Hansa Cequity Creating Power Customers (Global)


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Some customers are more equal than others! Creating a "Power Customer" strategy

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Hansa Cequity Creating Power Customers (Global)

  1. 1. Creating Power Customers From Power BrandsThe Marketing Mind SeriesThoughts and viewpoints froman analytical marketing professional onall things marketing, fromthe 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 BrandsIm waiting in line with my 4-year-old daughter, Tina, at a fast-food restaurant. It is1:30 on a Saturday afternoon, and weve "forgotten" to eat lunch. Tina is hungry andtired from running errands with me. Its been raining all day, and were both soaked.Now weve been waiting ten minutes to place our order seven minutes beyond theindustry standard. Finally, I order for Tina. "Sorry, sir," the salesperson says. "We cangive you your meal, but there are no more toys." Five-year-olds may understand "notoys," but Tina begins to wail. For her, this restaurant is about trinkets, not food. Inher eyes, its failure to supply the toy has condemned the brand.It happens every day. Customers are disappointed and even mistreated. Mostcompanies fail to quantify the cost of poor service and instead mistakenly believethat more advertising will somehow take care of the problem.Now Tina doesnt want to go back to that restaurant. Like many dissatisfiedcustomers, she wont risk another disappointment. She is the principal decision-maker in this meal occasion fast-food lunch and her preference carries the rest ofthe family. Moreover, with a life expectancy of more than 70 years, Tina is worth atleast a few hundred dollars in discounted revenues to this restaurant chain and evenmore if she grows up to become a "group influencer" or the head of a largehousehold.One often reads about "power brands" and how some of the larger FMCG companieshave tried to pull out of the recession by focussing on these brands. But isnt it timefor businesses to look for "power customers" - who contribute disproportionately tothe companys 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 thedominant medium. On the other hand, retailers, banks, airlines, and other servicebusinesses are leveraging their superior customer relationships and retailing skillsto take a share of the limited customer budget.But there is a way out. If brands could form deeper relationships with theircustomers, they would enjoy greater share of wallet. By expanding the amount andrange of business they do with individual customers, they would be in a position touse relationship pricing-trading off margin on individual products for volume in thetotal bundle of offerings-to compete more effectively with the product specialists.Developing this kind of customer franchise requires a radically new approach toMarketing.Increasingly developing economies are becoming more service oriented, but themindset 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. Thereis also an increasing trend towards "servisation" of products. As modern economiesmove increasingly towards services, consumers move from commodities, to servicesto brand experiences. Case in point, coffee is priced low at the local wholesalemarket, but is sold as an "experience" at coffee retail chains such as Starbucks for$5/cup. 1
  4. 4. Creating Power Customers From Power BrandsA silent revolution is brewing in the minds of urban consumers. And the revolution isabout a change in expectation about how brands "build relationships" withcustomers. The question is, are marketers who have been used to "building brands"able to fathom the changes that "building relationships" demand? And what dotraditional Marketers need to do to effectively compete in the service economy?Marketing to Power CustomersThe 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 struggleto think "one on one". Most service providers like advertising and promotionagencies are geared to tackle mass market action. Today technology allows themarketer to run extremely personalized campaigns. Increased relevance andpersonalization 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, thoseopportunities will open out. And yet the opportunity to build "Relationship Marketing"in developing economies is large because most consumers are still eager to hearmarketing messages despite being inundated with huge amounts of junk mails andtelephone calls. Consumers are far more amenable to allow marketers to build arelationship if the message is "relevant".The other issue is that most corporate decision makers still dont have a body of"Relationship Marketing" experiences which spell winning case studies. There is ahuge need to evangelize with top management on the science of marketing to"power customers". Marketing to individual customer segments is an expertisewhich needs far more "Left brained" thinking than the usual forms of marketing.Even today the best marketers would rather produce a "winning advertisingcampaign" which is largely visible than invest energies in the analytical methodsrequired to market to "Power customers". An example of this is how a Retailer canuse the huge volume of customer data that he has to devise profitable "customerpaths" within his stores.At Hansa Cequity, we call this methodology Trip segmentation. Every customer isdifferent from the other, and every trip he makes to the store is different from hisother trips. Trip Segmentation helps retailers analyze these trips individually, andhelps 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 outletTrip Segmentation describes trips in terms of a set of variables (e.g., total dollarsspent) and segments customer shopping trips into groups, and identifies differencesthat can be leveraged to create value. 2
  5. 5. Creating Power Customers From Power BrandsManage Customer Migrationnot Just AttritionBased on insights from McKinsey research studies, the greatest profit lever is tofocus on customer migration - the change in customer value over time. Managingcustomer migration is a powerful new approach that is used very successfully atHansa Cequity. In the credit card industry, for example, the annual value lost fromcustomers who defect is only one-third of that from those who remain customersbut use their cards less.The implication for marketers is that there is an opportunity, which is substantiallylarger than traditionally reported by top loyalty research; but focusing on defectionalone misses most of it. Managing customer migration is more powerful than otherapproaches for several reasons. It captures much more of the total opportunity thannarrower measures like defection. And it is a leading indicator that allows marketersto catch customers before they are gone for good. Also managing migration is highlyactionable because it relies on readily available customer behavior data.Of course this does not mean one does do not look at attrition. Declining customerloyalty means that customer retention is under pressure in many markets. Theproblem is exacerbated by online media which today allows you to get comparativequotes for almost any product or service in seconds. All the more surprising thenthat most marketing budget is disproportionately allocated to acquisition. Thismakes perfect but unprofitable sense when you consider that if little money is spenton 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 veryleaky customer base. It has been widely documented that new customer acquisitionis nearly five times costlier than retaining existing customers. Still most marketersend up apportioning lower marketing budgets for customer retention. Solving theproblem of customer retention is not complex, but it does require the development ofa focused plan and the ability to observe and measure customer behavior.One of the great challenges in retail is identifying customer attrition and retainingcustomers that may leave the brand. Retailers are extremely savvy in measuringGross margin returns on three vectors: GMROI (Gross margin return on Inventory),GMROF (Gross margin return per square feet) and GMROL (Gross margin return onlabour). At Hansa Cequity, we do a lot of work with retailers on the overall customerstrategy. One vector that we added to this troika is GMROC (Gross margin return oncustomers).What needs to be kept in mind is the fact that retail attrition is silent: customers donot need to close an account or terminate a service. They simply walk out and neverreturn. 3
  6. 6. Creating Power Customers From Power BrandsCreating Experience BrandsThe third paradigm shift the marketer needs to make is to look beyond advertising tobuild the brand. Years ago a successful birthday party would be centered on a cakemade from scratch. Today, a "successful" birthday party must be staged at somespecial place like McDonalds. And customers are willing to pay a thousand timesmore for such a birthday "experience" than for the raw ingredients of a birthdaycake!Historically, modern economies have three outputs - Commodities, Goods andServices. "Staging Experiences" has become a fourth, previously unarticulated andwith higher value economic output. While Commodities are fungible, Goods tangibleand Services intangible, Experiences are memorable.Staging experiences is about engaging customers. The richest, most memorableengagements 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, specificallyRetail & Banking. According to the above theory, a brand is a promise to consumersthat they can rely on to guide their choices. There are four general approaches todeveloping such a promise. While not necessarily mutually exclusive, theseapproaches represent different levels of ambition and can have different levels offinancial/bottom-line implications for the company. The simplest approach (level) iscalled "threshold branding". This is limited to communication and requirespromoting name recognition and an image of corporate strength and stability. Thisbranding approach can foster brand awareness, but does not offer any differentiationin the market place.The next level of branding is "functional branding." Here the focus is on productfeatures. The brand promise needs to emphasize specific functional benefits anddistinctive attributes. Advertising is then used to communicate these differences.This works well for pharmaceuticals where differences in product specifications areimportant to consumers/physicians. The vulnerability lies in fast-moving me-tooplayers.The third approach (level) of branding is termed "image branding." The focus is notonly on product features and benefits, but on communicating an image that isappealing to the consumers ego, and is consistent with personal aspirations oftargeted segments. Image brands are most applicable for products with visceralappeal, such as cars, perfumes, etc.The final and highest level of branding is "experience branding." This, although themost challenging to achieve, once established, is the easiest to defend. Also, this ismost applicable for organizations that are in the service industry and have a largenumber of customer-facing employees. 4
  7. 7. Creating Power Customers From Power BrandsThe focus is on the "experience" that the customer gets. Not only is this experiencerequired to be of highest quality but it also needs to be consistent over multipleoccasions 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 astrategic high-level commitment in the organization, followed by measurement,communication, and training to all employees at all levels.Building a Successful Experience BrandA successful experience brand delivers effectively on its promise of a particularexperience. The steps to building such a brand are straightforward but requirethorough application and consistency. They are, First, to define an experience thatcustomers will value; Second, to deliver that experience through everything that thecompany does with particular emphasis on front-line employee behavior; Third, tomeasure the impact of that delivery on the customer; and Fourth, to lead andmotivate the organization to deliver the experience consistently.At this stage, most service organizations are far too focused purely on customeracquisition. But as the market for services evolves, companies will need to deliverrelevant value to "Power customers" and build "experience brands" to survive andgrow 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 Cequitys 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 haveChanging 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 BrandsProcess 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 ProfilesInsights and ActionablesThe following is an overview of insights and actionables that are generated postimplementation 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 BrandsThe Hansa Cequity AdvantageOur unique trip segmentation framework analyzes customer trips at two levels -store and product. For every store a complete profile of the customers is createdbasis their age, gender, pin code wise distribution, visit frequency, ticket size,vintage, items purchased, etc. At a product level the profiling is done basis productassociation, transactions and promotions. This information is then mapped to drawinsights, identify opportunities and recommend new tactics for better businesstransformations.Read our insights and thoughts on how to drive better business transformationsthrough analytics based approaches at http://blog.hansacequity.com/. 8
  11. 11. Creating Power Customers From Power BrandsAbout the AuthorAjay Kelkar is the COO and Co-Founder of Customer Equity Solutions (HansaCequity), a marketing analytics company. He has over 18 years of experience incustomer-driven marketing across a wide range of industries like soft goods,banking & financial services & retail. In his earlier stints he was Head of Marketingat HDFC Bank and prior to that at Shoppers Stop. He is among the most respectedanalytical marketing professionals in India. He has extensive experience in startingwith 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 athttp://blog.hansacequity.com/. 9