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6 Digital Strategies Filipino Companies are Pursuing

One reason digital transformation is lagging in the Philippines is managerial dysfunction in our biggest companies.

And it works like this:

  1. A junior manager recognizes the wealth of opportunities in digital, and pitches a few projects to more senior managers.
  2. Senior managers have to protect the existing P&L, and are often hesitant to implement sweeping changes to media spend, capital expenditure, or org structure.
    • Lowering traditional media spend will upset the established agency and media partners, and compromise the current campaign (think of newspapers who provide abundant PR to the biggest advertisers), of which the manager’s year-end bonus is based.
    • The senior manager doesn’t have the power to approve the kind of capex needed for a digital initiative as investment-heavy as e-commerce.
    • Bringing in a digital expert threatens the senior manager’s standing / turf / budget in the company.
  3. So to fix the above, the senior manager goes to the owner to seek guidance / approval.
  4. The owner is risk averse. S/he still wants to go on their semi-annual Europe trip. And if it’s a family business, s/he still has to get permission from parents who are in their 60s to 70s and thus won’t have a clue how digital works.
  5. So owners and managers look for a playbook. They comb through what competitors are doing. And if everyone is waiting for everyone to make a move, digital transformation slows down.
  6. By the time the decisions circle back down to junior managers, most have already left for greener pastures. And we repeat the cycle all over again.

I was once that junior manager! 10 years ago, I was employed in P&G and it took me close to 10 months just to get a pilot approved to partner with a platform similar to Upwork and Behance. Today, that’s just common sense.

That for me was the canary in the coal mine. So I left, pursued an MBA, and started a company. Today, P&G is the target of activist investors who want to break it up for being too big and unmanageable.

Luckily, that’s been slowly changing during the past two years in the Philippines, thanks to brave and pioneering leaders.

I’ve identified six unique digital strategies that Filipino companies have been pursuing. Although these are far from being a ‘playbook’, it’s a start.

It’s crucial to identify which type of strategy you’re pursuing, for two reasons.

First, all the succeeding choices on who to hire, how much to invest, and how to go-to-market will flow from these strategic choices. Second, being clear on your strategy minimizes risk. Digital initiatives have a notoriously high failure rate, with 90% of initiatives achieving less than 10% IRR.

What do I mean by ‘Digital Strategy’?

Before we dive in, I think it’s important to note that a ‘digital strategy’ isn’t just about your website or the number of Facebook posts you publish.

A digital strategy is a portfolio of where-to-play and how-to-win choices that are enabled by digital technologies and delivers a superior customer experience versus current alternatives.

The 6 strategies are:

  1. Marketing Efficiency
  2. Omnichannel Distribution
  3. Digital Products & Services
  4. New Supply
  5. Rebundling
  6. Platform Play

Marketing Efficiency

This strategy has one overarching goal in mind: improving advertising ROI. A strategy like this accomplishes this goal in two ways.

First, performance marketing improves ROI by shortening the path from awareness to action. These are usually direct response ads that make a user subscribe their email address or purchase an item. The second is via more targeted and engaging brand advertising online.

One example of this strategy is Globe. Do you still notice any Globe billboards or print ads? Probably not. That’s because Globe has shifted a significant chunk of its media budget to digital. Although Globe doesn’t break out its advertising spend in its annual report, one can infer that this strategy has been effective:  revenue grew by 5% but advertising and selling costs decreased by 3%. Not bad for a PHP 100 billion+ company.

Another example is the Kuwentong Jollibee campaign, whose series of short films has achieved immense reach at a speed and engagement level not possible with TV advertising. It’s also a great example of how digital amplifies great storytelling.

Omnichannel Distribution

Omnichannel is probably the most common strategy in the Philippines today. It isn’t just about having an online store, but also about integrating this with the total customer experience in the real world.

SM, as the country’s biggest retailer, comes to mind. Every single retail partner we’ve worked with asks if SM’s partnership with Lazada was a good idea. And I always reply that it’s great for Lazada, but it could be disastrous for SM.

When asked why, I cite “technical and innovation debt” as the main reason, and reference the history behind Toys R Us and Amazon, which surprisingly very few retail executives knew about.

Then the counter-arguments always involve some version of the “but SM is the biggest retailer and mall operator in the Philippines” narrative. And then I remind them that the original question is wrongly prefaced: SM’s counterparty is not Lazada, but ultimately, Alibaba. And every one knows Jack Ma eventually wants to build shopping malls, department stores, and groceries.

The evidence to prove if I’m right or wrong won’t be seen in SM’s 2017 annual report, but will play out in years. It’ll come slowly. Then like a hockey stick, all too suddenly.

SM’s malls group is working on a separate marketplace, so it’ll be interesting how that pans out.

There are other examples of brands / retailers pursuing omnichannel:

Waltermart, for example, is piloting a grocery delivery platform. What’s interesting here is the wise decision to use grocerydelivery.com.ph as the domain – perfect for Google search. A non-digital manager will fight this and insist that they use the brand name.

Toby’s Sports is also interesting, as they were prescient enough to purchase the Tobys.com domain way back in the 90s.

7-11 is also pursuing this strategy by using its network of convenience stores as a payments portal and distribution hub.

National Bookstore is anticipating the launch of Amazon by playing offense, launching its own book delivery platform.

And of course, you’ve probably used the McDonalds’ and Jollibee delivery apps for fast food.

Digital Products and Services

This strategy involves launching completely new products and services that are digital-first.

A great example is the announcement of Concepcion Air to partner with Ionics, a semiconductor firm, to build smart air-conditioning. This makes sense given that aircons are among the appliance that consumer the most electricity.

Another example is John Clements, the leading Philippine executive search firm, who built a digital portal for searching jobs, sourcing candidates, and managing the recruiting lifecycle.

Lastly, companies are also thinking about this strategy as a portfolio play. Ayala Health, for instance, has invested in healthcare startup Medgrocer to complement its existing portfolio of health-based companies.

Rebundling

This is a strategy that takes an existing bundle of products & services and delivers it in a completely new way. The classic example is iTunes, which rebundled the music album from a collection of songs to individual songs (which is once again being rebundled by streaming services!).

The best local example I’ve seen for this strategy is ABS-CBN’s iWantTV, which allows viewers to subscribe to individual shows. And if you ask me, it’s also a great hedge in the worst case scenario that Congress doesn’t extend its broadcast license!

Platform Play

A platform strategy in my opinion is the most fascinating one because it’s likely to be highest risk-highest reward strategy among the six mentioned here.

It involves matching supply and demand in a way that wasn’t possible without the ability of the internet to aggregate supply and demand, lower transaction costs, and drive network effects. Ben Thompson of Stratechery gives a good overview here.

An example of a local company pursuing a platform strategy is the joint venture between JG Summit and Oriente to build a lending marketplace. Oriente is the fintech product studio founded by a Skype co-founder.

Leveraging on JG Summit’s balance sheet and Oriente’s software, the idea is to offer consumer loans at an interest rate lower than local pawnshops or loan sharks.

Another example is the partnerships of PayMaya and GCash with Facebook Messenger to enable payments through chat. This opens up mobile payments for millions of unbanked small and micro enterprises.

So in summary, here’s once again the 6 digital disruptions Filipino companies are pursuing.

  1. Marketing Efficiency
  2. Omnichannel Distribution
  3. Digital Products & Services
  4. New Supply
  5. Rebundling
  6. Platform Play

What’s the right digital strategy for your company?

We’ve found that a great way for CEOs to immerse themselves in the digital economy is to try out these platforms themselves.

So we’re hosting the second run of our 1-day workshop, Facebook and Google for CEOs and Senior Executives.

It’s a closed-door, invitation-only workshop where we CEOs go through guided and hands-on sessions in building their own digital campaigns.

Read more about it here.

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