Brands using virtual goods for real gains

Volvo Cars, Clothing Retailer H&M & MTV Networks Among Diverse Brands Entering Market For Virtual
Goods

Elizabeth Olson

INTRIGUED by the willingness of millions of consumers to pay real money for things that do not exist,
some large companies are testing whether they can raise awareness of their brands – and sell more
actual goods – by creating and offering their own pretend merchandise.

Volvo Cars of North America, the clothing retailer H&M and MTV Networks are among the diverse
brands entering the market for virtual goods – the make-believe items offered on social-networking
games, smartphone apps or fantasy Internet sites.

“It’s all about constant connectivity. People live in real time, and established brands have to find ways
to keep in touch,” said Marshal Cohen, chief retail analyst for the NPD Group, a market research
company.

“Brands are beginning to dabble in reaching out, especially to the under-40 crowd – many still can
make discretionary spends,” Cohen said. So far, the virtual goods market largely consists of micro-
purchases. Consumers typically pay $1 to $3 while playing games like “FarmVille” or “Mafia Wars,” both
created by the social-gaming company Zynga, to get a jump on game rivals. Users also can give a gift, like
flowers, or build a collection of items – just as collectors do in real life.

Those impulses will be worth nearly $2 billion in revenue or more this year, according to ThinkEquity,
a financial research firm in San Francisco. Its analyst for new media and games, Atul Bagga, said his
research found that the market could reach $2.6 billion next year.

Social game creators like Zynga, which said it made some $100 million last year, mostly from
purchases of its virtual goods and game currency, are cashing in on a phenomenon that has flourished in
Asia and is growing in South America and the Middle East.

Initially, virtual goods buyers in the United States were typically playing in online fantasy worlds like
“Second Life”and “IMVU,” which generate nearly $1 billion annually from player purchases of furniture,
homes, clothing and accessories for their online avatars.

In addition, teenagers are avid buyers of branded goods offered by music performers like the hip-hop
artist Snoop Dogg, who has made about $250,000 since mid-2008 selling items like virtual Dobermans,
according to a spokesman for his virtual goods business.

But Volvo, which is based in Sweden, and other corporations are not chasing revenue. Some
companies are giving away virtual items, in exchange – they hope –for attracting and developing loyal
customers. In Volvo’s campaign, which began Sept. 1, the carmaker will try to revamp its reliable but
staid image by offering virtual goods on “My-Town,” the popular iPhone app whose players buy real
estate and collect rent on properties. This location-based game attracts more than 2 million players,
according to its creator, the Silicon Valley company Booyah.

MTV has a different goal. The network wants to drum up viewership for its 2010 Video Music Awards,
on Sept. 12, by giving away virtual replicas of celebrity accessories and fashion items, like the singer
Beyonce’s diamond ring on “Mall World,” a style and fashion-oriented Facebook application for women.
Some 400,000 people visit the site monthly.

The clothing retailer Hennes & Mauritz, better known as H&M, is planning a virtual goods campaign to
follow its foray in March on “MyTown.” That campaign showcased its collection of denim and blue
garments, called the Blues, and encouraged users to visit an H&M store to buy pieces they liked.

The company declined to talk about its new campaign, but during its first effort, some 700,000
“MyTown” players checked into game locations like hair salons and spas near H&M stores and earned
points they could use to acquire branded items.

To succeed, “branded virtual goods have to be identifiable and have a real world relevance,” said Ravi
Mehta, vice president for products at Viximo, a social gaming platform provider. “They are driven by the
relevance to the purchaser. Paris Hilton has people who buy her virtual goods because they are fans and
want to identify with her, her hair, her place in pop culture.”

Companies have to make sure that the site or game has a social activity that fits, said Chris
Cunningham, chief executive of Appssavvy, a company in New York that connects brands and advertising
agencies to social media applications on Facebook, My-Space, the iPhone and other outlets.

“A game that appeals to females isn’t the right place for ads aimed at men,” Cunningham said. “Or a
site where people try on clothing, that’s not for a car company.”

Volvo chose “MyTown,” said Emily Garvey, brand manager at Media Contacts, the digital media
agency for Volvo, because “it is a location-based game, where people check into a location such as a
garage or auto dealership and opt to receive a virtual sedan, a Volvo steering wheel, tire or Volvo iron
mark – its logo.” The carmaker wants to garner attention, and buyers, for its new midsize sports sedan,
which it calls the “All New 2011 Naughty Volvo S60 Sedan.” Volvo is trying to “attract auto enthusiasts –
who are about 60 percent men – to get people excited and to change brand perception so people think
of it as a sporty, fun and goodlooking car,” Garvey said.

Since virtual merchandise is in its infancy, there are few solid measures to pinpoint how much
campaigns offering the pretend items build awareness, enthusiasm or loyalty to a company and
generate real-life purchases.

Appssavvy tried to gauge such outcomes by studying the campaign of one of its clients, Powermat, a
company that sells wireless chargers for mobile phones, e-book readers and GPS devices. The company
conducted a 10-day campaign in May and June on “MyTown” to build familiarity with its product.
Participants could receive points to use on “MyTown,” and also enter to win a wireless charger.
BRANDS CHASE REAL OPPORTUNITIES IN VIRTUAL WORLD

Tweet and make up

Marketers are using Twitter, Facebook and other social media networks to listen to consumers and pick
up critical insights to become more responsive, report Bhanu Pande and Sarah Jacob

THAT HRUSH BHATT, FOUNDER AND director (product & strategy) of Cleartrip, is a Twitter fan will
come as a surprise to those aware of ‘Kiruba incident’. The travel portal had a harried time last year,
dealing with the incident initiated by a Twitter user, @Kiruba. Kiruba posted a link to his complaint on
Cleartrip’s customer support page, Cleartrip Forum. “Cleartrip.com took my money and did not book my
ticket to Malaysia. Had a harrowing experience at airport...,” he Tweeted. Within days, 40 other Twitter
users took it up: Some simply re-Tweeted Kiruba's post while others demanded explanations and
crucified Cleartrip.

The portal had to act fast. It apologised to Kiruba on Twitter and promised to look into the issue
immediately. Cleartrip took ownership of the problem, which it says involved other parties as well, and
refunded Kiruba. It also paid to upgrade the return ticket of Kiruba and his wife from Malaysia to
business class. While Kiruba incident may remain in the conscious memory of several Tweeters, Cleartrip
used the crisis to gain a virtue: proactive customer attention and responsiveness. “We see complaints as
an opportunity to improve and Kiruba incident was one such opportunity,” says Mr Bhatt.

Others were noticing. Over the last one year, multitude of firms across industries have discovered the
potential of social media in a variety of business functions, from addressing consumer grievances and
receiving consumer feedback to brand building and market research.

Today, social media networks such as Facebook, Orkut and Twitter —accessed by 8% of the country’s
Internet users — are among a marketer’s best tools to interact with and respond to consumers.

Use of social media in India grew 43% in one year to 33 million users in July, making the country the
seventh largest market for social media, says a recent report by digital market research firm comScore.
The report, released last week, also said that Facebook has overtaken Orkut as the most popular
network here.
 Almost all of those 33 million users belong to the middleclass, which is driving the booming Indian
consumer market. Clearly, social media offers marketers endless possibilities. And most marketers seem
to be making the best out of it.

THE INFLUENCE OF SOCIAL media is phenomenal, say analysts. “It gives a higher SEC, educated
audience which is well networked and quick to shares ideas and opinions,” says Ramesh Srinivas,
executive director of KPMG. He believes consumer grievance redressal, if delayed, can generate bad
mouth, which travels faster on social medium. “Online mediums like Facebook, Twitter and blogs
instantaneously transmit unedited, candid opinions and companies have realized that quick redressal of
consumer complaints is a competitive advantage”.

These consumers are aware of their rights and are willing to exercise them. “The more agile
companies have moved from viewing the redressal process as a compliance process to seeing it as an
opportunity to enhance the brand image through a quick, painless process,” he says.

Today, most large retailers have inhouse customer grievance section to resolve any concerns. And
firms such as Kingfisher, Capital Foods, Shoppers Stop and Café Coffee Day, are using Facebook and
Twitter to acknowledge and respond to complaints and are earning praise.

A few weeks back, a consumer and a Greenpeace activist queried Capital Foods, the maker of Ching’s
Secret range of Chinese food ingredients, about the use of Genetically Modified (GM) food on its Twitter
page. Within 20 minutes, Ajaay Gupta, managing director of Capital Foods, confirmed that it absolutely
does not use any GM food. A similar issue had become a worldwide controversy for another global food
company when it failed to respond to a query for days.

Gupta says that Capital Foods respond to any customer comment —praise, complaint or feedback —
within 45 minutes. “There’s a complete buy-in by the top management on this project and we directly
respond to a lot of queries primarily through smart phones on social networking sites,” he says. “The
challenges in doing this is the company should be prepared to be naked or absolutely transparent and
has to be very nimble-footed to respond.”

For companies that are not shy to own up their mistakes, social media is a great way to establish their
consumer-centric credentials.

A few months back, a foreigner visitor to Shoppers Stop store at Saket in Delhi was upset by the billing
delay. She promptly posted her disappointment on her blog and vowed no to visit the shop again. The
company’s search engine picked up that post and its CEO Govind Shrikhande asked the store manager to
reach that lady with an explanation and apologise. Soon, the lady received a bunch of flowers and an
explanation that the delay was technical and beyond employees’ control. And her next blog post was
appreciative of Shoppers Stop.

IN FEBRUARY THIS YEAR, PARLE Agro’s new snack food brand Hippo launched a Twitter campaign to
track its retail inventory. It asked its followers to Tweet whenever they found Hippo out of stock in any
store with a promise to replenish stocks within hours. At zero cost to Parle Agro, the number of people
tracking Hippo stocks was equivalent to 45% of its entire sales team. By matching supply with demand,
Parle Agro managed to increase Hippo sales by 76% within the first few months of the new campaign.

“Social media allows you to delve deeper into consumer’s mind and her habits as she is constantly
Tweeting her mind,” says Nadia Chauhan, joint managing director at Parle Agro. More recently, Parle
Agro leveraged Twitter to launch Hippo in a new format and flavour based on consumer response. The
product is being test-marketed in Pune now.

Another marketer trying to make the maximum out of social media is Future

Group-owned eZone. It encourages techsavvy consumers to proactively suggest methods of using

Facebook and Twitter also help eZone follow consumer trends. The company has a team that tracks
consumer insights across social media. This helped its sales team realise that there was a lot of talk
about Android phones and laptops. Working on this insight, eZone has remodelled the design and layout
of its store in Kalyan near Mumbai to build greater connect and curiosity for those gadgets.

Social media feedback has also helped eZone cement its relationships with vendors. Take for instance
an audio systems vendor whose product concept was well received by consumers but they felt that the
sound volume was an issue. This was conveyed to the vendor, helping it to improve the product.

Saurabh Swarup, head of marketing & product development at Barista Coffee Company, says social
media is a strong platform to get immediate feedback. “It throws up real-time data and is a low-cost
means of doing market research across concept tests, product tests or product flavours.” Barista was
planning to launch chocolate as merchandise in Diwali, but advanced this because social media users
wanted to know what it was doing for Raksha Bandhan, says Mr Swarup. It will introduce a new menu by
the end of the year that has drawn on strong insights from online consumers.

Cafe Coffee Day, the country’s largest coffee chain, is using social media as a market research tool. In
February it started running a poll on Facebook to understand what merchandise consumers wanted at
their outlets. Going by popular demand, the retailer started selling personalised merchandise such as
mugs and key chains at its outlets on Friendship Day. And it got a good response. More recently, as it
decided to strengthen its dessert portfolio, CCD asked its social media customers whether they would
want more chocolate-based desserts or other desserts. While most consumers voted for more
chocolate-based desserts, there was also demand for healthy desserts. The new products will hit the
market in about six months.

“We see almost a 100% overlap between the CCD consumer and those using social networks,” says
Ramakrishnan K, president-marketing of Café Coffee Day. He says CCD’s target consumer is in the age
group of 14-19 years and spends vast hours on social networks. The company also tracks service
shortages and good store experiences intimated through Tweets regularly, helping it recognise its store
staff across locations.

MARKETERS CONSIDER social media, a space many of their consumers love to hang out, as a gold
mine for brand building.

Brands are busy weaving in games, promotions and contests on platforms such as Facebook, Orkut
and twitter. Vodafone extended the appeal for its egg-shaped characters ZooZoos to social media by
allowing users to vote for their favourite ads and take ZooZoo quizzes. Egged on by its response, the
phone operator released new ZooZoo ads on Facebook three hours before airing them on television to
give these users bragging rights. Recently, it released virtual ZooZoo rakhis.

Reckitt Benckiser recently launched a Facebook game, poweRBrands, which allows players to test
their marketing and business skills. Designed around real-life experiences faced by marketers, the game
is expected to help the maker of Dettol, Cherry Blossom and Disprin brands identify potential
employees.

During last Diwali, Cadbury India launched a virtual gifting application on Facebook. Called ‘Happy
Diwali’, it allowed users to send virtual Cadbury chocolate as gifts to friends.

Banks and insurers are also alert about the opportunity. "With the availability and ease of digital
discussion forums, there would be a phenomenal shift of customer feedback to the social media
domain," says Shalini Mehta, executive vice president, Kotak Mahindra Bank. The banking industry,
which is trying to educate customers about various email and online frauds, has found an ideal platform
in social networks and blogs.

Insurance firms too are overhauling online response mechanisms since most firms are looking to sell
policies online. They are pushed by regulator IRDA’s new consumer awareness campaign and
competitive pressures. “Companies across sectors have a clear, well thought-out agenda and a
consistent purpose to be a part of such platforms in order to engage with the consumers more
proactively,” says Shubhrangshu Neogi, director - brand & communications, Religare Enterprises.

All this would have seemed revolutionary five years ago!

Yet, this is no flash in the pan and social media holds long term potential for marketers. But there are
things that analysts feel marketers should watch out for while aggregating data based on social
networking platforms and making strategic decisions from that. “Data from social networking websites
may not always be truly representative of the ground reality. So merely generalising the market reality
based on what is seen on online social networks is not advisable,” says Santosh Desai, MD and CEO of
Future Brands. He, however, adds that social networks are great in supplementing consumer research
efforts. “Marketers get rich anecdotal feedback (from social networks), which is often better than bland
research reports.”

So, there are not many choices for marketers. Either embrace Facebook, or face the music.
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