Digital - A Coming of Age

Within any generation there is always someone who is a link between the old order of things and the new.

We’ve just commemorated 100 years since the First World War started, and for me it feels remote, but real.  I didn’t know anyone who served, but my grandparents did who I knew, so I feel a connection.  With the Second World War, things are different.  When I was 10, I remember celebrating at school 40 years since the end of the war.  At 10 that seemed a long way past, but my grandparents served in it and could bring it to life with stories and artefacts.  For my kids though, all of this is a fading memory - stories we tell, but it may as well be like the Battle of Waterloo.

This connection between the old order and the new is explored in a book I’m currently reading called The End of Absence by Michael Harris.  In it, he discusses the time we’re in now and how anyone born after 1985 is essentially a digital native - someone who has never experienced a world without the internet; a world without always on connectivity.  For us others - those born before this time - we’re essentially digital immigrants.  Describing this group, Harris says:-

“For those of us who have lived both with and without the vast, crowded connectivity the Internet provides, these are the few days when we can still notice the difference between Before and After […] there’s a single difference that we feel most keenly; and it’s also the difference that future generations find hardest to grasp.  That is the end of absence - the loss of lack.  The day dreaming silences in our lives are filled; the burning solitudes are extinguished."

This is thought provoking stuff.  Realising that my kids (and a lot of those I now work with), just simply think differently.  They’ve never experienced a time when there was genuinely nothing there.  No kids telly on, nothing on demand, no chat, no connectedness.  When I tell my son to get off his computer, I turn around to see him on his phone.  Kick him off his phone and he’s flicked the telly on.  It takes real effort to switch everything off so he’ll actually consider walking out the door to call for friends… and then they sit around their house playing Xbox.  I tried.

So this got me thinking about the implication of this within the working environment.

For many of us, we work in companies established pre-1985 or staffed with management from before this time.  We have computers, tablets and smartphones; intranets, instant messaging and email.  We even have social networks for staff, with “friends” and wall posts and “status updates”. We’re thoroughly modern and fill every piece of time, every empty space within some activity.  Responding to a ping on the phone, an email arrived - we sit in meetings only half listening as we type on our laptops and then check our phones.  This is a state Harris references and one that writer Linda Stone referred to back in 1998 as “continuous partial attention”.

Yet despite this, we’re not as modern as we like to think.  

Many companies still have a Digital department of some kind or a Head of Digital role - as if all things digital is somehow separate to what we do.  It’s as if we’re in both the Before and the After - one part of the company in the pre-1985, pre-digital age and the other ring-fenced in the digital age.  This does some ludicrous and you can’t imagine a company such as Facebook or Google having a Head of Digital role - they are simply digital companies (although strangely they do).  The point is, the world has changed, people have changed, but the way we do business seems to still be a mismatch of old and new.

This point was brought to life in an article I was reading about airlines entitled Passengers Become Data Mines as Ryanair to Emirates Hone Offers.  In it, Ryanair CEO Michael O’Leary is quoted as saying:-

"I used to say that my ideal customer had a pulse and a credit card, but I’ve revised that view radically. […] In the next five years, with each of my 90 million customers, I’ll know when you’re traveling, where you’re traveling, and I can send you a direct offer.”

This shocked me.  

We’re in 2014, this is a relatively new airline (setup in the 1980’s) and yet it seemed a surprise to them that there may be value in the data they hold and process for 90m customers.  This is though also understandable because companies still aren’t digital natives - they still have their digital marketing and data analysis functions somehow separate to their older, more established traditional sales and marketing functions.  They’re an add on or an extension rather just being one single company.

If we go back to Marketing 101 and the 4Ps of the marketing mix we have Product, Place, Price and Promotion - this was something created in the 1960s by marketer Edmund Jerome McCarthy - a set of marketing tools based on the age but which is still taught today.  

A company like Ryanair has really focused on these 4P’s - it’s “Price” has been refined by pairing back its “Product".  By choosing carefully the airports it uses to get the best rate for a given destination even if it’s not quite the best airport in terms of distance, it has truly honed “Place”.  Promotion you could argue has been a mixed affair, but there probably isn’t a person alive in the UK who doesn’t know the airline, it’s CEO and the kind of message he had long stood for (such as removing toilets from planes).

But within this 4Ps mix, there is nothing about the customer.  It’s the old world order of making a product people want, at a price they are willing to pay - and then shouting about it loudly in the right places.  It’s all push.

Take a look at the new world however through a different lens.

Freemium models support many of the latests products/services, with apps (and some products) giving away their product in the knowledge that they can monetise customers either through targeted advertising or in-app purchases - and this is where data comes into play as a key part of the marketing mix.  Even airlines have a form of this with their ancillary services - the basic service is paired right back and then customers are encouraged to top this up with ancillary services as they need - a kind of pick and mix of products.  This is all pull.  

Speaking of this, CEO O’Leary is quoted as saying:-

"Ryanair’s data will let the carrier know how often travelers head to particular destinations, whether they travel alone or as a couple or group, if they routinely book insurance or car rental, and be able to customize its offers accordingly and target the passengers with special offers […] We know who you are [and] the clever airlines are going to make a fortune in the next 10 years”

This thing which will make a fortune is the missing piece - it’s the digital native addition to the marketing mix.  It’s the bit about the customer, about what they do and about what they want.  

It’s personalisation and it is truly the 5th “P” of the marketing mix.  I’m not the first to point this out, but it really is the difference between the Before and the After.  The increased connectivity and the computing power, scale and flexibility this has afforded, as well as the increased expectation of a customer base in “continuous partial attention” mode means that personalisation is critical to success.

As we transition from companies and people born of this pre-digital age to the next generation of digital natives, there will be change, there will be new ways of doing things.  We cannot stop it but for many of us, and for many of the companies we work for, we’ve yet to embrace it.  In the book End of Absence, Harris says of this:-

“Technology is neither good nor evil.  The most we can say about it is this: It has come. […] We can only judge, only really profit from judging, the decisions we each make in our interactions with those technologies.  How shall we live now?  How will you?"

The rise of the alternative (loyalty) currency

You can’t have failed in recent months to see the rise of alternative currencies like Bitcoin.

With SIBOS, one of the worlds premier financial services events dedicating a whole day to Bitcoin discussions and Paypal enabling Bitcoin support amongst it’s digital merchants, there is no doubt that this crypto-currency is heading mainstream.

Whilst there is a lot of focus on the fluctuating price of Bitcoin and the how the currency itself comes into existence, there really isn’t that much difference between it and a more traditional currency like Sterling.  In both cases, there is essentially a digital ledger that manages payments and deposits.  Within a traditional system, these ledgers are managed by a trusted 3rd party such as the users bank and these in turn are typically managed through some form of central bank such as the Bank of England.  The money itself is held as a digital record and we simply place trust in the centralised 3rd parties that this will be managed accurately.  With Bitcoin, this ledger is decentralised and essentially owned by all users (know as the block chain).  Trust is managed through sophisticated cryptography to ensure that changes are accurately represented and can be trusted.

As with any currency then, whether centralised or de-centralised, it really just comes down to whether the users of the currency place a value on it as a medium of exchange, a trust in it as a store of value over time and a unit of account that can be used to measure any particular transaction.

In this sense, you could argue that loyalty points are a currency.  They are a closed loop currency and you work to attain it by doing specific behaviours with the value issued directly in relation to your “effort”, be this purchase behaviour, frequency or other interactions such as social activity.  This makes it a medium of exchange which is normally measured based on the corresponding value to the issuer such as the retailer.  

The problem with this currency however is that in many cases, it's simply not that good.

It has relatively low liquidity - I can have lots of loyalty currency, points or miles from lots of programmes, but essentially they are all siloed.  I can’t move them, share them or aggregate them easily.  I can of course convert them to other assets such as rewards, gift vouchers or other loyalty program currencies, however the transaction costs for this can vary, making the exchange in many cases less attractive.

I’m also constrained by how much I can earn/attain based on other behaviours.  As these other behaviours are related to share of wallet activities like grocery shopping, it’s harder to increase my earning velocity past what I naturally need - so a change in pricing for example would not necessarily result in a significant change in demand and hence loyal behaviours recognised.  Sure I can centre my purchases with one retailer and possibly up-sell to higher value products - but there is essentially a ceiling to how much I can spend and hence earn.  Coalition programmes like Nectar help this to some degree by widening the opportunities to earn, but it’s still limited based on the amount I can actually spend.

It’s interesting however to look at a loyalty currency as an actually currency - a retailer issued, closed loop monetary supply.

As a retailer currency, why can’t I purchase currency upfront?  Why can’t I exchange the currency with friends?

Sure there are good reasons when you look at it as a reward mechanism.  

If it’s too portable, then does it lose it’s stickiness?  If I can simply give my points to someone else, am I less likely to try to build a balance?  If my points can be shared with others will this increase breakage and mean that high numbers of points will ultimately be redeemed?

The answer is likely yes to many of these questions.

However, if people can “pay” each other in loyalty points, will this increase the attractiveness of the currency (and hence the retailer)?  If customers could convert real money into a retailers closed currency upfront, how much is this “potential purchase value" worth? 1% discount? 5% discount?  If other, complementary retailers can issue the loyalty currency, does this increase the liquidity of the currency and create more customers and more purchases?

It has been reported that Starbucks now see 30% of their purchases being made with their loyalty currency, Starbucks Stars.  Of course, Starbucks could have just reduced their prices, but in doing this, the customer saving would have been in the most liquid asset - cash - and the chances of Starbucks seeing that cash being spent back with them would have been low.  However, with their loyalty currency, they’ve managed to both discount their product whilst keeping the value within their own closed loop currency.

Now at this point, that currency is no different to any other loyalty program we’ve been doing for the last 80 years, whether physical stamps or a digital record.

However, what if Starbucks allows the currency to be exchanged between people - what if they increased it’s liquidity?

Could I pay for a taxi ride with Stars?  Could I pay for a haircut with Stars?  Could the barber issue my change in Stars?

How much is a Star worth to me if I have all the coffee I need - would I trade it for less than it’s value at Starbucks to someone who values it more?

This may sound a little farfetched, but it’s happening today.  The Economist reported last year that in many markets in Africa, mobile airtime is becoming a defacto currency, with retailers issuing small amounts of change in mobile airtime rather than cash.  People are settling personal debts through the transfer of airtime and with the ability to move airtime credit globally, it’s not just a local phenomenon, it crosses borders and continents.

It’s even more interesting when you look at this through the lense of the new crypto-currencies like Bitcoin.

Rather than being “earned” based on behaviours, these crypto-currencies are typically mined - in a virtual sense.  Based on a complex algorithm which takes (ever increasing) computer power to work through, the algorithm rewards the computer user with coins every so often.  For a currency like Bitcoin, there is a finite number of coins to be found and as more are found, the remaining ones get even harder to find, taking longer and taking more processing power.  In this way, the Bitcoin market is essentially constrained, making a Bitcoin value flexible depending on what the market will pay.

Back in 2011, Stan Stalnaker, founding member of the Ven currency wrote an article entitled Bitcoin, Ven and the End of Currency built on this theme saying:-

“To be traded, [a digital currency] must be assigned a value.  And if it can be assigned a value, it can be interchanged with anything else of assigned value.  The Internet is enabling exchange of all types of value, and helps us to measure and publish these values. [..] How many Likes is a Facebook Credit worth? How many Credits make a Ven? How many Ven make a lasagna at the Olive Garden? How much do you have to Like the Olive Garden to get a lasagna? We’ll know soon."

As alternative currencies rise in popularity, we’re going to see more examples of people exchanging products, services, time, attention and share of voice for something other than the national currency.  I think loyalty currencies have a positive role to play in this new and emerging economy and it will be interesting to see how they change and are transformed to become more flexible and possibly decentralised.

 

Image credit http://williamstake.files.wordpress.com/2012/09/barter.jpg

Challenge for CPG: Focus on the basket, not the trolley

I have to admit I love Shreddies.

Little woven parcels of wholegrain goodness which, if you listen to the marketing blurb from Nestle, are lovingly hand knitted by a nana called Pearl and her friends.  They have their own Facebook page and Twitter account.  Part of British life since 1953, over 3m people in the UK seem to agree that its a tasty start to the day.

When we go shopping, I ask the kids to go grab a box of Shreddies and they quickly grab it and drop it into the trolley.

The problem is, they didn’t grab a box of Shreddies.

Instead, they grabbed a box of Harvest Morn Malted Wheaties because I’m shopping in Aldi, now just about the 6th largest grocery chain in the UK.  In fact, Alid and Lidl between them have attracted over 50% of households to shop with them - thats 13m people.  With sales for Aldi up 30 percent on the previous period and an aim to double UK stores by 2021, it’s a trend that doesn’t look like it’s set to stop any time soon.

You only need to look at Germany, the heartland of the so called hard discounters to see the effect this could have where they dominate with 44% of the market.

The reason is obvious - consumers are saving a tonne of cash!

For example, I get around 625g of Malted Wheaties for 1/3 the price of 500g of Shreddies.  The price today for 500g of Shreddies is £2.49 (49.8p/100g), for Aldi Malted Wheaties its 99p (15.8p/100g).  Overall, these types of savings have translated to pretty much a 50% cut in my household food bill.  Great for me, not so great for Tesco who used to have my loyalty and my purchases.

However, whilst we hear a lot about the woes of Tesco et al., we don’t hear too much in the press about the packaged goods brands and the impact it’s having on them.  I buy Malted Wheaties not just because they are cheap, but also because thats the only choice I have - almost everything in Aldi is own-label which means the more market share they get, the less market share the consumer brands will have.

This isn’t something that might happen in the future - it’s happening now.  

A recent report from IRi showed that the UK saw the biggest decline in grocery sales since the second world war.  Compared to the first half of 2013, there was a decline in sales of CPG products across all UK supermarkets by 1.2% in value and 3.2% in volume.  This at a time when brand promotions themselves are at an all time high.

A report by McKinsey back in 2010 entitled "Trends that will shape consumer goods industry" forewarned of this when it highlighted one of the top 5 trends to be that of “The shift to value”, with consumers looking for ways to save money and to trade down.  The report suggested that CPG brands were looking to address the issue head on with more competitive pricing through the use of scale, product sizing and finding ways to work with or displace private label products.

The problem with fighting on price alone though is that this simply erodes category value over the long-term.  

Speaking about this issue last year, P&G UK Managing Director Irwin Lee indicated that 5 years ago, brands excluding P&G sold about two-thirds of their volume at an average of 33% off - this had now risen to 80% of volume with an average deal size of over 40%.  To address this, Lee set out the P&G strategy, saying:-

“Our focus is on value creation to complement, if not offset, the over-reliance on unsustainable value give away. There is nothing proprietary in price promotions. We believe promotions win quarters, but true innovation wins decades.”

As Lee points out, consumers need more reasons to buy the product than price alone. Innovation is part of the equation, however all products can be copied as private label shows and with the emergence of the hard discounter “private label only” stores such as Aldi, this battle just got harder.  Brands are no longer fighting for premium shelf space but instead are fighting for customer head space.  

Consumers are now shopping in both hard discounters and traditional stores - buying the bulk of their weekly shop at a low price and the little extras at the one of the big 4.   Those little extras are also increasingly being done via an online trip from established e-commerce brands like Amazon or dedicated online grocers like Peapod or Ocado.  Some brands are even experimenting with their own dedicated online solutions such as P&G with its P&G e-store.

This is leading to the relationship between the brand and the consumer to become more fragmented.  No longer able to simply pay for in-store promotions and positioning to reach consumers, brands now need to look to build direct relationships with consumers.

The challenge for brands then is not how to get into the trolley - thats where the discounters win - but how to get into the basket; how to convince customers to make that extra trip just for them.  This is heart vs mind; emotion vs rational.

There are many tactics to achieve this such as advertising, digital couponing, receipt scanning or on-pack codes, but what is really needed is a co-ordinated and long-term customer relationship strategy.  Some might call this loyalty marketing - I’d call it the future of CPG marketing. 

Changing the choice context can change the game

I saw a number of presentations from various UK startups in the last few weeks and one really caught my attention.

Playmob is a startup focused on linking charitable giving to the purchase of game items/actions.  When CEO/Founder Jude Ower presented she described the positive effect that linking a charity donation to the purchase of a virtual item had.  In one example she detailed how 80% of people who purchased the virtual item had never purchased one before and of those, over 30% went on to purchase more virtual items.

I found these stats pretty amazing.

The 80% alone would be a good result - getting people who hadn’t previously purchased virtual goods to buy them.  You could argue that they weren’t really buying the goods and instead just used the opportunity to be charitable - however, with 30% going on to purchase again, this suggests a change of decision.  

The introduction of the charity element had somehow changed the decision context and caused them to purchase an item they had apparently previously ruled out.

Obviously, as marketers, influencing customer choice is something we do all the time - this is the basis of sales promotions and loyalty programmes.  What intrigued me though was the sheer number of people influenced who had never purchased virtual goods before.  It seems they simply need a little push to flip their decision.

In another charitable example, there was a study by Karlan and List called "Does Price Matter in Charitable Giving?” and they identified that match funding for charitable donations - whereby every $1 the donor gives is matched by another $1 - increases the amount given per donation (by 19%) as well as increasing the number of donations (up by 22%).  What’s really interesting here though is that the amount matched doesn’t actually impact these numbers - whether it’s 1:1 match of a 3:1 match (e.g. $3 matched to every $1 donated), the resulting uplift is the same.

This suggests that when it comes to decisions to do something, it is not just a black and white binary decision - there are lots more variables at play.  

Sure, there will be a segment who will always say yes and a segment that will always say no.  But in the middle, there is a floating segment who just need a little extra nudge to flip a no to a yes.  It also suggests that people don’t commit as much as they could - with the match funding lifting the actual amount donated it suggests that people had a little more headroom but that this only went so far.  The promise of even more match funding would not influence them to go past their personal headroom target.

The decisions people make  - such as whether to buy a virtual item or not - depends on them making a number of decisions that lead up to the final choice.  In doing this, people tend to make compromises and tradeoffs to compare the likely outcome.  Evaluating the cost vs the benefit and looking at the different options in terms of the value they add.  What’s interesting here though is that it’s possible to change the choices people make by introducing additional options, even if they don’t actually go for that option.

This seems to be what Playmob had tapped into.  The game producers already had a model for getting some players to purchase items (typical less than 3%), but they needed something to change the context to influence others.

The decisions people make however really depends on the context of the choices available.

Using the example of a circle, that same circle appears large when surrounded by small circles and small when surrounded by large ones.  In the same way, a purchase choice such as a virtual reward may appear to be unattractive in context of the value it adds to the game, but becomes more attractive when combined with another, real-world benefit such as a charitable gift.  Likewise, in charitable giving - whether to give and how much to give can be manipulated by the introduction of an additional variable or choice such as match funding or gift aid.

Placing more variables into the mix can ultimately change a persons choices in more complex ways.  A good example of this was published in the research report entitled “Choice in Context - Tradeoff Contrast and Extremeness Aversion” by Simonson and Tversky.  

It had a study which provided two groups with two different sets of choices for the purchase of a new microwave oven.  In the first group they had 2 product choices which varied by price and quality, but with the same discount.  The second group had the same choice but with one additional product added with better quality, better price but less discount.  See table below:-

 

Microwave Choice	Group 1	Group 2
Emerson (0.5cu. ft. / $109.99 / 35% off	57%	27%
Panasonic I (0.8cu. ft. / $179.99 / 35% off	43%	60%
Emerson (1.1cu. ft. / $199.99 / 10% off	n/a	13%

 

What’s intriguing here is that in the first group, the lowest quality product won out with 57% of purchases.  In the second group however, this same product only attracted 27% of purchases because a potentially better product was introduced into the mix.  Participants were forced to make choices using a different context and with different tradeoffs and so in this case, the 2nd product won out overall with 60% of purchases.

Simply by adding in another product - albeit one more expensive - the researchers were able to increase the overall sales revenues by encouraging a greater number to select the higher priced item.

This also worked in reverse.  In a similar study, they introduced a lower quality choice into the mix and demonstrated how this encouraged the participants to then increasingly select the higher value/cost option.

So choice is not a static context - just because your products and offers have influenced some customers doesn’t mean thats the best it can be.  Changing the choice context can shake things up a little and create an additional nudge for customers - whether that’s making their first purchase or increasing/uplifting their planned purchase.

This isn’t just a one-off benefit though as can be seen by the Playmob example.  Having given users a reason to purchase by changing the choice context, they then went on to continue purchasing as this initial choice had broken down the barriers to future purchases, possibly through the forming of a cognitive bias such as the commitment bias.

In the context of loyalty marketing, using the reward currency to provide additional options and to change the choice context can be an excellent way of encouraging consumer trial or repeat purchase - simply by sprinkling a small number of points on different product options.  Also, like the match-funding example, the value of the points given isn’t directly related to the change of behaviour.

Changing the choices changes the context and ultimately can allow you to change the rules of the game.

Tesco Bag-For-Life outlasts customer life time

What’s interesting about modern grocery shopping in the UK today is that the disposable plastic bag, so vilified by many, has been replaced with “lifetime” bags - thick plastic bags that last a long, long time.  

If you purchased one these bags you’d tend to be a regular customer because:-

• a) You bought enough to warrant a big bag
• b) You liked the brand enough to buy a “permanent” bag
• c) The bag is re-usable so it probably means you intended to come back

What’s interesting though is that these bags also tell another story and they tell me that Tesco has a problem.

I don’t need to read a newspaper or their annual report to see this problem.  I don’t need to run customer research to see this problem.  I simply need to shop at Aldi and look at the bags that customers are carrying.

These bags may not literally last for a customers lifetime, but they do seem to have lasted longer than the customers lifetime with the grocer that sold them.

Coming out of my local Aldi, every other customer was carrying a rival supermarket bag.  What was more interesting was that 9 out of 10 of these was for Tesco.

Now this over-indexing of Tesco is probably due more to rival supermarket proximity than anything else, but it is indicative of a wider problem - previously loyal customers are shifting their loyalty.

It’s also closer to home for me personally - I was up until recently a highly loyal Tesco customer.  I saw the value in their loyalty programme and I received significant value back every year from the programme.  I used their supermarket, their home shopping, their insurance products, their fuel and their credit card.

Yet I left them to shop at Aldi.

I’m also not the only one judging by the bags people use, and more scientifically, based on the results of the latest Kantar survey.  This shows Tesco’s market share has dropped nearly 1 percentage point in the last year (down from 29.6% to 28.7%) and is down 3 percentage points from its peak of 31.8%.  Given each percentage point is worth around £1.27bn, that’s a lot of sales value.

This isn’t due to lower sales overall - the market grew by 2.2%.  It’s also not due to customers trading down - both Sainsburys and Waitrose held onto their market share.  For me, this is more of a customer experience issue than a pricing one.

Obviously there is no denying that Aldi are significantly cheaper on many products than Tesco and it isn’t hard to see that these real savings today add up to more than loyalty rewards later.

However, that’s not the reason I continue to shop at Aldi - I actually like shopping there more than I like shopping at Tesco and the reason for this is fourfold:-

1. Store Format - At Tesco the stores are now just too big.  It’s great if I want something specific, but for a standard shop it just makes the trip take too long.  Walking down endless aisles past thousands of products I don’t want or need.  Aldi have smaller stores making the shop quick and simple.
2. Paradox of Choice - When selecting products, there is too much choice.  While this can be a good thing, when presented with 10 different types of sliced bread there is a tendency to pick something you recognise to help expedite the process.  The net result of this is that you pick brands you’ve used before or heard of and brands have a premium.  At Aldi there is limited choice, very few branded goods and typically one option for each.
3. Service - I’m not talking about customer service specifically, both brands have well trained, personable staff.  I’m talking about the way the tills work.  Aldi is specifically engineered for speed.  A whole shop is scanned at tremendous speed with packing done elsewhere at your leisure.  This means no real queues and no long waits.  Tesco checkout is just, well, slow.
4. Gamified - This is price related and is a personal aspect, but I like to compare purchases and keep the shop under a defined value.  Given the shop is typically 50% cheaper than my previous comparative Tesco shop, there is a pleasure - almost like a game - in seeing the final till receipt value.

I've given up a number of things to shift to Aldi.  I’ve given up a loyalty programme; I’ve given up home delivery; I’ve given up choice.  Ironically though, I feel like I’ve gained time (due to the quick shop), gained satisfaction (in making a smart choice) and gained money in my wallet.

The fact that I then blow that extra cash on eating out that weekend in simply a bonus - There’s no waiting for me to spend the value I’ve accrued.  I don’t need to wait for a quarterly statement, or redeem for a voucher.

So what would make me go back to Tesco?

• Better pricing/value exchange - that’s always a basic requirement.
• Better store layout - Make my basic shop quicker
• Better checkout experience - Speed up how the scanning/packing process

The number one thing though is to connect the satisfaction of shopping with the experience of shopping.  Tesco Clubcard doesn’t do that today for me - it’s not immediate enough, it’s not rich enough, it’s not connected enough.  Interestingly, Target Cartwheel which I’ve written about previously does seem to achieve many of these things.

Loyalty is still in the game and it still has a role to play - but at the moment for Tesco, it hasn’t kept pace with the market.  When your bags are lasting longer than your customers, you know there are issues to address. 

Airlines show how tablets create loyalty ESP

There’s a lot of talk within loyalty about the increasing volume of customer interactions and how these are being enabled through mobile devices, wearables and the Internet of things.

Indeed, Microsoft consider it so important that they’ve apparently setup a special task force to develop it further.  Whether it's Smart watches, fitness wristbands or intelligent eye-wear, there’s a whole host of new consumer channels, devices and ultimately data heading our way.

However the real benefit may not be in getting consumers to don these products, but getting the employees to instead.

Giving employees access to real-time information on a customer may be the thing that gives a brand the edge over it’s rivals.

As ever, the airlines are at the forefront of this revolution with many enabling access to customer information to front line staff through a variety of devices.  Delta for example recently announced that it’s equipping it’s flight attendants with tablets, highlighting the benefits by saying:-

"In addition to its functionality as an in-flight sales device and replacement for the on-board manual [it will] enable flight attendants to [..] provide information for personalized service, including customers' frequent flyer status and potential need for special services during flight."

British Airways was one of the first carriers to issue a mobile device to staff with the intention of improving customer service and interactions.  Called the Enhanced Service Platform or ESP for short, the naming of the device seems indicate their intention for staff to be empowered with what customers might perceive as an almost psychic capability. Their platform, developed in house,  is reported to allow staff to access details on key high spending customers including their previous travel arrangements, where they are seated, who they are travelling with and their loyalty status.  It can also be used to lodge customer complaints immediately.  

The service would seem to be valued by both the staff and customers with a flight attendant quoted as saying:-

“I’m ahead of myself in knowing where our corporate and high-value customers are sitting, and who needs help,” Kaur, a cabin-service director, BA’s highest rank of flight attendant, said in London following a flight from Istanbul. “They look at you and say ‘have you been on a special course?’”

It would also appear to get some great results with customer satisfaction for Gold members reportedly up 14% since the original rollout initiative.

Never happy to be a follower, Virgin Atlantic has gone one better by looking to equip it’s First Class concierge staff with wearables including the Sony SmartWatch and Google Glass to provide them with personalised information on the passenger they are interacting with.  One of the key aspects was the personal touch that the technology enabled, removing the barrier between the staff member and the customer.  Virgin reported that:-

“The trial helped reduce the number of times that a Virgin Atlantic agent had to go behind a desk to look something up for a passenger, which would break eye contact – apparently vital to ensuring a “VIP customer experience” [and] also negated the need for any radio communications between staff, as all the information needed for each passenger was available through the unit."

This is not just limited to airlines however.  

Retailers are also looking to equip staff with mobile technologies to enhance customer service.  In the UK for example, fashion retailer Monsoon has started equipping staff with an iPad that allows them access to the complete product range and stock, so they can help a customer locate an item wherever it may be.

AT&T in the US plans to go further and completely remove their traditional POS cash registers. Instead, AT&T store employees will be equipped with tablets and mobile POS systems to facilitate the purchase at the point of experience - when the customer is looking at and playing with the product.  AT&T Chief Marketing Officer David Christopher is quoted as saying:-

"It's a pretty radical departure from what we've done in the past, [..] We want people to try, play with and ultimately buy our products...If [shopping] was just transaction based, customers could do it on the web."

There does seem to be a difference however between how retailers and airlines are using tablets with staff.  

Whilst for the airline it is predominantly to improve the customer experience and to personalise the service, for retailers it seems to be to make the purchase process more streamlined and ensure they can get what the customer wants.  

For retailers however there doesn’t appear to be a desire to use previous customer purchase behaviour and preferences to actually personalise the shopping experience.  This would seem to be a missing piece of the puzzle as this is where loyalty data really comes into it’s own and would truly deliver on that retail loyalty promise of the “cornershop experience”.  A little of the BA ESP for retailers would probably go a long way.

Amazon - A dash for loyalty

Dash, the latest technical innovation from Amazon threatens to totally change the whole shopping experience… and retail loyalty.  

Using a combination of voice recognition and bar code scanning, the standalone “wand” allows anyone in the household to add to the shopping list when an item is running low, has run out or is simply needed.  Either by scanning the item that is about to be consumed or just saying what item is required, the dash adds it to your shopping list for later fulfilment.

Interestingly the idea is nothing new.  

Apps like Shopper Pro allow you to maintain a shopping list and scan items onto it. Back in 2000, LG launched one of the first connected devices with the Smart Fridge that incorporated a modem (remember those) and a touch screen to allow items to be inventoried, managed and re-ordered.

What Amazon have done though is different.

Whilst consumers have been happy to collapse many different gadgets into their smartphone such as a camera, videophone, GPS, fitness tracking or video games, they don’t always fit into every scenario.  When I’m in the middle of cooking, with dirty hands, liquids and a hot stove, getting my smartphone out and navigating the security and app selection is not going to be high on the agenda... Sometimes a specific, dedicated, connected device can be a much better user experience.

By creating a single-purpose device, Amazon have been able to hone the user experience to be exactly what’s needed.  

• It had to recognise that a household is made up of many individuals, so a mobile app wouldn’t have shared well 
• It had to recognise that not everything has a bar code - fresh produce for example, or an item not yet purchased which is required for a recipe - so voice input closed this gap
• It had to recognise that the device would have to function within a busy kitchen environment so it’s wipe clean and includes a hanging loop so it can sit right alongside other utensils.

User experience would have been key to the product design.

Amazon also had another advantage though and that is the closed loop ordering.  As a supplier of the goods through AmazonFresh, the dash connects the consumer from the moment of need to the moment of purchase seamlessly.

This is the real benefit of the dash - frictionless shopping and the loyalty effect this creates.

One of the main aims of loyalty marketing is to use knowledge about a customer and their purchase habits to reduce friction in the relationship to make it easier for them to do business with you.  In that respect, the dash is a fantastic loyalty play.

It provides the consumer with utility - a useful product/service.  It reduces friction in the purchase process by streamlining the process of shopping.  It provides stickiness as I’m unlikely to build my shopping list in AmazonFresh and then go and order it from competitor.

Like the Evian “smart object” launched back in 2012 to enable product re-ordering at  the point of consumption, the dash cuts through decision making and in the process is likely to increase loyalty, reduce price sensitivity and reduce the paradox of choice.

Whilst AmazonFresh is fairly niche at present, it will be interesting to see if dash will create competitor offerings from other retailers, all fighting for that newly created “front of kitchen draw” position. 

Sales Promotion Comes of Age

I was speaking at the Retail Business Technology Expo last week and what was interesting is how payments, coupons and loyalty have all merged into a single entity.

Whether you were a POS vendor or a payments solution, everyone had a solution that included coupons and loyalty.

It’s interesting because coupons and loyalty have traditionally existed in separate universes.

Sure, a retail loyalty program may have sent out coupons and increasingly these may have been targeted to the member based on previous purchases.  However, coupons have tended to exist in the world of Sales Promotion rather than Loyalty Marketing.  Whilst both below-the-line activities, they have always had different aims.

Sales promotion is normally used for a push of a particular product or service.  Typically in support of a wider advertising campaign, a sale promotion is short term with specific aims - to get (more of) the product moving.  Indeed, the latin for promotion (prōmovēre)  means “to push onward”.

Due to the typically short term nature of many sales promotions, any customer data collected is normally transitory - being used to facilitate the promotion itself with additional calls to action, encouragement to continue with the promotion and identification of winning behaviours.  Once the campaign is complete however the data is typically lost - either immediately or simply due to the data ageing over time as there is no real reason to continue a dialogue.

Indeed, I remember conversations in the past when asking clients if they had a customer database where they referred to the competition entries currently lying dormant in a mailing sack in the corner.

Loyalty on the other hand is in it for the long term.  It’s not typically concerned with that single purchase and is instead aimed at getting a continued and regular purchase pattern.  By definition, to be a loyalty programme it needs to be able to both identify the customer uniquely AND be able to see customer behaviours (e.g. purchases).  This tends to necessitate having up to date data and frequent communications with customers.  It also tends to lead to insight driven decisions, promotions and communications.

As a loyalty marketer, you tended to feel you occupied a higher ground when it came to customer led marketing.  Looking down on sales promotion as it stuffed product into random customers baskets for free (really, how hard is buy 1 get 1 free!), with many of these being the very same customers who were going to buy it anyway!

However, what sales promotion did have which loyalty didn’t was that immediacy.  That ability to change customer opinion there and then.  To be able to shift product sales immediately, typically at point of purchase (or decision).  Sales promotion was glossy, it dangled from the shelf edge and lit up the packaging.

Loyalty on the other hand tended to be after the fact.  After the customer had made the decision and paid for the goods the loyalty programme would wake up and suddenly recognise that great decision you’d already made without us.  Sure we could communicate with you later and hope you remember our messages as you walk around the store, but we just weren’t as “shiny” as the sales promotion guys.

That really is all changing though and so are the rules that go along with it.

Sales promotion is tending to run via social media tools and smartphones.  Customer data flows from the moment they connect with the promotion.  Even when the promotion ends, the conversation continues through branded social media campaigns.  Whereas before it was a random affair, promotions can now be targeted based on previous purchases, previous campaign usage, friends campaign usage.

Just take a look at Target Cartwheel to see this in action.  

The customer signs-up using their Facebook account (now they know who the customer is and how to talk to them), then they select the coupons they want to use (purchase intent), then they let the customer scan their single “barcode” (sounds very much like a customer loyalty id) to make savings (and obviously link ALL their purchases to their customer account).

While they could have stopped there and had a very capable mobile coupon app, they’ve gone further and included gamification features as well.  New customers start off with just 10 coupons slots; however over time the customers can earn badges which help to unlock additional coupon slots to get even greater savings.  These badges are awarded for various behaviours including sharing the app and offers socially, using in-store features like self-scanning and through frequency of usage (based on amount saved).

Is this sales promotion or loyalty?  Well, it’s both and it means the customer gets the best of both.

Target get to know the customer uniquely, see their behaviours, target further offers and encourage frequent usage - that pretty much sounds like a loyalty program to me.  The offers though are still good old fashioned sales promotions providing money off, BOGOF, etc. and will be largely funded by the manufacturers.

Retail loyalty is changing as mobile, payments, coupons and loyalty all seamlessly blend together.  This is great news for consumers but will create a real battle in the industry as these areas increasingly converge.

5 Key Trends for 2014 - The Year of "Now"

The pace of change bounds on and 2014 will be no different.  Picking up on key trends that have been maturing during 2013, the following are my thoughts on how some of the trends are all coalescing around a single vision of “now”.

1. Enhanced Experiences
One of the promotional mechanics Coke are using for the launch of their new 250ml can is the product recognition app Blippar that allows consumers to use their smartphone to view the coke product and in response, the consumer sees the product become interactive, allowing access to a number of music tracks.

This recent addition to Coke Zone in the UK is interesting in that it suggests two trends.  Firstly, whilst the solution is not strictly speaking traditional loyalty, it does point to an interesting trend about being able to both recognise and reward the customer not just at the point of purchase, but during the consumption/use of the purchase.  This type of enhanced experience could be utilised at any point in the sales cycle, from pre-purchase through to purchase.

Whats interesting about this is that the consumer doesn’t need to enter product codes, send in coupons or even redeem a download code, they simply point their phone at the product.  It’s something that can done “in the moment” as they are experiencing the drink itself, and allows the everyday experience of drinking coke to be enhanced with an interactive overlay.  Coke aren’t the only ones doing this, Blippar (and apps like it) are enhancing everything from magazines to beer mats to ketchup.

It does however speak to the trend of “now” and how being able to provide recognition and interaction as close to the originating event/action is ever more important.

The other part of the Coke Zone promotion - and the second trend it suggests - is the use of Spotify to stream the music tracks rather than provide downloads, and this ties nicely into the next trend.

2. Access, not ownership
Time magazine had a headline at the start of this year saying “Spotify and YouTube are just killing digital music sales”.  Apparently users are choosing to stream music and video as and when they want it rather than purchasing the item; albeit digitally.  Its interesting because 10 years ago, back in 2004, the BBC News website had a headline entitled “Will Napster kill high street record stores” and in January 1990 the Seattle Times has an article entitled “Vinyls Final Days - CDs are gobbling up the market of that old dinosaur, the album"

Things move on and technology and tastes change.  People still want to listen to music, but they want it on their own terms and they want it now.  Broadcasters and publishers alike are scrabbling to keep up with the change as consumers vote with their (virtual) feet and move on.  NowTV from Sky is a direct response to the success of streaming services like NetFlix and Lovefilm.

Even the darling to tech innovation, Apple, is on the back foot.  Streaming service Spotify is now the second biggest revenue service for music publishers after Apple with rumours that it could overtake Apple iTunes in under 2 years.  Whatever the reality, its clear that consumer tastes are changing again and the advent of 4G that enables streaming on the go is only likely to make this move at an ever quicker pace.

In this environment where the purchase transaction is replaced with an all access subscription to content now, the concept of a customer changes.  As competitors provide access to the same content in a different coloured box and essentially commoditise access, creating wider and deeper relationships that don’t just focus on the next purchase but span the total relationship will become ever more important.

3. Ephemerality
In Mission Impossible, Jim Phelps is given a mission via some device such as a tape machine which always finishes with the line “this tape will self-destruct in 5 seconds”.  The purpose of this is both security - so others can’t intercept the mission - but also relevance - Jim either wants the mission or he doesn’t, the information has no value after it has been communicated.  This “ephemerality” of the message is also becoming more relevant to those of us who aren’t secret agents.

When people first start using twitter they don’t always understand how to use it; the more people you follow the more tweets come pouring through your feed and the more out of control it can feel if you try to consume it like a news feed.  This feed is presented as a constant stream of information and the stream can soon become a torrent if you’re not careful.  Instead, twitter is best used as a means of taking a “pulse” - when you choose to read your feed you see what is there at that point.  You don’t go scrolling through days (or hours) of history, the point is to be in the moment - in the now.

Speaking about this in The Atlantic in an article entitled “2013: The Year ’the Stream’ Crested”, reporter Alexis Madrigal says:-

The Stream represents the triumph of reverse-chronology, where importance—above-the-foldness—is based exclusively on nowness.  No matter how hard you sprint for the horizon, it keeps receding. There is always something more.  

In response to this, some solutions are taking ephemerality seriously and building it into the heart of the offering. Snapchat is a great example of one way this is working, with people sharing pictures at that moment for consumption at that moment.  There is no preservation or history, no ability or need to roll back and look at something from last week.  The whole point is that it’s relevant now and Snapchat defines it as:-

If we can't disappear completely, let's leave as little of a trace as possible. Let's be water vapor, a passing fog, not the stream.

With consumers drowning under these ever increasing volumes of “now", it raises the question as to how we plan and communicate to consumers.  Madrigal highlights this further in his article saying:-

When the half-life of a post is half a day or less, how much time can media makers put into something? When the time a reader spends on a story is (on the high end) two minutes, how much time should media makers put into something? 

This isn’t suggesting that we don’t communicate, just simply that we think about how this communication will be relevant and it’s longevity.  It also introduces some thoughts about where else it’s possible to build ephemerality into our wider marketing programmes.  Either way, we can expect to see more of these types of applications in the future as consumers increasingly try to both manage their time and their privacy.

This leads into the next trend for 2014, that of communications context.

4. Communications Context
CRM matra talks about the Right Time, Right Place and Right Message when discussing about how to manage targeted and relevant communications.   Increasingly however there will be a new one added to this about Right Context.

If indeed, people are over communicated to and are starting to treat communications as a stream, then getting your message into the right stream at the right time will be critical.

Whether it’s email filtering or mail box redirects, people are just trying to limit what gets through the gate before they even look at it.    However, when the message is more directly related to the context of what they are doing then they are more likely to review it.  Messages sent via social channels like Facebook and LinkedIn tend to be consumed in a different context to general email.  Gmail for example has introduced tabbed email folders that automatically separate emails into difference contexts such as Social or Promotional so you can choose when and if to read them.

Discussing this treatment of email, in recent article on Tech Crunch, Peter Yared, CTO/CIO at CBS Interactive is quoted as saying:-

Mail systems are evolving to match the new volume of email, and users will increasingly see only algorithmically vetted emails. Some other emails may be shown below the vetted email, and the rest will flow away into temporal oblivion, just like uninteresting social posts from a few hours ago

Responding to this will mean being more flexible in where a message is delivered.  A siloed approach to communication with specific campaigns for specific channels will be replaced with cross-channel capability that allows the relevant message to be communicated to the customer at that channel at that time, whether it’s a POS till receipt or a in-app notification.  Just as important, and tying back into the previous trend, the message will also need to disappear as quickly as it appeared if it subsequently becomes irrelvant.  Context is king.

5. Quantified Self
Finally, a trend I’ve written about previously looks to be continuing to gain ground in 2014 and continuing with this overall trend of the “now".

With an increasing use of wearable and connected technologies becoming available, more and more people are starting to monitor more day to day activities.  At CES 2014, amongst the many “quantified self” technology launches, Sony showed off its life logging app and kit called the Sony Lifelog which not only tracks activities like walking or running, but also claims to know how you’re travelling such as by train or cycling and linking this information to your behaviours such as social interactions or photos.  This is a real extension of the basic “fitness” apps current available and is starting to extend into recording more day to day activities.

It’s interesting that the core value of this technology is quickly recognised with Marketing Magazine headlining the article “Sony makes a data grab”.  However Daniel Matte from tech consultancy Canalys goes one step further and indicates that with all this data, the winners will those that both grab user attention and keep it by providing actionable insight saying:-

“The end goal of these companies is to provide actionable advice and not just data logging [..] I don't think the average user frankly cares if, for example, they slept eight or nine hours. What they want to know is whether that was adequate and what they can do to sleep better, eat better etc. [..] Creating change should be the primary goal these technologies are striving for"

With this area continuing to grow and dedicated industry conferences just on the use of Personal Information, the challenge for loyalty programmes - typically the largest uses of consumer data - is not only how to integrate this level of behavioural data, but how to provide members with actionable insight - with utility value.

All 5 of these trends really do coalesce around the concept of “now” - from enhancing the experience the customer is presently having, utilising real-time data about where they are and what they are doing and communicating relevant and timely messages that cut through the stream - 2014 as ever is about grabbing a consumers attention whilst you have it.