How leaky is your bucket?
By Sarah Evans
How stable are your customer acquisition and retention rates?
It is unlikely to be a surprise to anyone that the pandemic has caused major changes to consumer behaviour. How we live and work has for now at least changed; and that has impacted not just what we buy, but where we buy from, when we shop, and what our requirements and expectations are of the products and services that we buy. For many brands, that has led to a significant increase in acquisition rates, followed by a dramatic reduction in retention rate, and many marketers are now left questioning how to plug the leaks in their customer buckets – how to retain as much of their newly acquired customer base as possible.
At the start of the pandemic, consumers were scrambling to source all the products they would need in lockdown, panic buying set in, and ALL buying options were explored, but as we collectively began to understand the situation, and supply chains recovered from the initial frenzy, consumer behaviour began to settle down, and new trends started to emerge. For some brands (like Amazon) this has had an incredibly positive and so far, sustained impact on their bottom line, but many others are now experiencing mass customer attrition as the one-time buyers, panic buyers and ‘needs must’ customers return to their pre pandemic brands and retailers of choice. Alongside this however, some consumers who were loyal through inertia pre pandemic, have now tried alternatives, and have found them to be equally palatable to their previous brand or retailer of choice, resulting in either a new preference or an equally acceptable alternative and a reduced share of wallet for the initially preferred brand.
Today, the panic buying mentality has dissipated, but our consumption behaviour remains changed. Over the past year our lives have been touched by many more issues than just the pandemic – these issues are making us think about what is important to us as we ‘build back better’. Climate change, sustainability, Brexit, police brutality, domestic violence, BLM, changes in working practises and the need to commute, the list goes on… These issues compel us, as a society and as individuals to reflect on how we want to live once the pandemic is over, and we cannot change or evolve the way we live, without changing the way we shop and the items we chose to buy and consume. Even HRH the Prince of Wales made the point at the World Economic Forum that “There is a golden opportunity to seize something good from this crisis…” and that this time represents a real chance to craft a more sustainable and equitable world.
It is widely known we are now approaching the critical point where 66% of the UK population are fully immunised which then makes uncontrollable waves of the pandemic unlikely (here at least), and especially more so as more than 80% have had at least one inoculation. By the end of Summer, the need to stay home, wear face masks in shops, and limit the number of people we interact with will have passed. Our freedoms will return and with that, our consumption, appetites and purchasing behaviour will once again evolve. What this means for individual brands is yet to be seen, but those that will win out will inevitably be the ones that understand, empathise, and take visible action supporting consumer sentiment.
Motivational science tells us consumer behaviour is an output of a consumers need/want, their circumstances and attitudes toward a given category. The need/want being the ‘job to be done’ rather than the productised solution being sold.
PROBABLY ONE OF THE MOST FAMOUS QUOTES IN MARKETING COMES FROM HARVARD BUSINESS SCHOOL PROFESSOR THEODORE LEVITT “PEOPLE DON’T WANT TO BUY A QUARTER INCH DRILL. THEY WANT A QUARTER INCH HOLE”.
The circumstance could be situational (what is appropriate), proximity (distance from store), availability (out of stock), or financial (price, affordability), while attitudes could relate to for example, sustainability and a preference to buy recycled, recyclable, refillable, reusable, vintage. How well brands understand their consumers motivations and speak to them in their marketing programmes will directly impact the level of churn they experience in their customer base going forward. The good news is that it is very possible to demonstrate empathy and plug the leaks to retain profitable repeat buyers, if you know what it is that is causing customers to defect…
How To Patch The Leaky Bucket…
Make no mistake: The solution to your leaky bucket problem is not to accelerate the rate at which you acquire new customers but rather to strengthen the loyalty of your existing customer base. In turn, your most loyal customers will continue to add value to your business without the initial expense associated with acquisition discounts, premiums and freemiums, etc.
Probably one of the most famous quotes in marketing comes from Harvard Business School Professor Theodore Levitt “People don’t want to buy a quarter inch drill. They want a quarter inch hole”.
If brands understand the role their products and services play in consumers lives, and in what context they are considered relevant, then marketing becomes relatively easy and quite straight forward. The rub, however, is that most brand managers spend so much time looking at a brand from inside the business that they fail to really grasp the consumers perspective. There are thankfully a lot of examples of brands that do get this right; some of my favourites include Baileys realising they do not compete with vodka and tequila, but cake, this insight not only helped the brands fortunes but also helped them win a major Marketing Effectiveness award to boot. Or Netflix realising they lose more viewers to Fortnite than HBO.
With so much information, noise, and choice available, compartmentalising solutions and applying category parameters helps us to manage and assimilate the data we are presented with. Manufacturers and retailers compartmentalise products by manufacturing process, materials, or where they sit in the store environment. Consumers compartmentalise products by the “job” they do, the “quarter inch hole”, or the indulgent reward that a glass of Baileys provides (which could not be more different from the short, sharp, shock of a tequila shot with salt and lemon). Until brand teams understand relevance in the same way consumers do, they are destined to misaligned thinking and missed opportunities.
One brand I have worked with in the photo gifting sector has a wealth of research that the primary consumer motivation is to ‘make someone feel loved’ but the competitive set in which they benchmark are other resellers of printed merchandise. If we were to think like a consumer, we would be asking how can I show someone they are loved? What is a relevant solution to mark a birthday or remember an anniversary? Now we compete with flowers, with theatre tickets, with jewellery, just as much as we do with other brands offering the same solution.
And finally, I cannot talk about relevance without mentioning another of my favourite case studies – Worcestershire Sauce. The product has long been a staple in many kitchen cupboards, but because few people used the product regularly, and thanks to its inherently long shelf life, the brand faced a problem with routine depletion. Their solution, extend the relevance of the product. A campaign was launched highlighting additional uses (new sources of relevance) for Worcestershire sauce and low and behold consumers started using it in Spag Bol, in stews, on cheese on toast and the demand for what was a slow-moving item, increased exponentially.
By understanding the parameters of ‘relevance’ we can both play to the pre-existing perceptions our consumers hold and extend them concentrically. Most brands have at some time of another conducted research into brand relevance and motivations to buy, and a wealth of additional information exists in social media chatter, if you are stuck for ideas on how to move your brand forward, its always worth taking another look at how, when, why, and where your products are being used.
I live in a small leafy town in Buckinghamshire. It has great schools, a nice community, some great local pubs serving tasty food supplied by local farms. What it does not have however is a decent sushi place. Pre pandemic I spent a couple of days a week in a city and would search out a decent sushi bar for lunch as often as possible. Having been working from home for well over a year, I would love a decent sushi lunch, but you can’t buy what’s not available. Soon, hopefully I will be back in the city enjoying a green dragon roll and shrimp tempura, but as I had no access, those sales have been lost. This same scenario plays out for so many categories, and as working patterns evolve, and consumers work from home more than ever before, how many more opportunities to buy are stymied through lack of access?
With this in mind, more and more CPG firms are realising they need to take ownership of the access consumers have to their brands, with many embarking on Direct To Consumer transformations. Not only is it sensible to extend access and ensure online availability while building direct relationships with your customers, it also mitigates the upcoming impact of a new era of retail. Bricks and mortar stores no longer exist solely to serve the customers that walk in, but now more than ever to also provide a local ‘pick and pack’ facility for online deliveries or a final mile / click and collect solution for consumers wanting to reserve online. The increasing operational requirements of physical stores will inevitably lead to more ‘back of house’ requirements and a smaller shoppable store. This will inevitably lead to a consolidated offering in store and reduced access for, particularly second, third and fourth in category brands.
When we focus on access, we must also consider the customer journey. The events leading up to the point of purchase and the level of convenience that is needed to support a transaction. Its no coincidence that most professional families with young children both shop for and book their grocery delivery slots for later in the day (when work is done, and the kids are in bed). Access and availability need to coincide with the window of opportunity your customer has for making a purchase. It needs to reflect not just a physical capacity to buy, but also the ‘mental load’ on the customer in that moment. There is a perfect window / opportunity for every purchase – some items are bought at a destination and the experience of shopping is part of the endorphin rush and gratification that the purchase represents, but other items are necessity purchases that are ideally made as seamlessly and effortlessly as possible. Understanding which channel is relevant to your customer will help you build an access strategy aligned to how your customers want to shop. Its also important to consider that initial purchase behaviour may be different from subsequent purchases – I may want an instore experience to navigate the options available for my first purchase, but once I know what I want, I may prefer an easy reorder online for subsequent ‘replacement’ purchases – as an example, make up counters are the perfect place to find the perfect shade of lipstick or foundation, allowing a ‘try before you buy’ option, but routine depletion purchases can easily be made online, especially if the customer is now working more from home (less access to the shops) and is wearing more makeup to counteract the dodgy lighting for zoom calls. Understanding the customers purchase motivation, their circumstances, and their attitudes towards the purchase, and thinking about the events leading up to their shopping journey will all help in reinvigorating an access strategy that is customer centric and frictionless, and when shopping is easy, we often spend more, and return more readily.
For more than 30 years Viking Direct was a stalwart of the British office supplies market. Office Managers were the keepers of the catalogue, they knew the catalogue contents inside out and would lend them out to colleagues who would decide what items they needed, and then request those items the next time the Office Manager placed an order. This worked brilliantly for many years, until a younger generation of tech savvy office workers entered the professional landscape. These customers found the searching the catalogue and ordering via telephone time consuming and the lack of autonomy this ordering process allowed was too rigid for them. Viking had a problem. The now aging but loyal Viking customer base remained loyal, but as the older buyers retired, the brand was failing to attract a younger demographic, who just did not see themselves reflected in the Viking brand.
Viking Direct initiated a comprehensive brand update, balancing the traditional values that the loyal customers appreciated with a greater focus online. Categories were widened promoting greater choice, investments in onsite search improved the buying process and critically an updated brand aesthetic was developed. These changes were promoted via a new TV campaign featuring young vibrant professionals working in modern environments (including ‘on the go’ working) and featuring a voice over by radio personality Chris Evans. Viking successfully improved the level of association younger consumers felt with the brand leading to improvements in Net Promoter Score and Propensity to Buy followed by improvements in Orders Per Year and Spend Per Order. Customers were shopping more often and spending more with Viking because they felt the brand now better represented them. Over the following 12 months Viking enjoyed revenue improvements exceeding £18M p.a. and a stronger growing customer base which pointed to a continuation of this upward trend.
As marketers it is our job to find the right balance between the benefits you give and the price you get. Optimising this can be a difficult task and as a result few brands outside of FMCG markets apply a scientific approach to their pricing, instead relying on trend analysis, gut feel and past experiences to set price points. To navigate price elasticity and react to competitive challenges, we use promotional mechanics such as additional volume (+10% extra free), premiums (free gifts) and freemiums (BOGOFs) to attract buyers, and if we apply these mechanics sparingly and they reward customers and incentivise early or additional purchases as well as attracting new buyers into our brand. Use these mechanics too liberally however, and we devalue our brands and train our customers to ONLY buy ‘on offer’. Customers learn that they can get more for less, if they wait it out and buy on promotion, and consequently brands see negative impacts on customer numbers, order frequency, spend per order (smaller units sold at full price) and a host of other KPIs, including brand equity and overall demand. It is a virtuous or vicious circle, depending on how you look at it – giving away more value becomes the norm, and price elasticity is changed through changing consumer perceptions.
This is exactly what happened with Baileys. Baileys was a market leader with significant equity and a consumer base that would happily have paid full price, however retailers pressurised Diageo (Baileys) to offer significant discounts and over time consumers were trained to only buy on a deal. Despite having a high position on the consumer power / demand axis (Y), the brand stayed below average price (X axis) meaning it was not optimising its profit potential. This was driven by the excessive unnecessary discounting that retailers were demanding. As a result, for 15 years they never got price past the £10 barrier whilst Jack Daniels which had been parity priced with Bailey’s art one time ended up at £17 per bottle. Bailey’s image, equity and quality positioning were tarnished, and the brand was stuck with ever decreasing margins due to COGS inflation. If the brand team had stood firm on pricing and demonstrated the power of consumer demand, not only would they have enjoyed greater profits, but they may have retained more of the loyal customer base who at one time saw Baileys as a premium, luxury item, but who ultimately downgraded their perception of the brand as the heavy discounts continued. As the premium perception dwindled so too did consumer association and the brands relevance as an indulgent treat.
Similarly, Homebase ran a regular programme of “-10% Days”, these were extremely popular and successful in the early days and drove additional footfall and spend; customer numbers improved for a while and over time shopping habits changed. This again ultimately changed the benchmark however, and customers saw 10% discount as the norm and the impact waned. Soon 10% was not enough to attract new customers, resulting in the need to improve the offer and after several years they then had to become “15% Days” just to maintain the volume.
It is, however, eminently possible to optimise your value strategy, and deliver on both the short term and long-term sales, profit and customer targets. As an example, Jose Cuervo, with the help of leading econometrics agency RedRoute International, modelled various pricing and promotional scenarios leading to valuable insights in the impacts of each approach. These insights supported the development of a pricing and promotional strategy that not only improved revenue and customer performance, but also helped gain market share. Through the ability to make intelligent pricing decisions, Jose Cuervo could respond more strategically and more hastily to competitor promotions and this in turn supported improved relationships with retailers. By ‘getting pricing right’ Jose Cuervo have demonstrated that they can increase GP by 2-4% of NSV, and retain their premium position in category, maintaining and protecting the associated brand equity and consumer loyalty that comes with such a position.
Peloton is just an exercise bike. First class is just a little further forward on the plane. A Mercedes is just a mode of transport… These things are true of course, but they are also so very far from the truth. It’s the experience that sets these things apart, more so than the product itself. Why else would anyone spend hours standing in a wet muddy field in Somerset in to hear the Foo Fighters perform, when you can hear them on the radio? Experience sells. Culture sells. Making people feel part of something special sells.
While many brands understand this at the start of their journey, and attract loyal customers with a great product that works like a dream, over time products and services are reverse engineered to reduce cost and consumers end up with a disappointing experience. Who else can remember the size of a Cadburys Curly Wurly from the 1980s compared to today’s meagre bar?
Conversely, with the constant innovation happening in most consumer markets, we as consumers are constantly aware of the next best thing… be it the new iPhone, latest Dyson Airwrap, Michelin Star meals being delivered to your door, driverless cars, or a vaccine for Covid. Our expectation levels are rising. And, because nothing is ever as easy as it might seem, the way we as consumers benchmark our experiences is just as multi-faceted and non-categorised as previously mentioned in the relevance section.
We benchmark our experiences by our experiences. Our last best experience is the benchmark for all future experiences. The nice tightly defined product category we as marketers operate in is irrelevant to consumers. What this means for that photo gifting client, is that they are now being compared to the Bloom & Wild flowers I received (complete with a discount for a second bunch) from a friend when she knew I was having a rough time, and the online escape room we did as a family for my dad’s birthday, or the carefully scented and beautifully wrapped jumper that arrived from Sezane bought to reward myself for hitting a milestone moment in my business, it doesn’t matter I bought it in the sale for myself, the experience of unwrapping a parcel was no longer about what it looked like and felt like, but now also what it smells like!!. All those things made me/someone else feel loved, they all celebrated a special time, and created memorable experiences. So next time I am looking to ‘make someone feel special’ I may consider a photo gift, but I may send flowers, buy them something from Sezane, or arrange tickets to a memorable event…
The point of this article was to demonstrate some of the strategy’s brands have used to arrest customer attrition and improve customer engagement metrics. Hopefully, it has given you a little something to think about. If it has sparked any thoughts, please do let me know. If you would like to explore any of these ideas further for your business, please drop me a line to arrange a discussion, I love solving problems and I have lots of case studies and examples packed with data that might just be helpful in plugging your leaky bucket… or at least tempering the flow as the next stage of consumerism evolves.