Friday, 31 July 2009

Psst - reassure customers – just don’t tell them


In a recent study carried out by Carnegie Mellon University (entitled The Best of Strangers: Context Dependent Willingness to Divulge Personal Information) there was an interesting finding which essentially demonstrated that people are less likely to reveal personal information where they are made aware of the requestors privacy policy.

In one of the experiments within the study, subjects were asked if they had “cheated on an exam”. Only 8% of respondents said yes where they have been made aware of privacy assurances – telling them their responses would be kept confidential - whereas this rose more than 4 fold to over 35% for those that hadn’t.

People provide less personal information when reassured that it will be protected – an effect known as “privacy saliency”

This actually has some key relevance to marketing programmes, especially those such as loyalty programmes which collect and retain both demographic information as well as behavioural. Many programmes look to reassure customers that any data provided will be kept confidential, but this research would seem to suggest that in doing this too obviously, it may actually be suppressing results.

Another interesting finding is that where information was requested in a more informal, frivolous way, people were more likely to complete it.

In answering highly personal questions like “Have you ever taken cocaine” or “Have you ever taken a picture of yourself or a partner naked”, people were on average 1.7 times more likely to answer the question where the questionnaire was positioned as frivolous.

People seem to let their guard down when the context is less formal – and this goes a long way to explain why people divulge such revealing and personal information within social networking sites like Facebook.

In a separate study called that looked specifically at privacy within social networks (entitled The Privacy Jungle - On the Market for Data Protection in Social Networks), they found that those networks that didn’t shout about their privacy policies had better growth rates than those that did – seeming to reinforce the previous study about suppressed participation. The study states:-

Operators may seek to create an environment where people feel free to disclose their data, which [..] is best achieved by making minimal reference to privacy

This doesn’t suggest that a privacy policy isn’t needed, that privacy isn’t important or that it shouldn’t be accessible. It simply shows that making people positively aware of something can actually have negative consequences.

Loyalty programmes are not that far away from social networks in terms of information collected and are in some cases actually becoming more like social networks – allowing members to interact together.

When looking at key success indicators for loyalty programmes, acquisition will always be number one – you can’t retain those you don’t acquire – and so any barrier to acquisition needs to be removed. The heart of a loyalty programme however is it’s data and so making sure data can be collected is also important.

What both these studies show is that best intentions – telling customers how you will protect their data or being formal about collecting it – can ultimately lead to negative responses and so it’s worth reviewing all key messages and communications within a programme to ensure they don’t raise unnecessary concerns - whilst ensuring that the reassurances are there, should they want to find them.

Sunday, 26 July 2009

Too good to be true

free_sign_med A phrase i’ve heard a few times this week is “it’s too good to be true” – and I’ve not just heard it, I’ve said it.

When speaking with a potential supplier of kiosks we we’re discussing the business model. Basically, the model was defined as “you pay a monthly rental and we pay you a guaranteed monthly ad income which is more than the rental”. My first reaction was “why isn’t the UK plastered in these kiosks if they are essentially free” and secondly “it sounds too good to be true”.

Another occasion where this phrase raised it’s head was at some consumer focus groups we were doing. In the groups the proposition was presented and there was an obvious positive reaction, even a “wow” from one or two and then the dreaded phrase - “its too good to be true”.

Why is it that when presented with a fantastic offer we sometimes actually push it away. Well to answer this question it may be good to look at it from the other way – why do people fall for offers that are too good to be true – or scams. The Office of Fair Trading in the UK published a report recently looking at this.

In the report they point out a number of techniques that scammers use.

Scarcity Cues - whereby scammers make the offer seem in some way personalised to the consumer – making them feel as if they have done something special (or need to do something) to obtain it.

Induction of behavioural commitment - which uses small types of compliance to draw the consumer in - thereby causing victims to feel committed.

Visceral triggers – focusing on basic human desires and needs - using triggers that make potential victims focus on the huge prizes or benefits on offer.

Whilst I’m not suggesting we should be acting as scammers, it interesting that the report states “A successful scam involves all the standard elements of the 'marketing mix' and the building of a relationship between marketer and customer – that is, between scammer and victim.”

Unlike scammers, loyalty marketing does actually have a genuine offer and benefit – however it still needs to break through to consumers who may be wary of anything that looks like something for nothing.

When designing a loyalty proposition it’s important to balance innovation and generosity with what is perceived as realistic and appropriate. There are ways however to “soften” the programme.

Get people involved with small steps that introduce a “commitment”

Nunes and Dreze showed in their now famous loyalty marketing research on “Endowed Progress” that giving people a points bonus upfront – even where these points didn’t take them any closer to a reward in real terms – made consumers more motivated.

Essentially the consumer feels they have already committed to the programme and have invested value and so are more likely to want to complete the process. A small step that makes the “too good to be true” offer suddenly seem achievable.

It’s because of you…

What the Endowed Progress report also showed was that, at least for initial programme participation, people were more motivated when they we given a reason for any initial points bonus.

Even where this reason was “seemingly arbitrary” (i.e. “because you came to the store today"), it made them feel they had in some way earned it; that it was in a sense “because of them”.

Allow people to feel they are “gaming” the scheme

People like to feel like that are out-smarting “the system” – this illusion of control was found within Casinos when people were playing craps and it was shown that people tended to throw harder for high numbers and softer for low numbers - feeling they could in some way outsmart the randomness of the dice.

Letting people feel they have control over acheiving the rewards, whether this is reality or not can help turn it from something that is “too good to be true” into something which can be earned or acheived.

Avoid visual clues which might cause people to think something is too good to be true

Blogger Rowan Wilde discusses the issue of using an asterix when marketing a product or service saying “nothing else quite says ’serious strings attached’ like an asterisk…Instantly your offer is too good to be true”.

Obviously when an offer is presented it may have restrictions attached, either due to legislation or simply to balance supply and demand.

Consumers aren’t however fools - they understand that if the promotion seems to offer more value than the product itself can support, then a restriction like “1 per household” is “fair”. However as Rowans points out, it is better to be open and honest about these restrictions rather than trying to hide them away in the small print, going on to say:-

Loyalty only comes through trust > trust is only gained by honesty > honesty can only be built by being as open as possible. Being as open as possible means that sometimes you need to display things the way the consumer really wants them.

To ensure that your marketing programme is not dismissed out of hand as being “too good to be true” you need to consider how consumers will position it and provide perceived hurdles and positive validation to ensure they see it as accessible and deserved.

In psychology there is a term known as “confirmation bias” which is essentially the tendency to interpret new information based on preconceptions and to avoid conclusions which contradict prior understanding.

In essence, if consumers already have an understanding of what a loyalty programme is, how it operates and what the value exchange is, they will look at any new proposition through this lens. This means that if you have a significantly new approach, you need to consider how this is communicated in the context of existing programmes otherwise it is likely to be written off as too good to be true. In the words of Tolstoy:-

The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him.

Do you agree? ;o)

Saturday, 18 July 2009

Loyalty Lifebuoy


I was reading a new white paper from Carlson Marketing about loyalty rewards entitled “The Role of Merchandise and Gift Cards Rewards in Loyalty Programs”. Whilst the report itself has some great stats and best practice around the selection and usage of rewards within a loyalty programme, the part that really peaked my interest was how redemption has changed in the recession.

Anecdotally I’d expected this – just looking at my own pattern of redemption, I’ve shifted from redeeming for a holiday to redeeming for more everyday rewards such as cinema and restaurant vouchers. This isn’t because I’m any worse off than before the recession, but there is a tendency to just “pull back” a little – just in case.

So given my personal experience, I was wondering if this was reflective of wider programme usage, and the report from Carlson suggests it is.

When looking at gift card rewards, the pattern of usage has changed with a increase of 168% within everyday expenses of fuel and groceries, suggesting people are increasingly using the cash based loyalty reward to pay for immediate needs rather than treats.


It’s also interesting that at least part of this shift came from restaurant usage, with a drop of 3% for redemptions in this category. The restaurant trade is one of the hardest hit industries in the recession as people cut back on unnecessary expense – choosing instead to cook or buy in to eat of home. In a recent PWC survey, 25% of consumers stated that the first thing to be cut if spending had to be reduced was eating out/fast food.

Loyalty programmes are however becoming more attractive as part of the recession with consumers reappraising the value exchange. What may have seemed like too much effort 12 months ago now seems like a great way to get something for nothing. In a recent article on Smart Money, it stated that consumer participation in loyalty is up 20% since 2007 and a third of shoppers have indicated that they are relying more on loyalty programmes to find value in these tough economic times – essentially using loyalty to help them stay afloat.

However, even though consumer needs are changing and reward programmes should take account of this – the rules of the game haven’t changed. As the Carlson report points out, rewards are remembered longer than cash – making reference to a report by the Incentive Federation in 2005 where 4 out of 5 respondents made this point.

If programmes go too far out of their way to accommodate everyday expenses in the short term - providing cash to make them more flexible or lowering the redemption threshold to make them easier to attain - it could simply lead to less loyalty and motivation in the long term.

Some brands however are not just “tipping their hat” to recession hit customers, some are going full out to recognise and support them. As detailed in a recent blog by Marketing Week Associate Editor Ruth Mortimer, brands like Pfizer and TalkTalk have put in place specific measures to deal with hard hard hit customers. TalkTalk for example provides a 6 month grace period for customers in difficulty, giving them a basic service for free.

Brands which can retain their customers by helping them to make ends meet - providing that extra little lift or helping hand – are surely more likely to be looked on favourably as things improve - the trick will be getting the balance right so that short term help doesn’t erode long term loyalty.

Sunday, 12 July 2009

Remember… Primum non nocere

Primum non nocere is Latin for “Do no harm” and is a traditionally used within the medical profession to mean “given an existing problem, it may be better to do nothing than to do something that risks causing more harm than good”.

This thought came to mind when I saw the recent campaign from McCoys crisps. Not because it was an instant win sales promotion but rather because of the targeting of the campaign. It’s clear from the advertising and the campaign website that this is squarely aimed at men. Obviously the strapline “McCoys : Man Crisps” gives this away in a less than subtle way, but the whole digital experience is also clearly designed to appeal to men.

Helen Warren-Piper, Snacks Director at United Biscuits is quoted as saying “McCoy’s are unashamedly for men. We want to celebrate all that’s great about them, by giving them a crisp they deserve and can share with their mates when they’re enjoying being blokey.”

However, I’m a man, I eat McCoys and the campaign seemed a little too “obvious” for my liking. It seemed to come across as more Loaded and Nuts, appealing to a laddish segment. This I’ve no doubt is the intention, but if you’ve just rejected 50% of the population it’s a fine line to walk to pick up your core customers exactly. I’m guessing I’m not their core customer given the campaign, but it does raise an interesting question:-

How can you create a campaign or programme which can appeal to your core base whilst not alienating your other, smaller customer segments. Essentially Primum non nocere.

When creating a loyalty programme, one of the key aspects of attracting, motivating and retaining your key customers is the reward selection. If this doesn’t appeal then it’s unlikely to factor into a customers decision - whether conscious or subconscious – to make that next purchase.

However, where a product or service has a wide appeal, then selecting these rewards and the overall creative proposition for the programme can be a challenge. Do you go down the mass route like Nectar and provide a wide variety of rewards or position the programme to a particular segment using rewards like Travel (Airmiles), Money Can’t Buy (HMV) or Gadgets (McCoys) and risk ignoring some of your customers.

There is no right answer here as it will really depend on how focused you want the programme or campaign to be, but there are ways of achieving both successfully.

Two schemes stand out for me and the first is Tesco Clubcard. If any programme wraps up the principle of Primum non nocere it is Tesco Clubcard.

Schemes like Nectar and Tesco Clubcard need to appeal to a wide audience – with penetration of around 50% of households there is no room for a specific reward segmentation - these schemes need something for everyone.

I think Clubcard though has the edge here and this is due to their clever programme design. At it’s most basic level, it’s a cash based reward which can be spent back in store and so has the mass appeal. However, providing up to 4 times the cash value when the reward is used against the Clubcard Deals ensures that customers are drawn to these non-cash options.

Non-cash rewards are known to be more motivating and engaging for customers so this combination of cash leading to non-cash within Clubcard works well.

The other element that Clubcard does well is how it uses comms channels. It would be cheaper to simply use POS and online to communicate to customers, yet they still do a huge amount of DM. Whilst posting the reward value quarterly ensures over 95% redemption, the deals are also made available within a paper catalogue.

I think this mix of online and offline is key to continued engagement as it allows people to browse rewards quickly and easily at different occasions. Sometimes presenting rewards purely online, whilst cost effective may not be the most engaging way.

The second brand that stands out to me is Walkers - which is probably no surprise given I have written about them a number of times – but they are really innovating at the moment within loyalty and sales promotion.

Although Walkers have a mass product, what they are using is a combination of focused promotions - each having a different appeal - rolled out in a dial-up / dial-down fashion to ensure a continued presence. Using this mechanism allows them to continually engage and re-engage customer segments.

Those who liked Brit Trips, may not have been as engaged with Do us a Flavour, however with the launch of Gary’s Great Trip’s these customers can be re-engaged. This is a clever strategy and at no point does it specifically push away any customers – it will just be less interesting – doing no harm.

Contrast this with competitor brand McCoys which has not only gone for a specific gender, but has also aimed its campaign at a very focused sub-segment within this. Although not a bad strategy if they believe this market is profitable and underserved, it will make it more difficult to retain customers outside of this today and ultimately to acquire outside of this at a later stage.

There is more to loyalty than a case of wine or a toaster and the whole proposition - from how the programme is promoted and communicated through to the selection of rewards - will ultimately dictate who is attracted to the scheme and how successful this is in changing behaviour.

When designing a programme to attract and appeal to a given customer segment, it would be wise to remember the phrase Primum non nocere - making sure that your other customer segments are not turned off by the campaign as you may ultimately do more harm than good.

Sunday, 5 July 2009

The Theory of Consumer Demand

I wrote a few weeks ago about an emerging trend towards people leasing their lifestyle. Rather than buying and owning physical, tangible goods, people are instead getting used to buying into a service or renting a product.

I was pleased then to see a recent announcement by Riversimple - a company which has been setup with the aim of redefining personal transport – to launch a new hydrogen fuel based car and they don’t plan to sell a single one.

Riversimple have a highly disruptive and innovative approach to marketing their cars – not only will they not be selling them - choosing instead to just lease them - they will also not be making them.

Not actually manufacturing a product is obviously not new - big brands like Nike have pioneered the approach of outsourcing the manufacturing to low cost labour economies and using the savings to invest heavily in promoting and building their brand as well as research and development.

This is not however what Riversimple plan to do. Instead, they plan to “open source” their design and development so that others can work with them as well as having a distributed manufacturing model which will allow for more localised production.

When describing their overall approach they say:-

This aligns the interests of the manufacturer with the interests of the consumer and of the environment - everyone wants cars that have a long life span with maximum efficiency and minimum materials usage.

Whilst I love this approach and think their model is great, I don’t actually agree with this.

In an article written in the 1950’s entitled “Bandwagon, Snob, and Veblen Effects in the Theory of Consumers' Demand”, author Leibenstein discusses the reasons for consumer demand and separates these into Functional and Non-Functional.

Functional demand is defined as demand for the qualities which are inherent in the commodity itself – so for a car this would be the basic desire for personal transport.

Non-Functional demand on the other hand is based on more emotional reasons – essentially demand driven by what others are doing or what others will think.

Based on this, rather than “everyone wants cars that have a long life span” – i.e.functional demand - I think what everyone wants is more non-functional, either what other people don’t have (Snob Effect), what everyone else has (Bandwagon Effect) or what everyone else can’t afford (Veblen Effect). This is the heart of consumerism and it won’t be easy to change.

That said, it has been interesting to see these effects at work with the Toyota Prius and how this was marketed.

Within the UK, when the car was launched a budget of £9m was allocated over 3 years with a specific focus on both functional and non-functional consumer demand.

From a functional point of view, they focused on the one big differentiator - the fuel savings – and so targeted the value conscious consumers.

From a non-functional point of view however they targeted two different consumer groups - those who were early adopters and who liked to have and be seen with the latest technology (akin to Snob Effect), and those who were conscious of the environment or at least wanted to be seen as such – hence a media mix ranging from National Geographic to Vanity Fair (Bandwagon Effect).

The big boost for the Prius came from celebrities, with Leonardo DiCaprio kicking this off in 2001 and many more then following suit. This really made the Prius mainstream and allowed it to break out of both the early adopters and the green movement.

On the website for Riversimple they say:-

Our vision is of a world where our relationship with the car has changed dramatically for the better, with new solutions in place for sustainable and responsible mobility.

If Riversimple could emulate the success of the Prius, focusing on both the rational and the emotional reasons for consumer demand, then combined with their innovative purchase model this could be a real game changer and we could indeed see dramatic changes within our relationship with manufacturers, suppliers and their goods and services.

Plus with a car that has doors which lift up, what’s not to like - I can see a Back to the Future remake already!