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.

Extreme Makeover: Brand Edition

When it comes to brands and their positioning and packaging, marketers get bored of them long before consumers even get used to them. Unlike their customers, marketers think about, talk about and look at their brand all day long. Even the most loyal customers don’t have this kind of relationship. Then, often sooner than necessary, marketers suggest a change to keep the brand “fresh.” This is a tricky thing to do, however, and often occurs long before it needs to.

A good example of this is the recent Tropicana orange juice packaging redesign. When Tropicana debuted new packaging and brand identity for its Tropicana Pure Premium orange juice, consumers responded with passionate complaints and outrage. After less than two months, the company decided to respond to their customers’ demands and return to the original packaging.

Interestingly, the sheer volume of consumer response was not the reason for the switch. According to Tropicana NA president Neil Campbell in a recent New York Times article, it was because it came from “some of [their] most loyal customers.” I think this is a great point. There will always be dissatisfied consumers, but marketers need to focus on their best and most loyal customers in order to continue to move the brand in the right direction. This is something that most companies don’t spend enough time doing.

In the article, Campbell also stated “I feel it’s the right thing to do, to innovate as a company. I wouldn’t want to stop innovating as a result of this. At the same time, if consumers are speaking, you have to listen.” While innovation is the key to keeping up with your customers, it needs to be smart and well-executed – not just innovation for the sake of innovation.

In times like these, when consumers are changing their minds and their behaviors almost hourly, marketers need to use real-time data and analytics to continue to learn about their customer-base and their evolving needs and wants. Then, when they are really ready for a change, marketers can give it to them. Until then, marketers should avoid giving their brands a makeover when their most loyal customers still love the original.

A Sign Of The Times – Companies Changing Their Marketing Focus

It takes a fundamental change in the environment for marketing models and approaches to change. In the current environment, we’re seeing a significant number of companies begin to use the principles of retention marketing (over acquisition marketing alone).

Banks are leading this paradigm. Given their unique situation, they have recognized the benefit of retention-based marketing strategies over typical acquisition-driven efforts. Last week, Mintel Compermedia reported that banks registered a 57% increase in direct mail geared toward selling additional products and services to current customers. A very big shift.

Banks also increased CRM-related mailings by 37%, including loyalty messages, renewal notices and upgrade offers to entice current customers. In fact, 94% of all bank emails in 2008 were sent to existing bank clients. The number rose from 89% in 2007, while acquisition-based emails dropped from 10% to 6%.

While acquisition-directed mail still accounted for the overwhelming majority of all bank direct mail, the percentage dropped from 85% in 2007 to 81% in 2008. Conversely, retention-based mailings increased to 15% last year.

Banks are clearly beginning to realize the importance of focusing on their existing customers. In today’s tough economic environment, it is more difficult than ever to acquire new clients and much more expensive. Companies in other categories need to learn from this and do the same. Especially retail, where most marketing departments are still being asked to drive traffic by acquiring new customers and very few have organized retention marketing programs.

This shift in your strategic focus – protecting your current customers and getting them to buy additional products and services is the best way to drive profitable growth at this time. And by communicating with them and engaging them in a deeper relationship with your brand, you can build valuable customer loyalty in a time of financial uncertainty.

Think current customers. Think retention first. You will see better results.

Real Issues, Real Solutions, Real Results

In today’s challenging economic environment, it is more important than ever to address the issues that matter most to your customers. Now is the time to pay close attention to their changing behaviors and react appropriately.

In fact, a new report from Forrester Research shows that customer experience is closely tied to customer loyalty, and that the correlation between the two has increased since last year.

Bruce Temkin, VP and principal analyst at Forrester pointed out that, “when times are good, consumers just continue on their merry way, but in this economic environment, every purchase they make, every service interaction they have is a large portion of what they care about. They’re more emotional about everything and, therefore, a bad experience resonates even more negatively.”

Without analytics and research, you miss out on valuable information which can make or break the relationship you have with your customers.

Once you understand the challenges facing your customers, you can offer real solutions to address these issues and make their lives easier. In return, you will foster brand loyalty and generate real results and ROI.

What do you think? How can focusing on customer’s real issues and problems help a brand’s business?

What Can We Learn From Students’ Behavior?

Everyone knows that young people – especially students – center their lives around the internet. This is old news. In fact, today’s average student got their first email address at the age of 13 and currently has a mean number of 2.4 email addresses, according to the eROI Student Survey.

This information would lead one to believe that email is a great way to reach a brand’s young customers. However, that may not be the case. The Student Survey also showed that students, on average, read marketing emails on a “rarely to never” basis and only 16% actually take action on marketing emails.

By looking at the ways students are acting, it is clear that marketers may want to reconsider their use of email to reach young consumers. Their behavior shows that this particular channel may not be as effective as others within the direct marketing space.

Social networking and texting, however, are on the rise. 83% of college students use Facebook, 65% use MySpace and 21% use LinkedIn. Additionally, students named text messaging as their preferred means of communication (according to the eROI study).

We need to reach them in the way they prefer, not how we wish. The biggest challenge is our ability to ensure that the desired behaviors do happen. And that we can monetize our investments. It is a conundrum. Do you agree?

If A Customer Behaves In The Forest And No One Is Around To Analyze It…

According to the Annual Marketing Survey by Alterian, companies will continue to invest heavily into online marketing in 2009, but less than half of marketers plan to use analytics to measure their campaigns.

Online direct marketing will also increase this year, with 62% of organizations planning an increase in that budget. Additionally, companies will look towards social networks, email, SEO and pay-per-click advertising. Yet, only 47% of those surveyed will use analytics to measure the success of this activity.

The data gathered around these types of consumer behaviors can be extremely valuable. It is this kind of information that can help you recognize your best customers and how they respond to your brand’s communications. Analysis of customer behavior can help refine your marketing campaign, increase customer loyalty and ultimately drive profits in today’s challenging economic situation.

So why aren’t more of you doing it?