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Introduction....................................................................................................................... 1
As any competent consumer packaged goods (CPG) marketer would do, let’s start with some
numbers. PriceWaterhouseCoopers reports that the consumer packaged goods industry took
in $2.2 trillion in 2009, a 10 percent increase over the
previous year. P&G alone generated sales of more than
$77 billion in 2009 and in February 2010 announced four
Pampers Case
new major product line upgrades. It is admittedly hard to Study:
say that CPG sales are broken. And it’s also tough to say, Pampers and other baby care brands
therefore, that CPG marketing is broken. face a unique challenge in the
marketplace. They have a finite time
However, look to some outside sources and it becomes to make an impact among moms and
evident that some pressure points are squeezing the a compressed period of time to form
a relationship. The Pampers “Gifts
packed goods industry. Several analysts have noted that to Grow” loyalty program has been in
consumers are starting to spend again but are attracted to place since 2008. In the beginning,
heavy price discounts. the program focused on extending value
pricing for loyalty program members,
In fact a recent Morningstar analyst report predicts some but not much else. It was collecting
acquisitions in the CPG space because of price pressure. plenty of data and rewarding consumers
for sharing that data, but that was it.
“We view this as a sign that consumer products companies
expect growth to be muted over the near term and so are “Gifts To Grow” lacked efficient
taking advantage of potentially depressed prices to bulk up administration, data analytics,
outbound consumer communication,
on brands,” the Morningstar report states. and an intelligent approach to
leveraging the program’s assets.
Other analysts have predicted a need for change as well. By changing its partner support for
A Nielsen report encouraged CPG companies to innovate the program, Pampers was able to
from the supply chain right through consumer marketing, improve results on all fronts. Active
saying that 2009’s increase in coupon activity needs participation among consumers was
increased by 20 percent. The program
to be followed by changes that will hold margins. “CPG rewards budget became more efficient
manufacturers will look for more efficient and effective by 10 percent. The program’s overall
ways to reach consumers vs. traditional trade spending,” ROI improved by 12.5 percent.
Nielsen says. “Time will tell if new product innovation will
be enough to drive shoppers back to traditional brands.”
Current marketing approaches lead to grinding out those few percentage points of growth each
quarter. They deliver predictable results, but those results will become more expensive to
achieve. As the retail, financial services, pharmaceuticals, and technology sectors have found
new ways to present products and drive effective customer strategies, CPG as a category has
relied on traditional marketing strategies for a short-term win, thus overlooking the customer
experience in favor of product tweaks. It favors message over dialogue. It leaves the customer’s
attachment to the brand at a slim margin when loyalty is threatened by private label brands,
struggling retailers, and desperate competitors.
A brighter future is attainable for CPG brands and for CPG brand managers. That future can be
found in a strategy that many CPG companies have tried and discarded because of improper
execution. That strategy is customer loyalty. Using direct-to-consumer transaction tracking
techniques, new approaches to analyzing customer data, and the latest digital marketing
strategies have taken loyalty programs and relationship marketing to a new level. This new
technology and customer relationship focus have given loyalty marketing a bright new future and
can give tired marketing—and weary marketers—new juice for their brands and customers.
Before laying out loyalty’s new approach and promise, let’s detail the problem that complacency
will incite. In February 2010, the CMO Council reported that most marketers (61 percent)
believe that loyalty program participants are the best and most profitable customers. So it is
not surprising that an almost equal number of respondents (65 percent) view customer loyalty
program investments as an essential and valuable part of the marketing mix. Unfortunately, only
13 percent of respondents believe they have been highly effective in leveraging loyalty and
brand preference among club members, and nearly 20 percent don’t even have a strategy
for this. Another 25 percent admit they have not mobilized brand loyalists to become active
advocacy agents either.
There are two key problems hindering CPG marketing today. The first problem is CPG’s reliance
on advertising and promotions. Although it makes a brand manager’s job easy, its long-term
sustainability is questionable. It is much easier to buy another print or TV ad than it is to truly
connect with customers and generate customer value. Almost all major brands advertise online,
and experiment with social and mobile media. In fact, Coke and Pepsi, to their credit, opted
for community-building social media programs around the 2010 Super Bowl instead of their
traditional $20 million or $30 million game expenditure.
However, even these innovative programs are not aimed at customer loyalty. They will
indeed build engagement, attract customer data, and generate some dialogue (which are all
improvements over the traditional stale approach), but they are not automated or sustainable.
They are event driven. They speak more to the “shiny object” syndrome being attracted to the
latest marketing fad. The key to converting marketing activity into sustainable customer loyalty
is to view the campaign as a long term strategic initiative.
The second problem is in the reward/reciprocity, or lack of it. Customer loyalty is currently
disappearing faster than the polar ice caps. Carlson Marketing research shows that 52 percent
of highly loyal customers in 2007 either reduced their loyalty or completely defected from their
CPG brand in 2008, and predictions for 2010 suggest a continued slide in brand loyalty.
Expect no mercy from retail partners. CPG companies have made a predictable science out of
trade promotion spending, advertising support packages, and in-store slotting fees. At the same
time, retailers such as Kroger, Safeway, and Wal-Mart are aggressively expanding their own
private labels while removing or constricting the presence of national brands on their shelves.
Much of this mass market spending is done in the spirit and with the intent of supporting retail
channels that are ready to launch private label competitors while demanding more merchandising
dollars for the products they currently stock. Those merchandising dollars are tough to track. CPG
brands have continued to design sweepstakes and coupons to generate customer and sales data,
but access to that data for the brand is far from guaranteed. By working through channels, CPG
brands have no ability to connect to their most loyal and profitable customers. The bottom line
is that retailers currently need CPG brands much less than CPG brands need retailers.
A new approach to CPG marketing is clearly needed. We are not suggesting that loyalty programs
become a substitute for effective retail promotions. We are not saying the loyalty program should
replace effective advertising, including the mass media awareness building that is still essential
for CPG brands. We are saying that it is vital to level the playing field in channel relationships by
giving the CPG brand, its retailer, and most importantly its customers, the touchpoints needed
to build meaningful relationships. Our research often shows a 20 percent or more share increase
among consumers participating in sustainable CPG loyalty programs, with volume increases of up
to 12 percent year-over-year. Add to that the cost offsets in the millions of dollars from strategic
partnerships, and brand managers can rediscover the value in this new breed of loyalty programs.
CPG loyalty programs can and should be accessible, automated, efficient, and powerful
strategies.
Like any business strategy, customer loyalty marketing has key elements for success, including a
sound financial plan, the ability to capture and track consumer transactions, a communications
plan, and data analysis to understand customer needs and provide customer intelligence built from
individual shopping behavior. Understanding that behavior and turning that insight into concrete
actions will help CPG marketers win in their markets. But it cannot be a “set and forget” plan.
Points and redemptions, for example, are not right for all CPG brands — the economics on both
sides of the equation must work. Targeted, timely, and relevant communications to loyalty program
members are sometimes enough to drive retention, cross sell, and organic growth but they must
be informed by customer purchase data. Individual customer needs and drivers help inform the
rewards/offer mix and stretch dollars to their fullest potential. Some brands in a company’s portfolio
have higher emotional connections and attract higher customer value than others. Considering
these factors, it is evident that even within the same umbrella company (Unilever, P&G, etc.) one
size does not fit all brands. When determining the specifics of your loyalty program, the following
elements must be taken into consideration:
• C
oalition vs. proprietary program: Coalition programs come in various forms. There are
wide-based programs such as Nectar, Aeroplan, or Upromise that count all purchases
toward rewards and industry-specific programs such as supermarket rewards. There are
coalitions formed within a brand (the advantages being shared customer data and costs
of administering the program) and programs designed around a type of product (personal
– Do we have a partner that can help answer In the United States Coca-Cola had a similar
those questions? situation. Its existing points-based program
was expensive and lacked a sound rewards
and communications strategy. Not only was
My Coke Rewards’ “build-it-and-they-will-
come” approach to consumer engagement a
bad assumption, but its old rewards strategy
was not financially sustainable. After a year,
the retooled program was re-energized,
jumping to a 16.8 percent increase in code
entry online. Logins to mycokerewards.com
increased their open rate by over 220
percent indicating multiple logins, and the
increase in code entry per member reached
108 percent over the control group.
As discussed earlier, CPG brands and their agencies have given points-based loyalty programs
a good run and sometimes found them expensive, hard to administrate, or lacking in short-term
results. Perhaps the disappointing results were the natural outcomes of too narrow an approach.
It is also likely that a number of brands have tested loyalty programs and are now sitting on an
unused loyalty infrastructure, or even a data warehouse filled with outdated consumer records
and purchase data. These “dead zones” are a testament to the need for a different approach to
this kind of marketing. Loyalty marketing should be a business strategy not a marketing tactic.
It is safe to assume that consumers will make a first purchase because you offer points. However,
the same effect can be derived from a coupon or another advertising buy. So why consider a
loyalty marketing strategy? The answer is, because loyalty marketing is about sustainability and
organic growth. It is about encouraging consumers to make the 2nd, 3rd and 4th purchases.
This approach to loyalty marketing can be recognized through a few distinguishing characteristics.
• Infrastructure: Loyalty programs live and die by their ability to generate and manage
consumer data. The system that supports the loyalty program should not only allow for
transaction and behavior tracking and point issuance and redemption, but also individual
purchase transaction analysis and member segmentation. The system should be able to
identify the right customers at the right time with the right offer to encourage an incremental
purchase. Without this kind of focus on the relationship continuum, money is wasted and
consumers can be alienated by a poor relationship or reward experience.
T h e C a r l s o n M a r k e t ing P r o c e s s :
Loyalty programs have about as many different definitions/approaches as there are spellings for the
Jewish holiday associated with a menorah. For the sake of clarity, Carlson Marketing defines Loyalty
Marketing as a process by which: 1) one-to-one relationships are established between the program
sponsor and its targeted audience, 2) transaction data is gathered and analyzed, and 3) value is
delivered to program participants based on the value or potential value those participants deliver to
the sponsor organization.
When all of these parts come together efficiently and effectively, CPG brands can execute loyalty
programs without wasting time and money. Retail partners will be confidently participating. Most
important, customers will be engaged and spend incremental money to access their rewards.
In the consumer packaged goods world the most cost-effective way to gather transaction data is
by the use of unique codes. Carlson Marketing has a patent that covers this process and puts CPG
brands on the road to breaking through the short-term marketing syndrome and re-aligns it for the
future.* The three elements of our patent include:
• T
hose codes are entered electronically at the point of sale and are converted into points/credits
and held in individual member accounts.
Let’s take it from the top. There are a number of faults in the traditional “stale” loyalty program
model; however, loyal customers are proving more valuable now than ever before. There is an
opportunity for real competitive advantage if CPG brands get it right. Instead of leaning on mass
marketing to drive a questionable ROI for a 10 percent sales increase, loyalty programs can
decrease media costs and potentially drive an even greater increase. Instead of only speaking
at customers, the programs can hear back from them. Instead of fighting channel partners
for a shrinking share of shelf space with no customer connection, loyalty program automation
can drive sales, make the case for more shelf space, and push promotion through to the most
valuable or growable customers. Finally, instead of the “stale” approach of traditional media,
all this can be dynamically communicated through digital media, which is more efficient in
the long term.
In the past, the missing piece of the loyalty program puzzle has been long term vision and
consistent loyalty program partners with complete and versatile skill sets. With customer loyalty
on the line in a $2.2 trillion business, a new approach deserves a long term commitment and
partners committed to making it a long term strategy.
*Finsterwald Patent #6,039
“In accordance with this invention, there is provided a method for processing one or more product marketing rebate
claims submitted by a consumer in satisfaction of one or more rebate offers having a value, each rebate offer
comprising an offer to provide a cash value in return for a purchase of one or more designated products. Purchase
of the one or more designated products occurs in one or more qualified transactions, each qualified transaction
having a transaction serial number assigned thereto. The transaction serial number is recorded in a point-of-sale
data processing and storage system and recorded on a receipt issued to the consumer. The rebate processing method
comprises providing a designated site connected to a global computer information network and accessible by the
consumer. A rebate claim is received on the designated site, the rebate claim comprising (i) at least one transaction
serial number corresponding to a qualified transaction, and (ii) identifying information corresponding to the
consumer. A data record is stored, comprising at least one transaction serial number and the identifying information
corresponding to the consumer. An electronic file transfer is received from the data processing storage system.
The electronic file transfer comprises at least one purchase data record comprising at least (i) the transaction serial
number corresponding to the qualified transaction in which at least one designated product was purchased by the
consumer, and (ii) an identification of each designated product purchased by the consumer. Each stored data record
is associated with a corresponding purchase data record having an identical transaction serial number, and the
stored data record and the corresponding purchase data record associated therewith are then processed to validate
the rebate claim. Then, the value of the rebate claim is transferred to the consumer. The designated site
may be accessible to the consumer by a computer connected to the global computer information network or via a
telephone connected to a computerized telephone answering system connected to the designated site and accessible
by calling a designated telephone number.”
Carlson Marketing is the world’s leading relationship building company. As the largest
independent agency in the U.S. and the 15th largest marketing company in the world,
Carlson Marketing designs and delivers loyalty and engagement programs for some of the
world’s best known brands. Carlson Marketing’s two global service offerings – Brand Loyalty
and Engagement & Events – are supported by six core capabilities: Strategy & Brand Planning;
Creative and Communications; Decision Sciences; Award Services; Technology Services and
Customer Service. Carlson Marketing – owned by Groupe Aeroplan, the global leader in loyalty
management – employs 2,500 marketing professionals across 17 countries.