Data-driven business models: the land of opportunity or opportunism?

In the Business Roundtable Manifesto, 180 CEOs from the leading US companies laid the foundations for a new corporate culture, one that is more sensitive to ethical, environmental and social issues. Just over one year later, now is the moment to remind ourselves that the digital revolution has not reshaped the basic principles of good corporate governance. Nor, more specifically, has it thrown into doubt the fundamentals of relationship marketing: on the contrary the digital revolution has reinforced all the relative approaches and implications, both positive and negative.

Marketing, from the perspective of the SDA Bocconi School of Management, has always meant perfecting the processes of identifying, creating, communicating and transferring elements of value to customers, to consolidate market relationships using methods that are both profitable and sustainable over time. This latter concept has weighty implications from a competitive, financial and ethical standpoint. In fact, on one hand value creation must not be easily imitated by competitors, and on the other it must translate into economic value to remunerate and continue to attract factors of production. Moreover, sustainability cannot be achieved through opportunistic behaviors toward customers, employees, or more generally the environmental or social context where the company does business. None of these considerations, naturally, has been rendered obsolete with the rise of bits.

When we talk about the digital revolution, we need to distinguish between two levels. On a logical level, the emergence of a hyperconnected world reaffirms the power of a philosophy oriented toward relationships – and does so tenfold. The reasons for this are two: when a company successfully builds value relationships with its customers based on fairness and trust, it creates the best possible cognitive and affective conditions for exploring the new business opportunities that the digital world opens up. In contrast, if the business model or the corporate culture are cemented in a transactional, non-transparent mindset, sooner or later the network will amplify opportunistic behaviors, stunting growth over time and impeding the development of adjacent digital opportunities.

Instead, the true revolution is taking place on the level of actioning marketing principles. In other words, these principles are being interpreted in operational terms by implementing cutting edge tools, in some cases supplementing already-existing instruments, in others substituting them. For customers who are now living in bigger spaces, where online and offline merge, marketing has likewise expanded in all the phases of value creation.

This is where big data, algorithms, deep learning and artificial intelligence come in. “Science & Art,” an expression we’re hearing more and more often, means orchestrating new analytical competencies together with traditional creativity and managerial intuition, all grounded in the same basic principles.

And yet it’s no coincidence that with regard to these new tools, the title of this piece references “opportunity” and “opportunism.” By now the countless opportunities associated with big data are well-known. To cite some examples in the field of marketing: fine-tuning predictions for sales, tastes, use occasions, and consumer preferences, cross-checking projections with an escalating number of information sources to include images posted on social media; re-marketing (or re-targeting) to focus communication investments on the basis of prior online behaviors (what’s called programmatic advertising); systems for personalized recommendations and suggestions; clickstream analysis, or tracking and analyzing website visitors, which serves to optimize the conversion rates for prospects along the sales funnel; microsegmentation of offerings based on previous buying behavior; dynamic pricing, by cross-referencing prices and availability in stock; chatbots for automated customer assistance; customer churn prediction, for more timely and customized CRM; and so forth.

Yet all this being said, none of these activities diminishes in the slightest the meta-goal of trust and self-brand connection, that is, the priority of growing value, fairness and a sense of identification between companies and their customers. The value-opportunity of achieving this would far outweigh any missed short-term targets. Conceptually speaking, the value-opportunity of brand equity can be seen as the current value of all future opportunities that a company could potentially cultivate in a hyperconnected world, leveraging a loyal customer base both in cognitive and affective terms.

While it is true that this value is impossible to quantify, intuitively we know that it is worth more than the short-term advantages to be gained by using big data opportunistically and without transparency. But today, unfortunately, this temptation to do just this is very strong. But consider, for example, the frustration that customers feel when they watch sales prices constantly fluctuating, even several times a day; or worse still, when they see a price drop right after they’ve made a purchase. Or when they discover that other people got a better deal on the same item. Or the sense that their privacy is being violated when they realize their data has been used without transparent permission marketing. Think of when their consent is obtained through coercion, or worse again consent is deviously camouflaged as some sort of special offer. Opportunity or opportunism? What is the value of an opportunity and what is the cost of opportunism, in these cases?

Personally, I’m backing transparency, not only for the financial reasons I’ve outlined above, that is, in light of the net present value of future digital opportunities. More important than that, it’s a question of deontology, of values, of the institutional legitimacy of the entire business system no less. We can’t forget the good old rules of governance: we need to consider not only the business costs of our actions, but the social costs as well.

To conclude, however, it is equally important to underscore the fact that the value of trust, in and of itself, is in every sense potential value, not real value. Knowing how to turn “relational capital” into actual economic value is an entirely different challenge; it’s a successive milestone that we must absolutely not assume we’ll reach. Starting with a solid foundation of trust, this challenge calls for the capacity to innovate and experiment to integrate our competencies and revenue models with new models and new networks of alliances.

In summary, the companies to bet on are the ones that know how to best blend approaches to relationship marketing and trust with proliferating opportunities arising from algorithms and data in new expanded spaces. A company with solid relationships but lacking in sharp analytical competencies represents a vast unexplored value; similarly, when such competencies are disconnected from building brand loyalty, this will quickly translate into enormous lost opportunities.