Convergence Marketing Strategies for Reaching the New Hybrid Consumer

Preface: Running with the Centaur

"A businessman is a hybrid of a dancer and a calculator."

—Paul Valery, French Poet and Philosopher

The Internet revolution didn't turn out to be anything like we thought it would be. At the end of the 1990s, the discussion of many observers, we among them, focused on the rise of the "cyberconsumer" and the emergence of "Internet marketing." At the extreme, the image of this cyberconsumer was humorously caricatured in a series of Sprint commercials introducing its wireless web, in which people hunched over their computers in dark rooms were invited at long last to step out into the sunlit world. The business model designed for the cyberconsumer was the "pure play" Internet firm, either a separate dot-com or a stand-alone division of a larger company. But the cyberconsumer was largely a myth. Consumers didn't behave anything like we thought they would.

Today, we are entering the age of the centaur. Consumers act across multiple channels. They combine timeless human needs and behaviors with new online activities. They are like the centaur of Greek mythology--half human and half horse—running with the rapid feet of new technology, yet carrying the same ancient and unpredictable human heart. This consumer is a combination of traditional and cyber, rational and emotional, wired and physical. This consumer is not either/or, but both.

The authors came to this center from opposite directions. Jerry Wind was an early champion of digital marketing, highlighting the revolutionary changes of the Internet on consumer behavior, marketing and business strategy. He urged executives to consider the potential of this new technology to transform their businesses. Vijay Mahajan pointed out that not everything had changed, and that many aspects of consumer behavior and marketing remained the same. He urged executives to consider the enduring human characteristics that would continue to shape marketing and business strategy. As we discussed the issue from these two viewpoints, working on a series of projects that led to this book, we came to the conclusion that we were both right: the reality was the hybrid consumer.

This is not to suggest that there are three separate segments (traditional, cyberconsumer and centaur). The reality is convergence. The entire market is becoming centaurs, either directly or indirectly (even if someone is not online, their behavior will still be affected by new technologies, channels and products, and service offerings). This is why we focus so much on the centaur. The centaurs, in turn, are heterogeneous, so there will be many segments among these hybrid consumers.

Even the most tech savvy of U.S. consumers—the 18 to 25 year olds of Generation Y—are not strictly cyberconsumers. A recent survey of more than 600 Gen-Y respondents (51 percent of whom had made online purchases in the past year) found that nearly 40 percent learned about the product online, but bought at a physical store, whereas only 9.3 percent began and ended their search online. When asked where they would prefer to shop, nearly three-quarters chose a store rather than online. Across the spectrum, consumers are combining various channels and approaches, searching online to buy offline, searching offline to buy online—and everything in between. Charles Schwab found that while about 90 percent of all trades are handled online, 60-70 percent of new accounts are set up in branch offices. People want to be able to see whom they are working with when they turn over their money.

Benefits of Convergence

The power of hybrid models can be seen in the success of Tesco, which raced past pioneers such as Peapod and Webvan to become the largest online grocer in the world. Tesco, using its century-old platform of retail stores in the U.K. as the launching pad for its online service, created a profitable online business that was handling 70,000 orders per week by mid 2001 and had racked up more than $400 million in sales the year before. Tesco could set up its online grocery business for a fraction of the investment of Webvan because it was able to build off its existing infrastructure. Tesco has moved into the U.S. market, purchasing a 35 percent investment in Safeway's online grocery service in June 2001, and announcing plans for expansion into South Korea.

The power and profit of the hybrid model can also be seen in the success of Staples.com, which expected to grow online revenues to $1 billion in 2001, nearly 10 percent of company sales. Even more significant, Staples found that the addition of the new channel is not cannibalistic, but synergistic. Overall, customers who shop in the store and catalog spend twice as much as those who shop in the store alone, and customers that shop using the store, catalog, and online channels spend an average of $2,500, nearly four times as much as store shoppers.

The results achieved by Staples and other firms offer a sense of the potential return on investment from meeting the centaur. Convergence strategies offer a variety of opportunities for generating new revenues, reducing costs and creating valuable options for the future.

Changing Mind Sets

There is emerging evidence of the immediate benefits of convergence strategies, if investments are made strategically, but these short-term gains are not the only opportunity. Our focus is to look at the opportunities, both short- and long-term, created by the emergence of the hybrid consumer and how companies can capitalize on these opportunities. The last category may be the most important: the options that convergence strategies create for the future. This book takes a broader view of the strategic impact of the centaur for marketing and business strategy, and the architecture of the organization.

If you believe, as we do, that the centaur is the future of our markets, then the ability to succeed in the future depends on understanding and "running with" the centaur. Failure to understand these changes creates the risk of significant lost opportunities. What can the integration of the offline marketplace and the online marketspace do for consumers that neither can do alone? What business principles will guide the integration? How is marketing changing? How do these shifts affect short-term and long-term profitability and growth?

What Is Converging

Convergence, as we discuss it here, means more than the fusion of different technologies (television, computers, wireless, PDAs) or the combination of channels (such as Tesco's or Staple's bricks-and-clicks model). We focus on a more basic convergence within the consumer—the new possibilities created by the technology and the enduring behaviors of human beings. This convergence will shape how the Internet and other new technologies unfold, and the opportunities created for companies. What can consumers do with the technology that they could not do in the past? When will they continue to do things in the way they always have?

Although most of the focus in this book is on business-to-consumer interactions, many of the insights apply equally to business-to-business strategy. The line between B2B and B2C is already blurring. In an environment in which Sun Microsystems is selling products on eBay, is this B2B or B2C? In an environment in which a customer may soon be able to click an order button for an automobile and set in motion a global supply chain to deliver that car, where does B2C end and B2B begin?

Lessons from the Dot-Coms

This book examines the practices of a variety of companies, but we must stress at the outset that these firms are not held up as ultimate models. They all have something to teach us, but many of the successful companies of a year or two ago are now fighting for their lives. An

YORAM (JERRY) WIND is The Lauder Professor, Professor of Marketing, Founding Editor of Wharton School Publishing, and Academic Director of The Wharton Fellows Network at the University of Pennsylvania. He is also the Founder and Director of the SEI Center for Advanced Studies in Management, The Wharton School's think tank. Wind led the development of a number of key Wharton programs including the reinvention of the Wharton MBA curriculum and the creation of the Wharton Executive MBA Program. Among his many affiliations is former chancellor, the International Academy of Management (IAM). One of the world's most cited marketing authors, his books include Driving Change: How the Best Companies Are Preparing for the 21st Century, and The Power of Impossible Thinking. Dr. Wind has served as an advisor to many Fortune 500 firms and non-U.S. multinationals throughout the financial services, pharmaceuticals, information, and consumer packaged goods industries, and as advisor and board member for a wide range of entrepreneurial ventures. His consulting focuses on global corporate and business strategy, corporate transformation, marketing strategy, and especially new business development. He is the recipient of all the major marketing awards. Wind received a Ph.D. from Stanford University.

VIJAY MAHAJAN is John P. Harbin Centennial Chair of Business and Professor of Marketing at the McCombs School of Business of the University of Texas at Austin. He has served as a marketing consultant to such companies as Edward Jones, Dell, and Frito-Lay, and has run executive development programs throughout North America, South America, Europe, and Asia. Mahajan serves on the advisory boards of several high-tech start-ups in Austin and is author of several books and award-winning articles, including New Product Diffusion Models (International Series in Quantitative Marketing, Volume 11). He has received several lifetime achievement awards for his research on innovation diffusion and marketing research and strategy.

ROBERT GUNTHER, founder of Gunther Communications, has collaborated on or co-authored more than ten books, including Hypercompetition, Buyout: The Insider's Guide to Buying Your Own Company, The Wealthy 100, Leveraging Japan, Wharton on Managing Emerging Technologies, Wharton on Dynamic Competitive Strategy and Wharton on Making Decisions.

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