Press Room

How Technological Innovation Creates Value

By Mitch Barns, CEO of Nielsen

The world is still recovering from the Great Recession that struck some half-dozen years ago. The developed world’s growth has under-delivered and the developing world’s growth has not been able to compensate. One question that naturally arises is whether technological innovation will be a significant source of value creation in the coming years.

I believe firmly that the answer is yes, and my answer follows directly from the way I define value creation. One important way value is created is when an activity is made more efficient. I like to call this “trimming waste”.

Here, I illustrate my definition of value creation with the innovations of Henry Ford, who masterminded what was surely the most influential “waste-trimming” development in American manufacturing – the highproduction moving assembly line. I go on to discuss three important ways technology is making value creation possible in two large verticals, consumer packaged goods (CPG) and media: CPG, through the emergence of ecommerce and the mobile phone; and media, through media fragmentation.

Henry Ford: Value from Trimming Waste

Technology innovation comes in two basic flavors: either you are making something new, or you are making the process that creates a good or service more efficient. In both cases, trimming waste is at the core of the value being created. The development and production of the Ford Model T features both kinds of technology-driven innovation.

First, product innovation. In 1908, cars were still custom-made, mostly for the wealthy. Henry Ford’s aspiration was to make a car “for the great multitude.” He began to realize his dream with the Model T, which featured many product innovations, most notably the use of vanadium steel instead of carbon steel, which made it both light and durable.

But the most important innovation was standardization, Ford’s decision in 1913 that the various models of his new car would come with no options – right down to the color of the paint. Hence his famous line, “Any customer can have a car painted any color that he wants so long as it is black.” He wasn’t motivated by a lack of respect for customer choice; he was motivated by a drive for affordable cost and value: at the time, only black paint would dry as quickly as his production model required.

It was this decision which made practical Ford’s greatest process innovation, which was the moving assembly line that started rolling in 1913 in Highland Park, Michigan. It was the first such line used in largescale manufacturing. It ultimately reduced the time necessary to build a car from more than 12 to less than two hours, and allowed Ford to drop the price of the Model T “Runabout” from $825 in 1909 to its low point of $260 in 1924. By passing so much of the value created on to the consumer, both in terms of driving down the price of the car, as well as by paying his workers the then-unheard-of wage of five dollars a day, Ford effectively created the mass market needed for mass production to succeed – and with it an incalculable amount of value.

E-commerce and the CPG Industry

Worldwide B2C ecommerce is projected to reach $1.5 trillion this year. Even though e-commerce represents only a fraction of total spending – in 2013, U.S. GDP was about $17 trillion, China GDP about $9 trillion and world GDP about $75 trillion – it is already transforming business almost everywhere. Its greatest attraction for the consumer is obvious. If you are on a computer or a tablet or a smartphone, you do not need to make a trip to the store to go shopping.

This is a transformative efficiency, and consumers are taking to it like a fish to water. According to the recently published Nielsen Global Survey of E-commerce, an online survey of 30,000 respondents in 60 countries, purchase intention rates have doubled in 14 of 22 categories over the past three years. Not surprisingly, the most popular e-commerce categories are non-consumables: clothing, books, event tickets, sporting goods, toys and music.

The online market for more perishable items is embryonic by comparison, but it is growing quickly, too: 30% in the Nielsen survey said they planned to shop (i.e., browse) for groceries online and 27% planned actually to purchase groceries. Similarly, in the personal care category, 31% planned to shop online and 29% planned to buy.

These strong online browse-to-buy correlation rates suggest the presence of many loyal repeat customers, so they are great news for retailers. They also suggest that consumers in significant numbers are actively using both digital and physical platforms to research and purchase. Increasingly, they do not differentiate between the two platforms. So those who have created or can create strong “omnichannel” experiences may expect to see strong returns. Given that B2B markets are shifting online as they mature – the U.S. B2B e-commerce market is already significantly larger than the B2C market – it seems almost a certainty that ecommerce will be a massive driver of growth everywhere it takes hold.

Mobile and the Arrivalof “Anytime, Anywhere”Consumption

Smartphones currently represent about one in five of mobile phones. But they are claiming a majority of sales worldwide, so that number is rising quickly. Where they are prominent, they are transforming shopping habits very quickly.

Top smartphone shopping activities include browsing products, price comparison and reading product reviews, Nielsen survey results show. But mobile devices are of course being used to pay for things, too.

We cannot predict all the effects smartphones will have as falling prices make them the first Internetenabled device for billions. One development, however, strikes me as particularly interesting. The mobile phone is making it possible for retailers to engage with consumers in completely new ways.

Take just one instance. Virtually all consumers who buy online shop in bricks-and-mortar stores as well. At first, retailers saw the mobile phone only as a challenge. Customers could compare prices while standing in front of the shelf, read reviews about the company or a particular brand, or see if a promotion was going on elsewhere: radical pricing and quality transparency had arrived. Nor did it matter if the other store was far away: the consumer could click a few times, and pick their shopping up later, or have it delivered to their homes.

Now, however, retailers are beginning to take advantage of positive possibilities. One of the newest developments is the use of in-store beacons. These are devices that use Bluetooth technology to detect smartphones as a consumer approaches. They have the capacity both to read the location of the smartphone, and to communicate with it.

As a result, retailers can now measure consumer activity to discover with great precision which area of the store is most trafficked, the average length of shopping trips, how many first-time customers visited the store rather than repeat customers, and so on.

These in-store systems can also deliver coupons and ads, making them powerful tools for retailers that are “mobilizing” their loyalty programs. Loyalty programs may well prove to be the most powerful use for these systems, because consumers are likely to respond positively to information tailored to their interests – which the store can only do if it recognizes the owner of the phone. The ability to direct ads where they are likely to be most powerful – when, that is, the consumer is actually in the store – is an enormously important development. In a world where much greater precision in advertising is vastly more cost-effective, it’s hard to overstate the efficiencies that will be generated.

The Possibilities of Media Fragmentation

Just as retailers first saw mobile phones, most advertisers see media fragmentation as a headache, and look nostalgically back to the days when there were a modest number of TV channels to worry about, and that was it for video advertising. Certainly, as media fragmentation continues and content platforms evolve, life is harder for advertisers. But those who fret that they must reach consumers on every screen should also recognize that they are now able to reach those consumers at times other than when they are sitting in front of the television. They can also reach consumers who don’t watch much TV, if any. And, as we have seen, they can reach them with the right ad at the right time as they walk the store aisles.

Whether they see reaching customers on every screen as a headache or an opportunity, advertisers are embracing cross-platform advertising. A survey conducted jointly by Nielsen and the Association of National Advertisers showed that virtually all advertisers believe integrated advertising across screens is “somewhat important” at a minimum – and that it will be crucial in a few years.

Given these facts, it is noteworthy that advertisers are making only modest progress towards successful cross-platform campaigns. Research we conducted on over 40 campaigns suggested that most of those running cross-platform TV and online campaigns were getting results practically identical to those who were running quite separate campaigns in the two media. Put another way, this is one way in which many advertisers are not yet taking full advantage of the efficiencies technology is making available to them.

The good news is that our analysis suggests that using cross-platform tools now available can increase the reach of a campaign significantly – without changing anything beyond the precision with which the advertiser identifies its desired audience in each medium.

Why are companies not generally more successful? The main problem is reliable, comparable measurement across different media. The most common way of measuring audience exposure is to use panels. But panel measurement breaks down when faced with the scale of the Internet – the sheer number of sites leads to large error rates when extrapolating panel results.

In addition, few providers offer consistent measures across different media, without which it is very difficult to compare results. Only by using comparable measures for reach and frequency on TV, online, and on mobile can you determine who among your audience is seeing your ads on one, two, or all three media. And you can’t fully optimize your campaign without knowing this.

These challenges may simply disappear as technology advances, because technology sometimes solves the problems it presents. Either way, given how important companyies say cross-platform advertising will be, it’s reasonable to expect they will become more discriminating and sophisticated as they develop cross-platform campaigns. As they do so, their advertising effectiveness will rise, generating a significant source of value that can be shared with consumers.

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When a company creates a successful new product or process, it is because it has somehow trimmed waste, and thus created value. Henry Ford’s car made it possible for average American families to travel as only the rich had been able to do just a few years earlier. Ford passed much of the cost savings from his technological innovations on to the consumer, and still became one of the richest men in the world. In truth, much that is important in human history concerns such innovation, from the creation of the first tools to the building of the international space station. Technological innovation has vastly increased the standard of living in almost every place in the world, and there is no reason to expect it to stop.

About Nielsen

Nielsen N.V. (NYSE: NLSN) is a global information and measurement company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence and mobile measurement. Nielsen has a presence in approximately 100 countries, with headquarters in New York, USA, and Diemen, the Netherlands. For more information, visit www.nielsen.com.