What's New in Marketing - Issue 67, March 2008
Using customer insight to drive competitive advantage
Raman Gupta, Director of Consulting, at Experian's Integrated Marketing Division, explains how customer insight can help organisations identify and sustain a competitive advantage
In recent years, marketing has rightly become regarded as a science as well as an art. Brands now have the means to better understand what makes their customers and prospects tick and how best to communicate with target audiences, whether it is via TV advertisements, online offers or the traditional direct mail route. The advances in what is possible crucially cover both generating customer insight and making effective use of that insight.
Developing and using customer insight goes hand-in-hand with identifying and sustaining a competitive advantage. In highly competitive markets, the battle lines are drawn for the most valuable customers and the parallel challenge is to make money from lower value customers. There are three areas that demonstrate the value that customer insight can bring in competitive markets: having a smart proposition, getting more from channels, and driving sustainable returns on marketing investment.
The mobile telecommunications market serves as a good example of a market where competition is tough and aggressive, and the technology itself changes rapidly, so it can help illustrate the key issues in identifying and sustaining a competitive advantage.
A smart proposition
The UK mobile telecommunications market has always been slightly quirky in the way expensive handsets are given away or heavily subsidised by network providers (O2, Vodafone, Orange, T-Mobile, 3, etc) in exchange for commitment to use their services for a fixed period. It's rather like Shell offering a free car to someone for agreeing to use enough of their petrol for a year to cover the cost of the car and make some profit. Over the past few years, network providers have been trying to change the customer mindset away from expecting the latest handset free with every deal, to find ways of securing customers more cost effectively. Network providers have mountains of data from market research and analytics reports to decipher - the key is to find the customer insights which can be acted upon and designed into the proposition.
The devastatingly simple 'SIM only' offer is an excellent example of crystallising customer insight into a clear and compelling proposition. Offering a SIM card-only contract is not a new idea, but its successful promotion as an acquisition tool has the twin benefits of avoiding outlay on handsets and meeting underlying customer needs. The customer insights underpinning the proposition are that many valuable customers are tired of lengthy contracts, have handsets only one or two years old, want to keep their mobile number, and want a good deal. These insights have been directly translated into a proposition that successfully attracts new customers and helps retain existing ones.
Getting more from channels
Network providers view their own retail stores as a fundamental source for new customers; the number of new connections per month from their retail estate is a key metric. However, retail staff typically spend less than 20% of their time selling to new customers. The vast majority of visitors to stores are existing customers seeking help and advice or renewal of service. Therefore, network providers are always looking at ways to get more new customers into their stores so they can switch them away from the competition.
Network providers can now get more from their stores by creating and using insight to drive their strategies. For instance, Experian are able to estimate the local market potential of individual stores by using modelling techniques and multiple data sources. Combining this information with footfall data and the number of prospects visiting each store, we can assess which stores are over or under performing against the local market potential. This insight can be used to target marketing spend on the stores with the greatest potential. For each store, attractive prospects can be identified along with their channel and offer preferences. Prospects with the highest potential value can be cost-effectively contacted with offers which can be taken up in store. The insights can also be used to understand how best to differentiate signage and store layout across the retail estate, based on variations in the local customer base. Putting this all together, highly targeted and differentiated actions can be taken to drive new customers into stores.
Driving sustainable returns on marketing investment
An often overlooked source of competitive advantage for marketers lies in their own marketing processes and their ability to make the most of every marketing pound spent. If a company was able to consistently generate a higher return on marketing investment than its competitors, then this in itself would become a competitive advantage.
Marketing optimisation allows companies to make the right offer, to the right audience, at the right time and in the right way. Although it may sound like wishful thinking, this capability is now real; from the insight and decision-making software, to the ability to execute the decisions across different channels, through to the processes needed to make optimisation work. The mobile telecommunications market and other consumer markets are well suited to marketing optimisation and have the potential to realise substantial uplifts in return on investment.
Conclusion
Competitive advantage can come from a range of sources, including the customer proposition, the way channels are used, and the internal marketing processes that are used. However, with all of these, it is clear that generating and using insight is a fundamental part of creating advantage over the competition, and that creativity and expertise are required ingredients for sustained success.
The low-down on loyalty card data
David Buckingham, Commercial Director (FMCG), at Loyalty Management Group (LMG), looks at how marketers can identify and sustain a competitive advantage in a competitive market
Shoppers face an ever more bewildering experience when going shopping these days. The ongoing proliferation of products means shoppers are confronted with ever more choice and seemingly endless purchase decisions.
In addition to this, shoppers of Fast Moving Consumer Goods (FMCG) are faced with ever more marketing messages, as new communication channels become available. As well as traditional above-the-line press and television advertising, there is now greater use of the in-store environment, digital media, the internet, and many other channels. The internet is still largely unexplored in terms of FMCG marketing - it is estimated that the average shopper consumes over 20% of their regular media intake through the internet, whereas only 5% of FMCG advertising budgets are currently dedicated to this medium.
For the brand owner, this means that understanding the shopper is more important than ever before in gaining competitive advantage - but harder than ever to achieve. The more confusing the marketplace, the more unreliable our understanding of shoppers is. This is because many of the traditional market research methods used to understand shopper behaviour rely on small sample sizes and traditionally difficult to observe behaviour.
So, with all this additional noise in the marketplace how can brand owners build and keep a competitive advantage?
One of the tools that is developing into a 'must have' in the brand marketer's tool kit is loyalty card data. Used to its fullest extent, loyalty card data can provide a leading edge to brands wishing to more fully understand shopper behaviour, and crucially, help them take positive action as a result of the insights gleaned from the data. Loyalty card data, such as that provided via LMG's Self Serve tool, can provide new insight into macro and micro trends, such as, who are the important group or groups of shoppers for particular sectors and brands. This new data source really pushes the applications of loyalty card data forward, as it is derived from 100% of all shopper transactions, providing a level of detail that has not been available in the UK before now.
Such data can tell us what these shoppers look like in terms of their demographic profiles, where they live, their household composition and frequency of certain retail visits. The information can be used to segment not only the shoppers themselves, but the different shopping trips or missions that they make. Thus, it is now possible to understand the composition of the different types of store visit. This can provide critical new insight into how to target specific products to specific groups, and how to market and range particular products in store. It is this new granularity of information that makes this kind of insight possible.
Importantly, this information can now be mined even further, down to the individual day, sku (stock-keeping unit) and store, to understand what else is being purchased as part of a shopper's repertoire. This repertoire analysis can lead to new product opportunities being unearthed, as well as providing valuable feedback on new product success or failure.
Fast feedback on how a new product is performing is critical to enable any remedial action to be taken. This could include creating a targeted direct mail campaign aimed at the early adopters of a new product to effectively lock them into the brand over a period of time. Similarly, a concurrent direct marketing programme could target light users of a product or category with the objective of increasing their consumption, or of trading them up into premium areas. As the ongoing shopping behaviour can be monitored through loyalty card applications, brand owners can very quickly understand how their activity is impacting ongoing sales. This can be extended to look at the effects of different types of marketing activity; from different fixture layouts, localised promotions, in-store sampling activity, poster advertising, right through to regional door drops.
Given that an estimated 80% of purchase decisions take place at the fixture, it is vital for brand owners to understand exactly what is driving different shopping behaviours. The new technologies available today mean that previously unseen levels of detail are available, making loyalty card data an essential part of today's marketing world.
Used to its fullest extent, loyalty card data can become an ever increasing circle that is central to any brand marketers thinking. Purchase behaviour provides new insight as to how shoppers are acting in store. This in turn can drive new activity and new targeting from the brand, in conjunction with the loyalty card operator. The loyalty card information provides insight into how this refined activity affects sales performance, which can lead to tweaking of the brand messaging or targeting. Crucially, the whole premise is that not only the brand owner's gain, but the retailer gains, as category growth is promoted, and the shopper also gains, as they are faced with more relevant range, offers and in-store marketing.
Successful marketing on a limited budget
Alan Campbell, Creative and Strategic Director, Flipside Group, looks at how marketers can handle the challenges of marketing with limited funds
This may be a slightly radical view but there are only two real challenges to marketers faced with limited funds - mental challenges and intellectual ones. If you've got a big budget you can afford to think big. If you haven't, you need from necessity to think small. Get your head around that and the hard work can begin. Necessity, as we all know, is the mother of invention and you'll need to be creative with every penny you've got.
Marketers with big bucks can afford to take risks, make guesses about many aspects of their campaign, use mass media, and accept that some degree of wastage is inevitable. In complete contrast, successful marketing on a limited budget is all about getting 'down and dirty' with the detail.
The good news is that thinking small and building a campaign from the 'bottom-up' in an incremental and integrated fashion, is not only a sensible approach, but wholly possible using lower cost and much more accountable channels.
According to Kotler, the sole purpose of marketing is to 'create a sale'. With that focus in mind, the simple task of any marketer is to create an interface between the potential customer and the brand where a transaction can take place. But there's more good news: marketers can now put that transacting ability right at the customer's finger-tips - through the digital world.
Some traditional brands have been thriving in the digital media environment for quite some time now, but what is changing is that costs are coming down, whilst both the penetration and effectiveness of the medium are going up.
Obviously you'll need a web site, but the cost of entry is tumbling and you can now get more functionality for your money. Maintaining a site demands less resource than ever before and sites are more reliable. Customers are also increasingly coming to trust online purchasing. The other things you'll need are a good web statistics package and a well structured database so that in the fullness of time you can build a CRM campaign to intimately understand your customers' needs and then meet them.
Going to market across the digital landscape is cheaper too. If the website has been set up for Search Engine Optimisation (SEO) you should get a regular footfall of customers simply from search engines. While SEO has a natural time lag for technical reasons, it is extremely cost effective. In the meantime you can test the market by paying for key words or sponsored links. If you already know your market demographic, many of the networking sites, with their wealth of personal data about their members, can deliver online banners, skyscrapers and mid-page adverts at an amazing level of detail, down to age and location. Online advertising is still cheap as a medium, and creative costs can be much lower than those of traditional campaigns.
Likewise, once you have your database, html emails cost less to create than printed mail pieces, are very much cheaper to deliver, can be much more accountable, and drive instant business. Similarly, SMS text messaging can deliver huge impact at minimal cost with little or no wastage.
Integrate all these things and by now you'll be a huge success as a marketer and your Finance Director will be throwing ever more money at you. But, even if it's time to turn your attention back to more traditional media, let's not be imprudent or start guessing.
Your web presence will already have shown you how to check the effectiveness of every penny you spend, so keep on 'thinking small' and when you start advertising, remember to stay lean. If you've got a fantastic website with everything a buyer needs to know on it you may only need a small ad campaign.
Think small press spaces and then double the size to see if you get double the response. Do the same with frequency - the web stats won't lie. Always insist on relevant editorial or a good news page. Don't be tempted to spend money in glossy magazines, on radio, or on posters, as these environments seldom drive web visits. Don't be afraid to test low-cost TV channels and don't be afraid of budget creative to start with, as consumers are generally a lot less discerning than you think. Talking heads still sell product.
Building a low-cost campaign by integrating all these media takes time and a lot of effort. Without doubt, it means a lot of hard work and while it may well boggle your mind to start with, it might just produce mind-boggling results.
Realise the value of marketing research
David Day, CEO Europe, Lightspeed Research, looks at the vital importance of market research in uncertain times
With more than two decades of experience working in market research, David Day has often heard marketers say that they've had to cut their market research spend because of reduced budgets. However, he firmly believes that market research is even more important when times are tough. Here, he shares some tips for getting the most from your market research budget.
Good market research can save you money
Spending wisely on market research is even more important in uncertain times. Carrying out the right research can ensure that precious budgets are targeted to exactly the right media and audience, that new concepts and product launches are successful, and that all valuable resources are exploited to their full potential. Saving the market research budget but spending money on poorly targeted promotions or setting the price of your latest new product launch at the wrong level for the audience is quite simply a false economy. Think of market research as a way of spending a small amount of money to save a large amount and you'll be doing your business a big favour.
Don't be brief on the Brief
One of the most important elements is to get the brief right from the very start. Time spent internally preparing a detailed specification with clear objectives for your suppliers will always pay off. If you are clear about what you need from the outset, your suppliers can dedicate their time to making sure you get the results you want for your budget.
A key element of a good brief is to state exactly who you want to research. Get into the habit of really focusing on the information you are looking for, and share this in the project brief. That way, you won't be wasting money researching the wrong consumers, and you'll get results that can be applied to your specific business objectives immediately.
Price compare - but don't be promiscuous
Even if you always work with the same companies, do get into the habit of sending your brief to a number of suppliers from time to time. Comparing prices is a useful way to know you are getting value for money from your present supplier. It also allows you to renegotiate existing rates, or even swap suppliers.
Think long-term supplier relationship
One important way to get the most from your suppliers is to think about your long-term relationship with them. You are in a much stronger position to negotiate a better price if your supplier knows that there are projects coming regularly. It also means that you can build stronger relationships with account managers who can understand your business - and help make the most of your budget.
Think twice before you DIY
It is tempting to think that you can do it yourself - after all, you know your business, you have a client list and a website and survey software - it can't be that hard to write a survey and analyse the results. Like accountancy or law, market research is a professional skill. Writing surveys is a skill. An experienced market researcher will know how to phrase questions and design surveys to meet your objectives. They'll insist on a test period and they'll spot and address inconsistencies in results when the survey is tested. To get the right results for your business, you should always stick with professionals.
No price on quality
To get the most value from your research it's recommended that you always work with a reputable supplier who adheres to quality standards. Make sure they are a member of the Market Research Society. Ask what standards and quality checking procedures they have in place.
For instance, in the online panel environment, there is a huge variation in the quality of panels and this is reflected in the price. Using a high-quality panel can save you money in more ways than just the cost of your survey; the results will be a much more reliable basis for your business decisions.
If one supplier quotes you a price half that of the others, you need to ask yourself how they can do it. Ask them questions: Is the panel nationally representative? How often are the panellists surveyed? Are the panellists profiled? Does this company have the sample you want? And it's not just online panels - the same applies across all market research methods.
Don't forget the Omnibus
Omnibus surveys are often overlooked, but don't rule them out if you only have a few questions to ask.
Realise the value of marketing research
James McGruer, Head of Government Marketing at Royal Mail, looks at the barriers to effective government communication, and how best to communicate with audiences of different ages and demographics
The government's marketing budget often comes under scrutiny, with ministers keen to demonstrate they are communicating with the public as effectively as possible.
Central government spend on advertising is among the highest in the UK and how this budget is divided among marketing channels is naturally subject to a range of measures and analysis to ensure efficiency. Of course, individual government departments have many different messages to get across. Some need to communicate more than others, and therefore some spend more than their counterparts. But more often than not, campaigns from central government or local authorities face the same challenge - how to most effectively reach a diverse audience.
One of the first things to consider is segmentation of which specific groups of people are open to receiving messages through specific media channels.
The increase in the number of media channels brought about by the advent of the digital age has fragmented audiences, making it more and more difficult to engage the right people, whether you are a commercial brand, a government department or a local authority. For example, while it may have been possible to reach well in excess of ten million people through a prime-time TV slot twenty years ago, advertisers are lucky to reach five or six million today. And despite the rise in digital technology, it's important to remember that many of the so-called 'hard-to-reach' people are still alienated or confused by the rapid advance of online and mobile marketing or simply do not have internet access.
As a result of the fragmentation of channels, the marketing community has had to adapt and look towards a more integrated approach, using a combination of different media to communicate messages as widely as possible and engage different audiences.
So what is the best way to handle a campaign aimed at reaching a wide and varied demographic? When it comes to government campaigns, different channels have specific benefits. Email, for example, can be a cost-effective way of sending pertinent reminders to citizens who are 'connected', once email permission is obtained. Radio shows, TV and press ads can give messages to a wide audience simultaneously. And direct mail's strength is that it can be used to communicate complex or sensitive information to all homes in an area or demographic subset.
Integration is key and will become even more important as channels continue to fragment and new media channels emerge.
Of itself, the post is a very effective way of reaching all intended audiences. For while there may be several newspapers or radio stations in an area, there is only one letterbox to a resident's home. The use of mail also means that no group is excluded from the ability to receive the information. For example, certain people, such as the elderly, are more likely to shun or simply not have access to new digital forms of communication compared to younger age groups. By delivering information directly to their homes, local councils can ensure such people are engaged and receive the requisite information.
Another advantage of mail is that the public appears to pay more attention to it than some commentators might suggest. Research has shown that more than half of people read and retain direct mail, and the figure for those keeping material has increased in each of the last three years. Meanwhile, people are more than twice as positive towards receiving government information through the letterbox compared with post from organisations in any other sector, so a clear majority welcome such communication.
Combining mail with internet campaigns has proved particularly effective. The channels can be used in tandem to reach as broad an audience as possible across a wide age and socio-economic range. According to a Royal Mail survey, more than half of confident web users (55 per cent) prefer to be contacted by a combination of direct mail and online, while 69 per cent feel that email is best used for supporting or clarifying the mail they receive.
Among web-savvy citizens, attitudes towards mail-led government campaigns are positive: 34 per cent of web users perceive direct mail to be more professional than online communications, while 42 per cent believe the post offers a more personal form of contact. Meanwhile, 48 per cent of people say it's easy to take in information from the direct mail they receive compared to just 20 per cent when asked about email.
Whatever the campaign message and scale, ensuring an integrated approach and using the correct channels is key to targeting such wide audiences. Fail to use the right media at the right time, and many intended recipients will not get the information they need.