How Research Can Build Customer Loyalty – Insights from Data Matters 2010
Gaining an in-depth understanding of consumers has never been more important than during the current financial crisis, but this process has also become more complicated as shoppers adopt a variety of new behaviours. Even for companies such as Wal-Mart, which have been able to turn the downturn to their advantage, understanding how to retain new customers once the recovery has begun will require a nuanced understanding of popular preferences.
A number of presentations at the Data Matters conference, held in London in February 2010, aimed to deal with the challenges facing the market research industry in this area, and to assess what the future may bring.
Who, or what, is a customer?
Andy Wells, senior lecturer in psychology at the LSE, suggested that the characteristics of the “informatic” customer presented in online questionnaires and other market research data is primarily based on a strictly logical calculation. By contrast, the “psychological” consumer of the real world is a “thinking feeling human being with rational, but sometimes contradictory, motivations.”
As such, while it is not difficult to acquire relevant data that seems to be useful, guaranteeing the accuracy of this material is more difficult. This is because individual actions are based on a combination of rational impulses and motivations, and a mixture of social, cogitative and emotional processes that are frequently beyond our understanding.
“In effect, we all know a great deal more than we can say. Capturing the essence of what we know in ways that can be made usable by computers is a really difficult task,” said Wells.
One tension inherent in this process is that people are both group-orientated and have a desire to stand out from the crowd. This is largely a consequence of our genetic make-up: humans share 99.7% of their DNA, meaning they have more than a considerable amount in common. The remaining 0.3% of our genetic make-up, however, ensures we can “vary in all possible ways”.
“Individual uniqueness rests on that core of fundamental similarity with other humans, and our genetic heritage underpins the fact that we all want simultaneously to be seen in some senses as the same as other people, and also as individual and unique,” Wells reported.
In certain instances, it is possible to quickly gain an understanding of popular preferences simply by observing widespread behaviour. “In many circumstances, the fundamental similarity between people makes data gathering relatively simple and the wisdom of crowds may be sufficient. If you get vast numbers of people all doing the same thing then you know what people want,” Wells added.
When this is not the case, there is a need to utilise more subtle and in-depth forms of research. To realise the fullest benefits of this approach, Wells argued academics and practitioners should seek to work together to create an “open source customer ontology” to further their collective understanding.
Why qualitative matters
Larry Ryan, director of Behaviour & Attitudes, stated that data quality is particularly important given that MR professionals are now required to work with everything from government statistics, research reports, quantitative and qualitative studies to a mass of online and social media sources. While it remains important to find the most reliable facts and figures, none of these channels can be ignored entirely.
“There is a tension present in market research today where we’re moving from a world of certainty to a world that is grayer,” Ryan said.
“We have to appreciate that insights can come from any or all of those levels, and from the interaction and inter-relationship between those layers of data.”
In this context, a qualitative, personalised model not only provides useful background and adds contextual colour to statistical analysis, but actually offers the real “stories within the data”. These can help researchers get to grips with people as individuals, as well legitimating broader patterns which then can be extrapolated and overlaid on top of the bigger picture.
“We relate better to the change in the price of a loaf of bread than we do to understanding why the consumer price index fluctuates … if you want to talk to consumers, you want to talk to them about the price of a loaf of bread, not the CPI,” Ryan posited.
“Where trend lines seem to suggest everything is going to continue going one way, often the first time you will pick up on the uncertainty and the change is qualitatively, it’s from talking to people in groups, it’s through the interaction you have with people in shops.”
One example of this working in practice is Guinness. The beer brand had repeatedly attempted to replicate its success in the on-trade in the off-trade in Ireland, its home market, but while research had revealed that cans delivered the same quality of drink as consumers could get in pubs, it did not appreciate the broader associations drinkers had with the brand, which qualitative research would have discovered.
“Guinness has never been terribly successful at home … it’s about a communal experience in the pub, and there’s a ceremony and a ritual in waiting for a pint of Guinness that people particularly like,” Ryan said.
More broadly, Diageo has built the “Diageo Way of Brand Building” in an effort to systematise the insights process. However, Ryan warned that while the spirits group has proved successful in identifying “eureka” moments, other firms that have copied its approach failed to understand that each organisation needs to identify its own unique needs.
“If every company is doing the same thing in the same way, the probability is nobody is likely to come up with something terribly revolutionary or different,” he said.
Making segmentation work
Angela Karlsberg, head of analytics at McCallum Layton, demonstrated that a quantitative approach can also offer specific benefits. She discussed the results of a “needs-based” segmentation conducted on behalf of the Co-operative Pharmacy. This chain had quickly expanded to almost 800 outlets, and the aim was to gain an insight into its new customer base.
The first stage of this process was a quantitative exercise, based on 1,000 face-to-face exit interviews with customers at 68 representative branches of the Co-op’s chain. Respondents were questioned about their overall pharmacy usage, as well as their health and lifestyle, attitudes and in-store shopping behaviour.
“What we ideally wanted to do was be able to predict the proportion of the most dominant segment at each of those locations across the UK so they could do in-store promotions,” said Karlsberg.
Cluster analysis was then used to identify a “usable” number of consumer subsets, with the intention that each of these groups was of a broadly equal size, suitably distinctive, accessible, actionable and measurable. While the members of these five groups displayed considerable diversity in certain ways, they also exhibited similar preferences in areas that were of critical importance to the Co-operative Pharmacy.
The second stage was qualitative, and took the form of 20 different sessions with four respondents from each of the five sets, both at home and in accompanied trips to the Co-op Pharmacy and one of its main rivals. This was then combined with the quantitative results to “bring these findings to life”.
Finally, branch profiling was conducted to ascertain which segment was likely to most regularly make purchases at the 68 participating outlets, with this predictive model then being rolled out across the entire store network. This achieved a 75% success rate, and allowed managers to customise the services, offers and trials that were introduced to suit the needs of their unique clientele.
The impact of loyalty cards
Loyalty cards are another major way that retailers in many categories have sought to connect with their customers. One example of this is Nectar, which features partners such as Sainsbury’s, the supermarket chain, Homebase, the DIY specialist, and BP, which operates petrol stations across the UK. Charles Humphreys, client development director at Nectar, said this reflected a broader trend across the industry.
“We see increasing trends towards more affiliate marketing, more bilateral partnerships, more white label relationships, more coalition loyalty programmes such as Nectar, and more tactical partnerships between businesses,” he argued.
Around half of the UK population are members of Nectar at present, with the benefit for participating companies said to include lower marketing costs and richer customer, as the result of pooling certain resources and working jointly in certain areas. For consumers, access to better prices and the ability to collect points in a range of different chains generally proves highly attractive.
“These coalition programmes have very high participation levels because they are issuing the same currency from a number of different partners,” said Humphreys.
Software programmes such as Self Serve are essential to the success of offerings such as Nectar, as they provide a highly detailed assessment of the personal habits of millions of individuals. Applied well, this kind of strategy can help drive up revenues, by enabling retailers to adapt their prices and product ranges, and learn what formulas work in-store.
“From experience we’ve got of doing this sort of thing in a range of markets around the world, we believe that executing this well has the capacity to add 5% to a retailer’s revenue,” Humphreys argued.
One marketing scheme adopted by Nectar is a programme targeted at people who have just moved house. When members send in their new address, this triggers a piece of direct mail, called the Home Movers Kit, which is sent out automatically, and features a map showing where the Nectar partners have their nearest stores, and providing a range of offers. The long-term participation rate for this initiative is around 15%, much higher than for direct mail as a rule.
The company is also rolling out “fully personalised online experience”, My Bonus Points, allowing consumers to opt-in to offers on the web, and removing the need for paper coupons by linking this data with purchases made in-store. As mobile phones and contactless payment become major ways consumers shop, digital platforms are going to become even more important, Humphreys predicted.
Looking to the future
Natalie Kouzeleas, senior director of marketing at Oracle, built further on this theme. She said that the rise of social networks and the growing importance of mobile phones constituted two “megatrends” that are transforming modern customer relationship management.
“It’s really changing, fundamentally, the way marketing directors need to be working and also the way that corporations are working. It’s no longer about great marketing campaigns or advertising … it’s about the experience that every single customer has with your brand, and what they say about you,” she said.
“Something has changed dramatically in the market. Through social media, the individual is powerful, and can harm or promote any brand,” she said.
United Airlines, the US air carrier, experienced this first hand, after Dave Carroll, a normal passenger, saw two its baggage handlers break his guitar, but received little constructive assistance from the company despite having made numerous complaints. In response, he wrote three songs about his experience and uploaded them to YouTube, receiving millions of hits as a result.