Can't judge a book (or a customer) by it's cover

As marketers we're always keen to put customers into specific groups or segments. Typically creating personas for these segments that attempt to describe the customer - detailing where they shop, what they watch, what they read or how much they earn.

Sometimes this is based on research; many times it's embellished with our own "insight".

So if asked to describe a typical consumer in Windsor - one of the most affluent areas of the UK - and the stores they frequent, you probably wouldn't be including the discount store Poundland amongst the profiles.

However this hasn't stopped them from opening a store in Windsor and according to reports in the Daily Mail

There are women in pearls elbowing each other out of the way, and a couple of smart old ladies are having the most awful row over a gardening fork.

Ok - so this is an article in the Daily Mail which may mean there is a little creative licence in the reporting. However Poundland state within the Financial Times that 11% of their customers are from AB social-economic groups.

Research from Nielsen last year on coupon usage in the US also demonstrated this apparent mis-match with affluent customers by showing how those earning more than $50k per year actually represent 60% of the top coupon users - something most people would naturally assume would skew to less affluent customers.

Google's recent announcement about bringing coupons to the mobile phone via NFC further back this up. With 64% of Android users being on incomes of $50k or above this is something they clearly see a market for within a more affluent customer base.

Another example of how we can misjudge customers is shown within ebook sales.

Sales of romance and erotica books have apparently exploded within the e-book format with the main reason thought to be the lack of the embarrassment factor associated with these books in hard copy format (such as reading them on public transport).

Looking at the raw sales numbers you could assume that customers no longer enjoy the romance genre; however, understanding customer motivations as to why they aren't purchasing the books allows for a new channel to be utilised and sales revitalised. Research from Tesco for example indicated that 31% of customers said they prefer not to be seen buying the books due to their association with an older demographic. A spokeswoman for Tesco is quoted as saying:-

Some bashful customers prefer to use e-readers so they can access stories privately. However, there is no reason why reading Mills & Boon should have to be a guilty pleasure

A report I heard recently about a European bank who were trying to encourage customers to shop online also demonstrates this.

They attempted to utilise points promotions to over reward this specific behaviour of online shopping but this had little effect. Instead, what finally worked and significantly increased online card usage was in fact the introduction of an online fraud and delivery insurance. Not taking things at face value and instead trying to understand customer motivations around risk allowed them to unlock a new category of spend.

As the saying goes, you really can't judge a book by it's cover. Whether trying to second guess which customers shop at discount retailers or why certain customers won't shop online, it's important to look at all the angles as customers really aren't one-dimensional.

GOOGLE: Legacy - The Game Has Changed

In film Tron Legacy apart from some fantastic music from Daft Punk, there is an underlying story of the online world trying to break out into the offline world. They come close but with the risk of spoiling it for those that haven't seen it - Kevin Flynn (Jeff Bridges senior) manages to hold back Clu (Jeff Bridges junior) and his armies of "programs" - and in the process saves the free world.

However fantasy is great, but when fantasy starts to become reality things get a whole lot more interesting.

Google has steadily been taking control of the online world; beginning with search they have increasingly permeated all aspects of our online interactions from browsers, tablets, mobile, mapping and online tools.

You can almost imagine them uttering the words of Kevin Flynn in the film when he says:-

In there is a new world! In there is our future! In there is our destiny!

But things are changing.

Google are apparently looking to trial the use of coupons at till with retailers using NFC Android phones. Working with eftpos terminal manufacturer Ingenico they will look at a series of trials at retailers in New York and San Francisco.

Philippe Lazare, CEO of Ingenico was quoted as saying:-

Google wants a system where, when you enter a shop or supermarket, you receive a special offer on your telephone. At the checkout, you can take advantage of this offer" by touching your phone to the Ingenico POS terminal, which will be capable of reading the coupon and will automatically apply the discount to the shopping bill.

This may seem like a small piece of news but what's interesting here is the combination of online and offline services from search to location based services through to NFC and POS integration. In theory a customer could search for a product online via Google, be presented with an offer which they can then immediately use to purchase that product when walking into a store.

This ability to track online interactions through clicks and onto online purchases is something that Google and affiliate networks have been doing for years. However the ability to track these right through to offline purchases in-store really brings multi-channel retailing to life.

It also promises to change how loyalty programmes operate. You only have to looking at the number of loyalty programmes with online shopping malls to understand that these programmes really benefit from the affiliate revenue generated when they get members to shop in partner stores. Being able to drive these purchase decisions into everyday transactions however is the real key here.

But Google isn't the only player. Facebook is increasingly linking online and offline with Facebook Deals allowing offline merchants to create deals for online members. While this doesn't (yet) directly link the interaction to the transaction you can bet Facebook will be looking at how they increasingly make it relevant within bricks and mortar retailers.

There was an interesting blog by Adrian Hon in the Telegraph recently about the battle between Google and Facebook and while on the face of it they would seem to have very different businesses, in reality as Adrian points out:-

Google and Facebook are increasingly set up as competitors [for] sorting through the material on the Web.

While each has a very different approach; Google with its highly sophisticated search algorithms and Facebook with it's personal recommendations from friends they are both in the same business - namely monetising interactions between consumers and brands.

Google has done well in providing a more direct and accountable channel for marketing budgets but if Facebook can demonstrate better "bang for buck" through the power of personal advocacy they could see their revenues slowly eroded.

Not one to sit back and accept the status quo Google are firing on all fronts. From taking ownership of the channel itself (mobile/tablet via Android / PC via Chrome) to trying to develop their social strategy (and tying their employees bonuses to the success of this).

This latest effort of linking offline and online through POS is another step in this battle. Making marketing budgets increasingly accountable and in the processes owning the consumer interaction from search to purchase.

As Clu says in the film when looking to break out from the online world to the real world:-

Out there is a new world! Out there is our victory! Out there is our destiny!

While the battle for our attention online is intensifying, Google making a move offline suggests a whole new game and one worth keeping an eye on.

One customer responsible for Ladbrokes profit drop?

Could a handful of customers be driving the majority of your profits?

It's well known that the pareto rule typically applies within customer value with around 20% of customers representing 80% of profits. However, even within this 20%, this can still skew to a smaller number of customers who contribute a large percentage of profits.

Ladbrokes apparently discovered this to their cost recently, with just one customer reportedly being responsible for the majority of the fall in high-roller profits from £66.9m to just £5m. This translated as a 20% drop in overall total profit from £235.4m to £207.3m.

The gaming industry typically suffers more from this skew in large revenues from a small number of customers with some areas of the online gaming side of the industry seeing upwards of 80% of revenues from a low single digit percentage of customers.

Knowing this, Ladbrokes introduced the OddsOn loyalty programme within their retail stores to get better visibility of their over the counter (OTC) and fixed odds betting terminal (FOBT) customers. This is something Ladbrokes is working hard to exploit, saying in their latest interim results:-

We have made good progress in 2010 in defining key customer segments and will shape marketing activity around them, using the valuable information on our customers that OddsOn! is providing. Trials adopting this approach are already beginning to show encouraging results. We have also introduced a dedicated service team aligned across all products, to manage high value customers.

Whilst this customer value segmentation might not be as severe in other industries, it's still just as important. Within speciality retail for example, one retailer sees 30% of customers representing almost 70% of sales revenue. This is the difference between an annual spend of around £60 for low loyal customers versus over £400 for high.

Importantly though, these customers not only spend more, they visit more - over 7 times more. This means if customers don't like changes to your prices, products or customer service, these high loyal customers will be the first to notice. Using the speciality retail example above, if just 10% of these customers defect, whilst they would only represent 3% of customers overall, it would result in a 7% drop in profits.

Not all business are impacted as much as Ladbrokes seems to have been by a small number of high value customers, but at least they know who these customers are. The picture could be much worse if high value customers were defecting, profits were falling and ultimately you had no idea why.

The real value of loyalty programmes is in the insight and visibility on customers they bring. High-rollers aside, this is something which Ladbrokes will increasingly be leveraging as their OddsOn programme expands and something which gives them first mover advantage over their competitors.

What we (and Guns N' Roses) can learn from Google Instant

Google Instant has launched amongst mixed reviews. However, love it or hate it - it's part of an increasing trend amongst consumers to have have everything now. In the launch PR, the main selling point for Google instant was that it saved the worlds internet users the equivalent of 11 hours per second or 111 years per day.

On an individual basis this is just 2-5 seconds per user, and yet this is the main selling point.

It's easy to see why Google would want to minimise any possible wait time; in a recent survey, two-thirds of us have stated that we've walked away from buying something because we were fed up of queuing and 51% of us wouldn't even enter a store if we spied a queue.

This apparent impatience at having to wait for things also seems to be increasing. In the same research it was reported that British consumers are now only prepared to queue for up to two minutes - down from five minutes just six years ago. (At that rate we'd expect instant service by 2014)

This isn't necessarily just an impatience with queuing though - it's an impatience with anything that stands in the way of getting something now.

In a recent Experian survey it was noted that young people tend to use offline channels for purchases, despite researching them online simply because they "want it now" and don't want to wait for it to be delivered.

Even our leisure time doesn't escape this level of impatience as the legendary band Guns N' Roses recently experienced. At a concert in Dublin they were booed and bottled off stage after only performing four songs due to a late start to the concert. Keeping fans waiting for over an hour, they were shown peoples impatience when they did finally arrive on stage.

So with an increasingly impatient consumer, how do loyalty programmes fit which require a longer term commitment.

Many loyalty programmes work around annual timelines, with quarterly statements, annual tiering and rewards which take at least 12 months to make viable. This can make it hard to engage consumers early on when they are impatient for recognition from the programme they've joined, leading to disengagement.

For loyalty programmes to engage an impatient consumer they need, like Google Instant, to provide faster and more relevant recognition.

The standard response to this is to give more value more quickly. Giving double points, welcome point bonuses, hero rewards, instant discounts, merchant offers - anything which can bring the loyalty value exchange forward.

However, while I'd agree we need to make recognition faster and more relevant, I'd argue that the rewards tied to this recognition don't need to have a tangible value.

You don't need to give discounts, priority queuing or a £10 voucher to MAKE a customer feel special - you just need to make them LOOK special.

Giving someone a Black credit card might make them feel special - letting them show it to others makes them look special - and this in turn really makes them feel special. This is known as "Social Currency" and is defined as:-

• Things that help me belong
• Things that make me significant

Making loyalty programmes social so that peoples achievements can be shared allows this social currency to be leveraged. Using different achievement mechanics which have their roots in gaming dynamics, such as unlocking badges/levels or the use of leader-boards allows for many options to recognise and engage customers quickly and early on, without the need for monetary rewards.

Seth Priebatsch, CEO of SCVNGR recently wrote about some of the gaming dynamics which help form this social currency saying:-

Game dynamics are fast becoming a critical currency of motivation. Their power lies not in connecting us to our friends, but in directly influencing our individual behavior. Smart companies will take this time to look at their product portfolios and community behaviors through the lens of game dynamics.

Google is a smart company and is constantly looking at ways to improve its products and services to further engage consumers and stay one step ahead. If we don't want to be booed and bottled off the loyalty stage, then we also need to learn the same lessons; recognising and engaging consumers more quickly and more relevantly.

The use of social currency is one way to do this and is set to become the "Google Instant" for loyalty.

How to train your dragon (or customers)

Hiccup is a teenager who's a little different - he doesn't really fit in with the rest of his Viking village who are dragon slayers - and have been for centuries. Instead of slaying dragons, he ends up befriending one and in the process changing the perceptions of the whole village.

The dragon he befriends is the most powerful and feared Night Fury dragon, but due to an injury, he cannot fly without assistance from Hiccup. Becoming friends the two of them go on to work together - Hiccup the rider providing direction and the newly named Toothless the dragon providing power and support.

As the official blurb puts it for new film "How to train your dragon":-

Hiccups world is turned upside down when he encounters a dragon that challenges he and his fellow Vikings to see the world from an entirely different point of view.

Whether it changing from slaying dragons or changing your diet - change itself can be hard.

It is normally easier to do what you've always done. Sometimes you may think about change, dwell on it, work out the alternatives - but ultimately do nothing.

This is also the topic of a new booked called Switch: How to Change Things When Change is Hardby authors Chip and Dan Heath which discusses why change is difficult for us and techniques that help.

Unlike the film however where Hiccup is the rider of a dragon, the book describes how decision making for us is similar to a rider and an elephant, saying:-

Our emotional side is an Elephant and our rational side it's Rider. Perched atop the Elephant, the Rider holds the reins and seems to be the leader. But the Riders control is precarious because the Rider is so small relative to the Elephant. Anytime the six-ton Elephant and the Rider disagree about which direction to go, the Rider is going to lose. He's completely overmatched.

Whilst this is a great book for looking at how to manage personal change - and I highly recommend reading it - it does raise some interesting thoughts about how to make change easier for other people, providing three simple rules:-

1. Direct the Rider - Resistance to change is more often lack of clarity about what needs to be done


2. Motivate the Elephant - The Rider can't get his way by force for long - it's critical to engage peoples emotional side


3. Shape the Path - Normally a people problem is actually a situation problem - you may need to make changes to make change easier (think Nudge)

For example, they describe a case study in the book about a campaign to encourage healthy eating. Rather than use a standard message of "eat a healthier diet" or provide a long list of good and bad foods the campaign had a simple message - drink low fat milk.

Knowing that milk is the largest source of saturated fat in a typical Americans diet, it was felt that if they could change this to low-fat it could make a big difference.

To support this the campaign had two messages.

The first, directed to the Rider was simple and provided crystal clear direction - "Next time you're in the dairy aisle of the grocery store, reach for a jug of 1% milk instead of whole milk"

The second message was to the Elephant - looking to appeal to the emotional side by visualising the problem saying for example that a single glass of milk had the same fat as five strips of bacon.

The campaign worked in changing behaviour - resulting in a shift in market share for low fat milk from 18% before the campaign to 41% after it.

These same techniques apply in a commercial sense when looking to change consumers behaviour. For example, a credit card issuer is always looking to increase card usage - to make their card front of wallet and to increase it's usage across a customers share of wallet.

Whilst you could send a communication pointing out how using the card more will provide greater rewards - this is just too generic. The Rider - the rational side - will be contemplating various options - but not taking any action.

If instead to drive card usage you provide crystal clear direction - use your card in this category - then it suggests you are more likely to get people actually doing it.

A typical example of this would be to suggest using the card within supermarkets as for a card issuer, this represents both a large and regular transaction - something which is more likely to drive increased usage across other categories.

This can be seen in the example below from the new Amex Express Rewards card which highlights increased points earning in supermarkets:-

Amex have then combined this with simple messsages about the reward that can be obtained for the points earned - providing something to appeal to the Elephant - the emotional side.

However, this is nothing new and there are many campaigns of this nature across reward credit cards.

One thing that is missing from these types of campaigns though is the shaping of the path - in essence removing barriers which may still confuse the Rider or make them operate on autopilot.

For example, the problem with getting people to use their credit card in supermarkets may not be as simple as just asking.

• There may be concerns about what people think - Does using a credit card mean I can't afford to buy food?


• There may be concerns about managing personal finances - If I use my card for everyday spend, will I remember to pay it off; will I overspend?

In order to ask people to use their credit card in supermarkets, we may need to first address the reasons why they aren't, helping to alleviate concerns and Shaping the Path.

One thing is clear though, simply asking people to spend more on their card is probably never going to work in the same way that simply asking people to eat healthier rarely works.

If you want change - if you want to train your customers - then this new book suggests that you'll need to think about how you speak to the Rider, engage the Elephant and ultimately make it easier to do business with you by Shaping the Path.

Make the easy things easy and the hard things possible

I was reading a recent post from the blog brandgym about blyk, the new mobile phone operator who provides a "free" mobile service to 16-24 year olds, funded by advertising revenue. Although this is an interesting proposition and I have to admit, one I thought would fail quite quickly when I first heard of its launch, what struck me most was how it came about. Apparently the founder of blyk, Antti Ohrling got the idea from the free morning newspaper, Metro and thought if it can work for papers why can't it work for mobile.

The mobile sector is however well known for commercial innovation – from the creation of pre-pay mobile in the mid-90's to the emergence of mobile virtual network operators (MVNO) like Virgin Mobile.

Looking at the recent headlines I thought how this contrasted with the automotive industry which is obviously struggling at the moment in the wake of people pulling in on their purse strings, with new car sales down almost 40% - the commercial model for selling cars seems to have changed little over the years with car dealerships affiliated with a car manufacturers.

Whatever the business, one of the fundamental aspects of gaining a sale is to make the purchase process as simple as possible – removing or reducing any barriers that may exist. When purchasing a new car there are a number of "barriers" to overcome. The most obvious is liquidity – does the customer have the cash or access to the cash to purchase the vehicle - if the customer can't raise the funds then there is little possibility of a sale. Increasingly though another barrier is depreciation – with new cars typically losing 40% of their value in the first 3 years and up to 25% of their value when driven off the forecourt, the decision of new car versus used car is increasingly difficult.

Buying a new car is essentially an emotional decision – it makes no sense rationally as the only advantage over a used car is the "factory fresh smell" and the knowledge that no one else has driven it. In the current economic climate, emotional decisions are going to be much harder to come by with customers instead thinking about every pound they spend. What is interesting though is that odds are someone working today will still be working when the current slowdown is over – so money isn't really the issue – for many people it's the commitment. Not knowing what may happen in the next 12 months means people will be less likely to want to commit themselves financially.

So if car manufactures want to sell cars they need to address two issues – managing depreciation - so new cars don't look so irrational when compared to used cars – and facilitating purchase. I'm not suggesting these are necessarily easy things to answer (or the only things) and obviously car leasing and loans help to address the issue of having upfront cash. However they do little to address depreciation or commitment issues and finance brings its own issue; anyone who has insured a newly financed car will have thought about "gap insurance" – that product which covers the shortfall between what you owe for your car and what the insurance company actually pays out.

There is however some recent commercial innovation in the car industry. Hertz announced this week that it was entering into the car sharing market in London; providing cars for as little as £4 per hour – it isn't the first to do this, but it is probably one of the biggest brands. For many, this can be a great way of having access to a car without the cost or hassle of owning it. In fact physically "owning" things is becoming increasingly less of a requirement – whether its on-demand services like BT Vision for films or Napster for music, people are getting used to having access to something rather than actually owning it and websites like Zilok are now making it possible to rent things when you actually want them, from drills to drums. Car sharing may not be practical for many people but the ability to simply have access to a vehicle with minimum commitment and no associated ownership issues like depreciation could be offered through more flexible forms of financing.

So what has all this got to do with retaining customers? Well over the last decade or so, for many industries retaining customers has consisted of providing better services than your competitor – the customer was always going to buy, they just needed help in deciding from whom. Now things have changed however - the customer may not be buying at all!

For many companies what's required is a review of how you go to market to ensure that you make it as easy as possible for customers to do business with you – both existing and new - looking outside of your own industry could be a great place to start; who knows, the morning news paper could just provide that inspiration.

A distribution of surplus in proportion to trade

The Co-operative Group in the UK announced recently that its interim dividend payment for the first 6 months of 2008 was to be £8.9m, this is £2m more than the interim payment for 2007 and comes on top of a full year dividend payment of £38.1m in June.

For those that don't know the Co-operative Dividend programme was re-launched in 2006 and essentially awards points to members based on their spend within the group of companies – these points are then assigned a value every 6 months as an interim and full year dividend, based on the profits of the group. In this way the programme pays out a true dividend or share of profits based on the contribution the customers make to the group as a whole. Since its re-launch the Dividend programme has recruited over 500k new members, taking the Co-operative membership to 3.1m.

Although the programme has recently been re-launched and replaced a previous "standard style" retail loyalty programme it is essentially nothing new. The founding members of the current Co-Operative movement, the Rochdale Pioneers Society were established in 1844 and within their original eight 'Rochdale rules' was the inclusion of a requirement for the "distribution of surplus in proportion to trade" which became known as 'the divi' - this was probably one of the first "loyalty" programmes in the UK.

The Co-Op aren't the only organisation to support loyalty through a share of profits. The Britannia Building society in the UK has been running a whole of bank style loyalty solution called Britannia Membership Rewards (BMR) for over 10 years. This scheme rewards customers with points based on their financial product holding and value within those products. On an annual basis the points are converted to a cash value based on a proportion of the society's profits and are then paid out to its members.

Although these businesses as co-operatives and mutual societies are built around ownership by their members and the return of excess profits as either a dividend or competitive pricing, there is probably a lesson here for all businesses.

The recent financial crisis highlighted the unhealthy focus some companies have on either their employees (and associated bonuses) or on shareholders and their requirement for ever increasing profits – sometimes at the expense of long term growth and stability. Badly sold mortgage products to customers who clearly had no ability to pay or would struggle to pay in the future were sold by financial institutions who were thinking more about short term gain than a long term relationship. The other banks and investors buying these badly sold mortgages up as packaged portfolios or Collateralised Debt Obligations (CDOs) weren't thinking of the customers either – they were all just looking at the profits to be made. You could argue that for these businesses the customers were almost an inconvenience, with the focus simply on making money for stakeholders rather than thinking about delivering benefits to their customers.

A sustainable business however is based on both acquiring and retaining profitable customers - this doesn't mean a business has to be owned by its customers but it does need to recognise that customers are the lifeblood of the business and it needs to acquire them with a view to retention - providing great products, customer service and recognition of their loyalty from day one. In their book "Return on Customer" Don and Martha suggest that "the only value your company will ever create is the value that comes from customers -- the ones you have now and the ones you will have in the future. Businesses succeed by getting, keeping, and growing customers."

They go on to put it succinctly saying "Without customers, you don't have a business. You have a hobby". You could probably spin this around a little and say "Without focusing on customers, you don't have a business. Period."

Whether the Co-Operative Groups recent renewed success is a result of the re-launched dividend programme, their group wide rebranding or their increased focus on ethical investments and fair-trade products is difficult to tell – what isn't hard to tell is that a business which is still growing after 160 years must be doing something right.