March 2013 | By Jacques Bughin, Patricia Ferruz-Aguilar, Javier Gil Gomez and Steven Spittaels
It’s been nearly 20 years since the first dial up internet connection was made, yet there has never been a comprehensive study looking at how the digitization of consumer commerce has affected the corporate bottom line. Crucial questions remain unanswered. For instance: Are real-world sales being cannibalized by online? Is brand competition tougher than before thanks to online?
Our study sought to close this knowledge gap. We undertook online market research in Western Europe to evaluate thousands of Internet users' purchase journeys. We also looked at tens of thousands of consumer touchpoints—both traditional, offline and digital—that lead directly or indirectly to sales. We focused particularly on telecom products and services, and our research allowed us to develop a unique, high-resolution picture of how consumers interact with telecom brands, and how digitization affects those interactions. The picture that emerged is multifaceted.
Here are a few findings:
1. The vast majority of consumers engage in telecom brand conversations.
Consumers actively provide and seek word-of-mouth recommendations. For example, about 76 percent of Belgian consumers converse about brands, and 26 percent of them proactively recommend (and 20 percent criticize) brands to others, mostly friends (68 percent) and family (66 percent). These conversations are not only frequent, but are specifically undertaken as part of the fundamental act of purchasing. We found that in the telecom market 41 percent of people comment and converse about brands with the main intent of receiving information and feedback from others to help them with purchase decisions. This underscores the idea that word of mouth remains the most relevant touchpoint to sales, especially in telecom where 47 percent of the purchases we analyzed relied on brand conversations.
2. Telecom brand competition is quite prevalent, especially in the active phase of purchase evaluation.
Consumers typically are aware of between 5 and 7 consumer brands in any given product category. In industries such as cars or clothes, up to 8 brands are considered. In telecom, typical awareness is 3 to 4 brands. When it comes to the actual purchase, about 5 brands are considered for cars, and the lowest brand consideration is found in the investment products category (1.4 for bank investment products and 1.8 in life insurance) and in telecom (1.7 for mobile provision, and 1.7 for triple play telecom services).
3. Digitization has become mainstream and will continue to gain traction.
In Belgian telecom, for example, we found that 29 percent of all touchpoints in the initial consideration phase of the customer purchase process are digital touchpoints. These digital touchpoints become more dominant in the critical active brand evaluation phase and account for 24 percent of the actual purchase decisions. The proportion of digital touchpoints to actual sales for triple play has grown at about 18 percent a year.
4. There are some digitally savvy telecoms, but on average, companies are lagging behind in meeting consumers’ digital preferences.
Digitally savvy telecom companies are able to a) attract more than their fair share of digitally savvy segments in brand awareness, b) serve customers digitally in the process up to purchase, c) generate good-to-great customer experiences, at least as good if not better than offline, and d) get customers to comment extensively online about their experience in order to influence others to consider and purchase their telecom brands.
We find that, for the average telecom brand analyzed, between 30-70 percent of brand sales are driven by digital touchpoints. About half of those digital touchpoints lead to a sale online (the balance leading to offline sales), and that 20 percent of those digitally-induced sales lead to a positive recommendation online.
To read more findings from this research, visit McKinsey’s Telecom, Media & High Tech extranet (free registration is required).