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.

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.

Loyalty. How Do You Do It Right?

The idea of inviting customers to join a program, then encourage them to continue trading in exchange for rewards has had a long and distinguished history; from retail to air travel, from magazine subscriptions to credit cards.

Because only one in ten programs really work there are skeptics. Their problems usually come from the L word – loyalty. We believe that these programs need to be built differently – especially in this economic environment. As the recession looms, companies have to do more with less. Keeping customers loyal can be a great way to make your marketing dollars go far. Here are a few principles to consider when creating effective loyalty communications.

Loyalty not monogamy: Skeptics say it’s all very well introducing a loyalty scheme to get the first mover advantage. But what happens when competitors follow suit and customers end up carrying two or three cards in the same category? Isn’t that subsidizing promiscuity rather than reinforcing loyalty? The short answer is: get real.

When marketers strive to increase customer loyalty they can only aim to create a little extra goodwill, a margin of preference and incremental shifts in buying behavior. But a lot of small, positive choices by many customers can add up to a massive difference to the bottom line.

Every customer has a variety of suppliers for different needs. All that a loyalty program seeks to secure is a bigger slice of customer commitment, share of mind and share of spend than the brand would otherwise achieve. That comes from consolidating spend that would have been spread over a wide number of competitors. If a program does that consistently well it pays back royally, for customers and the balance sheet.

A loyalty program is not an end; it is the means to an end: Offering a customer reward program could be the best way to encourage loyalty amongst your customers. Or not.

There is no guaranteed value in building a loyalty program, neither to the customer nor the business. There is no off-the-shelf solution to suit every brand. To ask ‘what sort of loyalty program do I need?’ is not a good place to start. Instead we should take a step back and start with the basics. ‘What problems do I need to fix to make my customers more satisfied?’ or ‘how can I persuade good customers to be even better?’ Those are the sort of questions to grapple with first. The executional answer may include a structured rewards program or it might be something very different.

Loyalty marketing is a business strategy first, a promotional tactic second.

The natural child of the brand: The best loyalty programs are created in the brand’s own image. They take the brand promise and demonstrate it through personal, relevant benefit to customers. Like any natural child, a loyalty program should share something important with its parents – its DNA.

Equally important, the program has to be loved by the business. Just as marketers have to champion their brand, they also have to commit to the loyalty program that represents that brand to its members. They have to see a program as part of the body language of the business. Loyalty programs invariably stand or fall on how well they are represented by the people on the front line.

What’s the customer contract? Loyalty works both ways. Even the most committed football fan will turn away from a club if it shows no respect for the paying supporters. Equally, the best loyalty programs work as a mutually beneficial contract between the brand and the customer.

In fact, loyalty schemes are so much about the brand showing loyalty to the customer as they are about the customer showing loyalty to the brand. And the reward to customers should be no more a bribe than the company’s dividend to its shareholders is a bribe.

Reward the behavior you seek: What does customer loyalty look like in your business?

Your priority might be to increase the frequency of visits, or you may need customers to consolidate spend, or you may want to shift transactions from phone to internet. A loyalty scheme that sets out to thank customers for doing one or two things is more likely to succeed than one that asks them to do too much, or indeed asks for nothing in particular. The main challenge from the outset is to define clearly what it is you want your customers to do, and reward them when they do it.

These principles are just that. Just a list of tips based on what we’ve observed and experienced over a decade designing loyalty programs in different sectors. For further reading, I thoroughly recommend Scoring Points – How Tesco Is Winning Customer Loyalty (Kogan Page, 2004).