Download Marketing Mythbusting: Six Maxims Get Put to the Test

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Marketing Mythbusting:
Six Maxims Get Put to the Test
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Make sure you’re allocating finite resources
based on sound assumptions
True
Number 73—December 2013
Today, marketers have more choices than ever before. With the proliferation of channels and
innovative new ways to offer and deliver products and services, the range of possible actions has
grown enormously.
Making the right choices is critical since customers have many more choices too. And often it seems
that while resources are finite, legions of competitors aren’t. Their ranks are swelling with upstart
challengers, as well as successful companies moving in like juggernauts from other markets.
Because our assumptions affect our choices, it’s wise to examine them closely. This paper scrutinizes
six of today’s widely repeated marketing “truisms” to determine if they hold true:
1.Marketing matters to the C-suite.
2.Our customers are satisfied, so they’re loyal.
Are nearly 60% of CMOs focused on the wrong top priority?
3.Email is dead.
4.Discounting is a race to the bottom.
5.Showrooming is a killer.
6.We need more customer data.
You’ll also discover how marketing innovators in both retail and banking are applying analytics in
high-payoff areas to rise above crowds of competitors.
www.fico.com Make every decision countTM
Marketing Mythbusting: Six Maxims Get Put to the Test
»» insights
»» Marketing Maxims:
Let’s look at some current marketing assumptions to see if they stand up to close scrutiny.
True or False?
Maxim #1: Marketing matters to the C-suite
Verdict: True
But not necessarily how you might think. There’s a
disconnect between what most CMOs are focused on
and what the rest of the C-suite thinks is most valuable.
Figure 1: Most CMOs are not focused on existing customers
“What are your current top marketing objectives?”
Acquire new customers
Launch new products/brands
Increase brand awareness
Improve marketing ROI
Increase customer retention
Innovate
Improve digital/interactive/social marketing tactics
Increase customer lifetime value
Increase customer satisfaction/advocacy
Acquire, develop and retain talent
Improve marketing’s value in the organization
Expand globally/to new geographies
Integrate communications
59%
42%
41%
41%
30%
29%
29%
26%
26%
23%
21%
17%
PwC’s 2013 Global CEO Survey1 found that 82% of
CEOs are looking for “new ways to stimulate customer
demand and loyalty this year.” A 2012 study by The
Economist Intelligence Unit reported similar findings:
Driving revenue was most frequently cited as the top
marketing priority by CEOs and other non-marketing
C-suite executives. It ranked above finding new
customers and well above creating new products and
services.2
By contrast, a 2011 global survey of CMOs by Forrester
Research and executive search firm Heidrick & Struggles
found that 59% of respondents said acquiring new
customers was their top priority. Less than half
that number, 26%, pointed to increasing customer
satisfaction/advocacy and lifetime value as number one
goals.3 A subsequent survey by Heidrick & Struggles
on recently replaced CMOs found that while only 24%
of the fired executives had experience in customer
relationship management, loyalty and retention, 56% of
their successors did.4 (See Figure 2.)
7%
Base: 191 CMOs
(top three responses accepted)
Source: Q3 2011 Forrester/Heidrick & Struggles Global Evolved CMO Online Survey
Figure 2: CMO requirements are changing
CRM/loyalty/retention experience:
56%
24%
Customer acquisition skills:
36%
New CMOs
Replaced CMOs
31%
0
10
20
Source: Heidrick & Struggles
30
40
50
60
70
6th Annual Global CEO Survey, PricewaterhouseCoopers
1
(PwC), January 2013
2
“Outside looking in: The CMO struggles to get in sync with
the C-suite,” The Economist Intelligence Unit, November 2012
3
“The Evolved CMO in 2012,” Forrester Research, February 2012
4
“The Age of the Agile CMO has Arrived,” Heidrick & Struggles,
March 2013
1
www.fico.com
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Marketing Mythbusting: Six Maxims Get Put to the Test
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This suggests that a shift in CMO focus is taking place—and it’s one that’s long overdue. More than
two decades have passed since Harvard Business Review published the seminal, “Zero Defections:
Quality Comes to Services.” That article dropped a bombshell: Data that proved a modest 5%
increase in customer retention rates could send profits soaring by 25% to 95%.5
Since then, evidence has piled up showing that not only do existing customers cost less to service,
they also buy more. This holds true, whether business is taking place in a store, at a bank branch or
online. And with the rise of social media, existing customers can also create a strong forward draft
for your marketing efforts through referral and recommendation influence on others.
Maxim #2: Our customers are satisfied, so they’re loyal
Verdict: False
Satisfaction doesn’t always correlate with loyalty. Nor does loyalty always lead to higher spending
and increased wallet share.
In a global survey of retail banking customers, Capgemini and the European Financial Management
Association (Efma) found that less than half of respondents said they were likely to stay with their
banks. In regions where customers reported higher levels of positive experiences, that percentage
improved. Positive customer experience, the survey found, was a stronger predictor of retention
than satisfaction.6
Similarly, for retailers, the Harvard Business Review article “Customer Loyalty Isn’t Enough. Grow Your
Share of Wallet” reported that common gauges of loyalty such as satisfaction metrics correlate poorly
with share of wallet.7 The authors warned: “Customers may be very satisfied with your brand and
happily recommend it to others—but if they like your competitors just as much (or more), you’re
losing sales.”
How customers rank your brand in relation to other brands they use in the same product or service
category is a more accurate metric, according to this article. In fact, based on a two-year longitudinal
study of 17,000 consumers across a dozen industries and nine countries, the authors devised a
“Wallet Allocation Rule” (combining ranking order and the number of companies in the ranking) that
did correlate with wallet share consistently “from company to company and industry to industry.”
Essentially, banks, retailers and other businesses need to consistently give customers reasons to
buy more, along with delivering a customer experience that stands out from the crowd. Leaders
also make heavy use of email, mobile and web channels, to reach customers through their
communication channel of choice.
“ Zero Defections: Quality Comes to Services,” Frederick F. Reichheld and W. Earl Sasser Jr., Harvard Business
Review, September 1990
6
World Retail Banking Report 2013, Capgemini and Efma, April 2013
7
“Customer Loyalty Isn’t Enough. Grow Your Share of Wallet” by Timothy L. Keiningham, Lerzan Aksoy,
Alexander Buoye, Bruce Cooil, Harvard Business Review, October 2011
5
www.fico.com
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Marketing Mythbusting: Six Maxims Get Put to the Test
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That’s exactly what a leading North American supermarket chain is doing to create a “breakthrough”
loyalty program in a market full of them. The program relies on FICO analytics, including thousands
of propensity models, which predict products individual customers are most likely to purchase, and
time-to-event models, which predict the week they’re most likely to do it.
With these insights, the retailer delivers fully personalized packs of discounts to its best customers.
Customers also receive recipes featuring the discounted items and an updated shopping list with
all the ingredients needed to prepare each dish. While a customer’s package may include some
“try this” offers in new categories, the focus is on the products this individual already purchases
frequently—making sure these sales don’t go to a competitor. And because the analytics learn from
every purchase, the offers become more and more tailored to the individual over time. While the
program is still being rolled out, preliminary results include a 150% lift in average visits per member
for redeemers over non-redeemers.
A European banking group is taking much the same
approach to creating exceptional personalized
experiences for its customers—but on an even larger
scale. FICO is helping the company replace traditionally
fragmented customer views and marketing objectives
with a coherent enterprise approach. With this broader
view and real-time streaming analytics, a customer who
has just purchased travel insurance from one division of
the bank may instantly receive from another division a
complimentary offer of a credit card with an attractive
introductory rate for vacation spending.
Other offers are preselected. From a wide range of
products (travel insurance, loans, savings, credit cards,
mortgages, etc.), across all channels and brands,
analytics determine the best two to three offers to
make to each customer during a period of time.
While these offer decisions are made at the individual
customer level, they’re also optimized at the segment
level. For example, for customers within an affluent,
high-value segment, decisions may be optimized to maximize the long-term profitability of the
relationship. For a less valuable segment with a high likelihood of attrition, decisions may be
optimized to maximize income over the next six months.
Preliminary testing has already demonstrated that these precise decisions—selecting from
thousands of potential actions for a customer base of 15 million individuals—can be made in under
an hour every night.
www.fico.com
page 4
Marketing Mythbusting: Six Maxims Get Put to the Test
»» insights
Maxim #3: Email is dead
Verdict: False
Figure 3: Email remains overall the most potent channel
How often do you use each of the following?
At least daily
At least weekly
Less than weekly
Never
3%
Email
91% 5%
Email is not only alive, but, according to the ExactTarget 2012 Channel
Preference Survey, it’s the “number one direct channel in terms of daily
use and consumer preference” for marketing communications. Figure
3 compares the survey’s results for email and other channels. And in
Figure 4, research by Epsilon, reported on eMarketer.com, shows email
open rates are actually on the rise.8
“Check in” using location-based social networking
9%
11%
28%
52%
Moreover, according to a recent article in Advertising Age, email
response rates have even held firm against Google’s redesigned Gmail
inbox, which places marketing emails into a “Promotions” tab.9 The
article says individual vendor experiences, as well as studies from
Return Path and Epsilon, all show little or no change in recipient
behavior.
Instant messenger
24% 8%
52%
Here are a few more data points on the vitality of email:
1%
Facebook
57%
13%
11%
19%
Text messages
57%
11%
10%
22%
16%
Messaging using an app on a mobile device
19% 5% 6%
70%
Twitter
14% 6%
71%
9%
LinkedIn
10% 8%
14%
69%
Figure 4: Email open rates are on the rise
30
Open rate
Clickthrough
23.3% 22.2%
26.2% 25.6% 27.2% 27.4%
23.8% 24.8%
5.9%
5.2%
5.5%
5.2%
4.7%
4.4%
Q1
Q2
Q3
Q4
Q1
Q2
31.1%
20
10
0
2011
• 6
0% of shoppers visited a physical store because of email,
according to Wanderful Media, based on its survey of 1,000 US
consumers.
• 9
1% of consumers check email daily, up from 85% in 2008,
according to data from ExactTarget.
Source: ExactTarget 2012 Channel Preferences Survey
40
• E mail outperforms social-media advertising 3-to-1, looking
at sales per dollar spent. According to the Direct Marketing
Association, email generates $39.40 in sales for every $1 spent.
4.5%
Q3
2012
4.5%
5.1%
Q4
Q1
Source: Epsilon, “Q1 2013 Email Trends and Benchmarks,” July 2013
Clearly email shouldn’t be counted out. Still, demographics matter, and
communication preferences are changing. Customers in the youngest
demographics show a strong preference for mobile SMS and texting.
And older consumers are adopting mobile and social technologies at a
quickening pace.
Even within demographic groups, preferred combinations of channels
for different purposes may vary widely. In fact, a recent Gallup study
of 3,000 random retail bank customers found more than 750 unique
combinations of channel use.10
“Mobile and Targeting Drive Up Email Opens,” eMarketer.com, August 7, 2013
“Gmail’s Redesign Hasn’t Hurt Jiffy Lube’s Email Response Rates,”
Advertising Age, August 14, 2013
10
“Banks: Get Your Customers to Go Digital,” GALLUP Business Journal,
May 14, 2013
8
9
www.fico.com
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Marketing Mythbusting: Six Maxims Get Put to the Test
»» insights
The challenge for marketers today is to identify the best channel or combination of channels for
interacting with an individual customer for a particular purpose. Today’s advanced analytics do just
that: They can tell you that Jake is most likely to respond to a text at 8pm on a weekday, while Sarah
responds best to emails on weekends. Moreover, intelligent customer dialog management systems
can automatically orchestrate multiple campaigns (on-demand, recurring, event-triggered) across
multiple channels to ensure consistent and coherent interactions with customers.
A major US CPG company is using FICO predictive and decision analytic applications of this kind
as the platform for its large-scale customer rewards program. With the ability to learn about
customers not only from their stated preferences, but also from their ongoing actions, the company
personalizes the look and messaging of offers on web pages, email and mobile content.
The result has been an average response rate of 30%, with most campaigns achieving even
higher activation rates (percent of consumers taking a next step to interact with the brand). Every
interaction yields more insight for identifying the best next action and creating a more relevant
consumer experience.
Maxim #4: Discounting is a race to the bottom
Verdict: False
Discounting can be extremely effective and profitable with some customers. If you can figure out
which ones they are, you can use discounting to increase both your competitiveness and profitability.
%
%
%
Unfortunately, many retailers are indiscriminately following the deep discounting trend in mobile
marketing. Waves of daily deals and local deals are leading them to overuse discounting even to
the point of endangering their brand. In retail banking, increasing pricing transparency from online
comparison sites is pushing some financial institutions in this direction as well.
Analytics can help you protect your brand and maximize the reach of your marketing budget by
taking advantage of the fact that consumers vary significantly in their sensitivity to specific
discounts and other aspects of offers. Today, we can predict these sensitivities with great precision:
Will 20% off increase the likelihood this customer will purchase within the redemption period?
Will 15% work just as well?
With such insights, you can target discounts to where they will have the biggest impact on
customer behavior. You can also free up budget to incent other customers to buy, producing more
bang from your budget.
These techniques work for banks as well as retailers. FICO analytics have helped an Asian lender
increase usage of an installment loan product attached to a credit card by figuring out: “Which
customers are likely to increase their loan utilization if offered a 30% temporary discount? And
which customer would be sufficiently incented with just a 20% or even 10% offer?”
www.fico.com
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Marketing Mythbusting: Six Maxims Get Put to the Test
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Maxim #5: Showrooming is a killer
Verdict: False
Showrooming is just the most recent trend in comparison shopping, which consumers have been
doing for decades. The internet and now mobile have accelerated the trend and allow consumers
to perform comparisons quickly, conveniently and anywhere. But what haven’t changed are your
choices as a competitor: You can choose to compete on cost, but you can also win on service or
your own unique winning mix.
Why should banks care? Comparison shopping trends affect them too, as consumers increasingly
turn to the internet, particularly social media, for information and advice about financial services. The
Ernst & Young 2012 Global Banking Survey11 found that the majority of consumers are getting advice
and information about banking products and services from sources other than banks:
• Friends, family, colleagues (71%)
• Comparison sites (65%)
• Social media (44%)
Like retailers, banks can try to compete on price or scale, but a more
rewarding strategy may be to compete on the basis of relationship
value. Banks can keep valuable customers by innovating services that
give them reasons to stay and reasons to do more business.
Here are some examples of what leaders in both markets are doing:
Macy’s has used innovative mobile advertising campaigns to bring
more shoppers into its stores. Recently the retailer created a mobile
game of word association to draw traffic for a one-day sale while
building brand awareness.12 Like other forms of mobile advertising,
participatory ads are more likely to succeed if analytics are used to
target customers with relevant content and offers.
Click-and-collect strategies are also proving to be an effective way to
outmaneuver online competitors while bringing buying customers
into stores. Reuters reports that European retailers, including grocery stores, are experimenting with
different business models that encourage customers to order online and pick up at the store.13 Many
busy customers, it turns out, prefer to avoid delivery fees by dropping by a store to get their item—
and they’re likely to make another purchase or two while there.
“The Customer Takes Control: Global Consumer Banking Survey 2012,” Ernst & Young
“Macy’s nails interactive ad campaign to strengthen mcommerce strategy,” Mobile Commerce Daily,
September 10, 2013
13
“Analysis: Retailers look to click & collect online profits,” Reuters, September 6, 2013
11
12
www.fico.com
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Marketing Mythbusting: Six Maxims Get Put to the Test
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Omnichannel strategies like these are the key to combating showrooming, says eMarketer. Leading
retailers are coordinating online, mobile and store interactions to create a seamless experience
for customers. “Other remedies to showrooming include price-matching, a focus on inventory
management and revamped distribution models to improve the customer experience during heavy
shopping periods, and cheaper and faster fulfillment options.”14
Thinking “outside the box” of the traditional branch while adopting omnichannel strategies to better
serve customers also works for banks. PNC Bank, for instance, has introduced a portable branch,
compact enough to be moved by tow truck and placed on a sidewalk. Each of these mini branches
will be staffed by a financial service consultant. This knowledgeable individual will help customers
and small businesses with not only standard needs, like opening a new account or applying for
a loan or credit card, but also with using new services, such as a mobile phone virtual wallet or a
tablet-based cash flow analysis app.
“PNC is introducing a spate of new concept branches
signaling the bank’s shift from teller lines and
transactions to technology and conversations.”
PNC Rolls Out First Ever Portable Pop-Up Branch,
thefinancialbrand.com, August 5, 2013
Banks can also use analytics to map individual customer journeys
toward a relationship of increasing value to both parties. As depicted
in Figure 5, when new customers are booked, analytics help banks
predict when to offer additional services, selecting at each point in
time the best next offer to make. If unexpected customer behavior
occurs, analytics help banks interpret what these changes mean
and adjust interactions accordingly. Picking up the first signals of
meaningful change in real time, banks can be there with the services
customers need when they need them.
Figure 5: Banks can use analytics to map a customer journey toward greater value
Planned
Unplanned challenges
Unplanned opportunities
STUDENT
LOAN
OPEN
DDA
ACH
DEPOSIT
WELCOME
CONTRACT &
SURVEY
ONLINE
BANKING
DEBIT
CARD
MOBILE
APP
PERSONAL
ALERTS
ACH
WITHDRAWAL
SAVINGS
ACCOUNT
MORTGAGE
AUTO
LOAN
PREDELINQUENCY PAYMENT
TREATMENT
PLAN
14
“Omnichannel Is the Key for the 2013 Holiday Shopping Season,” eMarketer.com, September 10, 2013
www.fico.com
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Marketing Mythbusting: Six Maxims Get Put to the Test
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Maxim #6: We need more customer data
Verdict: True
Figure 6: Time-to-event models pinpoint the best time to make an offer
Purchase probabilities and offer susceptibilities change rapidly
Simple probability
model generates constant
estimate over an extended
time horizon.
PROPENSITY
Offers
A
B
C
Best offer timing
is six weeks from now
Today
TIME
D
But voluminous data alone won’t lead to success.
What will is the ability to pull more meaningful
insights both from the data you have, as well as
from new data sources.
In the era of Big Data, you need to be able to add
new data sources and analytics to your decision
processes with ease and without having to
queue up for IT time. Business rules management
systems (BRMS) and applications that incorporate
them enable nontechnical users to inject these
powerful new elements into existing processes.
Very quickly, decisions get smarter.
Many companies have piles of data they’ve
collected but are not yet leveraging for better
decisions. Unstructured data, for instance, from
customer service chats and phone conversations, as well as online customer product reviews, are full
of potentially valuable insights. Analytic techniques, such as FICO’s Semantic Scorecard technology,
can extract the most predictive features from this data, and combine it with traditional structured
data analytics to improve the accuracy of customer behavioral predictions.
In other cases, where data is already being analyzed, there may still be potential to draw out more
value by looking at it in a new way. Many companies have collected transaction log (TLOG) data,
for example. But few are currently analyzing it with time-to-event models in order to predict with
precision when a customer behavior is most likely to occur (this week? next week?).
There are also analytic techniques today that can go beyond finding the usual correlative data
relationships (when A occurs B also occurs). They can scour existing data to find more powerful,
previously undiscovered causal relationships (A affects B in this specific way). With these and other
advanced techniques, companies can answer complex questions such as: “Which customers will buy
only with this particular coupon, which will buy with any one of three possible coupons, and which will
buy whether or not they receive a discount?”
www.fico.com
page 9
Marketing Mythbusting: Six Maxims Get Put to the Test
»» insights
Using mathematical optimization, we can find the best
decision strategy, given all business objectives and constraints,
for maximizing a particular goal, such as profit. We can also
simulate the impact on key performance indicators of making
adjustments to one or more constraints.
Figure 7: Using optimization to drive incremental profit gains
INCREMENTAL PROFIT
PER ACCOUNT
$10
Credit Limit Strategy V3 vs V2
Credit Limit Strategy V2 vs V1
Credit Limit Strategy V1 vs V0
$8
$6
$4
$2
$0
1
2
3
4
5
6
7
8
MONTHS SINCE INCREASE
»» Conclusion: The Truth
Will Set You Free
(To Win)
9
10
11
12
FICO has helped a large US retailer use techniques like these to
achieve response rates of as high as 30% from its loyalty club
members. We’ve also helped a leading Canadian bank adopt
the analytic techniques to develop an “optimization culture” for
driving performance improvements ever higher. In credit line
management, as shown in Figure 7, this bank’s latest optimized
strategy (purple V3 line) has already lifted incremental profit by
$5 per account at the 4-month mark, set to outpace its previous
2 successful optimized strategies (blue V2 and green V1 lines).
It’s helpful to learn from what others are saying in the marketplace—but some tenets of common
wisdom shouldn’t be relied upon when setting a forward course. When resources are scarce,
deciding where to allocate them is critical to creating successful momentum. To make better
marketing investments, make sure you’re basing them on sound assumptions.
Learn more:
• Read the Insights paper: From Big Data to Big Marketing: Seven Essentials.
• S ubscribe to the FICO Labs Blog for the latest on marketing best practices and technology
innovation.
The Insights white paper series
provides briefings on research
findings and product development
directions from FICO. To subscribe,
go to www.fico.com/insights.
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FICO and “Make every decision count” are trademarks or registered trademarks of Fair Isaac Corporation in the United States and in other countries. Other product and company names herein may be trademarks of their
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