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A New Lift for CPG:
Engagement Loyalty
Exploring innovative growth options
in relationship marketing
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A New Lift For CPG:
Engagement Loyalty
Exploring innovative growth options in relationship marketing
c
ompanies can make yogurt drinkable,
ness where share points are worth billions and
cleaning products portable and shaving
actual sales lift is scratched out from a growing
razors close to surgical. But for real break-
number of consumers that have weakening
through innovations, many Consumer Packaged
brand loyalty, relationship marketing is an
Goods (CPG) companies are looking beyond
undervalued and underplayed strategy. In addi-
products and more closely into relationships.
tion to product innovation, CPG companies
There’s a good reason for this, but those rea-
should focus on relationship innovation. We
sons are being questioned. According to a March
argue that it can be a fertile area for innovation
2007 McKinsey Quarterly report “breakthrough
that achieves short-term and long-term con-
product innovation” is the most frequently used
sumer loyalty.
and most profitable single tactic in the CPG rev-
Relationship innovation creates what we call
enue growth arsenal. Product innovations have
“engagement loyalty.” It blends two areas of
home run power.
CPG marketing (engagement and loyalty pro-
Swiffer, for example, added millions to P&G’s
grams) into a powerful and innovative strategy
bottom line. Red Bull created a whole new prod-
for generating organic revenue growth, cus-
uct category. It’s no surprise that studies from
tomer acquisition and positive word-of-mouth.
Deloitte and IBM rank innovation and new
Engagement loyalty focuses on rewarding cus-
product launches as a top strategic initiative for
tomers not only for their purchase, but for their
executives. But many more decision makers are
precious time and attention. It uses advertising,
questioning the idea of focusing on the home
BtoB communications, and interactive market-
run product innovation that happens so rarely.
ing to attract customer participation in branded
AMR Research and Booz Allen Hamilton have
experiences and communities. Companies are
released surveys that show minimal correlation
already paying for consumer time and attention
between increased investment in R&D and
in extremely inefficient ways. The network TV
resulting benefits. Says AMR: “Manufacturers
spot that costs $250,000 to produce and $1
are questioning their internal innovation
million to place is paying the network as a mid-
processes, and in many cases are looking out-
dleman for consumer time and attention. But
side the organization for alternative sources.”
engagement loyalty can more efficiently
Innovation is more likely to come from new
involve customers both at the point of pur-
packaging, pricing, and incremental changes to
chase and at the point of attention. It can
product content. Actual revenue lift from those
increase the propensity for a customer to
kinds of innovations, according to a recent
spend incremental revenue and make more
McKinsey report, average .4 percent incremen-
frequent purchases in the CPG category. It
tal revenue gain per year. We believe the more
requires active engagement not just passive
likely and unexplored area of CPG innovation is
viewing. Active engagement fuels the emo-
in the relationship marketing space. In a busi-
tional engine that drives loyalty.
©2007 Carlson Marketing. All rights protected and reserved.
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>in brief
Innovation in relationship
marketing is an undervalued area of CPG growth.
Engagement loyalty is a
new blend of marketing
strategies that rewards
consumers not only for
their purchase, but for
their time and attention.
The concept of “currency”
changes within engagement loyalty, and could
redesign the execution of
programs so they are
more affordable and efficient for CPG marketers.
Measuring the consequences of engagement
loyalty will require new
metrics.
We believe the more
likely and unexplored
area of CPG innovation
is in the relationship
marketing space.
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A New Lift For CPG: Engagement Loyalty
The CPG Landscape
Growth comes in small percentage increments for many CPG categories. This chart shows the key product categories and
the revenue growth realized over the period from 1999-2003.
Fast-growing categories in
consumer packaged goods1
Compound annual growth rate
of sales 1999-20033 %
Market size,
2003,5 $billion
Energy drinks
89.0
Milk substitutes, soy milk2
Electric
80.0
toothbrushes2
0.3
21.0
Bottled water
0.3
15.5
Snack/granola bars
3.3
14.3
Sports drinks
1.9
11.9
Home healthcare kits
0.2
1.2
11.3
0.7
Refrigerated coffee creamer2
10.3
0.6
Yogurt
9.8
2.7
9.1
0.3
Sugar substitutes
First-aid accessories
Laundy
prewash/additive2
Skincare
6.1
0.8
5.6
0.3
5.2
1.6
Toothpaste
4.0
1.5
Razors
4.0
1.4
Adult incontinence products
4.0
0.5
Weighted average4 = 12.1
Overall total
17.6
Source: IRI InfoScan; McKinsey analysis
Unique Challenges
intelligence. These programs have been strictly
The CPG space has unique loyalty challenges.
focused on rewarding product purchase either with
First is the commodity challenge. Many CPG cat-
points for more products or access to a catalog of
egories are not driven by any consumer passion
goods that fits the lifestyle of the target audience.
but are driven strictly by price, in-store display
Pepsi’s programs that rewarded multiple purchas-
and sheer volume of image-based advertising.
es with iTunes downloads and the My Coke
Second is the challenge of habit. The supermar-
Rewards program with its broad array of partners
ket shopper that buys breakfast cereal for a fam-
and non-expiring points are good examples.
ily of four may not even consciously think about
Points programs have become accepted as plat-
her brand choices. They have become a habit.
forms for short-term CPG loyalty. They will contin-
Significant brand immersion and education are
ue to be necessary. For some brands they will con-
required to change that pattern. Therefore, tra-
tinue to be hugely effective. For others, and in
ditional marketing measurements of recency
some markets, it will be prohibitively expensive to
and frequency are much harder to move in
administer and fund rewards. Points programs,
some CPG categories than in other areas such
especially programs that involve supply-chain
as retail and financial services.
issues such as on-pack codes, pressure a brand
Over the past seven or eight years, CPG firms
financially and operationally. Code-based pro-
have attacked this issue through points programs
grams are expensive to scale across brands, or
that connect purchases to a Web site through
even within different iterations of brands.
on-package codes. They have been effective in dri-
Engagement loyalty on the other hand is scalable.
ving sales lift, and very efficient at driving customer
For points-based relationship marketing the
©2007 Carlson Marketing. All rights protected and reserved.
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The Consumer Packaged
Goods space has unique
loyalty challenges: the
commodity challenge
and the habit challenge.
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A New Lift For CPG: Engagement Loyalty
desired outcome is increased purchase frequency.
alty for its highly successful campaign in 2006
For engagement loyalty the desired outcome is
called The Refreshing Wall. According to its brief
increased interaction with brand content and expe-
for the OMMA Awards, it aimed the five-month
rience followed by a more focused consideration
effort at recapturing a sliding share of the teenage
set for the product category. If increased engage-
market by engaging the demographic with a
ment can shrink the consideration set to one brand
chance to create their own Sprite logos and online
at the point of purchase, loyalty by any measure
graffiti-style artwork. It became the most-trafficked
will be increased. In addition to rewarding product
area on MSN, with users spending more time with
purchase, engagement loyalty needs to reward
The Refreshing Wall than any other MSN channel,
consumer’s time and attention with three ele-
including Hotmail. It’s 1+ million community con-
ments: information, community and experience.
Sprite Hits The Wall
Information
The engagement loyalty equation here says: Give
me information, time and attention and I’ll tell you
some secrets. A sound interactive strategy is critical for this area. If customers are willing to impart
personal information and engage in your brand
on the Internet, they must have access to authentic information they can’t get elsewhere. Or the
information they can access must reflect the
unique point of view of the CPG brand.
For example, The California Milk Processor
(CMP) Board has taken “Got Milk?” into the points
The Sprite “Refreshing Wall” community site has given the brand
increased engagement among teens and a repositioned cool factor.
and information arena. It’s new 3D “Get The
Glass” game allows users to attack “Fort Fridge”
to get the earth’s last glass of milk. Along the way
users are confronted with trivia questions about
tinues to use the site despite the end of the official
the benefits of milk and they suffer what the CMP
media support of the program. Most interestingly,
Board believes to be the downside of milk depri-
according to Sprite’s own terminology, The
vation (brittle bones, etc.). Users earn points
Refreshing Wall “established a new currency.”
toward a chance to win a $5,000 prize.
Instead of engagement, Sprite calls it “captivation
metrics.” Average time spent in the application: 6
Community
minutes per user session. Each $1 in investment
The equation here: Give me information, time and
generated 4 minutes in user engagement. Lift in
attention and I’ll allow you to participate in my
brand equity, as measured by Sprite: 14%.
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business, and interact with other participants. It
has been called co-creation over the past year, but
Experience
we believe co-creation has morphed into the com-
The equation: Give me your information, time
munity element of engagement loyalty. Doritos
and attention and I’ll let you into my clubhouse.
used this strategy to collect customer records on
Kids’ CPG brands have worked this experience
more than 750,000 customers and is now tapping
element by attracting children to Web sites that
that community to choose new flavors as well as
have brand specific games.
Nestle recently set up a Web site co-branded
new marketing approaches.
Sprite used community-based engagement loy-
©2007 Carlson Marketing. All rights protected and reserved.
with the popular PBS character Arthur for its Juicy
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A New Lift For CPG: Engagement Loyalty
Innovating the Customer Relationship
Juice brand. Digitally downloaded points rewarded
participation in learning-based games. Points were
To lock in engagement loyalty, customers must think differently about the
goals, metrics and opportunities of the loyalty initiative.
not applied to purchases. “Millsberry” is another
example of engaging kids in a brand experience. It
Innovation
is a virtual town created by General Mills in August
2004. It has shops, homes, special events, a news-
Product Innovation
Relationship Innovation
paper, chat rooms and an arcade. Games and vis-
Goal
Incremental sales
Incremental time
its to nutritional information Web sites such as the
Key Measure
Sales
Time, impressions,
e-mail opt-ins/opens, etc.
(interaction with brand
in targeted ways
Scalable
Efficiencies Across
Products/Portfolios
No/limited- each brand
typically requires significant start-up investment
Yes- each additional brand
can be added at a fraction
of the original cost
At the Shelf or
How it Drives
Sales
Product news/ product
newness stand out on
shelves and generates trial
Emotional connection and
targeted brand education
keeps brand top of mind in
consumers consideration set
National Institute of Health earn “Millsbucks.” They
can be used to purchase items from Millsberry’s
downtown shops as well as allow members to purchase their own home in Millsberry.
The New Value Exchange
Using information, experience, and community as
rewards resets the loyalty value exchange. But
points are still an essential tactic. Engagement loy-
Source: ePrize/Carlson Marketing
alty requires CPG companies to change their
mindset from thinking of points as the currency
and products as the reward. Engagement loyalty
points programs to show a percentage of sales lift
can still reward customers with points that will
at retail, or even achieve a percentage goal show-
enhance brand equity. But points can reward time
ing return on investment. These metrics fail to
and attention, not just purchase. Engagement loy-
consider the relative strength of the supporting
alty adds the more scalable rewards of informa-
media and competitive brand activities. If the cre-
tion, experience and community to the points
ative for in-store signage as well as advertising
toolkit for CPG companies. It puts less pressure on
fails to effectively communicate the presence and
a company’s ability to load up the rewards it
value of a points program, it won’t work no mat-
assigns to points programs. Combining points
ter how rich the rewards are. And if a competing
with the rewards of information, experience and
brand has an effective program to counter it, per-
community takes pressure off the content of infor-
haps the relationship marketing tactic has saved
mation, experience and community. It also takes
some share points that might have been lost. CPG
pressure off the media used to attract consumers
executives obsess about CPMs and cost per
to these elements. And finally, it puts pressure on
acquisition. They should compare media CPMs
the brand to deliver on its promise and value
and CPAs to loyalty programs as well.
proposition. At the end of the engagement loyalty
In fact, engagement loyalty presents some
cycle, the energy drink needs to hydrate runners,
new metrics that more accurately portray the
skin care needs to repair dry skin and toothpaste
positive effects of relationship marketing. If a
needs to leave mouths fresh.
brand’s relationship marketing has generated
one million email responses, one million page
The Measurement Problem
views for its information-based newsletters and
Engagement loyalty also brings a set of measure-
tracked one million participants in its online
ment problems. We think relationship marketing
gaming area, that is a measurable response to
efforts up to this point have been measured
engagement loyalty efforts. The move toward
improperly in the CPG category. The metrics have
more
not been balanced. Many CPG companies expect
spawned some research that shows consumers
©2007 Carlson Marketing. All rights protected and reserved.
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Internet-based
branding
has
even
Engagement loyalty adds
the more scalable rewards
of information, experience, and community
to the points toolkit
for Consumer Product
Goods companies.
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A New Lift For CPG: Engagement Loyalty
An Engaging Future
are just as comfortable, if not more comfortable,
Interactive marketing is key to any engagement loyalty strategy. Research
shows a nearly 50% increase in planned online spending.7
with online commercial spots. According to
Millward-Brown the retention rate for con-
2006
2007
2008
2009
2010
2011
$470
$600
$710
$810
$1,000
$1,132
Food and beverage** $211
company online
ad spending
$288
$320
$365
$450
$509
Food and beverage
% of total CPG
48.0%
45.0%
45.0%
45.0%
45.0%
sumer-controlled commercial viewing is 68
Total CPG industry*
online ad spending
percent, compared to 58 percent for traditional
TV. It has been proven that a more engaged customer is a more active customer.
When CMO Jim Stengel announced last year
that P&G tracked more than 65 million customer
records, those 65 million customers were
engaged. They had responded in some fashion
4.9%
* Total CPG includes food, beverages, cosmetics, baby care, household cleaners and supplies, personal
care products, pet food and supplies and over-the-counter (OTC) medications.
** Food includes prepared foods, dairy, produce, meat, baked goods, confectionary, snacks, beverages
Source: eMarketer, April 2007
include non-alcoholic beverages, wine, beer and liquor.
to P&G brands’ communities, experiences,
information packages and media. As Forrester
Research analyst Lisa Bradner stated in her
December 2006 report “Who’s Visiting CPG
Cohort Sites?” 31 percent of online consumers
Conclusion
visit sites like Procter & Gamble’s “Home Made
Engagement loyalty is sustainable. It allows CPG
Simple” that focus on a particular consumer
to access sorely needed dynamics in its
segment and are sponsored by multiple brands.
marketing approaches. Rather than consistently
These visitors are looking for “rich information,
coming at customers with push-oriented, tradition-
recipes, newsletters, and coupons. Smart brand
al advertising and promotions, CPG companies
marketers will maximize returns on their cohort
can change the equations of experience, informa-
sites by devising appropriate content strategies,
tion and community much more often. We believe
featuring new products and brands, and facili-
engagement loyalty is branding. It communicates
tating word of mouth.” We think metrics like this
your brand’s value and your brand proposition. It
translate into a measurable and successful
is, we argue, a chance to be innovative in an area
response to engagement loyalty.
that has relied on the exact opposite of innovation,
which is predictability. Predictability, for cus-
Engagement loyalty is more measurable, we
tomers, is one step from commodity.
would argue, than mass market media. The first
task is to measure the engagement, which we
One final point. Creating engagement loyalty
have just illustrated. A survey published in early
programs requires patience. It is a long-term,
April by Adobe and the Economist Intelligence
organically growable CPG strategy and its success
Unit found that more than 80% of executives
should be given the same timeline as a product
believe that their company loses sales each year
launch. It has ramifications that can eventually
because of its failure to engage customers, with
reach into businesses that have less frequent pur-
10% estimating that insufficient customer
chase patterns than CPG. Increased information,
engagement accounts for 50-75% of their com-
experience and community can also engage con-
pany’s lost sales. The second task is to measure
sumers in the automotive, telecom and financial
loyalty. In the CPG space, loyalty can still hold
services businesses. The basic building blocks that
onto its measurements of lift, recency and fre-
make engagement loyalty an innovative and effi-
quency. The CPG space should also measure
cient approach to customer relationships in the
increases in retail account satisfaction, overall
CPG space can be applied to other businesses.
customer satisfaction, intent to purchase and
However, we think the urgent opportunity is in the
customer referrals. All of these can be positively
CPG business where new strategies, new metrics
swayed by engagement loyalty.
and more profitable relationships await. ■
©2007 Carlson Marketing. All rights protected and reserved.
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Many CPG companies
expect points programs
to show a percentage
of sales lift at retail,
or even achieve a percentage goal showing
return on investment.
These metrics fail to
consider the relative
strength of supporting
media and competitive
brand activities.
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A New Lift For CPG: Engagement Loyalty
Footnotes
1
IRI InfoScan; McKinsey analysis. 16 categories in chart (5.9% sample) represented 5.6% of total revenues of
$316 billion; excludes large categories in which all product launches benefited from universal trends such as
rapid growth of health food
2
IRI InfoScan; McKinsey analysis. These industries are technically classified by Information Resources (IRI)
as subcategories.
3
IRI InfoScan; McKinsey analysis. Latest available data at time of study. Excludes data from Wal-Mart.
4
IRI InfoScan; McKinsey analysis. Weighted for market size of each category.
5
IRI InfoScan; McKinsey analysis. Size in channels as measured by IRI.
6
See Sprite OMMA award entry at
http://www.mediapost.com/ommaawards/gateway.cfm?ip=details&aid=346442
7
eMarketer, April 2007. eMarketer benchmarks its online advertising spending against data from the
Interactive Advertising Bureau.
Authors
Andy Wright, Executive Vice President, Sales & Marketing Services, Carlson Marketing, is responsible for
the innovation, design and delivery of Carlson Marketing’s global Loyalty Marketing, Recognition and
Rewards, Custom Learning and Interactive offerings. He also serves as a senior advisor to Peppers &
Rogers Group’s 1to1 Faculty. A seasoned marketing veteran with more than 25 years of marketing experience, Andy brings the art and science of marketing together to drive business results for leading Fortune
500 clients around the globe.
Matthew Kates, Vice President, Strategic Services, ePrize, is responsible for leading all areas of promotion
concept development, client metrics, research, analysis and program development. He previously served
with Kellogg Co., Quaker, Starcom Media and with PricewaterhouseCoopers where he managed and consulted on branding and business strategy. Kates earned his bachelor of science in economics from
Northwestern University and his MBA from Indiana University’s Kelley School of Business.
Carlson Marketing
ePrize
Carlson Marketing helps global Fortune 1000
clients increase their ROI by designing and delivering sales and marketing programs that drive
measurable results. Carlson Marketing provides
its clients with cool new marketing concepts,
coupled with rock solid delivery across its global
service offerings: Meetings & Events (including
Incentive & Recognition Events, Business
Meetings, Event Marketing and Enterprise Travel
Solutions), Sales & Marketing Services (including
Loyalty Marketing, Recognition & Rewards,
Creative and Interactive), and Carlson 1to1
(including Peppers & Rogers Group consulting,
Direct Marketing, and Decision Sciences).
Carlson Marketing employs 3,000 marketing professionals across 19 countries. For more information visit: www.carlsonmarketing.com
ePrize is the most experienced interactive promotion
company, developing more interactive sweepstakes,
points-based reward programs, and chance-to-win promotions than anyone in the industry. They blend breakthrough creativity with cutting-edge technology to help
clients effectively drive customer acquisition and retention. As a full-service interactive promotion company,
they offer strategic, technology, and administrative services to efficiently deliver “hand raisers”, motivate specific consumer behavior, and give customers a reason
to react. With offices in Detroit, Chicago, New York, Los
Angeles, Dallas and London, they have administered
more than 2,500 successful promotions for clients such
as The Coca-Cola Company, Visa, The Gap, adidas,
United Airlines, Procter & Gamble, Palm, ConAgra
Foods, Dell and General Motors. For more information
visit: www.eprize.com
©2007 Carlson Marketing. All rights protected and reserved.
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