…because I believe brands should only invest in marketing
communications through existing users of their brand

Collateral: Why building it is no guarantee they will come

One response to media abundance has been the creation and
deployment of a whole range of collateral designed to add value to
customers.  In their own right the
examples of collateral described above are largely designed to, and therefore
may very well function as, opportunities to mitigate defections (ie increase
loyalty).  In some instances they may
also function as pre-cursors for word of mouth. 
The creation of such collateral however is not enough.

Let me say that again. 
Creating the collateral is not enough.

Advocacy – through word of mouth – works when one individual
has knowledge or information about a branded product or service that someone
else doesn’t.  Even in the case of two
individuals being aware of the same brand or branded collateral, there is
increased incentive to discuss it if one person knows more about it than the
other.

For example two individuals may both be aware of Orange
Wednesdays; but only one knowing about a recent movie release creates the
incentive to discuss.  Or whilst both may
be aware of Orange Wednesdays, one may think that the number of tickets is
limited.  They are not.  The other would have the opportunity to
correct them.  Word of mouth is sparked
by a knowledge differential.

Currently brands largely and unwisely rely on the individual
with that knowledge or information to volunteer it to another individual.  By themselves.  With everything they’ve got going on in their
content-abundant time-poor lives.  Brands
at best encourage word of mouth on an individual basis and at worst just pray
that the positive experiences they create for their customers will be
shared. 

We’re relying solely on Gladwell’s law of the few; the
connectors, Mavens and Salespeople “with a particular and rare set of social
skills” (see note 1), to instigate word of mouth.  Instead, we should be creating the potential
for every existing customer to become an instigator.  Rather than limiting ourselves to Pareto’s
twenty percent (see note 2) we should be encouraging advocacy through word of
mouth amongst all one hundred percent of existing customers at our disposal.

And that is only addressing one side of the equation.  The other side of the equation are the
potential customers who aren’t given reasons to specifically ask their peers –
their influencers (see note 3) – about a brand, because brands and their
agencies don’t give them reasons to do so. 
Collateral, when it is deployed, is only delivered to existing
customers.  Potential customers remain
unaware of its existence.

Planning for Transactions

This is the final and most crucial element of the holistic
planning process being proposed in this paper. 
That it’s not enough to create and deploy collateral to existing
customers.  In addition to broadcasting
the existence of collateral to existing consumers, we must also deliberately
expose potential consumers to the existence of that same collateral.

I call it Transaction Planning; communicating to existing
customers – via mass media – the existence of collateral with the deliberate
intention that its existence is overheard by potential customers.  The result being that we create the conditions
within which existing customers are best placed to ‘transact’ with potential
customers.

Figure 3: Transaction Planning; communicating to existing
customers – via mass media – the existence of collateral with the deliberate
intention that its existence is overheard by potential customers

We turn the (perceived) inefficiency of broadcast media to
our advantage by using the same communication to publicise customer collateral
to existing customers (thereby reinforcing its existence and credibility) as
well as to potential customers (thereby communicating its existence).  Every impact we plan and buy becomes
valuable; as Sameer Modha put it when I discussed this theory with him “you’re
releasing media planners from the tyranny of CPTs” (see note 4).

In planning for Transactions; not only are existing
customers encouraged to discuss and advocate a brand, and not only are
potential customers encouraged to enquire about said brand; but communications
provide them with a common precursor and language to do so (see note 5).

Launching a brand

The principles outlined in this essay also support creation
of a brand from scratch.  Franzen
established that smaller brands are largely dependent on increasing their
penetration to drive growth (see note 6). 
The Loyalty approach would see creation of a small critical mass of
consumers – either via sampling or by partnering with a distributor – to which
we apply the collateral / communication paradigm.

In Microtrends Mark Penn argues that once you have one
percent you have enough of a base to “create new markets for a business, spark
a social movement, or produce political change” (see note 7).  It is possible, and I believe preferable, to
establish then grow a small audience; you just need to understand how.

Notes

1. Malcolm Gladwell. 
The Tipping Point. 

2. The Pareto principle (also known as the 80-20 rule, the
law of the vital few and the principle of factor sparsity) states that, for
many events, 80% of the effects come from 20% of the causes.  Source: http://en.wikipedia.org/wiki/Pareto_principle

3. The term given by Blades and Phillips to the individuals
to whom information about a branded product or service is sought.  Fiona Blades and Stephen Phillips.  Decision Watch UK.  MRS Conferences 2005

4. Sameer Modha, planner at Partners Andrews Aldridge – as
quoted in an interview for this essay.

5. In addition a significant leap we have to make is in how
as planners we categorise consumers. 
With Transaction Planning they are not an undifferentiated mass to which
we broadcast branded messages, but nor are they distinct segments of
like-minded individuals who will be most responsive to our message.  With Transaction Planning, people are a
channel in their own right.

6. Giep Franzen.  Brands
and Advertising: How advertising effectiveness influences brand equity.

7. Mark
Penn (Author), E.
Kinney Zalesne.  Microtrends: The
Small Forces Behind Tomorrow's Big Changes. 
Penn and Zalesne argue that the biggest trends in America are the
microtrends — the smaller trends that go unnoticed.

Tomorrow: the Transaction Planning agency
Thursday: A holistic approach to metrics

…because I believe brands should only invest in marketing
communications through existing users of their brand

From media scarcity to abundance

People don’t consume advertising.  They really don’t.  Sometimes an ad is great enough to attain the
position of demandable content; YouTube fame then beckons.  For a while. 
But all in all we don’t consume advertising.  We consume content; and to get to that
content, we consume media.

The most significant trend in our industry – a trend
discussed by Rory Sutherland during a presentation to an IPA Outdoor conference
in 2007 (see note 1) – is a shift from media (and therefore content) scarcity
to media (and therefore content) abundance. 
Media channel fragmentation, in conjunction with technology-driven
control over content creation, distribution and consumption has created a new
paradigm.

In his Excellence Diploma submission in 2007 Faris Yakob
described how this new paradigm is already here, “it’s just not evenly
distributed … young people today [as opposed to the ‘passive massive’] have
grown up with digital media, and so they have an intrinsically participatory
relationship with ideas” (see note 2); and by implication with brands.  Brands are, or should be, participatory.

The business of creating collateral that adds value to
brands, from top; Pot Noodle the Musical, Innocent Bobble Hats, Honda Live Ad,
Eurostar’s Somerstown and Nike’s Human Race

The importance of collateral

Creating a participatory relationship with brands is
encouraging brands to go play (see left). 
It’s why the BBC built the iPlayer. 
It’s why Mother created a musical for Pot Noodle (see note 3).  It’s why Innocent put bobble hats made by the
WI on their bottles.  It’s why Honda made
a live ad.  It’s why O2 branded a
dome.  It’s why Walkers are asking for
help creating a new flavour of crisp. 
It’s why Eurostar funded Somerstown (see note 4).  It’s why Ben and Jerry’s had a party on
Clapham Common.  It’s why Nike encouraged
to us run against the clock, then each other, then the world.  It’s why Contagious Magazine exists.

It’s also why clients demand big ideas and brand platforms;
and why agencies went media-neutral and 360 degree.  It’s why all of us look for new, interesting,
engaging and involving ways for the brands upon which we work to communicate.  We’re in the business of creating collateral
that adds value to brands; investing today to generate cash flows tomorrow
through the creation of brand equity (see note 5).

Ultimately we’re responding to a climate of media abundance
by encouraging consumers to participate in our brands’ ideas.  The incentive to do so comes in the form of
added value for customers; value which – as the examples above demonstrate –
comes in the form of ‘collateral’: ancillary items or experiences created
through the marketing function that add value to our consumption or
appreciation of a brand.

Distribution of brand categories across product vs service
axis and short vs long term consumption cycle axis.  Not all categories shown. 

A framework for collateral creation

Let’s return to our model of retention as a starting point;
with the aim of making existing customers not want to defect, but rather
generate word of mouth which in turn drives acquisition of new customers and
ultimately profits and growth.

How can we go about systematically creating collateral which
we can deploy to existing customers with the ultimate aim of growth?  We first need to appreciate that not all
products and therefore brands are created equal.  Where a brand is best placed to deploy
content – and therefore the most appropriate collateral to create – depends, I
believe, on two factors (see above and note 6). 
Firstly, whether you offer a product (generally tangible) or a service
(generally intangible), and secondly how often your brand is consumed (see note
7).

Short-term products

Products consumed in the short term (eg FMCG) typically have
less opportunity to create and maintain relationships through tangible customer
databases.  They rely instead on panel
data to monitor penetration rates and share of customer.

Collateral created for products consumed in the short-term (is
primarily deployed through consumer touch points such as packaging (eg
Radiohead’s packaging for it’s ‘In Rainbows’ album (see note 8), co-creation
(eg Nokia’s Concept Lounge – see note 9), branded retail environments (eg
Niketown or Glaceau vitamin water’s pop-up shop) as well as through experiences
(eg Innocent’s Fruitstock).

Short-term product collateral: From top; Innocent
Fruitstock, Radiohead’s ‘In Rainbows’ album, Nokia’s Concept Lounge and
Niketown

Long-term products

Products purchased and consumed over the longer term (eg
motors) have the double dilemma of being purchased infrequently and – because
no ongoing financial relationship exists – of not necessarily having sustained
contact with a customer once they do purchase. 
It’s for this reason that customer identification processes such as
product registration (eg in the case of many technology products) are often
prevalent.

The collateral primarily created for long-term products are
deployed therefore through consumer touch points such as clubs (especially in
high-interest categories eg Mini2.com – see note 10), branded retail
experiences (eg the Apple store), and product customisation (eg the Electrolux
DesignLab (see note 11).

Long-term product collateral: From top; The Apple Store and
Electrolux’s DesignLab

Short-term services

Short-term service-orientated brands (eg airlines) are, by
virtue of being in the service sector, often in the position to collect
substantial information about their customers. 
Online retailers know the purchase history and online behaviour of
customers and can make recommendations for future purchases accordingly.  Amazon’s accuracy in knowing what I may wish
to read next never ceases to amaze me. 
Google knows more about me than my mother does.

Collateral created for short-term services are primarily
therefore often in the form of ongoing transaction-based consumer touch points
of clubs (eg Tesco’s Clubcard), and rewards (eg British Airways’ Gold and other
cards).

Short-term service collateral: From top; Tesco Clubcard and
British Airways’ Executive Club

Long-term services

Long-term service brands which include – amongst many others
– mobile phone network operators (see note 12) and utilities have the duel
virtues of being a service with an ongoing financial relationship.  These brands are arguably the most
experienced in the creation and deployment of collateral for their customers
(see left).

Rewards (eg the previously mentioned O2 ‘World that revolves
around you’ campaign) and experiences (the mobile networks are all over this
with the O2 and Orange Wednesdays) are both opportunities keenly deployed to
minimise defections (increase loyalty) and ideally increase ARPU.

It is brands in this quadrant which are most likely to
benefit from shift-inertia.  We (half)
joke that it is more common to get divorced than change your bank account, but
its essence reinforces the central belief of this essay – that it makes no
logical sense to invest marketing time and money in a group who not only
generate zero profit for a brand now, but who are unlikely to switch to doing
so in the near future.

Long-term service collateral: From top; The O2 and Orange
Wednesdays

creating collatoral however isn't enough – once you have it you have to tell people about it…  more on that tomorrow…

Notes

1. Rory Sutherland. 
Adapted from notes taken at Delivering the Landmark Creative Campaign –
a speech to the IPA Outdoor’s Seeing Digital Conference.

2. Faris Yakob.  I
believe the children are the future. 
Essay submission for IPA Excellence Diploma class of 2007.

3. There’s a great report which includes interviews of some
of the people behind the development of musical at http://news.bbc.co.uk/1/hi/entertainment/7539377.stm

4. Interestingly the film was made without any overt
Eurostar branding, something Marketing Director Greg Nugent refers to as
‘Unbranded Content’ – for more see: http://www.brandrepublic.com/InDepth/Analysis/808432/Close-Up-Live-Issue—Mother-Eurostar-abandoned-branding-embrace-feature-film/

5. Peter Fisk in his book Marketing Genius defines Brand
Equity as “the sum of future cash flows driven by the investments of today”.

6. I find these two axes the best way to map consumer touch
points with the aim of identifying where the most appropriate points of for the
deployment of collateral.  Other axis
were explored – specifically an axis that differentiated between contractual
versus one-off transactions with a brand versus regular and occasional
consumption.  However being able to
separate regular versus occasional contractual relationships proved to be less
useful to me that a clean split of tangible products versus intangible
services.  This isn’t to say that there
are alternative ways to map the touch points, indeed many planners will wish to
play with alternatives depending on their own, or their agency’s, specific
point of view.

7. Note that aggregator brands (such as moneysupermarket or
uswitch) are ‘trending’ many brands left and down; left towards the
shorter-term – ie changing supplier more often (especially in the utilities
sector) and downwards through the commoditisation of historically service
brands (for example in the telecoms sector.

8. The addition of packaging (as opposed to download only)
increased the retail value of Radiohead’s recent ‘In Rainbows’ album more than
nine-fold…  When originally released in
October 2007 as download only – unpackaged – the value was determined by
consumers; they could choose their own purchase price – the average price
chosen to pay was £3.88 (source: http://www.whatpricedidyouchoose.com).  At the start of December 2007 the same
content was released in the form of a three-format discbox (source: http://www.inrainbows.com/Store/index3.htm).  The asking price for a product valued at
£3.88 with packaging?  …£40.00.  Value goes both ways.

9. For more on Nokia’s concept lounge see: http://www.thesedays.com/conceptlounge/

10. Mini2 is an online hub for all things Mini maintained by
its online members.  For more visit: http://www.mini2.com/

11. The Electrolux Design Lab is an annual global design
competition open to design students who are invited to present ideas for home
appliances.  For more visit: http://www.electrolux.com/designlab/

12. Note that I’m referring to contract only in this
instance, PAYG would be significantly shorter term and more product-focussed

tomorrow: transaction planning – because creating collatoral isn't enough
Wednesday: why we need a new force of agency

…because I believe brands should only invest in marketing
communications through existing users of their brand

The
increasing importance of word of mouth (so I’m told)

Advocacy
takes many forms.  The principal form
with which we’re interested for the purposes of this essay is word of mouth,
the power of which is increasing.  A
relevant word in the right ear can in a moment override all our accumulated
knowledge and opinion on a planned purchase (see note 1).  Intergration’s Market Contact Audit (MCA)
declared word of mouth to be “the form of consumer contact with the highest
capacity to create consumer engagement” (see note 2).  McKinsey estimate that word of mouth
influences two-thirds of US industries (see note 3).

Word
of mouth isn’t a modern phenomenon.  It
is, in many ways, the oldest form of communication.  What is very modern is the increased power
word of mouth has in a digital age. 
Technologies such as the internet, email, mobile phones, text messaging,
PDAs, instant messaging, and blogs have made sharing information and opinion
easier than ever before.  The combination
of these digital technologies and the fragmentation of media channels that has
instigated the waning of the disruption advertising model, mean that “in a
networked society … personal recommendations, and recriminations, have more
weight” (see note 4).  We make our
purchase decisions based on what people tell us.

Furthermore
as Paul Revere’s ride through New England to warn of the approaching English –
as recounted by Gladwell (see note 5) reminds us; not all word of mouth is
created equal.  Some individuals are more
powerful carriers of a message, some messages more contagious, and some advice
is more likely to come from one person rather than the next.  ævolve research demonstrates for example the
extent to which men are more likely to give advice about new technologies than
women (see note 6).

Herds
and tribes

Nor
is the effect of word of mouth limited to affecting changes in individual
behaviour, it also works at a group level. 
Our opinions and behaviours (and brand preferences) are very susceptible
to the opinions and behaviours of those around us.  “Most of us are only likely to change our
behaviour if there is evidence of a larger movement emerging” (see note 7);
evidence for which we increasingly gather in the form of word of mouth.

Mark
Earls goes further, and suggests that “when we in organisations think about
affecting mass behaviour in customers or staff, we tend to think … that it is
what we do that affects the way that our audience behaves … but this is misleading
… what really matters is what each of the individuals in the mass does to the
others” (see note 8).

In
his studies into the emergence of society’s modern tribes, Bernard Cova
proposed that people are less interested in objects of consumption than in the
social links and identities that come with them.  Demographically disparate but connected
individuals now have control over the brands they collectively choose to
consume; choices determined not by product or service intrinsics, but by a
shared and agreed understanding of what that brand represents and stands for
(see note 9)  Similarly Brownlie and
Elliott asserted that such tribes hold greater influencing power than the mass
audience (see note 10).

Word
of mouth is – in the majority of instances – the single most important
determinant that influences our individual and collective behaviour.  When we form opinions and make decisions it
is as part of an ongoing series of conversations with other people.

Advertising
and word of mouth

What
matters most then is what we communicate to each other about brands.  Yet our objectives and measurement remain
largely bound by proximal metrics – such as awareness, or ultimate metrics –
such as customer acquisition. 
Furthermore when brands attempt to engage consumers through word of
mouth programmes, efforts remain largely isolated into specific silos of
expertise.

We’re
not joining up the dots.  “There is often
a mistaken notion that word of mouth needs to stand in stark contrast to
traditional forms of advertising. But this is not the case … in many cases
traditional forms of media serve as conversation starters and are the basis for
people talking about a product or a service” (see note 11).  The sentiment is echoed by James Harrison;
“the reason why advertising works has always been because of word of mouth”
(see note 12).

Advertising
and word of mouth are inextricably linked. 
Those most likely to give advice about a product or service are proven
to be those most likely to seek out advertising in their given categories of
interest (see note 13).

Yet
we divorce advertising and word of mouth programmes into different silos.  We ignore not only the combined effect of
these disciplines but the opportunity it presents to engage our existing
customers – mitigating defections and stimulating positive word of mouth on
behalf of our brands – thereby generating acquisition of new customers.

a new engine brand growth places retention as the starting point for
marketing strategy

A
new model, as outlined in figure 1, presents itself:

• Place
  retention as a starting rather than an end point
• With
  the aim of making existing customers not want to   defect (ie be loyal)
• At
  the same time generating word of mouth
• Which
  subsequently drives acquisition of new customers

What
this model demands is a new way of thinking about marketing and communications
planning.  We need an approach that
combines customer relationship marketing (CRM), advertising and word of mouth
in a way that not only engages and empowers the existing consumers of our
brands, but communicates to potential customers just what they’re missing.  but more of that on Monday, have good weekends…

Notes

1.
Blades & Phillip.  Decision Watch
UK.  MRS Conferences 2005.  “The extraordinary power of word of mouth
became obvious, this unscientific sample of one vague acquaintance, whose
knowledge of cars Gary couldn’t even assess, put him off purchasing a car for
six months”.

2.
Laborie, Jean-Louis. "The Theory Behind Engagement and Integration's Early
Experience Across Media." Paper presented at ReThink: 52nd Annual
Advertising Research Foundation Annual Conference and Expo, March 20–22, 2006: http://mail.thearf.org/roymorgan/Engagement/2006.rethink.ARF.The%20Theory.pres.Laborie.pdf].

3.
Dye, Renee. "The Buzz on Buzz." Harvard Business Review, November
2000.  McKinsey & Company estimates
for the 1994 US Economy (note this is prior to the emergence of the mainstream
internet paradigm so likely to be conservative) – total equals $6 trillion.  Slightly more than two-thirds of the U.S.
economy has been influenced by buzz: 13% Largely Driven by Buzz (Toys, sporting
goods, motion pictures, broadcasting, amusement and recreation services,
fashion); 54% Partially Driven by Buzz (Finance (investment products), hotels
and lodging, electronics, printing and publishing, tobacco, automotive,
pharmaceuticals and health care, transportation, agriculture, food and drink);
33% Largely Immune to Buzz (Oil, gas, chemicals, railroads, insurance,
utilities).

4.
Wilmot & Nelson.  Complicated Lives:
sophisticated consumers, intricate lifestyles, simple solutions

5.
Malcolm Gladwell.  The Tipping Point

6.
Data from ævolve’s CCS study.  The survey
regularly asks its panel about advice given about various categories in last 3
months

7.
Caroline Whitehall.  Inertia is good

8.
Mark Earls.  Herd

9.
Cova, B. (1999), "From Marketing to Societing: When the Link is More
Important than the Thing", in Brownlie, D., Saren, M., Wensley, R. and
Whittington, R. (Eds) Rethinking Marketing, Towards Critical Marketing

10.
Elliott, R. (1999), "Symbolic Meaning and Postmodern Consumer
Culture", in Brownlie, D., Saren, M., Wensley, R. and Whittington, R.
(Eds) Rethinking Marketing, Towards Critical Marketing Accountings

11.
Ed Keller and Simon Chadwick.  Is word of
mouth Just a Buzz?  MRS Annual Conference,
2006

12.
James Harrison, Managing Partner at Fuel, Engine Group – as quoted in an
interview for this essay

13.
Data from ævolve’s CCS study.  The survey
quantifies the proves the propensity for people who give advice to be
‘ad-seekers’ within that category

on Monday and Tuesday: A new way of approaching communications
planning

…because I believe brands should only invest in marketing
communications through existing users of their brand

Loyalty is dead

Ehrenberg showed us that loyalty has never existed.  In a retrospective of his research in
marketing he notes that within all the categories he has examined, brand-buying
is polygamous; consumers have “several steady partners (brands), some [of which
are] consumed more often than others … Very few buyers are 100% loyal.  Nor do they do it often.  They therefore have few opportunities for
being disloyal.  Marketing’s common
target of more loyal buyers is deeply unreachable” (see note 1).

Ehrenberg’s position is reinforced by the very nature of
loyalty in the context of free market economics.  Adam Smith writing in the 18th Century
commented that “It is not from the benevolence of the butcher, the brewer, or
the baker that we expect our dinner, but from their regard to their own interest”
(see note 2).

In other words, corporations don’t work in the interests of
consumers.  “For the market to function
well it is not necessary to be altruistic; indeed, it is even counterproductive
to be so.  Altruists ruin the functioning
of the market … What is needed is competition, non-violent rivalry between
producers and consumers” (see note 3).

In this context it’s hardly surprising that consumer brand
loyalty isn’t observed by Ehrenberg.  It
is simply not in the best interest of consumers to be loyal to a brand;
something that has been reinforced by the paradigm shifts in consumer
behaviours that have emerged as a result of the internet.

One example of this shift in behaviour is the extent to
which consumers are increasingly researching brands and purchases online.  A shift highlighted by the observation that
car showroom footfall has significantly decreased whilst conversions have
significantly increased; consumers increasingly enter already armed with a
plethora of research, information and opinions (see note 4).

Not only can empowered consumers now investigate and
challenge the motivations, behaviours and offerings of brands, but our
marketing investment encourages them to do so. 
Any loyalties that did exist are increasingly tested in a market where
moneysupermarket and Uswitch empower consumers to be price rather than brand
sensitive (see note 5).  The irony is
that the brands being undermined are the very same brands that are funding
their own demise.

The ‘myth’ of loyalty has most recently by highlighted in
analysis of the IPA’s databank (see note 6). 
The dataMINE analysis (see note 7) showed that whilst campaigns in the
dataBANK more often sought to increase loyalty than increase penetration, the
success rate in doing so was a mere 24% (see note 8).

Long live loyalty

Loyalty is alive and well. 
Read Adam Smith carefully and you’ll see that two of his major
provisions have been severely undermined; one, that information will be local
and complete, and two, that foreign investment will never happen.  Our world is quite different from the one
that Smith and his counterparts explained.

Findings of game theory such as the prisoner’s dilemma
demonstrate that cooperation is required to promote self-interest.  In fact evidence points to the emergence of
increasingly co-operative behaviour.  In
Wikinomics, Tapscott and Williams observe that “billions of connected
individuals can now actively participate in innovation, wealth creation, and
social development in ways we once only dreamed of.  And when these masses of people collaborate
they collectively can advance … the economy in surprising but ultimately
profitable ways” (see note 9).

People co-operate when they have a shared goal or
belief.  It is this observation that
points to a very contemporary case for the emergence of loyalty to brands.  In John Grant’s ‘after image’ world, the goal
for marketers is to create ideas with which their brands can be associated (see
note 10).  Jon Alexander comments that “I
would rather argue that loyalty never existed before, but is starting to now,
as brands for the first time develop values in a meaningful – as opposed to
superficial, advertising-related – way. 
Howies is a brand I am able to be loyal to, because I know everything
they stand for” (see note 11).

Of course we are repertoire consumers.  Of course we can defect.  But a brand imbued with an ethic to which we
can relate gives us a stronger emotional reason to be loyal than any comprehensively-developed
rational benefit.  The logical extreme of
this is seen in crowd-managed (see note 12) brands such as MyFootballClub’s
purchase of Ebbsfleet FC (see note 13). 
How long before we all have a couple of side-interests in brands?  These brands will not only occupy a small –
very engaged – part of our mind, but a considerable share of our wallet too
(see note 14).

The success in building loyalty isn’t reflected in the IPA’s
dataMINE study because you can’t examine loyalty in isolation.  The concept of brand loyalty can only be
understood in the context of other factors. 
In another analysis of the IPA dataBANK, Peter Field identified that
what was so remarkable about O2’s ‘World that revolves around you’ campaign
(see note 15) was not just that it increased loyalty by reducing defections –
or churn – “from 35% to 29% at a time when competitors' churn rates were rising
… Rather the real achievement of this remarkable piece of marketing was to
double recruitment rates, in part by turning existing customers into advocates
for the brand … Twice as much share gain resulted from recruitment as retention
… to characterise the success of O2 as loyalty growth is like describing Dom
Pérignon as a fizzy drink” (see note 16).

This is the key to understanding brand Loyalty; we must
place it in the context of the inter-related factors with which it sits.  Loyalty is inextricably linked to encouraging
customer retention through combating defections.  Loyalty is in effect the opposite of
defections – if you have a 10% defection rate you have, by definition a 90%
loyalty rate.  Not only does loyalty
exist, but it has for each and every brand, a number.

More crucially, the case study demonstrates the extent to
which both loyalty and retention are themselves intrinsically bound to advocacy
– the active support (see note 17) for a brand by a customer; but more of that tomorrow…

Notes

1. Andrew Ehrenberg. 
My Research In Marketing.  Admap –
May 2005, Issue 461

2. Adam Smith.  The
Wealth of Nations (1776).  http://en.wikipedia.org/wiki/Adam_Smith

3. A.A.M. Kinneging.  Loyalty in the modern world.  Modern Age; 
Wntr-Spring, 2004 http://findarticles.com/p/articles/mi_m0354/is_1-2_46/ai_n6140578/pg_1?tag=artBody;col1

4. Observation made by Dennis Woodside, Vice President of
Google Region One, in a recent talk entitled ‘Chasing the Consumer’

5. At the time of writing, consumer price-sensitivity is
being further instigated by rising inflation and an economic slowdown in part
as a result of the global credit crunch

6. The IPA case study dataBANK is comprised of papers
submitted to the IPA Effectiveness Awards competitions since 1980

7. The IPA dataMINE project aims to use the dataBANK to
produce general learnings about how marketing works.  For more information visit: http://www.ipa.co.uk/Content/Marketing-in-the-Era-of-Accountability-published-today

8. Only 24% of campaigns succeeded in increasing loyalty
compared to 73% success rate for those campaigns which sought to increase
penetration and 88% success rate for those campaigns which sought to increase
both loyalty and penetration.

9. Don
Tapscott (Author), Anthony
D. Williams.  Wikinomics: How Mass
Collaboration Changes Everything

10. John Grant.  After
Image.  Grant observes that ownership of
ideas is far more valuable than the ‘personalities’ from which brands were
previously carefully constructed using insights and aspirations of brand users

11. Jon Alexander, Planner at Fallon – as quoted in an
conversation for this essay

12. Crowd-managed refers to consumers tangibly owning a
share in a brand.  For more see: http://www.coolbusinessideas.com/archives/from_crowdsourced_ideas_to_a_crowdowned_crowdmanaged_business_entity.html

13. MyFootballClub consists of 30,000 members who own
Ebbsfleet United and vote on all key decisions from team selection to financial
budgets.  See more at: http://www.myfootballclub.co.uk/

14. After all, if the brand was so good that you bought and
continue to buy into it, why – when you get to the shelf – would you buy
anything else?!

15. O2 – The best way to win new customers? Talk to the ones
you already have: the story of O2.  IPA,
2006

16. Peter Field.  The
quest for loyalty.  Admap MagazineMarch
2008, Issue 492

17. Advocacy: n active support of a cause or course of
action – Collins English Dictionary

Friday: Advocacy and the power of word of mouth
Monday: A new way of approaching comms planning

…because I believe brands should only invest in marketing
communications through existing users of their brand

The three quarters we misspend

In yesterday’s post I identified the value that existing
customers hold for marketers.  Yet despite
this, most brands seem addicted to investment in marketing with the sole
purpose of attracting new customers.  Brands
are determined to talk to those who don’t love them.  Think about the last dozen briefs you wrote
or received.  How many were instigated to
recruit new customers?

A survey conducted for my IPA essay asked eighteen major
brands, who between July ’07 and June ’08 collectively invested £380m in
communications; “What proportion of your marketing budget is spent with the
specific intention of acquiring new customers?” 
The average – weighted by spend – across those brands was 78% (see note
one).  Over three quarters of their
marketing investment is deployed to communicate to those with whom their brands
have no proven relationship, and from whom no immediate profits will derive.

Hooked on an immediate fix

It’s not difficult to identify the sources of our
addiction.  We measure ourselves and are
judged by immediate-term sales metrics. 
Peter Doyle observes that “marketers have often allowed themselves to be
trapped by accounting-orientated management into seeking to justify their
marketing strategies in terms of improving immediate earnings” (see note two).

Weekly and even daily acquisition is what drives personal
and departmental targets.  One senior
agency figure commented to me that “this is part of the trap that most
businesses find themselves in: uncertain economic environments and hyper-competition in commoditised markets mean that most estimations of a company’s
success are based on evidence of growth ie headline sales”.

It’s also Google’s fault. 
One consequence of the emergence of the internet has been the precision
with which we can track online behaviours. 
The granularity of information around acquisition of new customers in
particular means that marketers who know they are focusing on the wrong
measures are nevertheless hooked on the heroin of CPAs and CPRs that drive
targets.

Notes

1. Collectively between July 2007 and June 2008 the brands
surveyed spent in the region of £380m on media and direct marketing (direct
mail and door drops); 78% of this – £294m – on acquisition.  If this were representative of the spend of
the top 200 brands across the same period it would amount to £4.6billion being
invested purely to communicate to non-users of their brands.  All spend figures sourced from Billetts.

2. Peter Doyle. 
Value-Based Marketing: Marketing Strategies for Corporate Growth and
Shareholder Value.

Tomorrow: The loyalty debate
Friday: Advocacy and the power of word of mouth

…because I believe brands should only invest in marketing communications through existing users of their brand

The principal assertion of my IPA final essay is that any
brand should focus their efforts through their existing customers.  It is so obvious that most revenues, and therefore
most profits, are derived from existing customers that we have forgotten – it would
seem – its fundamental importance.

But that is only the start of existing customers’
importance.  Fred Reichheld – who
pioneered loyalty research at Boston’s Bain Consultancy – observed that in most
businesses the profit earned from customers increases over time.  Furthermore it generally costs more money to
service a new customer than an established one; some businesses lose money on a
customer in their first year (see note #1).

Accenture have demonstrated the extent to which it is within
the control of businesses to increase customer profitability.  They suggest that a typical $1 billion
business could add $40 million in profit by enhancing Customer Relationship
Management capabilities by ten percent (see note #2).

It’s also more expensive to attract rather than keep a
customer; a repeat sale is generally accepted to be between a quarter and a
third the cost of a new customer.  Julian
Saunders observes that “the economics of winning a new customer versus keeping
an existing one is generally well known. 
A healthy and mature service should get most of its business from
existing customers; it costs less” (see note #3).

Case study: magazine subscriptions

Let’s take the example of magazine subscriptions.  The profit on a typical annual magazine
subscription is around £15 per customer (see note #4), but the cost to acquire
that customer is in the region of £34. 
The acquisition cost doesn’t begin to be recouped until the third
financial year.

Compare this to a retention strategy.  Utilisation of the customer (subscriber)
database reduces – on average – retention cost to around £1, which generates a
profit of £14 in year one.  Average
retention rate in the magazine industry is around 45-50% in year one, but – significantly
– this increases to 75-80% in year two and a massive 98% in third and
subsequent years.  The fiscal benefit of
retaining your existing customers as opposed to the acquisition of new ones is
clear.

Notes

1 Frederick F Reichheld. The Loyalty Effect: The Hidden Force Behind Growth, Profits and Lasting
Value.

2. Customer Relationship Management: Divide and Conquer, an
Accenture report by Mark T. Wolfe, Stephen F. Dull and Timothy Stephens

3. Julian Saunders.  A
market leader exclusive report: What is really changing in marketing
communications?

4. Based on a typical annual subscription cost to the reader
of £36, less £21 fulfilment cost on the part of the publisher.  Source: Milivres Prowler Group.

Tomorrow: Our addiction to the heroin of customer acqusition
Thursday: The loyalty debate

brands are wasting budgets on luring new customers.  that a far better tack is to get faithful brand stalwarts to spread the word is something that Mediation believes quite strongly in.

some other people agreed, and a piece I wrote for the IPA Excellence Diploma on the subject has been published in Campaign today.

but it's a starting point not an end point.  it raises more questions than it answers about what we do and how we do it; about how we value customers, plan communications, and measure success.

from Tuesday next week on this blog I'll be – over ten days – taking one section from my essay at a time and publishing it.  I hope that you'll enjoy the read, but more importantly I hope that you'll join in the debate; because I believe that most marketing in the early 21st century is excessively wasteful.  I want to believe that we'll look back at how we embraced change…  and I hope you'll come along for the ride…