In today's service e

1. Creating Power
Customers
From Power Brands
The Marketing Mind Series
Thoughts and viewpoints from
an analytical marketing professional on
all things marketing, from
the elementary to the profound.

2. Contents
Creating Power Customers not Power brands
Marketing to Power Customers
Manage Customer Migration not Just Attrition
Creating Experience Brands
Building a Successful Experience Brand
About the Author
The Hansa Cequity Trip Segmentation Framework
The Hansa Cequity Advantage

3. Creating Power Customers From Power Brands
I'm waiting in line with my 4-year-old daughter, Tina, at a fast-food restaurant. It is
1:30 on a Saturday afternoon, and we've "forgotten" to eat lunch. Tina is hungry and
tired from running errands with me. It's been raining all day, and we're both soaked.
Now we've been waiting ten minutes to place our order seven minutes beyond the
industry standard. Finally, I order for Tina. "Sorry, sir," the salesperson says. "We can
give you your meal, but there are no more toys." Five-year-olds may understand "no
toys," but Tina begins to wail. For her, this restaurant is about trinkets, not food. In
her eyes, its failure to supply the toy has condemned the brand.
It happens every day. Customers are disappointed and even mistreated. Most
companies fail to quantify the cost of poor service and instead mistakenly believe
that more advertising will somehow take care of the problem.
Now Tina doesn't want to go back to that restaurant. Like many dissatisfied
customers, she won't risk another disappointment. She is the principal decision-
maker in this meal occasion fast-food lunch and her preference carries the rest of
the family. Moreover, with a life expectancy of more than 70 years, Tina is worth at
least a few hundred dollars in discounted revenues to this restaurant chain and even
more if she grows up to become a "group influencer" or the head of a large
household.
One often reads about "power brands" and how some of the larger FMCG companies
have tried to pull out of the recession by focussing on these brands. But isn't it time
for businesses to look for "power customers" - who contribute disproportionately to
the company's topline and profits. But to put in place a "power customer strategy"
needs companies to think about individual customers and not amorphous masses.
Most marketing in modern economies are however dominated by "product centric"
initiatives which rely on traditional mass marketing channels and advertising as the
dominant medium. On the other hand, retailers, banks, airlines, and other service
businesses are leveraging their superior customer relationships and retailing skills
to take a share of the limited customer budget.
But there is a way out. If brands could form deeper relationships with their
customers, they would enjoy greater share of wallet. By expanding the amount and
range of business they do with individual customers, they would be in a position to
use relationship pricing-trading off margin on individual products for volume in the
total bundle of offerings-to compete more effectively with the product specialists.
Developing this kind of customer franchise requires a radically new approach to
Marketing.
Increasingly developing economies are becoming more service oriented, but the
mindset still remains manufacturing focused. It is far easier to market a "product"
which a consumer can hold versus a "service" which is by nature fragmented. There
is also an increasing trend towards "servisation" of products. As modern economies
move increasingly towards services, consumers move from commodities, to services
to brand experiences. Case in point, coffee is priced low at the local wholesale
market, but is sold as an "experience" at coffee retail chains such as Starbucks for
$5/cup.
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4. Creating Power Customers From Power Brands
A silent revolution is brewing in the minds of urban consumers. And the revolution is
about a change in expectation about how brands "build relationships" with
customers. The question is, are marketers who have been used to "building brands"
able to fathom the changes that "building relationships" demand? And what do
traditional Marketers need to do to effectively compete in the service economy?
Marketing to Power Customers
The first paradigm shift the marketer needs to make is to think "one to one" vs.
thinking mass. Most marketers are used to thinking mass, and it becomes a struggle
to think "one on one". Most service providers like advertising and promotion
agencies are geared to tackle mass market action. Today technology allows the
marketer to run extremely personalized campaigns. Increased relevance and
personalization can actually allow marketers to "mass customize" relationships.
In fact, most business that drive "Database acquisition" are today not in "Retention"
mode. As the Cellular, Retail, Insurance and Banking businesses mature, those
opportunities will open out. And yet the opportunity to build "Relationship Marketing"
in developing economies is large because most consumers are still eager to hear
marketing messages despite being inundated with huge amounts of junk mails and
telephone calls. Consumers are far more amenable to allow marketers to build a
relationship if the message is "relevant".
The other issue is that most corporate decision makers still don't have a body of
"Relationship Marketing" experiences which spell winning case studies. There is a
huge need to evangelize with top management on the science of marketing to
"power customers". Marketing to individual customer segments is an expertise
which needs far more "Left brained" thinking than the usual forms of marketing.
Even today the best marketers would rather produce a "winning advertising
campaign" which is largely visible than invest energies in the analytical methods
required to market to "Power customers". An example of this is how a Retailer can
use the huge volume of customer data that he has to devise profitable "customer
paths" within his stores.
At Hansa Cequity, we call this methodology Trip segmentation. Every customer is
different from the other, and every trip he makes to the store is different from his
other trips. Trip Segmentation helps retailers analyze these trips individually, and
helps them increase the overall revenue from the customer by:
Increasing the frequency of trips to the outlet
Increasing the value of each trip to the outlet
Trip Segmentation describes trips in terms of a set of variables (e.g., total dollars
spent) and segments customer shopping trips into groups, and identifies differences
that can be leveraged to create value.
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5. Creating Power Customers From Power Brands
Manage Customer Migration
not Just Attrition
Based on insights from McKinsey research studies, the greatest profit lever is to
focus on customer migration - the change in customer value over time. Managing
customer migration is a powerful new approach that is used very successfully at
Hansa Cequity. In the credit card industry, for example, the annual value lost from
customers who defect is only one-third of that from those who remain customers
but use their cards less.
The implication for marketers is that there is an opportunity, which is substantially
larger than traditionally reported by top loyalty research; but focusing on defection
alone misses most of it. Managing customer migration is more powerful than other
approaches for several reasons. It captures much more of the total opportunity than
narrower measures like defection. And it is a leading indicator that allows marketers
to catch customers before they are gone for good. Also managing migration is highly
actionable because it relies on readily available customer behavior data.
Of course this does not mean one does do not look at attrition. Declining customer
loyalty means that customer retention is under pressure in many markets. The
problem is exacerbated by online media which today allows you to get comparative
quotes for almost any product or service in seconds. All the more surprising then
that most marketing budget is disproportionately allocated to acquisition. This
makes perfect but unprofitable sense when you consider that if little money is spent
on retention without any formal strategy, you will lose large volumes of customers.
You will also feel compelled to constantly increase customer targets to top up a very
leaky customer base. It has been widely documented that new customer acquisition
is nearly five times costlier than retaining existing customers. Still most marketers
end up apportioning lower marketing budgets for customer retention. Solving the
problem of customer retention is not complex, but it does require the development of
a focused plan and the ability to observe and measure customer behavior.
One of the great challenges in retail is identifying customer attrition and retaining
customers that may leave the brand. Retailers are extremely savvy in measuring
Gross margin returns on three vectors: GMROI (Gross margin return on Inventory),
GMROF (Gross margin return per square feet) and GMROL (Gross margin return on
labour). At Hansa Cequity, we do a lot of work with retailers on the overall customer
strategy. One vector that we added to this troika is GMROC (Gross margin return on
customers).
What needs to be kept in mind is the fact that retail attrition is silent: customers do
not need to close an account or terminate a service. They simply walk out and never
return.
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6. Creating Power Customers From Power Brands
Creating Experience Brands
The third paradigm shift the marketer needs to make is to look beyond advertising to
build the brand. Years ago a successful birthday party would be centered on a cake
made from scratch. Today, a "successful" birthday party must be staged at some
special place like McDonalds. And customers are willing to pay a thousand times
more for such a birthday "experience" than for the raw ingredients of a birthday
cake!
Historically, modern economies have three outputs - Commodities, Goods and
Services. "Staging Experiences" has become a fourth, previously unarticulated and
with higher value economic output. While Commodities are fungible, Goods tangible
and Services intangible, Experiences are memorable.
Staging experiences is about engaging customers. The richest, most memorable
engagements involve all Four Realms of an Experience - Entertainment, Education,
Escape, and Estheticism plus the five senses. Not surprisingly, the notion of
"experience brands" was developed in the context of the retail market, specifically
Retail & Banking. According to the above theory, a brand is a promise to consumers
that they can rely on to guide their choices. There are four general approaches to
developing such a promise. While not necessarily mutually exclusive, these
approaches represent different levels of ambition and can have different levels of
financial/bottom-line implications for the company. The simplest approach (level) is
called "threshold branding". This is limited to communication and requires
promoting name recognition and an image of corporate strength and stability. This
branding approach can foster brand awareness, but does not offer any differentiation
in the market place.
The next level of branding is "functional branding." Here the focus is on product
features. The brand promise needs to emphasize specific functional benefits and
distinctive attributes. Advertising is then used to communicate these differences.
This works well for pharmaceuticals where differences in product specifications are
important to consumers/physicians. The vulnerability lies in fast-moving me-too
players.
The third approach (level) of branding is termed "image branding." The focus is not
only on product features and benefits, but on communicating an image that is
appealing to the consumers' ego, and is consistent with personal aspirations of
targeted segments. Image brands are most applicable for products with visceral
appeal, such as cars, perfumes, etc.
The final and highest level of branding is "experience branding." This, although the
most challenging to achieve, once established, is the easiest to defend. Also, this is
most applicable for organizations that are in the service industry and have a large
number of customer-facing employees.
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7. Creating Power Customers From Power Brands
The focus is on the "experience" that the customer gets. Not only is this experience
required to be of highest quality but it also needs to be consistent over multiple
occasions and across multiple touch-points.
Note that the first three levels of branding can be executed via marketing initiatives.
However, experience branding requires the "people" to "live the brand." It requires a
strategic high-level commitment in the organization, followed by measurement,
communication, and training to all employees at all levels.
Building a Successful Experience Brand
A successful experience brand delivers effectively on its promise of a particular
experience. The steps to building such a brand are straightforward but require
thorough application and consistency. They are, First, to define an experience that
customers will value; Second, to deliver that experience through everything that the
company does with particular emphasis on front-line employee behavior; Third, to
measure the impact of that delivery on the customer; and Fourth, to lead and
motivate the organization to deliver the experience consistently.
At this stage, most service organizations are far too focused purely on customer
acquisition. But as the market for services evolves, companies will need to deliver
relevant value to "Power customers" and build "experience brands" to survive and
grow in a competitive environment.
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8. Creating Power Customers From Power Brands
The Hansa Cequity Trip Segmentation
Framework
It is highly obvious that individual customer needs and resultant shopping habits
vary greatly from each other. Leveraging these huge amounts of data enable
retailers to increase the revenue accrued per customer, by being able to analyze
each shopping trip individually. Hansa Cequity's unique Trip Segmentation approach
creates further opportunities to sell more, by describing trips in terms of set of
variables (e.g., total rupees spent), segmenting trips into groups, and identifying
differences that can be leveraged to create value. What it achieves in offering is a
ready opportunity to:
Increase the frequency of trips to the store, and
Increase the value of each trip to the store, by grouping customer shopping
visits in clusters based on intent, time and demographics.
For example, a customer buying groceries may not be inclined towards buying
doughnuts, but a customer buying dairy products and sweets shows a higher
probability of buying dough nuts. By being aware of individual customer trends, we
should be able to propel our customers through aisles where doughnuts and other
related bakery products are merchandised. Another piece of information that may
be come handy is the fact that customers would show a greater propensity to buy
dairy products in the morning than in the later hours of the day.
Changing Retail Business Dynamics
Increasing number of mass-campaigns have
Changing Customer Requirements negative effect customers
Customer requirements change with trips Need to innovate and come up with
Product categories bought in each trip is promotions suited to every customer trip
based on this requirement
Referencing with Time Understand Customer Mindset
Products sold in the morning need not be sold Customer buying "dairy products" have a
in the evening different mind set to the customers buying
Month-end or a weekend shopping is different "groceries" for stock up
to middle of the month/week shopping Purchase of products will change according to
his mind-set
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9. Creating Power Customers From Power Brands
Process Methodology
Store Profiling Product Profiling
Helps identify the store dynamics Helps analyze product assocoations
based on the customer demographics, and customer behaviour with respect
customer behaviour, MPV and store to particular product.
catchment area profile
Demographic Details
Promotion Details
Market Potential
Store catchment
Category Details
Product Details
Transaction
area profile
Customer
Customer
behaviour
Product
Details
Analyze customer behaviour and trip type Value Capture the transaction details for product
distribution categories
Creating derived variables to capture dynamic Create the derived variables to capture
behaviour and trends timeline trends
Create indices and score customers Create product association matrix
Construct Profiles Construct profiles
Trip
Store Profiles Segments Products Profiles
Insights and Actionables
The following is an overview of insights and actionables that are generated post
implementation of the Hansa Cequity Trip Segmentation framework:
What products are most likely to be in the basket on Immediate Need trips?
Which brands skew toward smaller fill-in trips and reflect demographic tilt in
case of smaller households?
Which product is sold more in quick "Urgent Need" trips leading to more
impulse shopping?
Which products should be merchandised together to improve their sales?
Which product is more susceptible to the shelf influences?
Which customers can be given promotions based on their current trip data,
thus increasing their frequency of trips?
What kind of in-store promotions and campaigns need to be created to
increase customer wallet share for the particular shopping trip?
How does your trip mix vary across outlets and retailers?
What are the different types of trips taking place in my store and what are the
profiles of customers for such segments?
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10. Creating Power Customers From Power Brands
The Hansa Cequity Advantage
Our unique trip segmentation framework analyzes customer trips at two levels -
store and product. For every store a complete profile of the customers is created
basis their age, gender, pin code wise distribution, visit frequency, ticket size,
vintage, items purchased, etc. At a product level the profiling is done basis product
association, transactions and promotions. This information is then mapped to draw
insights, identify opportunities and recommend new tactics for better business
transformations.
Read our insights and thoughts on how to drive better business transformations
through analytics based approaches at http://blog.hansacequity.com/.
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11. Creating Power Customers From Power Brands
About the Author
Ajay Kelkar is the COO and Co-Founder of Customer Equity Solutions (Hansa
Cequity), a marketing analytics company. He has over 18 years of experience in
customer-driven marketing across a wide range of industries like soft goods,
banking & financial services & retail. In his earlier stints he was Head of Marketing
at HDFC Bank and prior to that at Shoppers' Stop. He is among the most respected
analytical marketing professionals in India. He has extensive experience in starting
with simple data-led marketing and scaling-up complex analytics based cross-sell,
up-sell programs.
Know more about Hansa Cequity at http://www.hansacequity.com/.
Read our insights and thoughts on analytics and better marketing practices at
http://blog.hansacequity.com/.
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