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THE ART AND SCIENCE OF BUILDING CUSTOMER VALUE
PAPER 03.06 / JULY 2006
CPGtalk
The Total Package
Do You Really Want a Relationship
With Your Beverage Brand?
Kelly Hlavinka
Director, COLLOQUY
and
Leopoldo Gomez
President, GomezLee Marketing
Published by:
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The Total Package
D O Y O U R E A L LY WA N T A R E L AT I O N S H I P W I T H
YOUR BEVERAGE BRAND?
“I pore over every word on the cereal box at breakfast, often more than once. You can ask me anything
about shredded wheat.”
– Chris Van Allsburg
Introduction
In the 25 years since the birth of the frequent-flyer program, nearly all brands in all industries around the
globe have pursued loyalty marketing as a primary tactic of their overall enterprise customer strategy. Loyaltymarketing principles and practices that deliver sustainable, organic growth to shareholders by identifying bestcustomer segments and acting to retain and increase the yield from those segments are established in virtually
every consumer-oriented vertical marketplace.
And yet, a cornerstone of the American economy—the consumer packaged goods (CPG) industry—has often
been the odd man out. But why? Is it because the CPG industry views the retailers who sell their goods as their
primary market, rather than the consumers who actually use them? Is it lack of concern for the consumer?
Lack of focus? Lack of expertise? All of the above?
Regardless of the answer, evidence mounts that the winds of CPG marketing have shifted. CPG brands have
realized that building consumer databases and leveraging them to build relationships through individualized
consumer touches is critical to organic, sustainable growth. Use of web, email and direct-mail techniques to
facilitate CPG relationship marketing programs is therefore rising. While the initial mid-1990s forays into web
marketing by CPG brand managers and their agencies were simply technological experiments or attempts to
exploit a new and more cost-effective advertising medium, recent virtual marketing efforts have quickly morphed
into dialogue- and relationship-building devices. Why the shift? Is there a strategic advantage associated with
the relationship model?
COLLOQUY believes that such an advantage is both desirable and achievable. Though CPG marketers face
specific challenges and inertias, two innovative paths lie before them upon which they can begin the journey of
transforming casual consumers into brand advocates. In the following pages, we’ll explore how CPG marketers
are turning this vision into reality.
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The Problem
CPG brands have long advocated understanding consumer behavior. Brand marketers have historically
invested in consumer research as a tool to create messages and promotions that resonate with target audiences.
While these efforts have focused on markets far more than on segments, and tracking consumer behavior at the
individual level remains elusive, CPG marketers have still managed to build multi-billion dollar global brands
through traditional mass-market advertising and in-store marketing efforts. And yet more and more CPG
brands are striving to shift toward a true consumer-centric model. How can this be, when the history, and
perhaps the entire raison d’être, of CPG marketing argues against such a change?
CPG industry growth 2005 over 2004 was flat, particularly on the traditional competitive battlegrounds. Growth in CPG dollar
sales in drugstores, however, showed relative health.
CPG Industry Dollar Sales Percentage Change by Channel
Food, Drug, Mass (Including Wal-Mart) 2005 vs. 2004
4.9%
5
4
3
1.6%
2
1
0.5%
0
Food
Drug
Food, Drug, Mass
(Including Wal-Mart)
Sources: IRI MarketInsight™; IRI InfoScan Reviews
A June 2006 survey of CPG
executives conducted by
the Grocery Manufacturers
Association (GMA) and A.T.
Kearney revealed that
nearly 30 percent of all
respondents cited their
existing business models
as the main barrier to
growth. The executives
also cited “gaining a better
understanding of consumer
demographics and needs”
as a top-tier challenge.
SOURCE: GMA/A.T. KEARNEY
Visible competition, invisible customers
At the root of the CPG marketing conundrum is the invisible customer. The CPG marketer can’t see the vast
majority of consumers who compose a brand franchise. At the individual level, transactions from these consumers
go unmeasured. The modern era of measurable marketing has seen the vast majority of marketers in consumerfacing industries reallocate significant portions of their spending away from increasingly fragmented and
inefficient mass media toward vehicles that allow gains analysis and return-on-investment (ROI) calculations.
In today’s price-oriented marketplace, CPG marketers therefore feel increased pressure to justify the investments
made to support their brands. As these pressures mount, relationship marketing tactics become easier to
justify—especially if measurability comes with the execution.
But many questions about the wisdom of a CPG loyalty strategy remain. Do CPG marketers have the fortitude to
derive marketing insight from the consumer database that emerges from a loyalty marketing initiative? If so,
what will the business benefit look like? Can loyalty marketing benefit an industry whose entire distribution
system remains wedded to retail? With few exceptions, CPGs don’t sell direct. Wal-Mart is the real customer, or
Kroger or Safeway or Albertsons. CPG marketers don’t need visibility into individual purchases. Media campaigns
still deserve the bulk of resources. And in CPG Land, the brand—not the consumer—is still king. Ultimately, one
final question begs—and it’s a scary one. Do consumers really care? Do you really want a relationship with your
beverage brand?
Before introducing a loyalty initiative, CPG marketers must overcome significant obstacles. One of the biggest
hurdles lies in the traditional structure of points-based loyalty programs, which have historically succeeded in
industries such as travel, financial services and retail. These industries share common characteristics that
provide fertile ground for loyalty initiatives. The CPG industry certainly shares some of these characteristics—
but the rest of the list is open for debate:
Highly competitive markets: Many, if not most, CPG brands face steep competition. The inroads made by
generic “store brands” sold by many major grocers make the market share challenges even fiercer. The CPG
marketplace certainly qualifies as competitive.
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Frequent purchase cycles: While some consumer brands have long purchase cycles, many brands in the food
retail, health and beauty, and cleaning categories are purchased often enough to make the recency and frequency of
those purchases crucial bellwethers of transactional loyalty.
Trackable transactional behavior: Most CPG brands can’t measure the individual customer’s purchase behavior—
in traditional loyalty design exercises, an automatic disqualification. Credit card marketers, for example, don’t
face this obstacle. While CPG marketers are making inroads with grocers in the sharing of grocer loyalty program
data, the vast majority of transactions remain invisible.
Perishable inventory: CPG inventory has modest-to-low perishability. A hotel room or airline seat can be given
to a best customer as a reward because, if unsold at a specific time and place, it will perish and never be sold.
Expiration dates aside, a box of cereal unsold on Monday can still be sold on Friday.
High fixed, low variable costs: Loyalty programs tend to work best in environments where variable costs are
low. Among CPGs, each incremental unit sold helps cover fixed expenses—especially those hefty marketing
expenditures—but the extra unit volume carries a basic load associated with the cost of goods. An extra minute
of cell phone time or another seat filled at the ballpark, by contrast, carries little in the way of variable costs.
High perceived parity: Parity in the packaged goods industry is a matter of perception. Although consumers
may perceive brand parity, CPG marketers will often point to piles of consumer research that indicate a special
place for their brand in the consumer mind. Beyond packaging cosmetics and price, do consumers really
perceive differences in the various brands of dishwasher soap on the market? While some brands reign
supreme, overall parity in the CPG marketplace is high.
Entrenched low-cost leaders: Although the Executive Management Teams of all CPG manufacturers will tell
you that they don’t want to compete on price, or don’t need to, they will nonetheless throw billions of collective
dollars at trade promotions intended to move truckloads of product through retailers’ checkout lanes. Do they
really wonder why consumers are so well-trained that they never buy many of their favorite brands until they’re
on sale in the weekly circular?
If the absence of amenable market characteristics doesn’t help convince you that classic loyalty programs won’t
work in CPG, then maybe the economics will. The vast majority of CPGs—and their European cousins the “fast
moving consumer goods” (FMCG)–operate in a high-volume, low-value transaction environment. This pattern
is exactly opposite that of the loyalty poster child: the frequent-flyer program environment. Even if a small
percentage (less than 1 percent) of every unit’s transaction value were set aside for a reward or recognition
initiative, only the heaviest users of a brand would accrue enough benefits to make the program meaningful and
relevant, let alone render an ROI back to the marketer—and the benefit for either side would require substantial
time to materialize.
Product Sales Points
CPG points programs tried and tested
Brands employing rewards points to promote frequency of purchase include Nature Made, Betty Crocker, and Coke, with varying
degrees of success. The Betty Crocker program, for instance, had a decades-long run, but was discontinued in early 2006.
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Spotlight: The customer ID conundrum
Further complications in implementing CPG loyalty programs result from the lack of a natural tracking device.
While retailers, casinos, restaurants, and others who play the loyalty game can directly capture individual
purchase behavior through transaction data, the indirect sales channel victimizes CPGs. But some marketers
have responded to the challenge by coaxing consumers to do the tracking for them. A few examples:
Kellogg: In 2000, Kellogg experimented with Eet ‘n Ern, a loyalty initiative for their cereal brands built around
a pair of cartoon characters. Launch efforts included TV spots on national broadcast, kid-oriented cable shows
and print ads in youth magazines. Each package held a unique code, which the consumer—presumably a preteen
or a parent—entered into a form while visiting a special website. Codes translated into points that members
could redeem for dozens of toys available through an online redemption catalog. Because each code corresponded
to a unique purchase, and because the consumer was identified online, Kellogg used this technology to launch
a rewards initiative and build a database of purchasers. Unfortunately, the program was in place only briefly
before it was pulled from the market; not even a 2002 relaunch with Yahoo! was enough to save it. The problem:
branding packages with unique ID numbers is costly, and asking the consumer to do all the tracking work is an
uphill battle—no matter how cool the toys are.
Nature Made Vitamins: This dietary supplements manufacturer operates the Wellness Rewards program using
a similar approach. Consumers enroll as members to enter package codes online and receive points for each
product purchased. Once a consumer reaches 500 points, the company issues a $5 or $7 coupon toward the
purchase of Nature Made products. Tracking is easy in this design—once again, provided the consumer does the
work. Members also receive soft benefits in the form of specialized communications: e-newsletters, access to a
wellness library segmented by topic and a customized Wellness Profile with online interactive tools that convert
survey responses to messages specific to age, gender, health condition, and other information.
Coca-Cola: The beverage maker’s current loyalty initiative, MyCokeRewards, applies to 20-ounce bottles, with
more packages to be included later in 2006. Consumers collect codes from bottle caps, and then create an
online account into which they enter and track the codes. Coke plans to release more than four billion unique
codes across all packages during 2006. Once consumers reach a specific points threshold, they can redeem
online for items in the MyCokeRewards catalog.
General Mills: The company’s venerable Betty Crocker baking brand has maintained a similar code-logging
loyalty program, Betty Crocker Points, since the 1920s. But in early 2006, the company announced it was
dismantling the effort in favor of a more popular program that donates money to local schools. “This was a
hard decision for us,” Betty Crocker spokesperson Pam Becker said. But was it really a hard decision? Or had
time-sensitive consumers simply stopped making the effort required to collect points?
Healthy Choice: Sometimes, loyalty approaches that aren’t well thought-out can have unintended consequences.
In 1999, Healthy Choice introduced a loyalty program that attempted to leverage the incredible popularity of the
airline frequent-flyer mile. Consumers of Healthy Choice products were instructed to save labels, send them in,
and receive frequent-flyer miles as a reward. On the surface, the program seemed like a no-brainer: the company
would eliminate the tracking and reward challenges of a loyalty program while building a database populated
with real people and real transactional histories.
Unfortunately, the program ran off the rails when an enterprising California man named David Phillips used
every means possible to procure labels just to get the airline miles. He did buy a lot of product—mostly individual
pudding servings—but he was less often a brand user. He donated pudding to food banks and other charities,
sometimes buying it from grocers at volume discounts, then turning around and taking a tax deduction for his
charity. Buying just over $3,000 in product, he earned more than 1.2 million miles. The newspapers caught
wind and christened the enterprising character as “Pudding Guy.” You could say Healthy Choice ended up with
pudding on its face—although they honored the promotion and received some good publicity.
The lesson:
Pudding guys aside, these examples point out the obstacles facing a CPG brand that truly wants to track individual
purchase behavior to reward and recognize its best customers. While the Coca-Cola and Nature Made programs
may yet prove successful at building relationships with individual consumers, the best you can say about these
“collect and log” programs is that their record is mixed.
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The Opportunity
The greatest problem facing CPG marketers hoping to create loyalty customers is one of perception. Because
the classic definition of “loyalty program” is forever linked to the idea of earning promotional currency towards
some sort of redemption episode, CPG marketers have traditionally viewed loyalty programs as short-term
promotions rather than as channels to facilitate dialogue and build customer relationships.
But marketing craftspeople around the world are now applying the lessons learned from 25 years of loyalty
marketing to push the boundaries of their customer strategies and build ever more sophisticated value
propositions, databases, analytical models, dialogue campaigns and virtual communities that turn promiscuous
customers into brand advocates. In this current era of brand parity, the most critical task facing marketers today
is to avoid what Harvard Business School professor Ted Levitt called “marketing myopia”—product-centric
thinking that leads to increased competition and loss of market share. In other words, it’s important for CPG
marketers to understand that they are not in the business of selling laundry detergent, peanut butter or toothpaste.
Whatever the industry, the actual business of a brand is building profitable customer relationships. Every
product made and marketing message sent exists only to build relationship equity.
Competition facing CPG manufacturers comes not only from other products, but also from the very retail outlets CPG depends
on. In 2005, private-label product accounted for significant share percentages across channels.
2005 CPG Private Label Share by Channel
30
28.7%
28.0%
Volume Share
Dollar Share
27.9%
27.1%
25.5%
22.5%
25
20
18.0%
18.0%
5
18.1%
15.8%
14.0%
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12.2%
10
5
0
Wal-Mart
Volume vs. ’04
Dollar vs. ’04
+0.3
-0.2
Drug Store Supercenter
+0.3
+0.1
+0.0
-0.3
Grocery
Mass
All Outlet
+0.4
+0.2
+1.2
+0.2
+0.6
+0.3
Sources: IRI Consumer Network®
Shifting paradigms or idle chatter?
CPG marketers who accept this vision of enterprise loyalty are therefore creating a new paradigm of CPG brand
marketing. “The process starts with consumer identification, and then moves to consumer valuation (in dollars),”
writes Don Schultz, professor emeritus of integrated marketing communications at Northwestern University
and a long-time CPG brand watcher, in Marketing News. “From that, determine the messages or incentives to
be delivered to the identified customer or prospect that will influence their behavior and their income flow.”
To those of us who practice loyalty marketing for a living, Schultz’s commentary supports the underlying
premise of all loyalty programs—identify customers, segment them according to their value or potential, and
allocate resources accordingly to yield a positive and measurable change in behavior, with financial return as
the success criterion. “Dollars,” writes Schultz, “are the yardstick.”
Other experts concur. “The ability to contribute to financial performance goals is ultimately what marketing will
be evaluated on—not ability to achieve intermediate metrics goals such as customer awareness, consideration,
image and preferences,” says Gordon Wyner, Executive Vice President of Strategy at market research firm
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Millward Brown and Executive Chairman of the Marketing Science Institute. In a recent article in Marketing
Management, Wyner writes that “many types of marketing research and data support the view that strong brand
preferences and loyalty often go with disproportionate financial value.” Is Wyner’s thesis accurate? Are the
winds of change really blowing for the packaged goods industry?
Or perhaps the winds of change are simply gusts of hot air. None of this relationship talk is new; the CPG
landscape is littered with attempts to build transactional databases. Kraft Foods, for example, tried in the early
nineties. Experimenting with several brands, Kraft led a much-publicized effort to use direct-response television
to build a consumer-specific database of heavy users capable of supporting relationship marketing activities. Citing
cost factors, Kraft gradually disbanded the effort. Some analysts—like us, for example—thought that Kraft was
simply ahead of its time. But other attempts by brands to market directly to consumers have suffered similar fates.
Thus far, the biggest challenges to giving loyalty marketing a seat at the strategic table are attitudinal:
“We are seeing a shift
in loyalty card programs,”
Tony Bosco, vice president
management supervisor
of the co-marketing division
of DVC Worldwide, once
told E-Commerce Times.
“If manufacturers are not
leveraging loyalty, they’re
losing their grip on their
consumer base and losing
the opportunity to guide
them through the category
with better messaging.”
The curse of the familiar: The industry has trained several generations of brand managers from the same
manual. “Let’s run another ad on Emeril Live. Let’s run another coupon in the Sunday supplement. Let’s
relaunch the brand and the positioning. Let’s just give the funds to Wal-Mart—at least they’ll put out a great
price on an end-aisle display and we’ll really sell a lot of cases.”
These techniques are easy to execute, have always worked, and are prominent in the eyes of management, retail
partners and consumers. Based on decades of tracking scanner sales, the anticipated results are often predictable.
The brand team grew up with these strategies. The agency recommends them and the sales force supports them.
Who cares about the lifetime value of invisible best customers when a few market share points are all that stand
between the brand manager and his annual bonus?
Institutional impatience: According to a 2004 survey from executive recruiting firm Spencer Stuart, the average
term of a Chief Marketing Officer is 23 months. In a world where the chief marketer must make immediate
impact or face the outplacement counselor, who can afford a relationship marketing strategy that may take more
than a year to deliver measurable difference?
The pressure for instant gratification is likewise felt at the top. CEOs also churn rapidly—on average, once every
4.5 years. According to a survey from PR firm Burson-Marsteller, 2005 saw more CEO changes at Fortune 1000
companies than any other year this decade. “Boards are getting more antsy,” says Leslie Gaines-Ross, chief
knowledge and research officer at WPP Group’s Burson-Marsteller, in a January 2006 article in Advertising
Age. “There’s a heightened impatience. Directors’ reputations are on the line and they’re being held financially
liable…. In the marketing arena, the churn is responsible for the short tenures of CMOs.”
Relabeling the package
Fortunately for CPG marketers, attitudes are the easiest thing to change. At COLLOQUY, we see mounting
evidence that the CPG brands will, despite the challenges, forge ahead with loyalty marketing efforts:
The hunger for innovation: For the past ten years, COLLOQUY has partnered with the Direct Marketing
Association (DMA) in the U.S. to deliver workshops on loyalty marketing principles and practices. We have
delivered similar programs in Europe, Latin America, Asia and Africa. Historically, attendees were marketing
staff or direct-marketing services providers from the travel, financial services, retail, hospitality, and
B2B sectors.
Over the past two years, however, the audience composition has started to shift. More and more brand managers
and traditional advertising agency account staffs attend now. They seek to sort the reality from the hype, to
determine if loyalty principles can be applied to CPG, and to learn methods from other industries that they can
modify to suit the loyalty and relationship marketing programs they manage.
Enabling technology: Improved tools and technologies for best customer intervention have made experimentation
cost-effective. CPG marketers have embraced email and the web as highly-targeted, lower-cost, interactive
communications channels. Database technologies are more affordable and easier to deploy on the desktop of a
brand manager.
“Even consumer packaged goods companies are realizing that databases can help them stay in touch with their
customers more effectively than mass communications,” says Ruth Stevens, president of consulting firm
eMarketing Strategy and a frequent lecturer in marketing at Columbia Business School in New York, in
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Marketing News. Data-collection systems—especially transaction-capture devices—are much improved, and
their costs continue to decline. More vendors provide outsourced service and improved analytical models for
estimating lifetime value, customer potential, and return on marketing investment.
Embrace of permission marketing: Seth Godin, marketing consultant and author of Permission Marketing, was
one of the first advocates of using interactive marketing to create dialogue between a brand and its best customers.
In 1998, Godin said that “permission marketing also changes how companies evaluate their marketing campaigns.
In this model, you don’t care about cheap impressions. You care about deep relationships. Forget Nielsen ratings,
clicks, hits, page views—that’s all rubbish. How many consumers have given you permission to talk to them?
How far does that permission go? Does every marketing piece you create invite consumers to raise their hands,
to volunteer to hear more?”
Godin also knew that if “you get permission to talk to customers, you’d better have something to say. You need a
marketing curriculum. The point of permission marketing is not just to entertain people but also to teach them
about your products.”
These developments have led to a period of experimentation and deployment among CPG marketers. While
some label their programs “relationship marketing,” others describe a more comprehensive enterprise loyalty
strategy—an extension of the global CRM movement underway in many consumer-oriented organizations. Still
others focus on permission-based marketing efforts and the resulting consumer dialogue.
Whatever you call it—loyalty, relationship or permission-based marketing—we call it the tactical execution of
enterprise loyalty, and we can point to more examples today than ever before. CPG marketers are proving that
those who know the most about their customers win.
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The Solution
Marketing and brand stewards around the globe are taking up the clarion call of customer relationships. Writes
Jay Woffington, CEO of interactive agency Bridge Worldwide, in a February 2006 DM News article: “Awareness
and trial tactics don’t drive CPG sales, except product launches. CPG is driven by focusing on loyalty, by creating
and sustaining a relationship with consumers. But classic customer relationship marketing hasn’t worked for
CPG because of the cost of tracking small, high-volume purchases and the lack of a simple way to begin the
dialogue with consumers. However, leveraging interactive in a relationship marketing program provides for a
lower-cost entry point and a simpler means to sustain the dialogue. And if CPG companies don’t take advantage
of this, the consumer will exercise her boss ability and vote with her wallet. Then someone else will dominate
the relationship with that consumer.”
From COLLOQUY’s identification and assessment of hundreds of CPG efforts, we conclude that two primary
paths await marketers: the relationship model and the retail-centric model. Other documented efforts are really
promotional tactics disguised as loyalty programs.
Each of these primary models has merit dependent on the brand and the market environment. Each model
requires a distinct approach and different levels of investment—with potentially different outcomes.
• The relationship model seeks to engage the CPG brand user in a direct, continuing dialogue with
the mutual expectation of gain. The value proposition focuses on delivering relevant dialogue with
tangible value—and that value is defined by the consumer, not the brand positioning. In exchange
for this value, the consumer grants permission and volunteers information. Consumers respond to
the program stimulus by maintaining and/or modifying their purchase behavior in favor of the
brand sponsor—although measurement can be challenging. The intent of this model is to identify
existing users and turn them into brand loyalists, collaborators and advocates.
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• The retail-centric model recognizes the importance of the indirect sales channel and seeks to
leverage the measurement ability of retail partners to identify, maintain, and increase the yield from
the CPG brand’s best customers. The value proposition for the consumer is the same, although the
tangibility of the value received is typically more economic and rational than emotional. In return
for this value, consumers allow retailers to track their purchase behavior, even though they are
rewarded by the sponsoring brand. Increased share of customer in the given category, and potential
insulation against brand defection, are the probable outcomes for the CPG marketer.
To Your Health
Concentrating on health issues and the relevant products that address them, healthexpressions.com offers information and
interactive tools, like the Metamucil Fiber Calculator.
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The relationship model
Beyond their obvious cost-saving benefits, interactive tools are formidable assets in enabling the relationship
model because they place the consumer firmly in control. Additionally, interactive media enable the delivery of
highly personalized, relevant and information-rich content, which allows the marketer to base the relationship
on something beyond the product. Jay Woffington has written that “successful relationship programs leverage
content as a component for increasing the level of involvement of traditionally lower-order consumer packaged
goods. And interactive facilitates this easier than the old soap opera model, allowing for frequent, customized
one-to-one communication. Also, interactive lets brands team up around a consumer interest area, creating
cohort marketing programs.”
The “consumer interest area” is the key component to this model, providing an entry point for the relationship
that serves as a platform for the loyalty initiative. We have identified a variety of programs in this class; each uses
a specific demographic, lifestyle or attitudinal foundation for the value exchange between the consumer and
the brand.
Procter & Gamble (www.healthexpressions.com): P&G offers a multi-brand example with its Health
Expressions program. Consumers self-select and opt in to receive valuable “content such as articles, podcasts
and healthy recipes [that] elevate lower-involvement personal healthcare brands such as Pepto-Bismol,
Metamucil, Vicks, PUR, and ThermaCare into ‘inspired health solutions,’” writes Jay Woffington in DM News.
Tazo Tea (www.tazo.com): This beverage maker takes the relationship model a step further. If consumers want
to experience “enlightenment”—an attribute consistent with and supporting of Tazo’s entire brand position—
they need only register online to receive words of wisdom. An emotional connection anchors the value exchange,
but Tazo also introduces a rational or economic incentive by entering registered consumers in a sweepstakes.
It’s pretty basic stuff, but consistent with the brand, and smartly blending rational and emotional characteristics
to define the value proposition. And it doesn’t stop there—if consumers want to “enlighten” the brand, they can
leverage the virtual environment to post messages about their own brand experience. The website shares these
experiences with other program members.
Nestlé (www.verybestbaby.com): This venerable company’s efforts recognize the long-term relationship in
certain categories that—whether baby formula or Purina pet foods—engender a deeper loyalty well worth the
marketing effort. For example, Nestlé’s Very Best Baby program starts cultivating a relationship with expectant
mothers well in advance of their need to buy baby formula.
To draw customers, Nestlé has created a robust set of interactive tools customized to a mother’s due date.
Expecting mothers register online to access advice and information about pregnancy, including first-trimester
advice and weight-tracking charts to help maintain health. Launched in the 1990s, today’s program leverages
the lower cost of e-communications by providing mothers with relevant, engaging emails every two weeks with
advice and tools geared to their gestation stage.
Nestlé also uses direct mail at strategic points to further deepen the bond with the customer. The “keepsake
book” mailing is a spiral-bound calendar and workbook for pregnant mothers to document such life-altering
events as their first sonogram. Later mailings closer to the baby’s birth date include coupons for Good Start baby
formula and instructions for receiving a free leather diaper bag.
Nestlé’s Very Best Baby program takes personalization and relevance to new heights. The payoff? A new mom
who will buy formula for nearly eight months, and who is unlikely to switch after locking in on a formula her
baby enjoys.
Moet Hennessey: Sparkling wines, while not necessarily a true CPG category, offer another example. In
September 2005, Moet Hennessey’s Domaine Chandon brand launched the Sparkling Circle loyalty initiative.
The platform value proposition is focused on entertaining friends, having fun, experimenting with new foods,
and enjoying a great glass of sparkling wine. Consumers register online or at a kiosk in Chandon’s California
winery, which hosts 200,000 visitors a year. The program has enrolled more than 15,000 members. Last holiday
season, Moet emailed members and prospects, offering one of three music mixes for holiday entertaining. The
email linked to Chandon’s site, where customers could download their choice of the eight-song collections.
The brand gave away nearly 5,000 downloads—about 3,500 to current members, and 1,500 to prospects. A code
on each email let Moet track which members responded, and what compilations they chose.
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Maker’s Mark: The team at COLLOQUY appreciates the witty and irreverent relationship marketing program
run by Maker’s Mark. A premium bourbon brand, Maker’s Mark started its Ambassador’s Club to allow bourbon
aficionados to register online, complete a brief survey, and have Maker’s Mark place their names on real barrels
of bourbon aging in the distiller’s Kentucky cellars. Periodically, Maker’s sends its members gifts supportive of
the brand and the lifestyle it promotes. In return, Maker’s creates brand enthusiasts, advocates who are asked to
be “ambassadors” for the brand—promoting and recommending to others the taste and quality of Maker’s Mark.
Noteworthy is this program’s use of email and local events to build dialogue. Member opt-in email promotes
local events, highlights national promotions and sponsorships, extends holiday greetings, and asks for new and
unusual ways to serve Maker’s or use it in recipes. Maker’s encourages replies and guarantees personal responses.
The always tongue-in-cheek emails use the down-home humor and wit positioning of the brand’s other
advertising messages and of its principal spokesperson, distiller Bill Samuels. If Maker’s is coming to a town
near you, an email invites you to attend the event and offers you special access. For national promotions such
as the Maker’s Mark Mile, a thoroughbred horse race held annually at the Keeneland horse racing track in
Lexington, Kentucky, ambassadors receive the privilege of attending pre-race hoopla and post-race parties.
The fun just keeps on coming to your in-box—always unexpectedly, always recognizing the unique role of the
Ambassadors, always maintaining consistency with the brand’s overall theme of a quality lifestyle typified by a
country gentleman, sipping a glass of premium bourbon. Here’s one great copy example:
Dear Ambassadors,
Okay, folks, here is your last chance to get in on all the Ambassador fun at this year’s
Thoroughbreds & Redheads weekend! If you haven’t yet heard of our little get-together,
you must be new with us - come have a fun weekend with Maker’s Mark by visiting
http://www.makersmark.com/rsvp. This is the online invitation, and all of the info you
need will be right here.
As I have done the past few years, I would like to take a moment to ask that all of you
Ambassadors use your collective power of positive thought and please envision a sunny
Kentucky weekend - mid 70s and no humidity - for the weekend of April 14. This little
exercise has worked for us every year, and I see no reason to break with tradition.
Everybody has that picture in their minds, right? Great! I’ll pack 2 pairs of sunglasses!
One final thing I would like to mention regarding the Friday night party: this year’s
theme is “Black and White and Red all Over.” This does not mean that you need to wear
a tuxedo. I repeat, a tuxedo is not necessary for the Friday night party. I just want to
alleviate any confusion, as people were asking me if they needed to call their local
“monkey-suit” rental shop.
I hope everyone is having a good time with this year’s “Mark Madness.” You know, I
think that all of my picks came apart somewhere around the 2nd round. Oh well, I’ll just
stick to the whisky-making and let you folks handle the brackets. Just between you and
me though, I may be looking for a few tips next year, so don’t be shy. I can use all the
help I can get.
Well, I think that’s all the news for now. I hope everyone is in good spirits, ready for
spring and looking forward to a great weekend in Kentucky. For those of you who can’t
make it this year, don’t worry. We’ll have a full report on the weekend’s activities to
share with you guys in just a few weeks.
Keep your emails and letters coming,
Bill Samuels, Jr.
President & Ambassador-At-Large
These are just a couple examples of the relationship model from our archives. We have dozens more, in common
CPG categories from baby food to butter to pet supplies. Each program demonstrates the affordability and power
of interactive technologies to engage brand users in relevant dialogue built on a supporting platform. Each offers
the value of information, recognition, and access—the cornerstones of soft-benefit value propositions—in
exchange for the marketer’s ability to identify best customers, build a marketing database, and establish an
emotional connection that supports the brand and maintains or increases its respective market share.
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And yet, none of our examples can be directly measured specific to the individual, a hallmark of traditional loyalty
programs in the travel, credit card and retail industries. Can the relationship model be enabled in a manner that
satisfies the new paradigms of measured marketing, or are we simply substituting a new online medium for an old
broadcast vehicle and slapping a relationship label on the effort? The further evolution of this model will require CPG
marketers to tie rigorous consumer identification and measurement metrics to their relationship-building efforts.
The Ol’ Tazo-Dazzle
Adding a little spice to your tea . . .
Tazo Tea uses a combination of site interaction and humor in its marketing. For example, the home page depicts a notebook, with a
place to jot notes, with this addendum: “As you discover the exciting world of Tazo, you may wish to jot down a few notes. If you
need more room, please turn your computer over and write on the back.”
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Relationship models: a special look
Do you really want a relationship ... for the good of your closest loved ones? Quite possibly. Nestle, Purina and
Huggies are just three examples of CPGs that have developed continuing, progressive relationship marketing
efforts that leverage specialized, relevant content. The payoff? Locking in a brand relationship throughout a
child's infancy ... or throughout a pet's life cycle.
The Progressive Party
Using continuing, progressive messaging
Three examples of email/web relationship campaigns, from Nestle’s Very Best Baby Program, the Purina Pro Club, and Huggies.
When signing up, consumers provide benchmark information, including the due date or actual birth date of the baby in the case of
Very Best Baby and Huggies, and the number of dogs and their weights in the case of Purina. Relevant messaging is then scheduled
and delivered. For example, expectant moms get information timed to their particular stage of pregnancy.
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The retail-centric model
If such measurement becomes the driving force in the evolution of CPG loyalty strategies, then retailers will
likely play a crucial role. COLLOQUY estimates that over 70 percent of the total U.S. grocery volume comes
through some type of frequent-shopper program—whether points-based or the more popular two-tiered pricing
scheme prevalent in the U.S. While many CPG retailers have historically under-utilized the shopper data collected
through their loyalty card programs, individual measurement is possible—provided CPGs are willing to put
some skin in the game.
Under this approach, a CPG brand can buy into the existing loyalty program and frequent-shopper database
operated by its retail partners. The consumer opts into the retailer’s frequent-shopper program and earns
points or discounts on selected purchases. The core funding rate is set by the retailer; the option to bonus is
open to all participating brands. The retailer administers the tracking and rewards redemption; the CPG supplies
the added promotional funds. Along the way, the retailer can build a powerful database to track individual
member purchase behavior. This database can produce reports measuring incrementality, brand switching,
and other variables that the CPG can use to measure the ROI associated with the bonus effort.
A variation on this model exists when a full-fledged loyalty coalition operates in a given geography. Outside the
U.S., these coalitions are most often full national networks of merchants who elect to join the coalition and
reward their customers in a common currency. AIR MILES Canada is one of the most successful variations of
this model, and the grocery and drug chains who sell the bulk of CPG in Canada lead the hundreds of participating
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merchants in the network. Nectar in the U.K., Payback in Germany, Bonus in Peru, and FlyBuys in Australia and
New Zealand are additional examples. Each of these loyalty coalitions features a leading CPG retailer, usually a
grocer, as an anchor tenant. Inside the U.S. you’ll find widespread CPG participation in specialty coalitions
like Upromise or Vesdia’s BabyMint program, both of which reward points for selected purchases within the
established merchant network. The points accrue toward college-savings plans for the enrolled member’s child.
The selected purchases are typically funded by high-profile CPGs.
The retailer-centric model provides CPGs with a way to play the game. They can reward their best customers
through an established vehicle with an established channel partner. They can spot the investment, alter the
value of the currency awarded depending on their objectives, and partner with the retailer to mine the database
and target their initiatives against those segments where a behavior change will provide them with the greatest
returns. And they can measure cause and effect.
According to a recent
Information Resources
Inc. study, at least onethird of CPG volume is
sold with the support of
feature ads, displays and
price reductions. The
report also revealed that
while the trend toward
more merchandising
activity is increasing, its
effectiveness is falling.
But this approach also has its critics. In this model, the CPG loyalty relationship is truly second-hand—after all,
the retailer controls the loyalty mechanism. The retailer also gets to leverage “other people’s money”—in this
case, CPG funds—to reward its customer base. This money is typically sourced from brand funds or consumer
promotion budgets, not the typical trade monies that CPG sales personnel deploy to drive ads and end-aisle
displays, and to move goods by the truckload. Hence, the CPG pays twice to leverage the retail channel. Retailers
also aren’t averse to offering this approach to competing CPG brands, thereby mitigating any competitive
advantage. A given CPG brand seeking a national or even regional impact may have to work with dozens of
different retailers, each with a potentially different approach to their frequent-shopper initiatives.
Finally, the consumer typically remains invisible to the CPG brand—the database belongs to the retailer or the
coalition, not the brand. The retailer or the coalition can facilitate the selection of target segments and the
production of post-promotion reports, but they typically deny access to the purchase records and identities of
individual consumers. For the CPG, the retailer becomes another instrument of promotion that offers fee-based
services designed to target, reward, and track appropriate purchase behavior.
SOURCE: IRI
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Scoring points
U.K. grocery retailer Tesco is one of the world’s leading practitioners of this model and often heralded as a best
practice in loyalty marketing. Tesco’s partner in the ClubCard program is Dunnhumby, a U.K. loyalty services
and data-driven marketing consultancy that helps Tesco understand the nuances of measured consumer behavior.
This insight can then be leveraged with Tesco’s CPG suppliers, offering them unique access to an already
engaged customer base with precise behavioral targeting based on the CPG brands’ particular objectives.
Dunnhumby entered the U.S. market in 2002 and partnered with Kroger, whose Plus Card program offers
members discounted pricing on selected items. Simon Hay, President and CEO of Dunnhumby USA, believes
“there are plenty of opportunities to engage CPG companies to improve their relationships with the end-users
of their products.” The result will be that the CPG “grows their business at Kroger through undertaking a common
journey to change the interface between the CPG and Kroger.” Hay strongly believes that as retailers and CPGs
negotiate their agreements concerning use, analysis and funding of frequent shopper activities, the common
point of agreement must be the shared consumer. “As we negotiate our vendor relationships to satisfactory
conclusion,” says Hay, “let’s actually worry about and serve the customer. Let’s try to engage customers in the
store and make their experience better.”
According to Hay, CPGs have responded positively to the change in strategy at Kroger. “There is always a certain
amount of skepticism involved when you talk about putting the customer first,” he acknowledges, “because
when you do that at the store level, your brand may not always win. When they learn more about our agenda,
however, they become enthusiastic. If we can make your category stronger and the store better, and if you have
the right product, you’ll win.”
Hay believes that the retailer-centric model has clear advantages given the built-in measurability and the ability
to build massive transactional databases. Strong brands may have actually suffered in the past because deceptions
in the data or wrong assumptions allowed some weaker brands to occupy shelf space that they may not have deserved.
“What we’re trying to do with Kroger,” says Hay, “is use the data to grow their business, and the sheer size and
scale of the company and its customer base—there are 42 million Plus Card holders in the U.S.—results in a
volume of data that gives you a pretty robust base from which to learn how to better understand your customers.”
Although grocery giants like Tesco and Kroger are not the only practitioners of this model, widespread use of
frequent-shopper and loyalty coalition databases is still evolving. These programs allow a granular level of
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transactional analysis, providing both the merchant and the CPG brand with a unique look at customer segments
to understand how their behavior changes over time. When shared, the customer insight is potentially rich and
the CPGs can add the transactional learnings to their already deep understanding of attitudes, lifestyles, and
demographics gleaned from years of market research. While the retailer may extract a fee to facilitate that learning,
the CPG achieves the ability to measure specific results among specific segments while still enabling a reward
structure for their best customers.
Hay believes that CPGs want to use relationship marketing techniques to build direct relationships with
consumers. He also recognizes that manufacturers want to leverage their retail partners to build those relationships.
“We see this as an emerging trend,” Hay says, “and we want to develop that journey with Kroger.”
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Case Study
Nestlé in the LAC
The CPG market in the Latin American and Caribbean region (LAC) closely resembles the FMCG landscape in
Europe and the brand maps of North America. After all, many of LAC’s brand titans are global players. While the
LAC market has unique challenges and differences, the widespread interests in relationship and loyalty marketing
parallel the developments witnessed in other global markets.
Denise d’Abadie, CRM Manager for Nestlé in the Caribbean Region, sat down with COLLOQUY recently to share
her loyalty experiences. While D’Abadie knows that CPG loyalty practices are more advanced in Europe and
the U.S., she feels the gap is closing. D’Abadie and her team at Nestlé believe in building customer relationships,
and they’re forging ahead. Nestlé’s goal throughout LAC and the world is to reach out to individual consumers.
Like many other CPGs, Nestlé has elected to take a platform approach centering on mothers, children, health,
wellness, and diet.
“When we talk to the consumer,” says d’Abadie, “we talk to them on a nutritional platform.”
Nestle Caribbean began
its relationship marketing
efforts ten years ago in
Jamaica. “We started
out on blind faith . . . We
believed this was and is
the future.”
Such a platform has legs. The tone and dialogue are more friendly and interactive than normal brand-speak; the
content exchange is mutually beneficial; the subject matter is important to consumers, who are therefore more
likely to listen, learn, ask questions and seek solutions; and the target audience has an emotional connection to
those relationships that benefit their families. The platform also encourages engaged consumers to become
brand advocates who pass on useful and practical information to consumers in their immediate circle.
“The consumer gets knowledge,” d’Abadie says, and “the information they receive in a well-constructed
relationship marketing program is rich, timely, relevant, and delivered in their language.”
DENISE D’ABADIE, CRM MANAGER FOR
NESTLÉ IN THE CARIBBEAN REGION
In other words, this isn’t generic ad copy. In Nestlé’s case, the platform supports tips about a healthy lifestyle,
how to feed kids, and nutritional info for extended families. It facilitates feedback so Nestlé’ can tailor future
exchanges to individual needs. “The feedback we receive is enthusiastic,” says d’Abadie. “The consumer wants
the information. They want access to nutritionists.”
In return, the brand gets information. The culture at Nestlé strongly supports the notion that successful
loyalty programs are the ones that know their customers best, and can act on that information to turn engaged
consumers into brand advocates.
Any S-Tea Ellie S
Nestle’s Caribbean marketing
Nestle LAC stresses an informational relationship with its customers, providing nutrition, health and exercise information, and even
a little bit of fun for the kids.
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Nestlé Caribbean began its relationship marketing efforts ten years ago in Jamaica. “We started out on blind
faith that the effort would be worth pursuing,” D’Abadie says. “Even though we had access to other Nestlé
experiences in other regions of the world, it was pure blind faith in Jamaica.” Nestlé faced challenges, including
lack of a consumer-information tracking system, the absence of database tools or third-party service providers,
and relatively weak direct-mail capabilities in the region.
“We took on the cost and the responsibility,” says d’Abadie. “ We believed this was and is the future.”
Today, Nestlé runs a variety of relationship programs throughout the region, all connected to the nutritional
platform. One effort involves Nestlé’s milk products, a category traditionally seen as a commodity. But the
category—with Nestlé’s variety of types and brands, and a natural nutritional angle—lends itself nicely to the
approach. The relationship program includes:
• Editorial information in print, on the web, or via general direct mail, where customer identification and
opt-in is the goal;
• Customer interaction and information capture through health fairs and tours of the Nestlé milkproduction facilities;
• Inbound response channels via telephone, email and white mail;
• And special events where consumers can interact with Nestlé nutritionists and registered nurses.
All the while, Nestlé is building the database, engaging in dialogue and recording behavior. This effort will lead directly
to more targeted direct mail with relevant offers and information based on segmentation of the loyalty database.
In discussing measurement issues, d’Abadie is candid. In the beginning, brands relied on awareness and
perception measures gathered in surveys. Though it took time, metrics associated with the program’s
communication objectives started to move up. Surveys confirmed that consumers were paying attention and
getting the platform’s message. But was there a sales impact?
Gradually, Nestlé began combining consumer survey and transactional analysis based on frequent-shopper
data from select retail partners. Pilot tests became common. Nestlé was careful to construct test-versus-control
scenarios where the loyalty effort, typically direct mail and other platform events, could be isolated.
Today, rigorous measurement is the norm, and the CRM team focuses on understanding how the program
impacts incremental behavior compared to the other advertising and promotional campaigns in the market.
Nestlé can carefully extrapolate pilot results and project them to larger markets to determine the business case
for any rollout decision.
Not only do “surveys reveal that the consumer is connected to the brand and the platform,” says d’Abadie, “but
Nestlé can confidently say that their relationship marketing efforts lead directly to an increase in sales.” An
example: after six months, a recent test in Colombia using a retail partner’s frequent-shopper database indicated
that brand volume among established customers increased, while additional volume came from brand switchers.
But d’Abadie warns all CPG brand managers against expecting quick results. “This is a long-term proposition,”
she says, “and in our case we had to build the capability to do relationship marketing from scratch.” These
challenges led “to a difficult sell initially, as we couldn’t provide tangible results during the early years of
investment.” She recommends using a formal business case process and net present value metrics to show
the true ROI during the lengthy payback period.
Support for the program now comes from the Nestlé Network—an informal peer-to-peer support, collaboration
and best-practices-sharing system that extends throughout the global brand management system to function as a
true cross-market platform for enterprise loyalty. “We share a lot,” says d’Abadie, “and we get answers very quickly.”
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Conclusion
The CPG industry is unlikely to shy away from the relationship marketing phenomenon. To do nothing means
continued customer invisibility, lack of insight, inadequate measurement and the probable loss of ground to
other brands as the paradigm continues to shift. But if you’re a CPG marketer attempting to build relationship
marketing efforts in your own organization, how do you know which model—relationship or retail-centric—is
right for your brand?
Embracing consumer control
When choosing between developing a direct relationship marketing program for the CPG brand or an indirect
relationship through the retailer, COLLOQUY agrees with Simon Hay—the best answer is always to let the
customer decide. Today, the CPG customer must be in control. It’s not a question of one approach versus the
other, but rather of tailoring approaches to reach consumers in the time and manner of their choosing.
“To take an active role in managing their customer strategies,” notes Simon Hay, “CPGs have to play in both
spaces—they need to maximize their trade relationships, but try to identify and engage more broadly with their
more loyal consumers.”
Low-margin, low-involvement categories will likely find themselves leading with the coalition or retail-centric
approach. As hard as it may be for a brand manager to swallow, consumers may simply not want to engage in
dialogue with their favorite detergent brand. The retail-centric model allows low-involvement brands to access
the wealth of information collected by their traditional distribution-channel partners while still delivering
some measure of reward to best customers or potential brand switchers. The more targeted these investments,
the better.
“Retailers will remain as partners,” says d’Abadie. CPG firms will increasingly find themselves leveraging
frequent-shopper systems around the globe as measurement tools to gain access to both established brand
loyalists and potential switchers. “We wish there were more of these programs across all of our retail partners
in all markets throughout the region.”
High-margin, higher-involvement categories, meanwhile, may find themselves leading with the relationship
model. If a brand can add substantial value through dialogue and relevance through promotion, that brand can
appropriately develop direct relationships with consumers. The key is to assess the value of the relationship not
only on a per-unit basis, but also on a customer’s lifetime value. Categories such as diapers, pet foods, carbonated
beverages, snack foods, hair-coloring products, and a host of other CPG product segments that normally exhibit
defined patterns of consumption with specific start and stop dates are prime candidates for this approach.
The lesson
To deliver long-term, sustainable organic growth to shareholders, CPG companies will absolutely need to develop
relationships with their best consumers. Depending on the nature of the brand and the marketplace conditions,
either the relationship or the retail-centric model will work; for many brands, a combination of both approaches
may provide the best results. The keys to success—even in the CPG environment—lie in several “loyalty basics”
such as leveraging the innate strengths of your brand, working together with your retail partners to strengthen
your common bonds with consumers, delivering a compelling value proposition, engaging in active dialogue,
and allocating incremental spending or incentive monies where you can produce the greatest good. With the
right combination of these elements executed creatively and with innovation, customers may decide that they
do want to engage in dialogue with the brands they purchase. They might even want a relationship with their
favorite beverage brand.
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CT OH M
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The Authors
Kelly Hlavinka directs all COLLOQUY strategic consulting, publishing, education and research projects. Kelly
established COLLOQUY’s Consulting group in 2003. Under her direction, it has grown to a team of internationally
recognized practitioners working with such notable clients as American Express, Citi, MGM MIRAGE, Eddie
Bauer, Best Buy, HP Software and Visa International.
An expert in the theory and practice of loyalty marketing Kelly has been published by DM News, The DMA
Insider, DIRECT and COLLOQUY. She is often quoted by publications, including Newsweek, Advertising Age,
CMO, Cards & Payments, Smart Money and 1to1 Magazine. Kelly has been a featured presenter at industry
conferences sponsored by the DMA, FTMA, IIR and Source Media. She leads COLLOQUY’s faculty in teaching
a series of Loyalty Marketing Workshop and webinars around the world.
Leopoldo Gomez is president of GomezLee Marketing, out of Santo Domingo, Dominican Republic. Since
1990, GomezLee Marketing has provided promotional and loyalty marketing services to leading companies in
the Caribbean, including Nestlé Dominicana, Tricom, Domino’s Pizza, Bravo Supermarkets, Ferreteria Haché,
and Freund, the largest chain of hardware stores in El Salvador. Leo is a COLLOQUY Network Partner, and is
certified in COLLOQUY’s consulting methodology.
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T H E
P U B L I S H E R
The Publisher
COLLOQUY comprises a collection of resources devoted to the
global loyalty-marketing industry. The flagship resources are
COLLOQUY Consulting, a loyalty consulting practice; COLLOQUY®,
a quarterly publication serving the loyalty-marketing industry since 1990; www.colloquy.com, the most
comprehensive loyalty web site in the world; COLLOQUY’s Research and Education divisions; and the COLLOQUY
Network, a global network of consultants certified in COLLOQUY’s consulting methodology. Together they
provide a worldwide audience of 25,000+ marketers with consulting services, news, editorial, educational and
research services across all verticals and around the globe. COLLOQUY magazine subscriptions are available at
no cost to qualified persons at www.colloquy.com.
1000 Summit Dr., Suite 200
Milford, Ohio 45150
Telephone: +1.513.248.5910
Fax: +1.513.248.9084
Email: [email protected]
© LoyaltyOne, Inc. 2006
COLLOQUY is a registered trademark of LoyaltyOne, Inc. All rights reserved.