The mobile economy – which includes 5G, the Internet of Things, smart cities and connected cars – is expected to account for 4.5% of North America’s GDP by 2020, according to mobile operators trade group GSMA. That’s a $1 trillion value. But while people and businesses increasingly spend more time on mobile devices and technology, advertisers haven’t quite caught up, said Anindya Ghose, professor of information, operation and management sciences as well as marketing at New York University, who recently penned a new book, Tap: Unlocking the Mobile Economy. Ghose and Wharton marketing professor David Bell discuss the opportunities and pitfalls of mobile marketing on the Knowledge at Wharton Show on Sirius XM channel 111.
An edited transcript of the conversation follows.
Knowledge at Wharton: As important as smartphones and mobile are to the U.S. economy, I’m a little surprised we’re not already at $1 trillion on our own right now.
Anindya Ghose: Yes, I think the adoption has been slower than we would have expected. If you look at consumer usage of these devices and the actual amount of money being pumped in, there’s actually a big difference there. For example, as of last year, consumers were spending an average of 25% of their daily time on these devices, but advertisers were only pumping in 12% of their ad dollars on the mobile economy. There’s a big disconnect there, and an inefficiency that leads to a huge potential for monetization. And that’s something that I talk about in my book.
Knowledge at Wharton: How should companies try to close that gap a little bit?
Ghose: The key here is balance. What I mean by that is, mobile marketing is a powerful approach that other forms of marketing — advertising from direct TV to frame, to pop-ups, and even search engines — can’t really come close to matching. But the reality is that in the digital world, a lot of folks find advertising on mobile devices annoying or intrusive, and they strongly dislike these ads that ruin their browsing or consumption experience.
The reason this happens is two-fold. One is, brands don’t have enough information about consumer preferences, so they’re showing them a bunch of ads, sending them a bunch of offers, like throwing darts in the air, hoping one will stick. But what happens is people get overwhelmed and annoyed by these offers, and they tune out.
“As the level of crowdedness in people’s immediate context keeps increasing, people are more likely to accept and redeem offers coming on their mobile devices.” – –Anindya Ghose
The solution here is figuring out an optimal balance where the number of offers should be less frequent than what it is right now, and they should be more relevant and targeted. That’s why I talk about two-way communication between consumers and brands, where if consumers are willing to share more information about themselves, then brands will be able to use mobile as a concierge and as a butler, not as a stalker.
Knowledge at Wharton: David, we talked about this when you were on with us the last time: how the connection between business and consumer is mostly channeled through mobile these days.
David Bell: What’s really fascinating here, too Dan [Loney, Knowledge at Wharton Show host] … is that in some sense, the holy grail of marketing is that I know who Dan is. I know where he is right now. He’s got his mobile phone. I’ve got information about his past behavior, so in theory, I should be able to target Dan with things he really wants, and the response rate should be really large. But I think the case is, Anindya, that this is not what we’re finding. And I’m curious as to what you see as good mobile marketing, and what general return that businesses are seeing when they do things like display advertising on mobile devices.
Ghose: A lot of what’s happening is, like you said, there is a disconnect between consumer preferences and marketers and brands knowing what people want, when they want it, and how they want it. There are a number of reasons for this. The current ad tech ecosystem has become extremely fragmented. There are hundreds of players in the ecosystem, each of which essentially creates and stores data in silos. It’s becoming non-trivial to stitch all the data from these consumer profiles together. Every now and then, you’ll see some brands able to do this successfully, and when they do, the returns are huge and massive.
The other piece is on the consumer side. People generally have concerns about how their data is being used. Whenever we’ve seen some success, the reason is that the company has followed two guiding principles: notice and consent. Brands need to notify consumers about how they’re going to use their mobile data and in what context. And consent means they need to give consumers a choice about whether they want to leverage those offers or not. So notice and consent becomes the go-to mantra for marketers. And when we’ve done that in our studies and in our projects, we’ve seen tremendous success.
Bell: There’s a study — I believe you were one of the authors — about how people react to mobile advertising when they’re in a very confined space, for example traveling on a crowded subway in a place like Tokyo or New York City or Seoul, or any of the world’s other major metropolises, and I believe you found something very interesting there.
Ghose: This was a joint study co-authored with Michelle Andrews at Emory and Xueming Luo at Temple University, and it was a pretty exciting project. What we did was look at what I call one of the forces of the mobile economy. And this force is a force known as “crowdedness,” which basically means, what is the extent of [physical] crowdedness in the immediate context of the proximity of the consumer? We essentially ran a large-scale field experiment on crowded subways in a big city in China where we leveraged variation in crowdedness over time, and then sent people offers for various products and services on their smartphones.
What we found is that as the level of crowdedness in people’s immediate context keeps increasing, people are more likely to accept and redeem offers coming on their mobile devices.
Bell: What do you think is the mechanism that’s driving this?
Ghose: What happens is that when we are surrounded by strangers, we don’t like to reach out and start saying hello. What we try to do is take our phones out, and basically immerse ourselves in our phones, and that phone becomes our private space. It’s our escape space, and so those 20 minutes or 30 minutes of the average commute that the person has, they get so immersed in their mobile devices that brands now have their undivided attention. If, during those 20 or 30 minutes, they can figure out what you want, then consumers are more likely to actually pay more attention to those messages, and they are consequently more likely to accept those offers.
“Retailers [are able to] see a 30% redemption rate on their mobile offers.” –Anindya Ghose
Knowledge at Wharton: I get bombarded with a variety of different ads on my mobile device. … But I don’t necessarily make that final purchase. So that’s that big hurdle that marketers have to climb over.
Ghose: That’s a great point to bring in, which is the question of attribution. What we see is that mobile ends up leading to about 2% or 3% of final conversions, but it is influential in triggering up to 40% of sales. Due to that disconnect, many marketers would be cynical about mobile, because they are looking at whether mobile is an immediate trigger for conversion. But quite often, you might get exposed to an ad on your smartphone or your tablet, but you might go offline or to your desktop to make the purchase.
Bell: On that point, Anindya, is it the case that certain kinds of products or services are more suitable for a mobile marketing or advertising campaign? If I’m Virgin America, am I better off going mobile than, say, if I’m Bonobos trying to sell you a pair of pants? Are there certain kinds of products or services that you’ve found in your research that really resonate with the mobile device, for whatever reason?
Ghose: In my book, I talk about a number of different industries where we’ve seen some great gains from mobile: retail, consumer banking, hospitality industry, airlines, travel and tourism, e-commerce, and so on. These are some of the sectors that have seen tremendous adoption of mobile devices and mobile apps among consumers and brands alike. Some of the successful case studies we have seen actually come from these industries.
But pretty soon, I also sort of envision that this is just not going to be a B2C phenomenon. It’s going to get into the business world as well. It’s only a matter of time.
… A focus of my book is about these nine forces that are shaping the mobile economy. I start by talking about context, which is sort of the super-force, as in why your customer is here, what he or she wants, and how he or she is feeling. But there are also other factors like location and time, weather and crowdedness, as I mentioned. For a retailer that’s trying to … reach out to the consumer, what they need to do is essentially figure out this concept of “in-the-moment marketing.” The better you know the consumer’s context, their “why, what and how,” and the better you know some of the other forces, the better you can combine that data. The sum of the parts is greater than the whole.
What we’ve seen over time is that those retailers that are able to abide by this “notice and consent” mantra, and then combine these forces, see a 30% redemption rate on their mobile offers, as opposed to a generic redemption rate of 1%.
Bell: Anindya, I think it’s fascinating that you can get such tremendous leverage if you really nail these nine forces of context. So here’s a slightly different question: We’ve seen somewhat of a transition in terms of mobile technology.
When mobile first came along, people had mobile websites. Now, we’re in an app economy where things are very, very focused. I have an app for every business that I deal with. Is there anything interesting that you are seeing or predicting about the evolution of the mobile interface that might be important for us to know?
Ghose: I would imagine that, in the future, I am looking at devices that shape themselves into or integrate themselves with mobile, such as non-variable devices. We are going to have this ecosystem where we’ll have virtual reality and augmented reality embedded in mobile devices. We will see variable devices becoming semi-mobile and integrated with mobile devices. We’ll also see the embedding of things in our home, such as Google Home or Amazon Echo, and we’ll see these devices being stitched back with mobile.
What I find most fascinating is that in a couple of years or so, as these internal things and smartphones become more and more mainstream, there is an opportunity for companies and firms to further harness and leverage really deeply our behavioral data.
Knowledge at Wharton: Are you concerned about how connected we are going to be, and how much data we’re going to be making available?
“We, as consumers, are willing to give you a chance to earn our trust, but if you make a mistake, then you’re going to lose it.” –Anindya Ghose
Ghose: I would think my biggest concern or apprehension or advice to companies is to be aware of this balance. Like you said, we’re seeing evidence that consumers are willing to come forward and share information, but you have to be very, very responsible, and you have to earn their trust.
We, as consumers, are willing to give you a chance to earn our trust, but if you make a mistake, then you’re going to lose it. There is a very thin line between acting as a concierge and becoming a stalker. That is my advice to companies: You want to be very careful when you tread the line, because the good news is, and if you look at the glass half-full, there is enough evidence now, that we have seen over the years, that when companies tread that line carefully, the returns from consumers are massive.
Bell: Are there any downsides to all this technology? You’ve seen people kind of hunched over, maybe in the elevator, and no one’s making eye contact.
Ghose: Yes, absolutely. I often joke with my friends that mobile is making us lazy, no question about that. Anything and everything that we have or we need is basically in the form of an app on our smartphone. Not too far back in time, I used to have to step out and walk a few blocks to get a gallon of milk, and now I can just order it on Amazon Prime. Now it will come to my door in a half an hour or an hour. There is that aspect.
There is also the social connectivity aspect, like you mentioned, which is that in a world without mobile phones, I would probably make an attempt to introduce myself to some strangers in a social setting and have a conversation. But now I don’t have the incentive anymore because anything and everything that interests me is in that device.
Knowledge at Wharton: There’s interesting reporting that mobile supports about 2.3 million jobs right now. … Obviously, as this continues to grow, the number of jobs is going to continue to grow as well.
Ghose: Absolutely. Mobile is contributing to 4.2% of global GDP, which is $3.1 trillion of economic value. A big part of that is coming from creation of new jobs and new employment sources. A lot of what you see in the sharing economy, for example, is being enabled through mobile. We are hailing cars on Uber and Lyft over devices, and drivers are connecting to us. I see a huge upside to job creation and many other social-welfare benefits from the mobile economy, as well. But keep in mind that data privacy is an important issue that organizations should be careful about.