Saturday, 28 March 2009

Marketing Programme Measurement – Avoiding a crash

The latest edition of Wired had a great article on the recent financial meltdown and typical of Wired it looked at it from a different angle. The focus of their editorial was the underlying formula which allowed banks to forsake their normally risk averse behaviour and instead to pour billions into essentially high-risk investments thinking they were triple-A rated.

I won't try and relay the whole article here (you can read an extract at Wired) but essentially a formula for helping to measure risk, known as the Gaussian Copula function was created a few years ago which allowed banks to very quickly risk assess investments by looking at the price of credit default swaps (essentially insurance against an investment defaulting – the higher the price the more likely the default) rather than the lengthier and more complicated process of looking at the underlying history of defaults. The problem was that credit default swaps had only been in existence for a decade or so – a period of time when house prices kept rising – and so didn't account for what happens when things go wrong, such as a large number of people losing their jobs and defaulting on their mortgages.

In essence this formula was using an aggregate past picture of performance to rate future performance without looking at the individual detail – and we all now know the consequences.

This is not however dissimilar to measures we also use within marketing programmes.

If you look at a measure such as a Customer Satisfaction Index or the more recently fashionable Net Promoter Score, they are using peoples past experience and their reaction to this in order to help predict what to change (or not) in the future. The problem with this is that they are essentially "lagging indicators" or "reflective measures" – they report what people wanted yesterday, but not what they will want tomorrow. In the book "The Certainty Principle: How to Guarantee Brand Profits in the Consumer Engagement Marketplace" they use an interesting example to illustrate this problem with using lagging indicators to measure brand engagement by relating it to "driving down the Interstate at 75 miles an hour using only your rear view mirror to steer." They go on to point out that "it's worth remembering that two million iPhone owners were once someone's "satisfied" customer [or Promotor]" – so a lagging indicator is no real predictor of future behaviour.

Although measures of past performance such as Net Promoter Score are good and can be used to indicate areas to improve, they can be dangerous if thought of as a predictive indicator of success. Net Promoter score simply tells you how people rated your product and service previously, it is not going to tell you how they will rate the same product and service in 12 months time, and this is one of the issues with how many loyalty programmes are run.

When a brand is spending millions on an above the line campaign to essentially raise awareness and acquire customers they will spend money understanding their customers and what they want. They will then spend more money making sure the advertisement is communicating the right message, using qualitative measures like focus groups or quantative measures like copy testing. However, when looking to retain customers by running a loyalty scheme, very few brands actually take the time to ask what customers want ongoing, testing new rewards or communications and understanding how their needs or desires are changing.

They may do customer research upfront before launching the scheme, but once it is running it becomes business as usual – this is essentially like creating a TV advert today and then simply running it again in 5 years time, hoping the world (and your customers) haven't moved on.

The other issue with reflective measures like Net Promoter is they tend to be aggregate measures as they rely on customers responding to some form of survey and so will typically only represent a small percentage of the overall customer base. Worse still, they ask people what they "think" rather than looking at what they "do" and we all know that people will typically say what they think you want to hear.

Predictive measure on the other hand rely on what customers are actually doing – their exhibited behaviour – and use this information to predict changes in the future. As these use customer data, the predictive measures can be applied to all customers based on their transactions, with changes in this behaviour being visible immediately.

Using behavioural data will however only indicate that something has changed, it won't tell you why and this is where customer research comes into its own.

Using regularly customer research to understand exhibited changes in behaviour as well as to understand customers changing desires can help ensure that a loyalty programme remains competitive and attractive – continuing to retain existing customers and acquire new.

It is said that the decision making process is 30% rational and 70% emotional – so understanding the underlying reasons why customers engage – or disengage - with your brand and any loyalty programme, and the reasons for changes moving forward allows you to make sure that the programme is always meeting their needs, even as these needs change.

Had the bankers buying groups of mortgages actually understood the underlying individuals - the people struggling to buy their house - had they spoken to them about their issues then they may have realised that their triple-A rated investment was just a little riskier than it appeared.

If you're constantly looking in the rear view mirror in order to move forward, you may be better off just stopping the car for a while and asking for directions – it may help you keep on the right track.

Saturday, 21 March 2009

Beanz Meanz Markz (& Spencer)?

The famous slogan "Beanz Meanz Heinz", coined originally in 1967 tells it like it is – if you want beans then you want Heinz beans – there is no other choice. It's a simple slogan and was apparently written over two pints of beer in the pub - which does make you wonder what the purpose of the office is when problems like this, world peace and the current financial crisis are so easily solved over a beer or two.

Lasting for almost 30 years until it was dropped in the 90's when Heinz wanted the brand to be associated with more than just beans – it was revived again this year. With over 63% of the baked beans market and the nearest branded rival having less than 10%, the memorable campaign seems to have helped Heinz maintain its brand leadership. What's more interesting is that even though competitor Branston claimed that in blind taste tests 76% of consumers preferred their beans to the Heinz variety –Heinz have still managed to increase their market share 9.6% year on year.

The reason for this I suspect is that brands provide reassurance to consumers and actually make life easier with instantly recognisable products. This means consumers can almost shop on autopilot from category to category - the brands essentially providing sign-posting around the store. It may not be so much that they are "better" beans – just that they are what the majority of people "recognise" as beans. It's obviously no coincidence that many own label products have a look and feel very similar to the brand leader – hoping to cash in on that moment of confusion.

It reminds me of the last time I strolled into a supermarket while abroad and looked around slightly bewildered at the strange array of goods – shelves stacked with local brands and not a pack of "real" bacon in sight or a decent loaf of bread - either too small (French), too sweet (US) or too hard (German). Strangely, this is not unlike the feeling I get whenever I enter a Marks and Spencer and finally it looks like M&S have realised this too.

Sure, they have a loyal customer base who loves M&S food and their own brand products, but for many customers, especially new or occasional ones, not having branded goods reduces their opportunity to maximise share of wallet. Indeed, it can provide opportunities for competitors to talk to M&S customers as they shop elsewhere to pick-up the brands they want but cannot purchase at M&S. Even M&S Chairman Stuart Rose admits that he has to shop in rival store Sainsbury's to purchase products he can't get in store.

The irony of all of this is that it's happening at a time when M&S competitors are extending their own label lines as consumers look to trade down from brands to more cost effective alternatives. Supermarkets like Sainsbury's and Tesco have both aired major advertising campaigns showing the savings customers can get by switching to own label products – and trying to reassure them its just "different", not lower quality.

So whilst brands will continue to form a large part of consumers shopping baskets, the supermarkets are changing their offering to stop customers from feeling the need to go to cheaper alternatives – or in the case of M&S - to stop them going elsewhere and seeing alternatives.

This really does show the power that brands have, if M&S feels a need to break a long tradition to start stocking them and other retailers feel the need to spend vast amounts challenging them.

It also shows however that to successfully acquire and retain customers you need to provide the products and services they want and more importantly, you need to keep adjusting these in reaction to changing customer needs.

Even where you have the brand strength there is no resting on your laurels – Heinz reported changed it's recipe following competition from Branston – increasing its tomato content from 27% to 33% in response to Branston's well publicised (and apparently more tasty) tomato content of 30%.

Personally I think the M&S decision is a good move - it allows people to feel the comfort and reassurance that the recognition of branded goods provides, whilst opening up their undisputable quality food to a wider audience.

However, it will take more than a jar of Marmite or a bottle of Coke to get me into M&S – having the right product is just part of the equation. Whilst they are located in the town centre and have higher (perceived?) prices I'm afraid I'll be buying my Heinz Beanz from Tesco.

M&S Simply Food at my local BP however – that's an altogether different equation – as are the M&S profiteroles!

Saturday, 14 March 2009

Jack of all trades, master of none

Computers are very much like kids– whether it's my son deciding that despite Nintendo's best efforts to create a compelling gaming machine, it will just work better if its dropped a few times on the floor – or with my PC, despite purporting to allow me to type a document, it randomly decides that my fate lies better with a frozen screen and a failed autosave – you love them really, but sometimes they test your endurance to it's limits. So I was intrigued when Microsoft recently released their vision for the future of how we interact with new technology and I have to say it's well worth watching.

Yes, it's got the ubiquitous "Minority Report" style interface where we all stand-up with screens the size of white-boards, throwing things across the office virtually to each other, but it also has some other interesting predictions.

They see the use of e-paper technologies growing, with anything from an airline ticket to a newspaper acting as a display which can change it's content on request – this in itself has great potential for marketing communications – imagine a retail loyalty card which can be both your unique identifier, you points statement and your offers coupon. I was excited about this prospect when Fujitsu first demonstrated its colour e-paper prototype a couple of years ago and the technology is certainly gathering pace.

Another interesting thought is that of "context" – they show the display personalising itself to you as you drop your keys down on it or knowing that it's looking at a plant and providing an information overlay – much like a head-up display in a high-end BMW. This again could have great implications for marketing – imagine holding your display over an item in a store and being told all about it's specifications, where you can get the best price and what other people are saying about it.

These implications are something I'll pick-up on in another blog because I think there are some great trends for the future which could impact how consumers interact with companies.

Coming back down to earth for a moment though, the strangely worrying thing about all of these predictions is the Microsoft logo – I just don't think that they could deliver these kinds of slick, fast, intuitive user interfaces based on past performance – and that's a real shame. If this film had an Apple logo on it, I'd actually believe they could deliver it, and some people would be thinking that they'd be demoing it at the Macworld in 2010 – not 2019.

Now don't get me wrong here – I'm not an Apple fan – I don't "get" Apple and don't use any of their devices. Everything I have is Microsoft through and through – but as a Microsoft user I also know their limits.

I've recently installed Office 2007 and my user experience has never been so bad. It's slow, it's buggy and it randomly freezes. My email takes an eternity to open and when investigating the problem I find that Outlook 2007 has an "issue" with large amounts of email – anything over 2gb – so my 6gb is gonna be a big problem.

Apple has taken a different route here. When trying to get my father-in-laws new iPod to sync with his MacBook G4 I found out something about Apple – they don't care about backwards compatibility. For the iPod to work, I'd need the new operating system – full stop. No work around – no different software – it just doesn't work – and yet its ALL Apple kit.

For a Microsoft user this came as a big surprise and I initially ranted about how stuff I have from the early 1990's still works on my PC and I could actually get his iPod working on about 4 different Microsoft operating systems. However then the penny dropped – there is a reason why Mac can be more stable and more cutting edge – they don't try to carry the baggage of the past.

Before I jump down a technology rabbit hole though, this does provide some important insights into customer loyalty.

#1 - Customers expect you to get the basics right - I don't believe Microsoft can deliver on its promises because of past performance – they can't deliver a stable platform 100% of the time (I've already auto-recovered this blog once whilst typing it) so how can I believe they can deliver this vision for the future

#2 - Focus on your core customers – don't try to be everything to everyone – Apple realise that their most loyal (and profitable) customers will simply upgrade to get the best performance and new technologies. Many companies have failed because they didn't understand who their best customers were and focus their proposition around these.

It's important for companies to innovate, and for some companies creating a loyalty scheme is a great way of adding additional value for customers and engaging with them. However, if for example you're a retailer and you don't have the basics right, if you don't provide convenience, good prices and a wide range of goods then no amount of loyalty is going to mask these issues – customers just won't give you the benefit of the doubt.

Microsoft are a resilient company and I suspect that with the soon to be released service pack 2 for Office 2007 some of my performance and stability issues will settle down – they will however have to consider if they can continue to be a Jack of all trades and master of none.

I'd certainly like to seem them deliver their vision for the future - just as long as it doesn't come up with "An application error has occurred" whilst I'm trying to show my airline ticket at the gate!

Saturday, 7 March 2009

Here’s an idea – Get involved!


They can be a powerful thing.

Many of the fastest growing companies are based around an idea and the innovators who had it.

Take Innocent Drinks – a company famously setup by three individuals who were passionate about their idea for a smoothie made with fresh, natural ingredients. They came from nowhere in 1999 to almost single handedly create and then dominate the market for smoothies in the UK. Nine years on though and all is not rosy with Innocent - sales are down by 20% as competition increases in the smoothie market and customers trade down. Innocent's answer to this would appear to be to innovate – whether it's their flavoured water brand "This Water" or their new Veg Pots (think a Pot Noodle for the 21st century with 3 of your 5 a day veg!). There have been comments about whether this will actually work for them as a brand, but if they don't innovate they will always be at the whim of an ever more competitive market.

This is actually a problem for many companies as they switch from business innovator to business as usual. The company can become stale with the original innovators moving on and "managers" moving in - the product or service meanwhile goes through the normal cycle - moving through the growth stage when everyone is happy with profits and market share is maximised, then the maturity stage with competition increasing and profits/prices declining.

Companies can go one of two ways at this stage – they can lift their heads upwards and look ahead, essentially innovating (as Innocent has), or they can look down and gaze at the navel that is EBITDA (essentially how do we cut costs). Now don't get me wrong, a company won't last long if it isn't profitable, but a short term myopic focus on only the bottom line at the exclusion of investment in the future is a recipe for disaster – and this investment doesn't have to be a lot of money.

As James Gardner, Head of Innovation at LTSB says in his latest blog post when discussing the five key considerations for a company starting an innovation team – #1 Make sure you have money - #2 Make sure you don't have too much money. He goes on to say "if you get a big amount of money, you need to create a big return. But most truly interesting innovations don't generate big returns at the start. Certainly not the sort that make them the most attractive investments in the short term. Ergo, the money gets taken away again".

The take-away here though is "make sure you have money". I've seen a number of companies with Ideas schemes which purport to be a way of driving grassroots innovation whereas in reality they are simply programmes for identifying cost savings (that focus on EBITDA again) rather than truly focusing on new ideas (and the requisite budget this demands).

James really does put his money where his mouth is though. In looking at how to involve employees in the ideation process, they have created an innovation programme which both involves and engages the employees. Entitled "Innovation Market", they developed a stock market style solution for the submission and valuation of ideas. Based on the principles of the Wisdom of Crowdswhere the many are smarter than the few, LTSB have democratised the process of idea generation and selection.

The solution works by giving employees a virtual currency (beanz) and this currency can then be used by employees to buy into an idea. As with a company listed on the real stock market, the price tends to reflect the perceived value, so people seeing that the idea has legs early on can get in cheap, and then as its popularity (and likelihood of getting implemented) increases, so the price increases. Employees can make windfall gains by buying in low and selling high which can then be used within their innovations store for real-world rewards such as high-street vouchers.

Dell created a similar solution with its Idea Storm programme. This essentially allows people to submit an idea and for this idea to be voted on by other members of the public. Using just two buttons to either promote or demote the idea, Dell has created a simple process for ensuring popular ideas bubble to the top. The programme has been running now for 2 years and in that time has had 11,345 ideas contributed – this is the equivalent of almost 22 new ideas every working day – and to help them work out which ideas might have legs the community as a whole has promoted these ideas over 650k times.

These types of schemes work well for two reasons.

Firstly, R&D or innovation teams only have so much capacity – creating a way for the wider community to contribute- whether this is your own employees like LTSB or your customers like DELL – can help to focus this effort on the right ideas.

The second reason is that by involving your employees or customers in the programme you benefit from increased engagement and loyalty. People feel empowered and appreciated – and where an idea is actually implemented they get a sense of achievement in having contributed to this, even if this was simply helping to identify it as a good idea.

Now as good as the first reason is – this is essentially a loyalty blog and so it's the second point that most interests me.

There are many ways to generate loyalty, whether it's a reward programme or a communications programme, but as discussed previously, to generate long term emotional loyalty you need customers (and employees) to get involved – to get engaged- you want active participation, not passive inertia.

You can’t however simply setup an innovation programme through the HR or marketing department - for the programme to have real benefits it needs to be real, not simply another marketing programme. Employees or customers will quickly realise there is no substance to the programme if ideas are not taken forward and this will have a even worse effect on engagement then if you’d never even started.

As discussed earlier though, innovation is a strategic endeavour - something that needs to be invested in - and so requires executive leadership and sponsorship. This is made even harder when you consider that the average innovation programme can take up to 18 months to show returns – a little under half the tenure for an average CEO.

The alternative though to innovating in an increasingly competitive market is to cut costs - but as Greg Estes, portfolio manager at Intrepid Capital Management says "It’s generally very difficult to cut costs significantly for more than four quarters. After a while, though you may be widening profit margins, you're shrinking the entire firm."

A company may not always be fortunate enough to have innovators as leaders, but leaders can be innovative by providing support to allow ideas to take root and flourish. This may not only help to grow the company by opening up new markets, but also by engaging and increasing the loyalty of both employees and customers.

Tuesday, 3 March 2009

Persuasion versus Engagement

I was attending a briefing today from a technology vendor with a content management tool and they were highlighting the holy grail of content management – personalised content – which provides content based on a customer's behaviour and that of other customers. What many of us refer to as "like Amazon" – people who bought this also bought this.

The point that really peaked my interest (and apologies to the vendor for not highlighting the rest of the presentation) was the phrase "Persuasive Content".

Delving a little more into the ECM (Enterprise Content Management) world, this is a phrase they seem to use a lot now to wrap up this personalised and relevant content management. Put quite simply by Business Trends Quarterly, "persuasive content influences the behaviour of an external constituency such as a prospect, customer, or business partner".

Above the line marketers would probably argue that this is what they have been doing for years, creating content that influences the behaviour of prospects and customers. What has changed I guess and what makes the internet such a powerful medium is the fact that what influences me may not necessarily influence you. Going back to my technology vendor presentation, they used an example of a Blu-ray player and different ways of "selling" this to a potential customer, whether it's based on promoting a great price, having a slick ad or promoting the technical aspects of the player – people buy for different reasons. Recognising and responding to those reasons can ensure a company hits my "sweet spot" and gets a purchase.

The whole point of persuasive content is in quickly recognising a customer based on explicitly defined information (demographics/profile/etc.), implicitly defined information (browse/purchase history, promotional click-through etc.) and "look-a-likes" (which other customer's exhibit similar behaviours) so that we can quickly serve up relevant information and offers.

The definition of the word persuasive is interesting though. It is defined as "Tending or having the power to persuade". The Oxford English dictionary defines persuade as to "induce (someone) to do something through reasoning or argument". In both these definitions we are talking about having the "power" and "induc[ing]". Both definitions seem a little one-sided to me – like the brand needs to use strong-arm tactics to get people to purchase.

I really don't have a problem with the term "persuasive content", but I think brands looking at content in this way could be in danger of short-termism. There are many ways to sell a product, however if you're in the business of selling more of your product to the same customer then you need to also think about the long-term.

You don't want a customer to be persuaded to buy a product/service; you want them to desire a product/service.

The word "engage" is a good way to describe this. Defined as "to attract and hold the attention of; engross", it suggests that engaging content has to work harder to deserve the attention, it not only has to be relevant but it has to be desired.

This I think is where Amazon works well. Their content is largely based not on what they want to sell me (and what they think I might buy), but on what other people like me have purchased. It's not a hard sell (or a sly sell), it's based on genuine desires – those desires of other customers like me.

You can illustrate this as the difference between a sale and a recommendation. A salesman will try to persuade me to purchase a car (whether it is right for me or not), a friend will simply recommend a car based on their personal experience, their knowledge of my needs and my circumstances.

This doesn't change what a content management tool needs to do – you still want to serve up relevant content to customers. However I'd argue that when looking at what content is good to serve up you need to measure this not just on what drives a customer to purchase today (persuasion), but also what drives a customer to continue to purchase in the future (engagement).

This might ultimately mean the tool needs to work that little bit harder to understand the lifetime value of a customer and the effect any recommendations are having on this.

If you're looking for a customer to return, to purchase more, to recommend you then your content has to do more than persuade – it has to engage a customer.