Thought Leadership.
SECTION ONE
SECTION TWO
Loyalty Programs Don’t Treat
Heavy Buyers as Special

By Michael Schiff

There has been a surge in the number and type of loyalty programs over the past few years.  This is due in part to new technology that has increased the number of offerings on the market: mobile messaging is growing; Entry Point Marketing offers front-of-store targeted offers; My Coke Rewards brought proof-of-purchase into the digital age. Meanwhile, the proliferation of direct mail shows no signs of abating.

It has become hard for manufacturers and retailers alike to ignore the torrent of data that is available – be it POS, customer segmentation studies, panel data, or internal databases. They are all saying that the current customer base is vital to the health of an organization. The weakening economy and the complex competitive landscape has magnified the “churn” rate – a problem only exacerbated by the increased difficulty in attracting new users to a brand. This, combined with new technologies, is why there has been renewed focus on the core or “heavy” buyer.

Unfortunately, many of these programs are not driving incremental volume. Even worse, many are simply subsidizing a sale that would have occurred naturally. They are not treating heavy buyers as special.

When these programs fail to produce positive returns or drive incremental volume, managers are often quick to blame the vehicle. They lament that the program was too costly to pay out, or it failed to engage with the correct customer, or it was not aligned with the customers’ purchase cycle. And so on. 

In other instances, they blame the consumer. “All they are interested in are coupons,” they figure. Some believe that their core customer target is too broad to reach in a cost effective manner.

One area that rarely receives the blame is the messaging or creative. More often than not, the creative used to communicate with one’s core buyers is a slight repurposing of a brand’s national campaign. Sometimes it isn’t even repurposed at all. It is merely copied wholesale and sent to these heavy buyers.

The rationale for this is simple and obvious. A lot of time, effort, and money go into developing the national campaign. It is tested, placed before consumers, modified, and tested again.  Most of this creative is aimed at incenting trial – getting non-users to try the product; at best, it may be focused on getting lighter users to use more. To do that, much of the communication has to focus on the brand’s key equities. 

The problem is that most heavy buyers have already bought into a brand’s national campaign – usually before it launches. If a core consumer of a popular branded pain reliever uses 300 or more tablets a year (almost one per day), I would hope that they have already bought into the brand’s general advertising that the medicine stops pain safely and effectively. If the core consumer of a frozen dinner brand buys 40 or more year, they probably already believe that the brand tastes good, and feeds their family quickly and cheaply.

Yet this is typical of the creative most often sent to a brand’s strongest users.  In other words, those consumers who buy the brand a lot receive a “boilerplate” message, usually along with a coupon. But it really doesn’t matter how efficiently we can locate these consumers if we fail to deliver any special communication that is relevant to them and their lifestyle.

Brand marketers miss a golden opportunity when fail to use information from focus groups, consumer segmentation and other research in a targeted message or story sent to heavy buyers. The goal should not be to simply connect with heavy buyers, but to connect with them on a stronger level and build up the brand’s emotional relevance. What insight can a brand give them about their policies, heritage, people etc.; peek behind the curtain to build a stronger emotional connection. Can the message pass the “squint test”?  In other words, are we communicating in such a way that if one squinted at the brand name, one would not be able to apply this message to any other brand in the category?

We also do not have to hit our consumers over the head with the message.  We can choose tactics, venues, and creative that align with our core users’ mentality.  ZonePerfect, an energy bar, had research suggesting their core users are above-average supporters/users of arts and entertainment. The company made sure to align their heavy buyer communication with these areas.  ZonePerfect can be found in forums such as SXSW and the Cannes film festival where they host musicians, as well as pass out free samples and coupons. Their website is very focused on the arts and they align themselves with VH1’s Save the Music.

The goal is to build up brand loyalty among heavy buyers and prevent them from being enticed by competitive offers. Successful communication does that by building up the FUD Factor (Fear, Uncertainty, and Doubt) that consumers feel when it comes to competitive brands. 

Here’s the bottom line: When using all of the new technologies that connect with all consumers, marketers should treat their heavy buyers as a separate and special group.

Michael Schiff is managing director of Partners in Loyalty Marketing, a Chicago-based consultancy (www.partnersilm.com).

What Marketers Need to Know
About Today’s Process

By Paul Thompson

Category management has historically been a defined 8-step process that has been somewhat tactical and very much influenced by the Efficient Consumer Response initiative of the 1990s.  Many of the benefits were supply-side driven and/or distribution driven. Yes, CPG manufacturers achieved retail improvements, but they often came at huge costs in man hours and were driven by how the retailer defined the category, not by the consumer.

The paradigm of category management is changing. Retailers are poised to integrate manufacturers’ consumer data with what they know about their shoppers. In fact, much effort by retailers is being done to understand and influence shopper behavior at the point of purchase. Retailers have segmented shoppers based on demographic and psychographic profiles. The primary goals of retailers are to:
  • Increase the frequency of trips
  • Increase the ring per trip
  • Expand categories purchased

Meanwhile, many CPG companies have vast amounts of consumer and shopper research that give them incredible insights about how, where, when and why consumers buy and use their products.  Unfortunately, that information often never becomes actionable with Sales organizations to improve performance with retailers. If managed correctly, the knowledge estate that CPG manufacturers have spent millions of dollars to create can be leveraged to create strategic platforms with retailers around macro trends like health and wellness, aging population, convenience, and so forth. Retailers are also looking for insights and understanding to drive new and cutting-edge store design concepts that are more relevant with consumer purchase behavior.

Integrating the use of consumer and shopper information with go-to- market information benefits the CPG manufacturer in many ways. First, this information serves to align marketing and sales internally on the role of the marketing mix. Externally,  it gives the retailer a better understanding of how the category is organized from a consumer perspective and where the growth will come from. What makes these insights actionable for the retailer is the integration of information such as promotion response, shelving and assortment with consumer and shopper data.

The manufacturers’ knowledge estate may take on many forms and be in different levels of development, but it consists primarily of:

Competitive Frame – What does the product compete with at broad level and what products can be substituted for its use?

Purchase Structure – How are the segments of this category organized and how do shoppers make their purchase decisions?

Need States – What is the attitude and usage information that defines what needs the product fulfills and the important benefits it provides?

Channel Switching – What causes shoppers to switch brands and channels and where do they go when they do switch?

Promotion Response – What is the role of trade promotion for merchandising and what is the most effective use?

Shelf Management and Assortment – What is the best way to organize the shelf based on how the consumer shops the category? What selection of products best fulfills their needs?

Consumer insights are no longer used just for marketing products. Best-in-class CPG companies are working hard to get these insights into the hands of retailers so they can

make better decision about how to organize store layout, shelf layout, and product adjacencies based on how consumer shop. With this information, they can make better decisions about how to merchandise the category for consumer relevance and where the pressure points are

in regards to price-gap relationship to private label products, etc. By having a better understanding of what products are complementary and substitutable, they will make better decisions about what products can be bundled together for merchandising and co-promotion that provide incremental sales and which are cannibalistic.

From an assortment perspective, the goal is to make sure that all of the distinct consumer segments are represented with the right number of SKUs and the consumer’s preferences for things like flavors and forms are consistent with their level of importance in the purchase hierarchy. This consumer-driven view of assortment in many cases is not how retailers and their syndicated data providers have previously organized category information.

In sum, the face and direction of category management is changing.
It is morphing into a more consumer-centric “shopper management” approach. Most importantly, this metamorphosis is an integrated activity between the combined knowledge estates of the manufacturer and the retailer.

Paul Thompson is a managing partner with Henry Rak Consulting, a Chicago-based consultancy. To learn more about HRCP and its services, visit www.hrcpinsights.com.

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The Future of the Consumer Products Industry
The end of the world...or a world of opportunity?

The market dynamics for the Consumer Products Industry are changing – rapidly and drastically. Explosive population growth, increased urbanization, an evolving customer base and global climate and natural resource issues are combining to create both significant opportunities and daunting challenges.

An emerging class of consumer is poised to become the middle class of tomorrow, and Consumer Products companies will need to act quickly
and decisively to establish brand loyalties, especially in the face of aggressive private-label competition.

At the same time, increasing consumption, climate changes, energy shortages and other resource issues are putting pressure on production, cost
and distribution.

Going forward, the status quo will no longer suffice. To flourish in this rapidly changing world, Consumer Products companies must focus on
flawless execution in connecting with consumers, managing supply chain efficiencies and collaborating with channel partners.

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SECTION THREE