The Smarter Approach To Marketing

Just saw a news story on Ad Age. It is titled “Will Retailers or Consumers Come Out on Top on Black Friday?” The story references how Sears, Kmart and other retailers have begun holiday sales ahead of time as shoppers start early, searching for deals. According to Ad Age, Black Friday 2009 has become a massive game of chicken among retailers and consumers, as the closely watched post-Thanksgiving sales data will largely decide which succeeds at outsmarting the other.

Is this the right attitude?

As marketers, are we really trying to outsmart our customers?

If we are customer-centric, we would not be trying to one-up each other, but would focus our efforts on helping our customers solve their needs with relevant and differentiated offers.

As I defined in one of my earlier posts, providing value to customers by fulfilling their specific needs (relevance), recognizing their unique contribution to the business (recognition) and rewarding them with specific offers (reward) will create a win-win proposition. I defined the equation as 2RL + 2RC + RW = CL.

By doing this, the customer gets what they need from the brand and the brand gets the transactions that add strength to the business while building value in the relationship.

It is not about being smarter than them. It is about serving them well.

A simple idea. One that works

Euro RSCG Discovery Awarded in DMA Challenge ‘09

I experienced a very proud moment at this year’s DMA Conference in San Diego. This moment was watching my extremely talented analytics team at Euro RSCG Discovery receive an award at the 2009 DMA Analytics Challenge.

We took home second place in this year’s DMA Challenge competition. This was a particularly complex problem where each firm was asked to analyze an attitudinal segmentation, create a predictive classification model, and then infer that segmentation onto a customer database – much more difficult than in years past. But our team tackled the problem with the same technique and rigor that they use every day with our clients.

We approached the challenge as if it were an actual client project, so the excellent results both benchmark and showcase the strength of our analytics capabilities.

Congratulations to the Discovery team who participated in the Challenge!

Frequency vs. Loyalty: What’s the right answer?

The issue of customer loyalty and the role of loyalty marketing continues to be a big issue being discussed in almost every company right now. With smaller budgets, smaller marketing departments and a focus on customer retention, it is no surprise that marketers are trying to figure this out.

A large number of them have been reacting in a knee-jerk manner – creating and launching loyalty programs.

But, are loyalty programs really necessary? Is loyalty really an achievable goal for most brands in most categories?

I have a very clear point-of-view. Most brands don’t really need a loyalty program. What they actually need is a frequency marketing program – a program that will bring their customers back more frequently than they currently are. That’s what most marketers want. And, that’s actually what they need (to drive transactions). But, there is enough confusion in the definitions that very few marketers are distinguishing between the two.

In an attempt to simplify the discussion, I have provided some thoughts on distinctions between frequency and loyalty.

Frequency is about getting more transactions than you currently get from your existing customers.  If someone comes once-a-month (12X a year), can you get them to come one more time? Loyalty is about deepening the relationship that they currently have with you.

Frequency is behavioral while loyalty is attitudinal.  Behaviors drive transactions and make the cash register ring.  Attitudes make for nice charts in tracking studies.

Frequency is easier to effect with more relevant communications and offers – timed right.  Loyalty is harder to gain.  Changing attitudes to the deeper level takes significant level of time and resources.  It is also a goal that is unachievable in most categories.

Increasing frequency has the potential to create loyalty – you have to use the simple equation (2RL+2RC+RW=CL) – but execute consistently over time.  It also assumes that your category has the level of emotional cachet to allow those bonds to be made.

Frequency marketing programs are easier to execute.  They do not create liabilities on your balance sheet and can be evolved and refined at the company’s discretion.  Loyalty marketing programs, on the other hand, require a long-term commitment that becomes a big factor for the company and the balance sheet.  It becomes extremely hard to refine and evolve the program without the agreement of your customers.

Frequency can be executed by marketing with some support of other departments.  Loyalty programs require alignment across the entire organization.

None of my arguments above should constrain your aspirations to generating loyalty. I posit that if you can begin to improve frequency levels among your core customers, with the appropriate attitudinal beliefs, you will create loyalty.  It will be the outcome of a strategic frequency marketing program and will be cheaper and faster to execute.

Given that reality of time being our worst enemy, it’s the way to have a quick and immediate impact on the business.

A Simple Equation for Loyalty Marketing

This economic environment is encouraging marketers to focus on shifting their spend from traditional acquisition marketing to efforts that generate value from their existing customers. The marketing paradigm is clear – it costs significantly less to retain an existing customer versus trying to acquire a new (and reluctant) one.

This issue is leading to many conversations about developing and executing loyalty programs. However, based on the quality of the discussions with companies across multiple categories, I see a significant level of misunderstanding. There is a lack of clarity about the role of loyalty programs as well as the components that make up a successful loyalty program.

Let’s first tackle the role issue. In my opinion, the most important role of a loyalty program is to engage with the brand’s core customer group and learn how it can best serve their needs. Brands need to serve these customers in a completely differentiated manner from its competitive set. Marketing applications are just the tip of the iceberg. The knowledge and insight gained from customer behaviors should be used to improve their experience with the brand. The end result is to have these customers become bonded to the brand. This is the secret of success for Tesco and Harrah’s, arguably the two best loyalty programs in the world today.

However, considering most companies don’t have a decade (Harrah’s) or fifteen years (Tesco) to develop and refine their program, here is a simple formula to help create an effective loyalty program.

2RL + 2RC + RW = Loyalty (Two parts Relevance plus 2 parts Recognition plus one part Reward equals Customer Loyalty.)

Relevance is essentially providing your customers with information and offers about products/services that would be the most appropriate to them based on their past transactional behaviors. For example, I buy my jeans from Old Navy. Don’t ask me why, but they fit me better than any other brand. If they send me offers/communications offering new styles of jeans or sweaters that coordinate with my recent purchases, it is relevant to me. Not necessarily the specific items – adjacent categories are still relevant. Unfortunately, Old Navy does not do this. Instead, I receive emails from them offering me great deals on baby and maternity clothes.

Recognition is about letting the customer know that they are important to you. Best Buy does a good job by recognizing their customer’s business with them. Not only do they provide their customers with additional value, but they also communicate with them in a very personal way. They use the data from their Reward Zone program very effectively to build better relationships.

Reward is the specific offer. While this is very important, it is only a small part of the effort to encourage your customer to truly behave the way you would like. A meaningful offer can drive significant results. It doesn’t have to be monetary in nature, either. Here is an example of this that I read in a recent issue of Business Week magazine. Researchers at Britain’s Nottingham School of Economics worked with a large German wholesaler that sells goods on EBay, tracking the lukewarm or negative comments posted on the site by the company’s customers over six months. They then responded to 632 complaints. Half of the e-mailed responses offered a brief apology. Half offered instead a “goodwill gesture” of a small cash rebate. All e-mails asked customers to remove the comments they had posted online. For those offered the rebate, it was a condition of receiving the cash. About 45% of customers receiving an apology withdrew their so-so or negative ratings, compared with 21% of those offered money to do so. To me this shows that a relevant human approach that recognizes their customers’ goodness can deliver a strong response.

So if you are looking to drive loyalty among your core customers, follow this simple formula (2RL + 2RC + RW = CL) and you’ll see some pretty strong results.

Cultural Distinctions In Service

This past week I travelled to Asia. My first stop was in Singapore to help launch Euro RSCG’s retail and shopper marketing capability called Shop@Euro. Then I made my way to India to discuss how best to use data to gain a sustainable advantage in the new global economy. My speech in India was titled – A New Imperative for the New Economy.

I flew on four different airlines during this trip. United Airlines from Chicago to Singapore. Singapore Airlines from Singapore to New Delhi. Kingfisher Airlines (a local entrant) from New Delhi to Mumbai and Lufthansa Airlines from Mumbai to Chicago (with a stop in Frankfurt).

The service on all four of the airlines was absolutely terrific. What interested me was how each airline delivered great service — albeit in very different ways.

After pondering the differences, I’ve come to a simple distinction in service styles: Functional service versus Emotional service.

United and Lufthansa delivered service that was primarily focused on ensuring a high degree of physical comfort. On the other hand, service on Kingfisher and Singapore was centered on how I felt during the flight – going beyond physical comfort to ensure a sense of emotional calm.

Why did I experience this distinction? After considering a number of different hypotheses, I arrived at one answer: The significant difference in service is due to the unique cultural perspectives of these brands.

Western brands tend to deliver on the ethos prevalent in their context. It’s all about efficiency. Their service experience is structured to ensure that their passengers are productive. From their detailed menu to the bottled water they offer, everything enables the traveler to have control of how he or she plans to fulfill their own needs.

Eastern airlines, however, focus more on striving to deliver a relaxing experience that attempts to create a calm and quiet environment. Everything from the tone and volume of in-flight announcements to the language used by the staff. It is different than their Western counterparts and consistent with their cultural backgrounds.

My experience enjoying these completely different approaches to great service has encouraged me to evolve my understanding and appreciation of brands within a behavioral context. It also raised an interesting question:

As we continue to live in a world that’s getting more and more homogeneous, do these culturally-driven distinctions in service set new and conflicting expectations?

If so, how can brands evolve and deliver?

Another Sign of our Decline?

I grew up in India. One of the realities there was the concept of what we called Indian Standard Time (IST). Everything would happen about 30-45 minutes after it was scheduled. The reason for this was simple. The infrastructure in those days was quite old and one would say a bit decrepit. Old roads. Old rail lines. One airline with old planes. The result of this was breakdowns, malfunctions, mechanical failures of equipment and potholes too numerous to count. The kinds of issue and challenges one accepted of what was considered (in those days) a “third world country”.

When I moved to this wonderful country a couple of decades ago, I was exposed to (as Dan Zajac, my first boss called it) American time. 9 AM meant 9 AM. It was awesome. Everything ran on time. Everyone worked on time. The train from Naperville to Chicago’s Union Station was only late once in a 2 year period. And that got most of the passengers upset. Flights from O’Hare (except on those stormy winter or spring days) were quite regular. The lights on the Expressways came on exactly at 7. Roads got fixed in the Summer so that they were new for most of the year. The reason why we were the “first” country in the entire world.

I’m sure you’ve noticed, but things have changed in the past few years. I travel a lot, so this is based on personal experience. These days, very few flights are on time. It has become such an endemic issue that we just expect it and plan around it. The train from Naperville to Chicago has been late eight of the last ten times I have taken it (not statistically significant, I know). The reasons? Switch failure, mechanical issues, stuck tracks are some. This last winter, as reported by the Chicago Tribune, we had over 10,000 pot holes in the Chicagoland area. Driving around was an adventure, to say the least. These are a few personal examples of the fundamental weakening of our roads, rail and air systems. The fragility of our aging infrastructure.

Is this what we should expect? I have been excited with all the talk in Washington about investing in our infrastructure. That’s exactly what we need. I am totally on board. We need this to ensure that we keep our country in the lead but more importantly, create an environment that is sustainable for the generations to follow.

We need to make sure the trains run on time, the planes fly on schedule and the roads are in good shape. This will allow us to again live on American time while improving our productivity further. Let’s not forget that our emerging competitors are building new roads, rails, airlines and systems. This will give them the advantage in the new global economy. We need to stay competitive. Invest in our roads, rails, and air. Bring new expansive technologies into play. Invest in ourselves to put away the sceptre of any possible decline. And create the opportunity to deliver on our limitless potential.

Economic Uncertainty

There is currently a great deal of conflicting data and speculation on the state of the economy. Housing starts are up while foreclosures rates also remain high. The stock market is up, but unemployment continues to climb. This confusion is creating both a sense of optimism as well continued apprehension about what lies ahead.

Confusing data is also leading to opposing viewpoints and predictions. Home Depot Chief Executive Frank Blake recently told investors that he didn’t expect a year-over-year increase in same-store sales until the second half of 2010. According to the Wall Street Journal, Blake remarked “We remain concerned by the high level of foreclosure activity, which we believe continues to put pressure on the housing markets.”  Target CEO Gregg Steinhafel, however, stated that Target was well positioned to grow profitably.  While it is still early in the back-to-school selling season, Steinhafel said those sales “show promise.”

So what is the reality? To get a better sense of where the economy is headed, let’s focus on the most important thing – consumer behavior. This is the one factor that can truly help us predict future economic activity. Currently, people are not spending money like they used to. They are not shopping, they are not going out. This is the root of the problem.

We have gone from an internet economy to – as I am now defining it – a People economy. You and I (and the remaining 329 million Americans) drive our GDP. Given that we are a People economy, it will take a significant shift in consumer behavior before we can begin to climb out of this economic recession.

For this reason, it is my belief that our economy will not stabilize until fall/winter 2010. If you reflect, you will see that people and things work in threes. Three strikes you’re out. Third time’s the charm, etc. This is no accident. I believe that it will take three holiday seasons (from 2008) before our economy returns to normal. But only time will tell.

What do you think? Do you have any predictions of your own?

Back-to-School Budgets: Not Just For Parents

This year’s back-to-school shopping season will be quite different than years past, thanks to the focus on the economic recession and saving money. For retailers, back-to-school season is considered the second most important shopping season of the year (behind the holidays) and is often used to predict second half sales. Many fear that a tough back-to-school season could indicate an even tougher holiday season.

While retailers are cautiously examining their inventory and sales, consumers are also paying close attention to their numbers. According to the National Retail Federation, four out of five Americans have made some changes to back-to-school plans this year as a result of the downturn. In fact, the NRF predicts that the average family with children in grades K-12 will spend $548.72 on school merchandise, a decline of 7.7% from 2008.

One tactic that many parents are using to deal with a lack of funds is to teach kids how to budget their money while they shop for the essentials. This approach definitely ties in with the sales- and price-focused messages seen from retailers this year. Target is even encouraging parents to make back-to-school shopping “one of the first math lessons of the year” by doing just that. They offer several list-making tools on their website, a Target ‘09 College Facebook page and a 44-page “Smart scholars save dollars” catalog.

I have two children going back to school. Sanaa (11) will start her first year of junior high and Aamir (14) is going into high school. This year, my wife and I developed clear lists and established budgets with the kids. We also selected just one store to buy from (Office Max). Making sure we were prepared with shopping lists, budgets and sticking to one store allowed us to save both time and money. We were able to get everything the kids needed for school and still had money from their budgets left over.

Marketers should take a cue from their customers and use this time to look at their own budgets. They should make sure that their marketing dollars are being spent wisely and on effective programs. The only way to ensure this is to test and learn using analytics. Analysis of current programs and customer behavior can help refine marketing campaigns, increase loyalty and drive profits during this challenging back-to-school season and beyond.

Is Smarter Spending Here to Stay?

The current recession is on everyone’s minds right now – business leaders, politicians, marketers and consumers alike. Constant reminders of economic doom in our professional and personal lives have clearly changed the way we behave. Consumers are shopping differently. They are acting more frugal, researching each purchase and avoiding impulse buys. At this point, this change is old news.

But when our economy returns to its normal, pre-crisis state, will shoppers’ behavior revert as well?

As referenced in a recent Ad Age article, this issue is on the mind of many marketers. According to the article, this recession has had a much bigger impact on people than the last big crash in 1987. People really fear for the future. Thanks to vanishing retirement funds, people are being forced to work much longer than they had ever anticipated. In fact, 40% of people over 55 are currently in the workforce – a 10 year high, according to Barron’s.

As a result, people are re-thinking about what’s important to them and, in a sense, returning to more traditional values. Their attitudes may be the same – they still want that new car – but they are behaving differently – they aren’t necessarily buying it. People are being much more practical and focusing on saving for the future.

I believe, however, that the American consumer’s mindset is not changed forever. The frivolous spending and over-the-top consumerism that was prevalent over the last 30 years may be gone for good, but people innately like to shop. Consumers will likely make more of an effort to find good deals on significant purchases, but I think that impulse shopping will continue to be a part of the American culture.

The current economic downturn may permanently impact American values and shopping behavior, but eventually consumers will return to some of their old ways.

Practice What You Preach

It is always important to practice what you preach, especially when it comes to marketing. A fundamental example of this is a direct marketing piece I created and sent out this past month.

The piece was basically a box designed to hold a cell phone with my telephone number programmed into it, as well as some written information about Euro RSCG Discovery. Recipients were encouraged to call me to discuss Discovery’s marketing and business solutions first and read the material second.

Rather than simply reading about our company, this piece got people to behave the way we wanted, right from the start. They engaged in a conversation about it, which provided a deeper, more relevant perspective of who we are. And it worked – we had a 70% response rate!

Many companies send out direct mail and expect people to read and believe everything they have to say about a product or service. At the end of the communication, recipients are urged to call for additional information. However, it typically does not work that way. Many times, recipients do not read the material and do not come away with a better understanding of the company’s offerings. Because it is a passive, one-sided communication, it is not nearly as effective as getting people to act first.

Encouraging a behavior first allowed me to connect with prospects in a different way. After the call, these people then went back and reviewed the written materials in the package and fully understood our value proposition. Our conversation made the content even more personal and relevant.

The old model of message first and behavior last is no longer effective. It is incredibly important to engage your customers and encourage them to behave first. That is the best way to serve your business.