By Rishi Bhandari and John Copeland
Service providers are among the country’s most active advertisers. It’s difficult to turn on the television without coming across an ad for one of the phone companies promoting a new service plan, a financial institution’s latest savings account, or an insurance company talking about the money you can save with them.
Indeed, the competition has created something of a spending battle that has resulted in advertising spending that rivals some of the top product manufacturers. In 2009, Verizon spent more than $3 billion in advertising making it the second-most in the U.S. (behind Procter and Gamble). AT&T was third ($2.7 billion) and Deutsche Telecom (owner of T-Mobile) spent more than $800 million in that same year.
Similar spending dynamics can be seen in other service industries. Bank of America and JP Morgan Chase spent well over $1 billion in advertising in 2009. In the cable industry, Comcast, DirecTV, and Dish Network collectively spent over $1 billion in 2009.
Beyond simply spending, service companies have helped to shift consumers’ expectations about different industries and what those industries should provide. Progressive Insurance was among the first to advertise (and provide) potential customers with the ability to check the prices of competitors. Positioning a company as an “objective” aggregator and evaluator of a consumers’ options has proven to be so effective that people have come to expect it—and get it—across a range of industries.
Some companies have taken the message even further. Orbitz, the online travel reservation company, now advertises a feature that will refund customers part of the money they have committed for their reservation if the rates drop. Service companies are also embracing new platforms such as digital marketing and advertising that offer consumers new and different ways to interact and build relationships with their brands. Many credit-card companies, as an example, allow consumers to find the best card for their needs by answering a series of questions. This experience, while not advertising in the strictest sense, does give consumers the opportunity to learn more about the range of offers.
Engagement is also being built through the tools and processes companies use to optimize their advertising. A number of service firms are using many of the same tools that best-in-class product companies use to fine-tune their messages and the channels through which the messages are sent. More and more companies use techniques such as marketing-mix modeling to identify the impact of their advertising and marketing investments. These models help companies modify their spending to achieve their objectives, whether it be growing the customer base, for example, or improving profitability.
In addition, a number of service companies have made strides in developing a “test and learn” culture. Capital One Financial Group (famous for the “What’s in your wallet?” tagline) does many rigorous experiments to find the right message with the right offer through the right channels.
The conclusion, then, is that service companies are catching up when it comes to identifying new and effective ways to reach consumers. Watch this space carefully, because it may well be where the best practices of the future will come from.
Rishi Bhandari and John Copeland are both Senior Experts in the Marketing & Sales Practice at McKinsey’s Chicago office.