Wednesday 29 April 2009

To sell the brand, stop selling the product?

Are people becoming less attached to owning things?

Increased financial pressures are encouraging more people to rent life’s luxuries (and sometimes life’s basics) and eager to fill this need, new services like Zilok- essentially the ebay of rentals - are popping up

Online rental firm erento, where you can rent anything from carpet cleaners to a handbags saw a 92% rise in site traffic at the start of the year – and if handbags are your thing, specialist company Handbag Hire HQ does nothing but this.

Indeed, it seems you can rent everything - including amazingly carpets, from Interface Re:Source.
Ray Anderson - founder and Chairman of Interface Inc says:-
“We sell only the services of the carpet: colour, design, texture, warmth, acoustics, comfort under foot and cleanliness, but not the carpet itself”. 
Their model relies on supporting the customer from “cradle to cradle” as they term it – essentially from purchase to purchase in a cyclical fashion, ensuring the product is reused, reclaimed or recycled. 

[Update 2013: This concept has now been popularised as the Circular Economy.  See book Mid-Course Correction by visionary industrialist Ray Anderson written back in 1999]

Whilst many of these services were setup prior to the credit crunch for more altruistic reasons such as helping to prevent the environmental impact of stampeding consumerism, they are also now seeing a boom from the more hard pressed consumer - keen to keep an element of their lifestyle, but not so desperate to have that lifestyle 24/7.

I think the Re:Source approach does make for an interesting example though. 

 By shifting consumers to the “service” rather than the product, they not only get the desired environmental benefits, but will also get customer retention benefits, turning an infrequent but expensive purchase like a carpet into a lower cost but more regular purchase of a service – a service which then bypasses the purchase recycle, removing the (re)evaluation of suppliers when the product needs to be replaced.

There is another side to this trend that also interests me. It seems in someway a natural extension of what Theodore Levitt wrote in his paper “Marketing Myopia” in the 60’s when he discussed how companies need to focus on the business they are in, not the products they make – causing for example oil companies to redefine their business as “energy” rather than just “petroleum”.

This was taken another step forward in the 80’s when brands realised that focusing on the benefits delivered rather than the product made could allow them to essentially remove the manufacturing altogether - with companies like Kimberly Clarke and Levis shutting down their own factories and instead simply sourcing this elsewhere, focusing their attention on the brand itself, the real reason for people purchasing the product.
It makes me wonder though whether renting or at least purchasing a “service” rather than a product is the next natural step for many brands.
Brands could cease selling a “product” and instead focus their energies delivering the “benefit” – allowing consumers for example to buy “entertainment” not a TV – and in the bag, benefiting from ongoing loyalty as their needs are constantly being met through product change and upgrade.

If rentals could be lifted from their previous positioning as essentially hire purchase – allowing people who couldn’t afford to buy the item outright to have it now – and instead be positioned as a way of obtaining a lifestyle, buying into the brand proposition, it could act as a
Christenseniandisruptive innovation, essentially changing the way consumers consume.

Wednesday 22 April 2009

Mobile? It’s loyalty Jim but not as we know it

There have been a number of attempts to get the mobile phone integrated into the heart of loyalty with many viewing this as the next big thing - essentially using the mobile as the loyalty identifier, communicator and reward channel.

The argument put forward to support this is that it un-burdens consumers from having to carry loyalty cards and instead enables loyalty using a device which consumers would never forget to carry – their mobile phone.

Indeed, the latest new mobile loyalty offering is Taggo – Tap And Go – from real time loyalty veteran, Aneace Haddad. On the newly launched website for Taggo, Aneace puts across the reasoning for linking all of your loyalty cards into your mobile device stating “Retailers in nearly every market and every region are finding it more and more difficult to get customers to join their loyalty programs. People don’t want to fill out forms for yet another card that will make their wallets even fatter, and customers that are already enrolled often leave cards at home, causing them to miss out on discounts.”

Yet to launch service, Yoose has a similar aim, stating “Never forget your coupons, loy
alty cards, shopping lists.... Keep everything in your pocket - all the time - on your cellphone.”

Is the mobile channel about to turn loyalty on its head? I think so - but not for the reasons stated.

I don't think either of these solutions have really cracked mobile loyalty yet and its worth looking at their arguments to understand this in more detail.

The basis of these propositions seems to hinge on opening loyalty up to more customers who would otherwise not bother. The assumption is that there is a latent desire to take part, but that wallet space prevents this from happening.

I don't agree with this. Loyalty is not about customer acquisition, its about retaining your best customers.
A regular customer will be attracted to the overall loyalty programme because both the rewards and the benefits work for them - and it's for this reason that they'll make an effort to take part. In fact you positively want them to make an effort.

Every time I go into Homebase (a UK DIY retailer) I get asked if I have a Homebase card – and I answer no (adding I don’t want one). Actually this is a lie, I do have a Homebase loyalty card, but I have no idea where it is. There is a reason for this and it’s simply that I’m not loyal to Homebase. I use B&Q for my DIY needs probably 70% of the time, just using Wickes or Homebase if I want something I know they will stock and I don’t want to drive a little bit further to get to B&Q.

Am I missing out on “loyalty value” – you bet! However,
would it actually add up to much given the amount of times I use Homebase? I think not.

In fact, encouraging loyalty transactions from a disloyal or disengaged base can actually cost money. I’ve seen a retail programme where there was extremely high loyalty basket penetration (% of baskets tracked to a loyalty account), but where programme engagement as measured by redemption of coupons was low.

The reason for this was because the phone number was used rather than a card so disengaged or disinterested customers simply gave their number in response to the request without really being engaged in the scheme. This pushed up the costs of the pr
ogramme in terms of points liability and communications without seeing any associated benefits from increased share of wallet.

I have genuine concerns that these solutions may actually weaken loyalty

I think in some ways there is a risk that a single branded application for loyalty identification may dilute branded programmes, making them all look the same and making them too easy to sign-up to so that people have membership to many more programmes in the same categories. In the end this may reduce overall loyalty to any one brand.

Loyalty managers will have to walk a fine line here in terms of opening up their programmes to a potentially useful solution whilst trying to protect the whole reason for the programme which is brand differentiation. This may require discussions about category exclusivity in order to get the best from these solutions.

That said, having the mobile at the heart of your programme can help streamline the purchase and loyalty process for your best customers and I think this is where the focus should be. Not looking to recruit additional consumers from the passive or disloyal base, but instead using the mobile to make the programme more interactive and relevant for existing, loyal customers.

Both solutions do this to a point by ensuring that loyal customers can always take part, but I think also using it before purchase could be even more powerful. Just a quick look at how developers are using the new G1 Android Google phone shows some of the possibilities.

The application Torrent Droid allows a person to take a snap shot of a DVD barcode in store using the phones camera, and for this to then automatically download at home (illegally) via BitTorrent. Not so much illegal, but every bit as challenging for
retailers, the bar code application Savvy Shopper provides equally amazing features. Consumers can simply snap shot the barcode of an item and be presented with comparison prices locally –essentially showing you where to get it at the best price – as well as customer reviews.

I think any integration between mobile and loyalty has to look at what benefits this platform can bring to both the brand and the consumer.
Letting consumers “check in” when entering the store could allow access to a personal shopper, notification of stock just in or personalised promotions. Taking a snap-shot of a product bar-code in-store could allow the customer to add the item to a wish list, see product reviews, have it despatched directly to home/legally downloaded or simply to total up how much is being spent and the rewards being earned.

Integrating the mobile channel really does allow customers to be rewarded and recognised for their interaction, not just their transaction – allowing a brand to interact further up the buying process and helping to solidify the relationship with a customer.

I'm hoping that services like Yoosh and Taggo continue to develop and that the focus becomes less on the perceived benefits of recruiting from the mass of un-engaged consumers and instead begins to focus on how to deliver desirable and sticky services which enhance the loyalty proposition for an individual brand.

Mobile can be game changing in loyalty marketing – we just need to get more creative with it.

Wednesday 15 April 2009

One bad Apple (track) can spoil the whole barrel

I was reminded recently of the power of good and bad customer service.

My wife who was a long time avid iTunes user is now using the Amazon MP3 store. Although this didn’t surprise me too much as being one of the first to have DRM free tracks in a open format and now £0.29p for most tracks I personally prefer it – however the reason for the change was surprising.

When I asked why she had switched she indicated that it was because of an issue she’d had late last year with a downloaded track. Apparently she’d downloaded a track (Bad Influence by Pink for those that are interested) which for some reason had a faulty intro. Assuming it to be a transmission issue she asked Apple for assistance, expecting them to provide a way to re-download the track and indicating that the “intro drum beat hasn't downloaded properly”.

The response from iTunes was however a little surprising:-

Your request for a refund for "Bad Influence" was carefully considered; however, according to the iTunes Store Terms of Sale, all purchases made on the iTunes Store are ineligible for refund. This policy matches Apple's refund policies and provides protection for copyrighted materials. You can review the iTunes Store Terms of Sale for more information


My first issue with this response are the words “carefully considered”. Given that a refund hadn’t been requested I think a response saying “all purchases made on the iTunes Store are ineligible for a refund” is a little strange and doesn’t strike me as a carefully considered response. In fact it smacks of templated first response – a little like the insurance industry use – just deny the first request and see if they go away, if they persist then lets actually bother reading it.

The second issue is the statement that all purchases made on iTunes store are ineligible for a refund. This might be in the terms and conditions but frankly I don’t care. If you supply me with a faulty product I expect you to do your utmost to replace it at the very least or refund it.

In fact, looking around on the internet, this is not a strict policy as some people have got refunds - but it’s also not an uncommon issue. Apple should also be looking at complaints such as this as a positive act as Apple doesn’t actually upload the tracks themselves; they provide software to the labels to manage this. So if a track has been encoded wrongly you’d think they’d want to know about it to prevent others getting an equally bad purchase and would at least want to thank the complainant.

Thinking it a misunderstanding, my wife replied to the iTunes representative providing further clarification and looking for a resolution stating “I wasn’t actually asking for a refund, just an answer to the problem. If I download that particular song again will I be charged again, or am I able to download it free of charge once I have already brought it from you?”.

This email didn’t even garner a response from iTunes – so needless to say there were no further purchases.

Apple may be famous for great design and innovation, but as I pointed out in a previous blog they seem to have a constant focus on looking forward without always giving due regard to existing customers.

In a growing market where there is no shortage of customers Apple may not be feeling the pain but in the short term this creates opportunities for other brands – and companies like Amazon are more than happy to fill the gap. In the longer term however as markets mature and innovation is commoditised this customer churn will eventually outstrip customer acquisition.

Ultimately though, for the sake of 79p, Apple lost a customer who had previously purchased 2 iPods and numerous tracks – makes you wonder if “policies” should be bent from time to time in favour of customer satisfaction.

Sunday 12 April 2009

Recession - the rise of a new consumer?

There was a bold statement in the latest Marketing Week. In an article entitled “Why communities will shape a new caring and sharing era”, Charles Vallance of VCCP stated that

"[The] age of consumerism is dead! Welcome to a
new era of premodernism where we will all strive to live within our means"

There is no denying that people are not currently consuming at previous levels, some out of necessity with a loss of income, but actually most simply out of fear – not knowing what is to come in the next few months.
I think however that describing this as a new era could be a little overstated.
In the book "No Logo" by Naomi Klein she relates how in the early 1990’s recession, Bob Stanojev, then Director of consumer products marketing at Ernst and Young stated

"If one or two powerhouse consumer products companies start to cut prices for good, there’s going to be an avalanche. Welcome to the value generation"

This was in reaction to Philip Morris stating that it was to cut the price of iconic brand Marlboro by 20% to compete with bargain brands which were increasingly attractive to recession hit consumers and were eating into its market. During this time, from the start of the recession in 1990 to 1993 brands such as Wal-Mart’s Great Value range nearly doubled their market share as consumers hard hit by the recession were shopping around.

The same book reports how Cincinnati journalist Shelly Reese stated that

"Americans [] aren’t pushing grocery carts of Perrier down the aisles anymore. Instead they’re [] manoeuvring carts full of Kroger Co.’s Big K Soda. Welcome to the private label decade."

Sales of branded water however went on to increase 9% year on year and within 6 years was a $3.4bn industry.
It would seem that there is precedent for people calling time on consumerism during recessions.
The Marketing Week article also made a comparison between the current behaviours of thrift and frugality and the attitudes of people 50 years ago when these behaviours were rife.

The difference however between now and then is that the attitudes of 50 years ago were born of an era of rationing, running from 1940 till 1954 – a period of almost 15 years - and so a whole generation was brought up with behaviours of making do.

When clothes rationing meant that a single coat purchase could use up to a years worth of clothing ratio
ning points, it’s no surprise that people repaired and reused clothing.
I don’t think people will be going back to a period of powdered eggs and darning socks though - we are in a completely different situation.
Looking at the history of recessions in the UK, they typically last around 2 years in terms of the official definition and around 3.5 years (13-14 qtrs) to recover to the GDP position before it started.

During the worst recession we’ve had in the UK in last 50 years in terms of GDP decline – a massive decline of 6.1% - which ran from 1980-82,
unemployment rose to 11.9% of the working population, meaning over 88% of people employed at the start were still employed when it finished.

This means the issue of thrift is typically not one of income for most people and so isn’t driven out of necessity.

Some apparent signs of thrift aren’t really related to the recession at all and are simply natural extensions of trends from the last decade.
People sight the growing demand for allotments and grow your own as evidence of peoples desire to save pennies. However this is really the natural progression from the green movement and the healthy eating movement. Whether it’s because of food miles or a requirement for organic food, the demand for allotments has more to do with trends from the previous boom period than with the current recession.
Even before the recession started, newspapers were reporting high demand and a shortage of supply for allotments – driven in part from programmes such as River Cottage which promoted growing your own and the increasing trend of packing people into smaller plots of land, meaning many have little or no green space of their own.

It’s also easy to state that people are consuming less and obviously for some larger purchases such as cars this is true. However what the numbers seem to hide is that people may be spending less, but actual consumption doesn’t seem to have slowed all that much. Just last month Sainsburys posted it’s results which showed that both transactions and basket sizes had increased – so people were buying more, not less. However with a 60% increase in its Basics value line, it’s clear that people are looking to get more value for their money.

It’s not just food retail – online retailers are doing well. A recent report from IMRG shows that online sales are up 12% year on year, with January in particular up even more at 19%. As with Sainsbury’s however, volume may be up but value doesn’t necessarily follow – at DSGi-owned e-tailer Pixmania, although orders are up, the average basket spend is down. Ulric Jérome, executive director at Pixmania says that “If people are choosing between two products, they'll choose the cheaper one".
People are still consuming, just in different ways and different channels on the hunt for increased value.
With increased value comes increased savings, and it seems that people are now using the savings made in trading down and putting off to increase savings in the bank. In a recent article in the Times, it reported how Britons are saving more than ever with the cash value of savings almost trebling in the final quarter of last year. The proportion of savings to disposable income has also increased, rising from a low of 1.2% at the start of 2008 to 4.8% by the end of the year.

People are wary of what is to come and so are putting off larger purchases and cutting back on luxury items or brands in an attempt to build up a little money as a cushion, should the worst happen.

It would be great to think that in some way we will come out of the recession as a more responsible, caring and sustainable consumer, however I suspect when the worst doesn’t happen and the savings balance is large enough, people will go back to consuming as they were before. The real danger for brands is that while customers trade down or put off purchases today, they won’t be the brand of choice when that consumer comes back tomorrow – and come back they will.
This means brands need to try and bridge the gap, even where consumer purchases slow down or stop for a while.
Adding value to the basic purchase transaction can help brands to bridge this gap and Charles Vallance addresses this in a trend he calls “Trading vs Consuming”.

Discussing a shift in the value exchange as consumers increasingly recognise and exert their buying power, he states that brands can add value whether this is ethical (Starbucks and Fairtrade), business model (e.g. Blyk or Spotify), extra rewards for customers such as O2’s Priority initiative or increased levels of participation such as Walkers Do Us a Flavour campaign.

This I think is the real key – consumer behaviours will change for a while during the recession and what brands do today such as helping them recognise increased added value will in part separate the winners from the losers as the consumer rises again.

Thursday 2 April 2009

No postal service in less than 10 years?

Another year, another price rise for the cost of postage. This one seems to have gone by almost unnoticed as I think the G20 and the associated news of President Obama visiting and rioting anarchists has kind of filled the airwaves.

For those that missed it, the price of posting a letter has gone up by 3p to 39p for First Class and 30p for Second Class - this is an increase of over 8% so not exactly linked to inflation. In fact, the Royal Mail indicates that they made a loss of over £100m last year on the Universal Service and would need a price rise of more like 6p per stamped letter to close this gap.

Back in 2000, the Post Office warned that European proposals to cut their monopoly could ultimately see the price of a stamp rising to over £1 - citing the issue that posting a letter from London to Scotland actually cost £2.50 but within London just 15p and breaking up their monopoly would see profitable business cherry picked, leaving just unprofitable and expensive to service rural business.

Mail volumes are also falling with increasing rapidity. They fell 2.3% in 2007 and 3.2% in 2008 - that’s a rate of decline of 139% year on year which if continued (and Chief Exec Adam Crozier seems to think it will – predicting an 8% decline next year) would see the average daily mail bag go from 83m in 2006 to almost nothing by 2018.

So here is my prediction - in less than a decade the daily postal service will be dead.

There will obviously still be some form of hand delivered mail, but it will be less frequent (weekly?) and more expensive.
Possible Scenario?

Ok, so thats a pretty apocalyptic prediction, but even if the rate of decline stayed at 3.2%, the mail bag will have halved in just 20 years time - meaning we would have a very different service than today.

You could argue that the Post Office could turn this situation around by creating innovative products and services, however when national institutions like TV Licensing are increasingly offering their services by email - removing potentially millions of posted letters - and banks and utility companies are pushing towards paperless statementing it doesn’t bode well.

This does bring some interesting thoughts and opportunities however.

A recent Business Insider article worked out that it would be cheaper for the New York Times to give every reader a free an e-book device (like the Amazon Kindle) and shut down the print presses - delivering the news paper electronically and by subscription.

This got me thinking about the postal service - what if we just stopped hand-delivering letters and simply sent them electronically to a device which was provided for this purpose by the Post Office. Giving a £200 e-reader to 28m homes in the UK would cost about £5.6bn – not a small number but at present postage levels of around 20.8bn letters per year, that’s less than 27p per letter - just 70% of the current cost to post it.

Not as far fetched as it might sound and there is definitely precedent. Mobile phone companies have been subsidising their handsets for years in order to drive up usage and it has worked, with over 100% penetration. The mobile network Blyk has gone one better and removed ongoing usage costs as well by allowing brands to target messages to its subscribers - a typically hard to reach teen market.

I suspect it won’t be the Post Office that ultimately offers this service however and instead someone will develop the business model that provides free devices and ongoing usage in return for allowing brands, service providers and content creators to push information to it.

This is going to change the way brands communicate.

Hand delivered items will go up in price, meaning this channel will be used sparingly and where it shows real results. People will receive so little physical mail that there will be a buzz and excitement about anything delivered - almost going back to the days of the hand delivered telegram – so expect higher response rates for well targeted and less frequent communications.

Image from LiquaVista

Electronically delivered letters via an e-reader will be different to emails in the same way that email is different to SMS. More creative, more tactile and higher dwell time - they will be consumed in a different setting and at a different time and so content will need to be specific.

As for the devices - yes they are a little crude today with almost all commercially available models having a black and white screen and a large surround. However Fujitsu have just launched their FLEPia colour e-book in Japan and flexible, rollable, colour displays will be with us in the next couple of years. Checkout Shane Richmond’s blog at the Telegraph for a run down of some of the devices around.

The paperless home is fast approaching providing secure (no more shredding),
instant (no more delay) and portable (no waiting at home) communications.

I’m afraid the Postman is going the same way as the milkman, the pop man (remember home delivered Corona!) and the rag and bone man - it’s a bygone age waiting to happen.