Advanced Analytics Needed to Measure Loyalty

By Dan Alaimo

Tough marketing challenges, such as measuring loyalty, require sophisticated research methods.

“Retailers want to do one of two things: They want to either increase trips or they want to increase the basket size,” said Candace Adams, president, global retail strategy, SmartRevenue, Stamford, Conn., and a former Wal-Mart executive. “It may sound easy or intuitive, but getting there is the hard part. It really does require the (scientific) rigor. It requires a scientific approach to get to the answers that become actionable and that you can actually develop into strategies,” she said.

Marketers need to rely on advanced analytics, such as structural equation modeling, to get the information they need. Structural equation modeling allows for the modeling or testing of causal relationships, she noted.

“My contention is to drive loyalty and increase basket ring, one must rely on the more sophisticated tools that are in the analytic tool box,” Adams said, speaking recently in Chicago. She was among several presenters at the annual Integrated Marketing Conference of the Association for Integrated Marketing (formerly the Promotion Marketing Association) based in New York.

Using structural equation modeling, SmartRevenue is researching different channels to see what drives loyalty in each.

“It’s our hypothesis that if you are in food, you are going to have different drivers, as opposed to mass, drug, club, convenience or dollar. Consumer behavior in each of these environments is going to be a little bit different.” The study is expected to be completed in the third quarter of this year, she added.

Retailing is a very dynamic process “with a lot of moving parts,” and customers are demanding relevance, solutions and the right product at the right price,” Adams noted. “Connecting with consumers and shoppers and increasing their lifetime value becomes a daunting challenge. One of the ways that you measure that is loyalty.”

Whether the goal is increasing the share of wallet, or increasing word of mouth – whether a consumer recommends a particular retailer to a friend – only one in four shoppers are loyal to retailers or brands, according to Adams.

“The strategic framework to drive shopper loyalty and retail business growth requires that both the manufacturers and their retailing partners develop customer-centric strategies that increase trips and basket ring,” she said. Doing that requires getting answers to questions like:
What is the right marketing strategy?
What is the right media mix?
How can I differentiate myself from competitors?
How do I increase the basket of loyal customers and get trial from non-shoppers?

“It’s important to use the right tool for the right job,” Adams said. The impact of whatever analytic method used will depend on the type of questions asked, she added.

Meanwhile, during the PMA conference, research on how people use and consume media,
and the impact it has on them, was presented by Don Schultz, professor emeritus, Northwestern University, Evanston, Ill., and president of Agora, also in Evanston. The research was based on U.S. Simultaneous Media Studies conducted twice per year by BIGresearch, Worthington, Ohio.

Understanding how consumers use media and promotional activities changes how marketers plan and implement their programs, according to Schultz.

For example, in listing the amount of time consumers spent with various media forms, the top four were: e-mail for an average 131.3 minutes per day; TV 129.6 minutes; Internet 127.5 minutes; and radio 93.5 minutes.

The media forms people use in combination also is important to understand, Schultz says. For example, they most frequently combine other media, such as online, magazines, newspapers, direct mail and cell phones, with TV watching. Online users simultaneously watch TV, listen to the radio, or use the cell phone most often, while not reading magazines, newspapers or direct mail as much.

The research also measured the influence of the media forms on consumer purchase decisions. The top five were word-of-mouth; coupons; inserts; TV; and newspapers. The Internet, email and blogs were farther down the list.

Changes in consumer media choices are forcing marketers to rethink how they communicate, Schultz told CPGmatters after the conference. Up to now, it has been one-way communication of advertising messages, but companies are beginning to better understand how consumers communicate, he notes.

“To a great extent, the consumption has to start with the consumers and not with the marketers.” Current media planning “has relatively little to do with what the consumers are all about,” Schultz said.

Social media is negotiated media, not persuasive media, he adds. “I have to negotiate with you to get you to listen to me and pay attention and then we create a conversation and some interactivity. Historically, what we have done is we have just blasted the stuff out trying to persuade people, and that is the biggest difference we are going to see going forward,” he said.

In the future, CPG media spending “really has to be co-creation. That is, consumer packaged goods organizations have to bring the consumer into the whole discussion of what they are trying to do, and what products they are trying to develop. Part of the problem is the brand management system, which is focused only on generating profits for shareholders. It doesn’t really look at whether there is any benefit or any value to the consumer, and I think that’s one of the challenges that western management styles have,” Schultz concluded.