Unlocking the Value of Human Behaviour Requires a Key
To be truly effective in the deployment of customer insight, you must ensure that you do three specific things well.
Paul Alexander, CEO of Beyond Analysis, explains what they are.
There is a myth that many companies today are creating a considerable strategic competitive advantage through the use of customer data.
The myth is created by three types of activity:
• The proliferation of loyalty programmes – more of them must mean that they are working;
• Vanguard case studies;
• The increased acquisition of CRM software and technology.
With an exponential rise in each one of the areas above, one could be forgiven for thinking that everyone’s using customer insight, and they are using it to best effect.
Time and time again we see businesses who believe that because they have one – through to all three – of the above in place, they have cracked the code to unlocking the insight they need to create sustainable competitive advantage.
In truth the reality is very different. Ladbrokes provides a recent and compelling example. We were asked by a competitor of Ladbrokes to examine the development of a loyalty programme for them in response to the launch of Odds On. Our advice was to use the existing data our client had within their online businesses to inform their offline strategy – seeking to engender loyalty not through a programme per se, but through a deep understanding of the behaviours they sought. Our advice seems to have been wise:
“Ladbrokes has suffered a downgrade at the hands of ratings agency Fitch on fears the UK gaming giant is facing increased competition and a tougher trading environment both on the high street and online… …it is the launch of Ladbrokes’ loyalty scheme across its 2,700 high street estate that causes Fitch new concerns. Their Odds On programme was launched earlier this year and, at the time of its last interims, Ladbrokes said over half-a-million loyalty cards and £8.6m worth of free bets and bonuses had been handed out to date.
The company said the programme is intended to provide a greater degree of knowledge of the betting habits of the customer, but Fitch suggested that Ladbrokes is merely “replicating expensive marketing strategies already tested by internet operators.
…The result is an upfront increase of customer retention costs, particularly for Ladbrokes… The loyalty programme has yet to produce any results, which in turn would depend on the extent of their competitors’ reaction. Also, while these expenses are discretionary, [we] believe it could be difficult to withdraw them when customer spending is no longer growing and competitors are winning market share.”
16 Jun, 2009 / GamblingCompliance Ltd. / Scott Longley
Notwithstanding the issues Ladbrokes have created for themselves by launching Odds On in a way which is “replicating expensive marketing strategies already tested by internet operators”, it is frankly astounding that the programme was launched across the high street estate with no apparent thought for online. Indeed, as the above article suggests, online should have provided the guidance to what a ‘best in class’ loyalty programme might look like for Ladbrokes.
The proliferation of loyalty programmes
During an economic downturn, it is an absolute necessity to ensure that an existing customer base is maintained. With less money to spend, and a hard fought battlefield, acquiring new customers is more difficult than ever before. The net effect of a recession is therefore compounded if you cannot hold on to the customers the business has already – and give those customers more reasons to buy, and buy more often. Loyalty programmes are on the rise.
Speed to implement a loyalty programme often means that it is championed by the marketing team and seen as a marketing initiative. The underlying cost of a programme is more accurately being evaluated today, however need is currently overtaking integration with other forms of insight within the business, and the answers to some fundamental questions are being overlooked:
• How much do we know about our existing customers already?
• Can key customer issues (such as competitive prices) be addressed by the data already in the business – such as transaction data and market research?
• What will the loyalty programme add to the knowledge we already have about our customers within the business?
Few people realise that many of the key levers they can use to engender increased loyalty amongst customers typically already exist within the business. For example, by looking for patterns of products in a ‘shopping basket’ we can understand which products are important to have on discount for price sensitive shoppers, versus those who are not. Using the same approach we can also determine which products are important for customers trading into (and therefore out of) categories.
For a loyalty programme to have maximum value to a business it therefore must add to the insight the business already has. Before rushing headlong into a new loyalty initiative, we must first ask ourselves what we are trying to achieve. What are the behaviours we seek?
• Customers come more often, or;
• They buy more when they are there, or;
• They spend more on fewer (more profitable) items, or;
To adequately understand what a loyalty programme can achieve for a business, the business MUST spend the time to determine:
• What is the business problem that the loyalty programme is looking to solve;
• Whether it requires a short term issue, or a long term solution;
• That the same outcome cannot be achieved by better use of the existing intelligence within the business.
Vanguard case studies
There are some brilliant case studies for best practice use of customer data and insight. Tesco, Harrah¹s, lots of them.
As with all case studies, they tell little of the war stories along the way, or indeed of the hard knocks those businesses have had to manage themselves through in order to succeed. They did not ‘arrive’ at being able to derive the value from customer insight, they travelled there via a long and often treacherous journey.
If case studies tell us one thing, it is that success can be achieved if the right environment is created. They are often however used and abused by companies who:
• Take the best bits – the highlights – and expect to be able to achieve the same results;
• Think that a pre-packaged solution can be reapplied to their business albeit often with a very different target audience or business sector.
Take Grocery Retail for example. The Tesco Clubcard Case Study is a difficult one to ignore. The Tesco business is now so dominant, and the examples of where customer insight has driven the success of the business are so many, that the case study is difficult to ignore.
But just because Waitrose, Morrisons, Asda,…, are in the same sector doesn’t mean that what works for Tesco can be reapplied immediately elsewhere. The data is different, the cultures are different, the products are different, the locations are different, and the customers are different. Most importantly – and most often missed by companies who operate within our own competitive landscape ¬ the strategies for the businesses are different.
Customer Insight will only be effective if it is ultimately connected to what the business is trying to achieve at the highest level within the organisation. It may even be used to inform what the overall business strategy should be, not just merely qualify whether it is working or not.
Therefore, the message is clear, don’t use other case studies as the answer, but use them as the guide. Think of the brief for what you are seeking to achieve from the strategic use of customer insight as a lead in to the writing of your own case study.
The increased acquisition of CRM software and technology
I asked the CEO of a FTSE 100 company whether he knew everything he needed to know about his customers. His response was that his IT team had implemented a world-class CRM system which was being used extensively – by his marketing department.
I knew that if he was lucky, the IT team would have carried out an extensive business requirements gathering exercise to understand how CRM would be implemented within the business ¬ and across the business. They didn’t, and marketing were the only people who were using the CRM system, and they were using it to deploy DM campaigns.
A company we worked with in the last year ¬ who for obvious reasons shall remain nameless – was an online business with 2,000,000 customers. The marketing team were using the CRM system to put forward what was indeed a very compelling case for Direct Marketing. The more they did, the more customers came. The marketing machine was akin to Little Shop of Horrors with the DM agency acting as ‘Seymour’, filling the pipe with ever increasing demands for more customers. Little did they realise that:
91% of the revenue for the business came from 400 customers. That is, 1,999,600 customers were providing only 9% of the revenue to the business.
In the same way that having a loyalty programme does not automatically mean that your customers will exhibit loyalty, having a CRM system does not mean that the relationship you have with your customers is ‘managed’. Direct Mail is only one of the benefits which can be derived from a CRM system, but it is often the one which is most talked about and overused. Any good CRM system will put customer intelligence – real true insight – into the hands of individuals across all disciplines of the business.
• Which products are important to customers which are not;
• Which products (although potentially loss making) trade customers into the category and without which there would therefore be no category;
• What prices are acceptable to customers… etcetera.
As an example, price comparisons versus competitors are a good guide as to where prices need to be pitched in order to win with customers. But all too often competitive price positions are taken as the only benchmark. As I have said before, companies, customers, propositions are all different, what is acceptable pricing for a Waitrose customer is very different to that of a Sainsbury’s customer. The only way to find out is by looking at the data held within a CRM system to determine value versus quality versus customer (VQC).
To be truly effective in the deployment of customer insight, ensure that you do three things well:
• Understand what data and insight your business has today and how it is being used across functions. If it isn’t being used, seek to understand why;
• Clearly articulate why a loyalty programme will benefit the business and how it will increase your understanding of your customers;
• Create your own case studies by testing hypotheses – contained failure will ultimately lead to success.