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New and Improved:

A futuristic Approach to CPG Loyalty


Suzy Cox,
Vice President,
Account General Manager,
Brand Loyalty
Table of Contents

Introduction....................................................................................................................... 1

The Current State: Marketer Stability And Frustration............................................................. 3

The New Approach.............................................................................................................. 5

Loyalty’s New Value Proposition........................................................................................... 8

Back Through The Chain................................................................................................... 10

About Carlson Marketing................................................................................................... 11


Introduction

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.”

1 © Carlson Marketing 2010


The mid-term and long-term growth prospects are not the lock they once were for CPG
companies. Change is needed to keep marketing costs down as well as to deal with other
challenges that this white paper will outline. Those challenges are customer-centricity, private
label competition, price erosion, and lack of media efficiency.

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.

2 © Carlson Marketing 2010


The Current State: Marketer Stability And
Frustration

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.

3 © Carlson Marketing 2010


The list often changes by the month, but brands such as Glad, Hefty, and even some Coca Cola
products, have had trouble keeping their shelf space at Wal-Mart. CPG companies are in a stable
position for the short term but should be wary about the long term. Mass media continue to raise
their rates without guaranteeing competitive rates or performance. Categories such as health and
beauty, beverages, and household cleaning continue to rely on these media as the foundation of
marketing efforts when the customer wants a stronger value-oriented relationship.

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.

4 © Carlson Marketing 2010


The New Approach

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

5 © Carlson Marketing 2010


care, beverages, pet food). Regardless of the type of coalition, it is important to choose the
approach early and stay focused on the customer. Proprietary programs are intended for a
sole brand or product. When it comes to coalition vs. proprietary programs, ask the
following questions:
– Can my brand financially support the fixed operational costs of a proprietary program or
do I need to find partners to help me amortize these costs?
– Can my consumers’ individual annual value to me allow me to both communicate
consistently and offer them rewards or incentives?
– What do I stand to gain by aligning my brand with other partners: More consumers?
Better brand equity through association? The ability to offer my consumers a better value
proposition?
– How can I group my customers according to value?
– How does that value correlate to individual brands or groups of brands?
– What will motivate that group of customers to spend more money with those brands?
• Hard vs. soft benefits: Hard benefits are easy to calculate. They define the transaction and
the currency of many loyalty programs. For example, the consumer earns 1,000 points from
buying CPG brands and receives something tangible in return such as free goods or discounts
toward other products. This process can represent a breakthrough in CPG loyalty because the
program can be automated, sustainable, and a driver of positive customer value. It is never
stale if the offers and rewards are fresh.
Soft benefits (recognition, events, recommendations) can be part of the program as well,
although they are harder to measure. Example: If a loyalty program for diapers and baby
care products offers moms access to newsletters and expert information from the brand,
the program will have to track back to incremental purchase behavior among that customer
group. It can work very effectively and once again is a key consideration in designing a loyalty
program.
When determining hard vs. soft benefits, ask the following questions:
– Will the customers I am targeting spend more with my brand to achieve tangible goods?
– What are those goods and what will the cost be to my brand?
– Do I have enough emotional equity in my brand to be able to engage my consumers with
content or information?
– Can I operationally deliver soft rewards (like special treatment and recognition)?

6 © Carlson Marketing 2010


• L
 ong term innovation vs. episodic
experimentation: The biggest difference between Coke Rewards
CPG loyalty circa 2000 and CPG loyalty future Case Study:
are market networks of partners. If a brand can
In both the United States and the United
rely on one partner for all planning, execution, Kingdom Coca-Cola found itself in a cycle
tracking, and automation activities that of using a series of price promotions without
program is more likely to strengthen customer increasing sales revenue or customer
relationships and become as sustainable and loyalty. Those programs were becoming
increasingly expensive to plan and execute.
valuable as any series of network TV spots. In 2008, it embraced a more dynamic
approach. In the United Kingdom it was
When considering the longevity of your program, particularly challenged by a points-based
ask the following questions: loyalty program that used paper coupons
and an inefficient points bank. It was losing
– Is my current loyalty program primarily critical market share among teens. But by
designed to drive customer acquisition working with Carlson Marketing’s patented
and awareness or customer retention technology, it saw an opportunity to keep
customers engaged between promotions
and growth? to keep sales buoyed. It had the database,
but needed to find the right customers to
– Am I really using the data I am collecting leverage enticing award offers.
to affect these consumers’ retention and
growth or is the data just going into a Coke executed its redesigned digital loyalty
program where participants continuously
database for future consideration? shared their purchase behaviors and
actively engaged with the brand. The result
– Is my current loyalty program active from was increased volume year-over-year, with
a customer point of view? loyalty communication offers rising to an
open rate of 49 percent and a click through
– Is it subject to a long term plan? rate of 71 percent.

– 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.

7 © Carlson Marketing 2010


Loyalty’s New Value Proposition

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.

• Multi-channel communications: Consumers learn about, interact with, and purchase


brands through many different media today. Loyalty programs should mirror this by offering
consumers the opportunity to engage and interact with the program whenever and wherever
they are. In order to achieve this type of “embrace” with consumers, loyalty programs of the
future need to include not only an engaging Web site, but mobile, and online ads, and other
emerging digital touchpoints. Valuable consumers will continually engage with the brand, and
even the proper channels, if their communications and rewards are available through digital
touchpoints. Enforcing the point is the Mobile Marketing Association’s prediction that mobile
coupon usage will rise from 200,000 in 2009 to 70 million by 2013. Seventy-nine percent
of mobile phone users are interested in receiving coupons via mobile phone.

8 © Carlson Marketing 2010


• Mastery of program economics: This is a big upgrade from the programs CPG brands may
have tried and found frustrating. Many programs that were launched in the past were
fashioned directly after airline or credit card loyalty program models that offer members
impressive travel and merchandise rewards in exchange for loyalty. With the average annual
value of individual consumers at one tenth or less than that of those industries, CPG
companies quickly realized that they could not sustain the costs for their loyalty program
designs. Today’s successful CPG loyalty programs include much more creative and financially
appropriate rewards solutions. They are designed and managed by partners who understand
the individual consumer economics and have the talent to leverage the brands’ awareness,
reach, and brand equity assets to secure program reward options. Finding a partner that
understands this and can deliver the needed solution is a critical ingredient to the success of
today’s CPG loyalty marketing.

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:

• Codes made available to customers when they purchase a product.

• T
 hose codes are entered electronically at the point of sale and are converted into points/credits
and held in individual member accounts.

• Those points/credits can be used to acquire rewards.

9 © Carlson Marketing 2010


Back Through The Chain

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.”

10 © Carlson Marketing 2010


About Carlson Marketing

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.

11 © Carlson Marketing 2010

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