Creating Power
                                          Customers
                                          From Power Br...
Contents

  Creating Power Customers not Power brands

  Marketing to Power Customers

  Manage Customer Migration not Jus...
Creating Power Customers From Power Brands


I'm waiting in line with my 4-year-old daughter, Tina, at a fast-food restaur...
Creating Power Customers From Power Brands


A silent revolution is brewing in the minds of urban consumers. And the revol...
Creating Power Customers From Power Brands



Manage Customer Migration
not Just Attrition
Based on insights from McKinsey...
Creating Power Customers From Power Brands



Creating Experience Brands
The third paradigm shift the marketer needs to ma...
Creating Power Customers From Power Brands


The focus is on the "experience" that the customer gets. Not only is this exp...
Creating Power Customers From Power Brands



                    The Hansa Cequity Trip Segmentation
                    ...
Creating Power Customers From Power Brands



Process Methodology
      Store Profiling                                   ...
Creating Power Customers From Power Brands



The Hansa Cequity Advantage
Our unique trip segmentation framework analyzes ...
Creating Power Customers From Power Brands



About the Author
Ajay Kelkar is the COO and Co-Founder of Customer Equity So...
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Hansa cequity creating power customers (global)

  1. 1. Creating Power Customers From Power Brands The Marketing Mind Series Thoughts and viewpoints from an analytical marketing professional on all things marketing, from the elementary to the profound.
  2. 2. Contents Creating Power Customers not Power brands Marketing to Power Customers Manage Customer Migration not Just Attrition Creating Experience Brands Building a Successful Experience Brand About the Author The Hansa Cequity Trip Segmentation Framework The Hansa Cequity Advantage
  3. 3. Creating Power Customers From Power Brands I'm waiting in line with my 4-year-old daughter, Tina, at a fast-food restaurant. It is 1:30 on a Saturday afternoon, and we've "forgotten" to eat lunch. Tina is hungry and tired from running errands with me. It's been raining all day, and we're both soaked. Now we've been waiting ten minutes to place our order seven minutes beyond the industry standard. Finally, I order for Tina. "Sorry, sir," the salesperson says. "We can give you your meal, but there are no more toys." Five-year-olds may understand "no toys," but Tina begins to wail. For her, this restaurant is about trinkets, not food. In her eyes, its failure to supply the toy has condemned the brand. It happens every day. Customers are disappointed and even mistreated. Most companies fail to quantify the cost of poor service and instead mistakenly believe that more advertising will somehow take care of the problem. Now Tina doesn't want to go back to that restaurant. Like many dissatisfied customers, she won't risk another disappointment. She is the principal decision- maker in this meal occasion fast-food lunch and her preference carries the rest of the family. Moreover, with a life expectancy of more than 70 years, Tina is worth at least a few hundred dollars in discounted revenues to this restaurant chain and even more if she grows up to become a "group influencer" or the head of a large household. One often reads about "power brands" and how some of the larger FMCG companies have tried to pull out of the recession by focussing on these brands. But isn't it time for businesses to look for "power customers" - who contribute disproportionately to the company's topline and profits. But to put in place a "power customer strategy" needs companies to think about individual customers and not amorphous masses. Most marketing in modern economies are however dominated by "product centric" initiatives which rely on traditional mass marketing channels and advertising as the dominant medium. On the other hand, retailers, banks, airlines, and other service businesses are leveraging their superior customer relationships and retailing skills to take a share of the limited customer budget. But there is a way out. If brands could form deeper relationships with their customers, they would enjoy greater share of wallet. By expanding the amount and range of business they do with individual customers, they would be in a position to use relationship pricing-trading off margin on individual products for volume in the total bundle of offerings-to compete more effectively with the product specialists. Developing this kind of customer franchise requires a radically new approach to Marketing. Increasingly developing economies are becoming more service oriented, but the mindset still remains manufacturing focused. It is far easier to market a "product" which a consumer can hold versus a "service" which is by nature fragmented. There is also an increasing trend towards "servisation" of products. As modern economies move increasingly towards services, consumers move from commodities, to services to brand experiences. Case in point, coffee is priced low at the local wholesale market, but is sold as an "experience" at coffee retail chains such as Starbucks for $5/cup. 1
  4. 4. Creating Power Customers From Power Brands A silent revolution is brewing in the minds of urban consumers. And the revolution is about a change in expectation about how brands "build relationships" with customers. The question is, are marketers who have been used to "building brands" able to fathom the changes that "building relationships" demand? And what do traditional Marketers need to do to effectively compete in the service economy? Marketing to Power Customers The first paradigm shift the marketer needs to make is to think "one to one" vs. thinking mass. Most marketers are used to thinking mass, and it becomes a struggle to think "one on one". Most service providers like advertising and promotion agencies are geared to tackle mass market action. Today technology allows the marketer to run extremely personalized campaigns. Increased relevance and personalization can actually allow marketers to "mass customize" relationships. In fact, most business that drive "Database acquisition" are today not in "Retention" mode. As the Cellular, Retail, Insurance and Banking businesses mature, those opportunities will open out. And yet the opportunity to build "Relationship Marketing" in developing economies is large because most consumers are still eager to hear marketing messages despite being inundated with huge amounts of junk mails and telephone calls. Consumers are far more amenable to allow marketers to build a relationship if the message is "relevant". The other issue is that most corporate decision makers still don't have a body of "Relationship Marketing" experiences which spell winning case studies. There is a huge need to evangelize with top management on the science of marketing to "power customers". Marketing to individual customer segments is an expertise which needs far more "Left brained" thinking than the usual forms of marketing. Even today the best marketers would rather produce a "winning advertising campaign" which is largely visible than invest energies in the analytical methods required to market to "Power customers". An example of this is how a Retailer can use the huge volume of customer data that he has to devise profitable "customer paths" within his stores. At Hansa Cequity, we call this methodology Trip segmentation. Every customer is different from the other, and every trip he makes to the store is different from his other trips. Trip Segmentation helps retailers analyze these trips individually, and helps them increase the overall revenue from the customer by: Increasing the frequency of trips to the outlet Increasing the value of each trip to the outlet Trip Segmentation describes trips in terms of a set of variables (e.g., total dollars spent) and segments customer shopping trips into groups, and identifies differences that can be leveraged to create value. 2
  5. 5. Creating Power Customers From Power Brands Manage Customer Migration not Just Attrition Based on insights from McKinsey research studies, the greatest profit lever is to focus on customer migration - the change in customer value over time. Managing customer migration is a powerful new approach that is used very successfully at Hansa Cequity. In the credit card industry, for example, the annual value lost from customers who defect is only one-third of that from those who remain customers but use their cards less. The implication for marketers is that there is an opportunity, which is substantially larger than traditionally reported by top loyalty research; but focusing on defection alone misses most of it. Managing customer migration is more powerful than other approaches for several reasons. It captures much more of the total opportunity than narrower measures like defection. And it is a leading indicator that allows marketers to catch customers before they are gone for good. Also managing migration is highly actionable because it relies on readily available customer behavior data. Of course this does not mean one does do not look at attrition. Declining customer loyalty means that customer retention is under pressure in many markets. The problem is exacerbated by online media which today allows you to get comparative quotes for almost any product or service in seconds. All the more surprising then that most marketing budget is disproportionately allocated to acquisition. This makes perfect but unprofitable sense when you consider that if little money is spent on retention without any formal strategy, you will lose large volumes of customers. You will also feel compelled to constantly increase customer targets to top up a very leaky customer base. It has been widely documented that new customer acquisition is nearly five times costlier than retaining existing customers. Still most marketers end up apportioning lower marketing budgets for customer retention. Solving the problem of customer retention is not complex, but it does require the development of a focused plan and the ability to observe and measure customer behavior. One of the great challenges in retail is identifying customer attrition and retaining customers that may leave the brand. Retailers are extremely savvy in measuring Gross margin returns on three vectors: GMROI (Gross margin return on Inventory), GMROF (Gross margin return per square feet) and GMROL (Gross margin return on labour). At Hansa Cequity, we do a lot of work with retailers on the overall customer strategy. One vector that we added to this troika is GMROC (Gross margin return on customers). What needs to be kept in mind is the fact that retail attrition is silent: customers do not need to close an account or terminate a service. They simply walk out and never return. 3
  6. 6. Creating Power Customers From Power Brands Creating Experience Brands The third paradigm shift the marketer needs to make is to look beyond advertising to build the brand. Years ago a successful birthday party would be centered on a cake made from scratch. Today, a "successful" birthday party must be staged at some special place like McDonalds. And customers are willing to pay a thousand times more for such a birthday "experience" than for the raw ingredients of a birthday cake! Historically, modern economies have three outputs - Commodities, Goods and Services. "Staging Experiences" has become a fourth, previously unarticulated and with higher value economic output. While Commodities are fungible, Goods tangible and Services intangible, Experiences are memorable. Staging experiences is about engaging customers. The richest, most memorable engagements involve all Four Realms of an Experience - Entertainment, Education, Escape, and Estheticism plus the five senses. Not surprisingly, the notion of "experience brands" was developed in the context of the retail market, specifically Retail & Banking. According to the above theory, a brand is a promise to consumers that they can rely on to guide their choices. There are four general approaches to developing such a promise. While not necessarily mutually exclusive, these approaches represent different levels of ambition and can have different levels of financial/bottom-line implications for the company. The simplest approach (level) is called "threshold branding". This is limited to communication and requires promoting name recognition and an image of corporate strength and stability. This branding approach can foster brand awareness, but does not offer any differentiation in the market place. The next level of branding is "functional branding." Here the focus is on product features. The brand promise needs to emphasize specific functional benefits and distinctive attributes. Advertising is then used to communicate these differences. This works well for pharmaceuticals where differences in product specifications are important to consumers/physicians. The vulnerability lies in fast-moving me-too players. The third approach (level) of branding is termed "image branding." The focus is not only on product features and benefits, but on communicating an image that is appealing to the consumers' ego, and is consistent with personal aspirations of targeted segments. Image brands are most applicable for products with visceral appeal, such as cars, perfumes, etc. The final and highest level of branding is "experience branding." This, although the most challenging to achieve, once established, is the easiest to defend. Also, this is most applicable for organizations that are in the service industry and have a large number of customer-facing employees. 4
  7. 7. Creating Power Customers From Power Brands The focus is on the "experience" that the customer gets. Not only is this experience required to be of highest quality but it also needs to be consistent over multiple occasions and across multiple touch-points. Note that the first three levels of branding can be executed via marketing initiatives. However, experience branding requires the "people" to "live the brand." It requires a strategic high-level commitment in the organization, followed by measurement, communication, and training to all employees at all levels. Building a Successful Experience Brand A successful experience brand delivers effectively on its promise of a particular experience. The steps to building such a brand are straightforward but require thorough application and consistency. They are, First, to define an experience that customers will value; Second, to deliver that experience through everything that the company does with particular emphasis on front-line employee behavior; Third, to measure the impact of that delivery on the customer; and Fourth, to lead and motivate the organization to deliver the experience consistently. At this stage, most service organizations are far too focused purely on customer acquisition. But as the market for services evolves, companies will need to deliver relevant value to "Power customers" and build "experience brands" to survive and grow in a competitive environment. 5
  8. 8. Creating Power Customers From Power Brands The Hansa Cequity Trip Segmentation Framework It is highly obvious that individual customer needs and resultant shopping habits vary greatly from each other. Leveraging these huge amounts of data enable retailers to increase the revenue accrued per customer, by being able to analyze each shopping trip individually. Hansa Cequity's unique Trip Segmentation approach creates further opportunities to sell more, by describing trips in terms of set of variables (e.g., total rupees spent), segmenting trips into groups, and identifying differences that can be leveraged to create value. What it achieves in offering is a ready opportunity to: Increase the frequency of trips to the store, and Increase the value of each trip to the store, by grouping customer shopping visits in clusters based on intent, time and demographics. For example, a customer buying groceries may not be inclined towards buying doughnuts, but a customer buying dairy products and sweets shows a higher probability of buying dough nuts. By being aware of individual customer trends, we should be able to propel our customers through aisles where doughnuts and other related bakery products are merchandised. Another piece of information that may be come handy is the fact that customers would show a greater propensity to buy dairy products in the morning than in the later hours of the day. Changing Retail Business Dynamics Increasing number of mass-campaigns have Changing Customer Requirements negative effect customers Customer requirements change with trips Need to innovate and come up with Product categories bought in each trip is promotions suited to every customer trip based on this requirement Referencing with Time Understand Customer Mindset Products sold in the morning need not be sold Customer buying "dairy products" have a in the evening different mind set to the customers buying Month-end or a weekend shopping is different "groceries" for stock up to middle of the month/week shopping Purchase of products will change according to his mind-set 6
  9. 9. Creating Power Customers From Power Brands Process Methodology Store Profiling Product Profiling Helps identify the store dynamics Helps analyze product assocoations based on the customer demographics, and customer behaviour with respect customer behaviour, MPV and store to particular product. catchment area profile Demographic Details Promotion Details Market Potential Store catchment Category Details Product Details Transaction area profile Customer Customer behaviour Product Details Analyze customer behaviour and trip type Value Capture the transaction details for product distribution categories Creating derived variables to capture dynamic Create the derived variables to capture behaviour and trends timeline trends Create indices and score customers Create product association matrix Construct Profiles Construct profiles Trip Store Profiles Segments Products Profiles Insights and Actionables The following is an overview of insights and actionables that are generated post implementation of the Hansa Cequity Trip Segmentation framework: What products are most likely to be in the basket on Immediate Need trips? Which brands skew toward smaller fill-in trips and reflect demographic tilt in case of smaller households? Which product is sold more in quick "Urgent Need" trips leading to more impulse shopping? Which products should be merchandised together to improve their sales? Which product is more susceptible to the shelf influences? Which customers can be given promotions based on their current trip data, thus increasing their frequency of trips? What kind of in-store promotions and campaigns need to be created to increase customer wallet share for the particular shopping trip? How does your trip mix vary across outlets and retailers? What are the different types of trips taking place in my store and what are the profiles of customers for such segments? 7
  10. 10. Creating Power Customers From Power Brands The Hansa Cequity Advantage Our unique trip segmentation framework analyzes customer trips at two levels - store and product. For every store a complete profile of the customers is created basis their age, gender, pin code wise distribution, visit frequency, ticket size, vintage, items purchased, etc. At a product level the profiling is done basis product association, transactions and promotions. This information is then mapped to draw insights, identify opportunities and recommend new tactics for better business transformations. Read our insights and thoughts on how to drive better business transformations through analytics based approaches at http://blog.hansacequity.com/. 8
  11. 11. Creating Power Customers From Power Brands About the Author Ajay Kelkar is the COO and Co-Founder of Customer Equity Solutions (Hansa Cequity), a marketing analytics company. He has over 18 years of experience in customer-driven marketing across a wide range of industries like soft goods, banking & financial services & retail. In his earlier stints he was Head of Marketing at HDFC Bank and prior to that at Shoppers' Stop. He is among the most respected analytical marketing professionals in India. He has extensive experience in starting with simple data-led marketing and scaling-up complex analytics based cross-sell, up-sell programs. Know more about Hansa Cequity at http://www.hansacequity.com/. Read our insights and thoughts on analytics and better marketing practices at http://blog.hansacequity.com/. 9

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