive business of distribution. Certainly, content companies such as Disney and Viacom (owner of the CBS broadcast network and cable TV channels including MTV) argue distribution is not vital to remain competitive.

Moreover, the experience of the music industry suggests that owning distribution may become a precarious income model.

Media companies are already exploring the third approach – creating alternative sources of revenue – either the subscription model advocated by music retailers such as Napster, or the payper-download system pioneered by Apple. In subscription, digital radio stations such as Sirius and XM have created a business with customers paying a flat monthly fee for more than 1OO channels of advertising-free radio. Similarly in television, TiVo – the pioneer of DVR technology – has won over 1 million subscribers.

In principle, these subscription services could enable precision marketing. Service providers could use their detailed knowledge of viewing habits to deliver targeted advertising. TiVo is already working toward this goal, presenting itself as a platform on which to build interactive ads.

Content producers are also starting to explore programming opportunities offered by DVRs; for example, DirecTV’s NFL Sunday Ticket, which offers football highlights delivered overnight to TiVo for viewing the next day. Other attempts at new media business models include services such as Movielink (a joint venture between MGM, Paramount, Sony Pictures, Universal and Warner Brothers) and MovieBeam (owned by Disney), a bold attempt to place a fully managed store of digital content in the consumer’s home. But success is uncertain. all these companies are experimenting with delivery systems without knowing which will be profitable.

In sum, according to Precision Marketing: The New Rules for Attracting, Retaining and Leveraging Profitable Customers (2004), by Zabin, Brebach and Kotler, marketers need to develop technology-enabled processes to manage and analyze customer data so as to drive more efficient and profitable customer interactions.

Copyright FutureScan Jul 2004

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