Retail growth of 8% to 30% per customer from data driven marketing

Retailers have been bombarded with approaches from the raft of daily deals companies that are following the Groupon model.  These require deep discounts to be offered and for all customers to be treated the same - same offer, same time, same channel.  While these certainly have their place we're seeing retailer fatigue at this one-size-fits-all approach.  

There's another way.  Not surprisingly  - an approach that treats different customers differently is working well for retailers in the USA.  To do that at scale requires a customer data driven strategy.  There's a new breed of marketing pioneered in the USA called transaction driven marketing.  Customers credit and debit card transactions, possibly the richest source of customer buying behaviuour available,  are mined on behalf of retailers.  Retailers are able to select target customers more accurately than perhaps any other method is capable of.  They can address customers who have shopped a competitor more than them or have not shopped them recently.  Customer data is anonymous and not handed to the retailer.  The retailer then makes an offer to those customers (and not anyone else) which is presented inside the customer's online banking screen; some of the most trusted and highly use online real estate.   To redeem the offer (usually a cash back) customers need only use one of their payment cards at that retailer in the offer period.  If they don't - the retailer doesn't pay.

Today the largest bank in the USA - Bank Of America - launches this offering under the banner  BankAmeriDeals.    It's delivered by Cardlytics  - a US based leader in merchant-funded transaction-driven marketing for electronic banking (full disclosure : we Aimia own a minority equity position in Cardlytics and have a long-term global strategic alliance with them).  Cardlytics reaches almost 70% of the USA population with these offers.  

New Zealand lends itself as a prime market for this type of marketing.  We use our credit, debit and Eftpos cards more than almost any other country and we're high users of online banking.   

Most importantly though the results from transaction based marketing are excellent.  Cardlytics released their 2011 aggregate results at the National Retail Federation's (USA) Big Show two weeks ago.  

Targeted, data driven offers are producing sales lifts of between 8.5% (current customers in Apparel) and 30% (new customers in Specialty Retail).  Mining and refining customer data has produced a new industry in which the bank, the customer and the retailer all win.

Driving better returns from retention dollars

M1 Telecom - Singapore's smallest telco lost more customers this year than last year - 33% more customers to be precise (their customer churn rate increased from 1.2% per month to 1.6% per month). This on the back of a retention budget that increases 12% in 2008. Not the kind of result they were likely expecting.

Customer retention expenditure needs to be focused and disciplined. Sutowu of Carlson Marketing Asia Pacific has outlined a disciplined investment taxonomy for retention dollar investment.

Our man Sutowo is based in Singapore - he's responsible for our Decision Science Services in Singapore, Malaysia, India, Japan and Hong Kong.

Published in the Marketing Institute of Singapore's April journal issue, Sutowu's model relies on 3 pillars :

1. Customers need to be targeted at the right time
2. The right customers must be selected in the targeting
3. They must receive the right offer or value (which in our business is often driven through a loyalty programme)

All of this is underpinned by frequent Test and Learn programmes.

Sutowo's full article is available here.

There are no average customers

The Sydney Morning Herald carried an article entitiled "Consumers paying high price for loyalty card rewards". The article was based on research from Choice (most likely similar to New Zealand's Consumer magazine). Their research argued that shopper loyalty cards offer "little benefit to shoppers" and profiled the value the key grocery retail programs offered .

An average Australian shopper (according to Roy Morgan Research) spends a mere $156 per week.

To earn a $50 gift card in Fly Buys requires spend of $15,000 at Coles (or think New World in New Zealand). At an average shopper's purchase rate of $156 per week that would take 2 years.

It would be faster at Woolworths Everyday Rewards program (think Progressive Enterprises Onecard in New Zealand) with customers earning the same $50 gift card after $11,000 or 1 year and 4 months.

One could indeed argue that for the average customer a $50 gift card in return for either 1.3 (Woolworths) or 2 years (Fly Buys) worth of dedicated shopping may not be enough return. That's debatable and some of our data would say otherwise.

However the real issue here is the use of "Average". There are no average customers and loyalty programs serve to enhance differences, especially financial ones, between them.

The figure shows an extract from an actual retail program. The customer base is ranked from best (buys the most) to worst customer along the x axis. The y axis then shows total sales from these customers. It's clear that the first few customers produce significant sales and the bottom customers very little.

For instance - the customer base once laid out from best to worst - is then cut into 10 deciles of equal turnover. In this case total turnover is $44m and each of those deciles is worth $4.4m. The first $4.4m of sales (or Decile 1) comes from only 91 customers. Each spends $49,000.

The last $4.4m of sales (or Decile 10) comes from over 42,000 customers. Each of them spends only $104.

Looking at this distribution, different customers are treated differently and top customers get inordinate amounts of value. In return they provide inordinate amounts of sales.

Retailers - the difference between good and bad programs

Aberdeen Group has just published (with support from Carlson Marketing) a report that discusses the differentiation between a good retail loyalty program and a bad one (called Laggards in the report). 

This is a great yardstick to understand whether your program is doing all it should or whether your investment is being squandered.  

The headlines: if you have a retail loyalty program and you're not achieving, year on year increases of:

• 19%  - average basket value increase (the dollars spent by each customer on each shopping trip) 
• 16% - YOY lift in customer retention rate
• 5% - YOY decrease in customer attrition rate
  

...then you're not getting value for your investment (or more bluntly - you have a cost centre, not an investment).  Many of the retailer programs we analyse in New Zealand fall below these metrics and seem to have operated at this level for some time.

However - there's a number of simple steps to radically improving performance.  All of them flow from better using the data that already exists.   Start with financial requirements and make these aggressive.   How much do you want to grow sales by and how much do you want to improve your revenues over your costs?  Loyalty programs are there to grow profits; they're measurable investments that can compete on the P&L with any other investment.  They don't belong to the same family of marketing as brand building or advertising which have returns but not ones you can see in the financial statements.  

Once you know your financial targets  - roll down to the customer value proposition - what do you have to give customers to achieve the financial goals.  Be relentlessly mercenary - incentivise ONLY profitable behaviour.  

If a customer is already giving your business - don't incentivise them for that business.  Incentivise them to bring the next shopping trip to you - the one that they would normally have given to your competitor.  Offer points for uplift and points for growth. And offer points only for these if you're able to. This also suits a good financial model as the cost of the incentive comes out of the new margin earned and isn't a flat cost on the sales you already have.

Once you have these two factors nailed - its a simple matter to design the required business processes that will deliver the customer value proposition.  And once you know those - you know whether you have the assets internally to achieve your goals or whether you need an outsource partner to deliver.

They’re not like us.

Originally published in the March 2008 edition of teh New Zealand Marketing Association's DLB magazine - authored by Carlson Marketing

Salvador Dali said that “The problem with the youth of today is that one is no longer part of it.”  

We all know that to reach the youth in the youth market we have to live with the fact that they are creating content faster than we are. The real competition for youth attention is youth generated content. 100 million blogs, social networking sites,

 wikis, forums; there are plenty of online places for any of us to connect with like-minded people. The youth just do more of it.

And unless we are really funny or outrageous with our creative efforts, (not always appropriate) they prefer their own content to ours!

There are ways to harness this desire for connectedness. Two current community-based projects are teaching us that the rules are different, but youth are willing to engage with you if you learn the rules and follow them.

Here we profile two client programs which are both works in progress but are mature enough that some consistent themes are being repeated.  We share these nascent learnings for us all to benefit from.

Stop smoking by widget

The issue : Scary images or tar filled veins and cancerous lungs are questionably effective in the adult population.  They’re less than effective at preventing youth from trialling tobacco if smoking is seen as cool and will likely annoy authority.  

Our client : an Australasian government’s national health department looking to reduce the health impact and future economic cost of smoking.

The challenge : To make smoking uncool; to de-normalise it among the youth.

The solution : Facebook is the channel. Humour is the value proposition.

Market tests have shown that non-smoking youths are willing to message their smoking friends on Facebook but only if the message is funny.  It mustn’t be confrontational as they don’t want to risk losing the friend.

A widget will allow Facebook users to place humorous images on friends’ walls, with escalating status for users who use them repeatedly.  To date this has proved a successful social intervention; youth channel, youth rules for content and youth as the channel.

The referee may not listen but the management do

Moving from the disease of smoking to the other end of the continuum, we’re also working with a sporting body to grow their profits.

The issue : Aging and declining membership of a football franchise together with reducing attendance at games and all the financial difficulties that produces.

Our client : An Australasian sporting body with a large base a members

The challenge : To lift membership levels (especially with youth – the future of the game), lift game attendance and hence lift revenues

The solution : A “focus group on steroids”. 

Working with the membership-based sporting organisation, we established a ‘by invitation’ online advisory panel of several thousand passionate members.  These members came to games regularly and had been paying their subscription fees for a number of years.

The incentive offered; the club will listen to your advice, implement your suggestions if they can but in all events they will talk to you and let you know that they heard you.

Watching these online members ‘talk’ to each other, and the club, about a subject of common interest is a visceral experience for marketers more familiar with response models. Questions are asked and answered directly and quickly.

The panel has given advice on which players to feature in promotions, and how to talk effectively to the membership.  More importantly, thanks to the Hawthorne Effect these ambassadors have personally increased membership significantly above last year’s levels through word of mouth recruiting.

The panel is not a research vehicle and is not intended to be. Understanding the opinions and attitudes of your most engaged customers is more important than understanding the average if you are trying to generate positive word of mouth for your brand or product. They are simply more likely to bother than the average customer.

Research we’re finding true

Its Gen Y and Gen Me and Gen C

Forrester found that “Gen Yers are more apt to like style, fun, and technology; seek out what’s hot; make purchases based on image; consume all types of digital media; and use every wireless service on their mobile phones”.

In consuming all types of digital media they’re also creating it and doing so far faster than any marketer.  The rate of consumption also has them tagged as Generation C for content and also Generation Me.  This latter description was developed by Jean Twenge who believes “Gen Yers were raised and schooled in an educational system focused on promoting self-esteem and a “you can be anything” mentality. As a result, they’re more narcissistic than other generations. Students scored significantly higher in the Narcissistic Personality Inventory (NPI) test in 2006 than they did in 1987”. 

Within these broad descriptions there’s also a level of granularity of subcultures they identify with including niches such as “goth,” “emo,” or “prep” according to Forrester. Each of these is differentiated by clothes they wear, the music they listen to, and the media they consume and share.

Kagoy - Kids are Getting Older Younger. 

Best described late last year in The Times of London, “KAGOY has also affected the dolls that little girls covet. As well as Barbie with her accessories, there are now the streetwise, precocious Bratz dolls. The Bratz Secret Date Collection, marketed to six-year-olds, pairs each Bratz girl with a Bratz boy, and includes two champagne glasses and “tons of date-night accessories”. 

Kids are learning about adult life much earlier than ever before.  And in many instances they want to emulate it and are influenced by the style of older teens.

Listen

Make it a conversation. They are used to conversations, not just telling, also listen. Listening means confirming you heard in some way.  Implementing their suggestions is one way, replying to them is another way. Close the loop.  

Authenticity 

Genuinely invite discussion, do not presume and praise your product on their behalf. This means being brave, they may say negative things. They will do this with or without you by the way, so it is best to be involved so you can ask them how to improve

Volume matters

As you really want to address a market, not a handful of customers, volume matters. Use existing communities which already have large numbers of participants or use traditional marketing to seed your own. 

Data – always data

Data should still drive marketing decisions, not anecdotes. Marketing to youth through conversations does not mean you should abandon rigour. Find a way to link ideas expressed in the conversation with actual behaviour. Registration, coupons, referrals; there are ways to do this. Go to the trouble.

Legal and necessary insider trading for marketing professional

Originally published in the June 2008 edition of teh New Zealand Marketing Association's DLB magazine - authored by Carlson Marketing

If your marketing budget was equivalent to an investment budget, trigger marketing is an investment strategy that seeks out high yield returns and invests only in those stocks (customers) rather than in every stock in the market.  By contrast, standard marketing invests only in the stock index (all

 potential customers in the market ) and hence each stock (customer) gets a piece of the investment budget.  Over time the index (all customers) does deliver returns which are both humble and directly proportional to the sum invested.  The only way to make more money investing in the index is to increase your investment (more share of voice at the customer). 

There is one critical distinction between stock investment strategy and marketing investment strategy – marketing professionals are legally permitted to be insider traders.  In fact – if they’re not insider trading then they’re not performing their fiduciary duty.  Insider trading delivers the holy grail of the investment professional – high return with low risk.  Trigger marketing delivers the same for marketing professionals.

Profile your customers. 

Trigger marketing, when used properly, is highly discriminating and mercenary.  We generally find four major customer tiers.  Tier 1 are our outstanding customers who are clearly giving us all their business in our category.  These will be less than 10% of your base and in general the goal with them is retention.  

Tier 2 probably comprises another 20% of the base and they’re giving us considerable business but are clearly shopping around.  We want to

 reduce their promiscuity.  These two tiers together are giving us close to 80% of our revenue.  The last two tiers have some value but the returns they generate aren’t as good as we can get out of the first two.

Each customer has a profile and a specific ‘shopping basket’ or purchase history.  This history builds a picture of who they are, and what people just like them (their peers) buy.  By comparing them to their peers we can identify 

what they’re not buying from us and by default must likely be buying from somewhere else.  We use this data to promote the products purchased by their like minded peers that they’re currently not purchasing from us. 

The net effect?  You know who is likely to respond to what kind of offers, and more importantly, what discounts you need NOT apply; reducing mass markdowns and allocating your marketing dollars to those who will respond best and deliver the most in return.

The key areas

There’s generally five areas for data gathering:

1 - Profitability

Look at the profitability of both customers and products and the intersection of the most profitable of each with the other.  You’ll also need to know individual product margins both list and realised after all discounts and incentives. 

2 - Basket typology

Identify the popular categories and their profitability.  Also understand what products are mixed in which baskets. 

3 – Promotional promiscuity

This is more difficult to assess as we find most organisations don’t retain data on customer responses to offers they’ve made to them.  However it’s one of the more important measures as it’s the measure of the impact of your past marketing efforts.  Most importantly you want to know who’s a discount only shopper.

4 – Life stage

Age and gender feature prominently here as expected.  Also useful is self reported information such as hobbies and interests but these are less valuable than actual behaviour as measured through facts.

5 - Shopping habits

Key here are the recency and frequency features most marketers will be familiar with.  However insights behind the data are also useful as tested through various hypotheses. 

Once the data is assembled the real work of developing a predictive model begins.  The five core data areas defined above are assembled into working ecosystem with each area feeding the others.  Done successfully a good predictive model will tell you with a high degree of accuracy (greater than 75%) who will visit which of your stores or branches next, when they’ll do this and what they will buy when they get there.   Much of our work in this space is now based on medical and actuarial survival models and the results for sections of the customer base are excitingly accurate.

For example, for one of the tiers in a retail client’s customer base we’re able to predict with an 80% level of accuracy when a customer is due back in their store. 

One of the benefits of trigger marketing is how well it fits with the other data driven areas of the business such as:

>        Finance - you can predict the revenue lift for a given campaign and demonstrate how much better than the next best option it might be

>        IT  - you can predict how many hits the website will take and hence the bandwidth required

>        Inventory management – you can link customer demand by category to your supply chain

The results speak for themselves.  The following are examples of successes we’ve had using this approach:

 

Client	Communication	Result
Credit card issuer	70,000 customers	Spend lift 43%, transactions lifted 67%
Upscale Department Store	497,000 customers	88% lift in  volume
Home Retailer	105,000 customers	48% lift in volume
Office Supply Retailer	185,000 customers	108% lift in volume
Hotelier	594,000 customer	$1Million incremental volume
Grocer	40,000 customers	132% lift in volume
Office Supply Retailer	185,000 customers	98% lift in volume

The principles of trigger based marketing are relevant to any business and the biggest returns come from the first rough and ready steps in treating different customers differently.