THE CUSTOMER CENTRIC MARKETING REVOLUTION
How next-generation capabilities are delivering winning results in the world of personalization
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Marketplace dynamics are forcing retail marketers to either adapt or become irrelevant Retail marketers have been excited by the prospect of establishing a direct dialogue with customers for some time. The concept of one-to-one marketing makes sense: The more you know about customer preferences and needs, the more relevant and enticing offers you can make. In fact, one of the primary reasons for establishing a loyalty program is so that retailers gain the requisite customer information to enable dialogue with customers. The implicit agreement inherent in a loyalty program is that it creates a fair and equitable exchange of value between retailers and their customers: customers share their information and expect relevant communications and rewards in return. In turn retailers expect to see significant improvements in marketing performance and overall sales and profits.
Better analytics tools and technologies are easing the strategic journey toward true one-to-one personalization.
But the reality is often quite different; customers report little improvement in the relevance of communications and retailers have been struggling to show demonstrably improved campaign performance. In addition, retailers are now drowning in Big Data, which potentially could improve marketing ROI but also presents the rather significant challenge of how to build the capabilities to make sense of all that data.
To compound the situation, customer expectations have increased. The more data customers share, the higher their expectations are for marketing personalization delivered through their channel of preference. In looking at the ROI perspective, the DMA indicates that response rates for most direct communication vehicles are in the low single digits and the costs per response are high.
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Response Rates Traditional marketing generates dismal response rates, with new-media email and paid search showing the lowest return of all.
%
Response Rate
$
1.3%
Direct Mail
$51 4% $112
Catalog
1.1%
Postcard
Email
Paid Search
Cost/Response
$54 0.1% $55 0.2% $53
So neither customers nor marketers are happy with the status quo on most of today’s direct marketing efforts. Fortunately, with the capabilities of emerging technologies, neither side has to feel helplessly resigned to the current situation. Change is not only possible, it’s already here. Today, better analytical approaches and improved technologies are easing the strategic journey toward true one-to-one personalization, helping marketers move past obstacles and seize opportunities for generating sustainable growth and earning customer loyalty.
Traditional Campaign-Based Approaches Have Not Been Delivering The traditional practice with customer marketing is to take one of two approaches: Either force-rank customers based on past spend levels in order to focus on the top several thousand; or use generic segmentation approaches and treat all customers in the segment as essentially the same individual. The top-spending customers (or other selected segments) then serve as the target for campaigns in which marketers identify offers to send, either to achieve an internal objective or in response to requests from vendors. We understand why many retailers are pushed toward taking these campaign-based approaches. But the force-rank method bypasses customers who may not currently spend a lot but have significant potential for increased spend, and the every-customer-in-a-segmentis-the-same method is an inefficient scatter gun approach. Money is being left on the table and possibilities for significant revenue gains are being ignored. Also, this campaign-based approach demands
Money is being left on the table and possibilities for significant revenue gains are being ignored.
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significant time and resources, but lacks the customer-centricity needed to build real, sustainable loyalty. As a result, retailers can only execute a handful of these proactive campaigns each year, or can only be timely in the campaigns if using a trigger-based or simplistic list-pull approach.
Traditional Campaign Timeframe Old-school pro-active campaigns are time and resource intensive, limiting retailers to executing only a handful each year. Set Campaign Goals
Design Campaign
Generate Customer List
Produce Materials
Execute Campaign
Analyze Campaign
Do It Again
One to Two Months
Steps in the Right Direction In an effort to push the envelope, some marketers have begun building a richer understanding of “best” and “next best” customer needs, and placing those customers into one of several hundred microsegments along with a few thousand other “like” customers. Each segment then receives offers tailored to their segment’s needs, but each of those micro-segment customers receives the same (or a very similar) offer. Although one step closer to full personalization, this type of segmentation rarely justifies the cost. Campaign effectiveness is often measured using reach, response rates or sales resulting from redemptions. Rewarding customers for their loyalty by giving them offers for products they already consistently buy does drive high response rates. But using response rates or sales from redemptions in this context as evidence of a successful marketing campaign could be a little misleading. True ROI should be calculated by quantifying net incremental gross profits. But marketers often find this difficult, and results are frequently minimal when they can be identified. There are even instances of marketers using their creativity to define new success metrics such as Sales ROI, which involves dividing the incremental sales from the campaign by the cost of the campaign in order to quantify an ROI metric, but this metric excludes the actual cost of the product from the “ROI” calculation. Even when marketers use data to discern their customers’ preferred mode of communication, the response rates are low when the message itself doesn’t resonate. In our 2013 Consumer Relevance Study, fewer than half (46%) of Americans said they are satisfied with communications based on their preferences.
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Customers are not alone in their dissatisfaction. In our 2012 Enterprise Loyalty Survey, nearly half (46%) of the marketers who responded said a top challenge for their organization is better utilization of customer data to get real insight into customer needs for marketing.
The Next-Generation Solution A better analytics-based approach now exists for solving the “too much data, too little time, too few resources” problem. The solution relies on a process of advanced customer analysis, creating a win-win
Next-Generation Marketing Vision “Best” practices lead to an always-on, dynamic, insight-driven and fully personalized communication process.
1-to-1 Execution 1-to-1 Design
Engage
Communication Channels
Optimize
Analytics
Track, Measure, Learn
Reporting Data & Analytical Platform
Leading retailers engage customers by understanding the needs of individuals and by consistently executing to “best” satisfy those needs. These retailers drive sales through better analysis enabling personalized marketing communication. A system based on a robust data and analytics platform allows marketers to: Analyze all customers individually – rather than simply segmenting the top tiers Develop a holistic understanding of customers’ needs, their current and potential value and what they respond to Ensure timely, relevant and profitable communications through channel of preference This approach not only ensures that each customer is understood to the greatest degree possible but it also allows for continual updating of customer needs. Each customer is continually rated with a value score based on each product they purchase, combined with their channel of engagement. With this much more refined and targeted awareness, retailers now can use strategic communication that is 100% personalized in every component, from the creative to the products, from the types and magnitude of the offers to the timing and communication channels.
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Essentials of a Customer-Centric Marketing Approach Creating an effective framework for customer-centric marketing begins with establishing a customer engagement intelligence platform that can be continuously updated. This platform approach allows marketers to reconcile two sometimes conflicting objectives in a cost-effective manner: how to be highly relevant while also being very timely. The customer engagement intelligence platform incorporates a holistic view of each individual customer:
Needs
Value
Response
• Life-stage • Lifestyle • Geo-demographics
• Current value and behavior • Potential value by customer/category • Growth opportunities by customer, by category, by store
• Offers • Content • Channels
A number of targeted marketing efforts today focus on rewarding loyal customers with discounts on items they already purchase. While this approach can deliver fantastic response rates, it doesn’t always drive net incremental sales; as a result, “Thank You” offers like this should only constitute part of an overall communication plan. By understanding where individual customers fall in the current and potential value landscape, a marketer can understand where opportunities exist to both reward loyal customers for existing purchases and encourage incremental upsell, cross-sell and basket/trip building.
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Customer Potential Value
Understanding current and potential value by customer by category enables personalized offers to be tailored by engagement level and customer needs. Here’s an example that illustrates a very simplified way to think of constructing offers (the numbers represent the quantity of offers) – true offer optimization operates at the individual customer level.
HIGH
Defining Marketing Strategy and Optimizing Communications and Offers
LOW
OPPORTUNITY
PRIORITY
Offer: 1 Thank You 1 Basket Builder 1 Continuity 1 New Product 4 Upsell 4 Cross-Sell
Offer: 2 1 1 4 4
LOW PRIORITY
PRIORITY
Offer: 1 Basket Builder 1 Continuity 1 New Product 1 Private Brands 4 Upsell 4 Cross-Sell
Offer: 4 2 3 3
On-Board & Grow
Cost Effective Management
Retain & Grow Thank You Basket Builder New Product Upsell Cross-Sell
Defend & Retain Thank You New Product Upsell Cross-Sell
HIGH
Customer Current Value
Opportunities for Multi-Objective Personalized Communications Once a company is up and running with personalized marketing, this leads to many holistic marketing opportunities. Always-on, dynamic, insight-driven and personalized communication based on a customer-centric approach offers the capacity for multiple objectives:
1 Support the business – Provide relevant content and offers linked to specific merchandising priorities.
2 Drive cross-sell – Suggest items that similar customers are buying. 3 Drive trial and innovation – Support the launch of store-brand products. 4 Reward customers and drive response – Send “thank you” offers for previous purchases.
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5 Encourage upsell – Send targeted offers for more premium products that similar customers are buying.
6 Drive vendor integration and attract incremental funds – Deliver relevant brand offers aligned to strategy.
7 Reward loyalty through continuity offers to drive visits, spend per visit and monthly spend – Tailor thresholds and incentives to the individual customer.
A Holistic View of Fully Personalized Communications Next-generation customer marketing offers clear benefits including upsell, driving trial, cross-sell and growing basket size.
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Managing for Operational Success All of this personalization has the potential to leave marketers feeling a little overwhelmed. If the strategy is managed on an ad-hoc basis without the appropriate capabilities built upon a solid foundation, then the chances of success are diminished. But by building the necessary capabilities, marketers can define customer-centric marketing strategies and plans, consistently deliver proactive and reactive communications that are timely and relevant, and deliver the right reports to understand performance in a timely fashion.
Next-Generation Marketing Execution An integrated customer-centric marketing solution moves smoothly from strategy to delivery to reporting, with dynamic updating. Data & Analytical Platform Data Assets
Real-Time Analytic Assets
Sales Data Shopper Data Marketing Data
Predictive Models Product Assortment Offer Response
Fuel
User BI Software
Cross-Sell Upsell Customer Scoring
Fuel
Dashboards Scenario / Simulation Campaign Reporting Shopper Reporting
Delivers Customer Needs
Customer Value
which drive relevance of strategies and tactics
which drives prioritization of customers and opportunities
Customer Response which drives optimization of marketing investments
Input Business Rules Deployment Channels
Banner/Brand Strategies Economic Priorities Expected Benefit
Tactical Campaigns
Input
Execution
User Interface Trigger Engine
Print Digital Mobile Social
Marketing Personalization Engine
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A Phased Approach Retailers who are already gaining significant results using this personalized approach didn’t get there overnight. Think of it along the lines of human maturation. First we crawl, then we walk, then we run. And before we can begin crawling, we must decide that we’re tired of sitting in the same place and want to move from a frustrating status quo toward an integrated solution that engages customers, nurtures their loyalty and provides significantly better ROI. There are four stages to this process:
Phase
Phase
Phase
1
Prepare the business. This stage is about aligning the business, preparing the data, defining how technology infrastructures can make it all fit together and determining the roadmap to realize the vision. In a recent article “Ultimately, we want to learn enough for Chiefmarketer.com, Jamie Nordstrom, CEO about our customers so we’re building at retailer Nordstrom, articulated this step very engagement, not just pushing offers.” well: “We need to figure out how to deliver relevant recommendations – customers are more aware of the data we have on them and how we are using it.”
2
Build the intelligence asset. Here, companies analyze customers’ past purchase and engagement data to build their customer engagement intelligence platform. The insights from this platform are used to define integrated marketing strategies and plans that incorporate both proactive and tactical communications that can be consistently executed using the customer engagement intelligence platform. Explaining the new program at Walgreens for Direct Marketing News, Adam Holyk, the drugstore retailer’s Vice President of Loyalty and Consumer Insights, said, “We’re hopeful that the program better enables our customers to interact with us on their terms in their preferred channels – online, via mobile, at the register, even at photo kiosks. Ultimately, we want to learn enough about our customers so we’re building engagement, not just pushing offers.”
3
Iterate and collaborate to optimize. In this stage marketers design increasingly relevant and personalized offerings, shifting investments from less targeted marketing efforts to personalized communications. Extending alignment across the value chain to manufacturer trading partners magnifies the collective marketing investments being made and delivers a triple win: customers receive relevant communications to satisfy more and more of their need states; manufacturers increase the ROI of their consumer promotion spend; and retailers realize ever-higher sales and profits. Along the way, adjustments are made to the road map based on customer response and vendor engagement. Denise Incandelia, Chief Marketing Officer
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at Saks, shared her commitment to one-to-one
“There is no average customer personalization in an interview with Argyle Journal: or even segments of customers. “A great deal of our marketing communications are No two customers are alike.” more relevant and personalized than ever before. Our emails are hyper segmented, our texting program is personalized, our print and digital advertising is based on behavioral targeting and remarketing, our targeted marketing programs are based on propensity models, our mobile program is personalized, and social media advertising is now local. All of this enhances our relevance which results in increased customer loyalty and retention.” Realize Competitive Advantage. Using finely tuned analytics platforms, grocery retailers such as Loblaw and Safeway have created dynamic capabilities to power ongoing Phase personalized marketing efforts. Loblaw’s PC Plus Program, which is guided by data-driven insights and includes a mobile app, has seen a 40% increase in scan rates and a 50% increase in open mail rates, while gaining more than 11,000 loyalty program members per store. “There is no average customer or even segments of customers,” said Peter Lewis, Senior Director of Analytics at Loblaw, in an interview for COLLOQUY. “No two customers are alike.”
4
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Next-Generation Approach
200K of 2M
2M of 2M
Updated Once / Quarter
Winning Results
Updated Continuously
This type of enterprise-wide, customer-centric marketing strategy based on a holistic understanding of Offer Bank the customer has delivered impressive results. In our case studies, we have seen Next-Generation response rates range Traditional Approach Approach from 10-80%, and returns on investment of 40–150%. up to 400 up to 20K Vendors Submit
Offers Solicited Using
Traditional Approach
Next-Generation Approach
up to 20
up to 400
Their Offers Customer Needs Comparing the measureable and consistent results of a next-generation customer-centric marketing approach to old-school direct marketing leaves no doubt about the need for companies to begin the journey. Here’s how the two approaches compare in Key Performance Indicators: Trading Partners Involved
Benefits of a Customer-Centric Marketing Approach
Personalization
Customers Analyzed Traditional Approach
Next-Generation Approach
200K of 2M
2M of 2M
Updated Once / Quarter
Updated Continuously
Offer Bank Traditional Approach
up to
400
50 Unique Pieces 100K Customers
Next-Generation Approach
100K Unique Pieces 100K Customers
Response Rate
Next-Generation Approach
up to
20K
Offers Solicited Using Customer Needs
Vendors Submit Their Offers
Traditional Approach
Traditional Approach
Next-Generation Approach
up to 4%
up to
80%
ROIs Trading Partners Involved Traditional Approach
Next-Generation Approach
up to 20
up to 400
Traditional Approach
Next-Generation Approach
less than 15%
up to 150%
Net Incremental Sales Personalization Traditional Approach
50 Unique Pieces 100K Customers
Next-Generation Approach
100K Unique Pieces 100K Customers
Traditional Approach
Next-Generation Approach
less than 1%
up to 4%
Remember the crawl, walk and run process? These changes don’t occur overnight, but retailers can see quick wins in the early Rate stages as the larger evolution unfolds. Nobody implements an enterpriseResponse Traditional Approach Next-Generation ApproachBegin with the decision to take this approach and then start wide customer-centric strategy all at once. to 4% 80% and then running, toward greater and more frequent customer crawling.up Soon enough you’llup betowalking, spend, more engaged customers, and deeper loyalty than you’ve ever achieved before. ROIs Traditional Approach
Next-Generation Approach
less than 15%
up to 150%
Net Incremental Sales Traditional Approach
Next-Generation Approach
less than 1%
up to 4%
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ABOUT
The Author Graeme McVie is Vice President, Business Development for LoyaltyOne US, where he helps clients drive improved sales and profits through insight-driven, customer-centric strategies and solutions. Graeme’s work prior to joining LoyaltyOne focused on applying a data-driven approach to helping a wide range of clients develop and implement revenue and growth strategies across international markets. He has worked extensively with both retailers and Consumer Packaged Goods manufacturers.
ABOUT
Precima Precima is a consulting and analytical services division of LoyaltyOne. Precima software-as-a-service solutions use shopper insights to enable more profitable merchandising and marketing decisions. Leveraging its unique combination of loyalty, analytics and retail industry expertise, honed over 18 years, Precima has helped clients deliver on the promise of shopper-centricity for sustainable competitive advantage. Serving many of North America’s leading companies, Precima is recognized for delivering measurable results tailored to retailers’ and manufacturers’ unique needs. For more information, visit www.precima.com.
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