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CPG_loyalty042507.qxd 4/26/07 2:18 PM Page 1 A New Lift for CPG: Engagement Loyalty Exploring innovative growth options in relationship marketing CPG_loyalty042507.qxd 4/26/07 2:18 PM Page 2 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. 2 >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. CPG_loyalty042507.qxd 4/26/07 2:18 PM Page 3 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. 3 The Consumer Packaged Goods space has unique loyalty challenges: the commodity challenge and the habit challenge. CPG_loyalty042507.qxd 4/26/07 2:18 PM Page 4 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%. 6 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 4 CPG_loyalty042507.qxd 4/26/07 2:18 PM Page 5 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. 5 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. CPG_loyalty042507.qxd 4/26/07 2:18 PM Page 6 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. 6 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. CPG_loyalty042507.qxd 4/26/07 2:18 PM Page 7 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. 7