Customer-Centric Marketing Research

Many retailers (and manufacturers) without loyalty card programs and with very little customer data owned at the household level can empower customers. Some are finding it a profitable exercise. I knew very little about a firm called Spectra until the company invited me to speak to its annual conference themed “Innovative Consumer-Centric Marketing Solutions.” Spectra Marketing Systems, Inc., headquartered in Chicago, Illinois, serves the fast-moving consumer goods industry with consumer-centric marketing solutions. I was amazed to learn the many ways they can and do help packaged goods brand manufacturers and retailers learn enough about their customers to engage in customer-centric initiatives.

Spectra provides customer data that includes TV viewing by respondents every fifteen minutes, Internet clickstream data, loyalty card data, and very sophisticated syndicated purchase tracking. Clients can use these data sources to create a multifaceted picture of their customers that goes far beyond spending and shopping frequency. The insight allows companies without proprietary loyalty card programs to define customers by their true value to the firm. More than that, Spectra’s customer knowledge helps retail chains to understand the consumers who are most involved with the chain. Spectra helps the chains learn enough about customers’ special needs to enrich their shopping experiences while increasing sales and profitability.

A Case Study

A grocery chain enjoyed a strong market share but was experiencing negative comp sales (sales in stores open for more than one year) in several key grocery categories. A new competitor was spending heavily to acquire market share. The chain responded initially by maintaining uncompetitive shelf prices and reducing promotional spending to protect margin. They then decided to learn more about the shoppers who cared the most about the chain and to find ways to empower these customers by reacting to their individual needs. The following details of the case study provide a good example of what meeting the specific needs of best customers can do for any business.

With help from Spectra, the chain selected customers that were at least 33 percent loyal (as defined by share of wallet) to the chain. These customers represented 29 percent of all customers and 78 percent of chain dollars; they spent nine times as much as all other chain customers and were six times as loyal. Within this target of chain-centric top loyals, the chain found customer differences. It identified seven groups of customers, each with distinctive shopping patterns. The marketers’ goal was to tailor promotion and in-store presentation to specific customer groups to react to what each customer group was “telling” them.

The end goal was to understand the customers who are most involved with the firm, and funnel marketing dollars to these customers at the expense of many others. They would also use the customer knowledge to market to different customers differently.

For the test phase, the chain chose two segments, which accounted for 50 percent of top shopper dollars, yet still offered substantial opportunity for sales growth. By studying lifestyle and lifestage data, the chain defined segment A as “The Cleavers Loyal Shoppers,” traditional family households with kids, and segment B as “The Bunkers Loyal Shoppers,” urban, mid-urban melting pot, and downscale urban, without kids.

Defined as	Segment A The Cleavers Loyal Shoppers	Segment B The Bunkers Loyal Shoppers
Average annual spending at chain	$5,274	$3,783
Spending at competitor	$1,666	$1,951
Trips per year to chain	89	90
Share of wallet	76%	66%

Since both Cleaver and Bunker shoppers devoted more of their total basket sales to cereal than did other shoppers, the chain chose to work first with the cereal category. Cleavers spent more on cereal, bought more units per shopper, and bought a wider variety of UPCs (Universal Product Codes) in cereal. The chain defined the cereal category as having seven subcategories:

• Adult Indulgent

• Adult Nutritional

• All Family

• Kids Sweet

• Kids Better

• Bagged Cereals

• Variety Packs

Adult Nutritional was the largest subcategory for both customer groups. Bunker’s adult share, particularly Adult Nutritional, was higher. Cleaver consumers devoted most of their cereal dollars to Kids subcategories, particularly Kids Sweet. Adult Indulgent Bunker buyers spent nearly one-third of their cereal dollars on Adult Nutritional. Among Cleaver buyers of Kids Sweet, Kids Sweet accounted for one-quarter of their total cereal dollars.

This sounds complicated, but think about it for your business. Every business should be able to identify those customers who are more involved than others, and should be able to find opportunities like this for growing share of wallet. All it requires is insight to these customers’ special needs and the marketing discipline to execute the targeting strategy.

Two opportunity stores were then selected for the test phase because of the large concentration of Cleavers in one store and Bunkers in the other. Demographics of each store’s trading area were analyzed in more detail to validate the match against the targets, verifying that Store 107 had a high percentage of Cleavers shopping and Store 33 had a high percentage of Bunkers shopping. The demographics were not surprising:

Store Number	107	33
Customers	Higher percentage of Cleavers	Higher percentage of Bunkers
Age	55% are 35 to 54	57% are over 45
Income	72% earn more than $50,000	32% earn more than $50,000
Children	48% have children	28% have children
Ethnicity	87% white	50% white

The chain created two programs targeted to Cleaver and Bunker households through a Spectra grid customized for each store to measure category volume, overall basket size, and share of wallet. Targeting at the household level, the chain created direct mail campaigns with segment-specific offers for appropriate cereal subcategories and items: Adult Nutritional to the Bunkers in Store 33, and Kids Sweet to the Cleavers in Store 107.

For Cleavers, category dollars increased significantly for one program in Store 107 while basket size and share of wallet increased for the other program. For Bunkers, category dollars increased significantly for both programs while basket size and share of wallet actually declined.

The chain proved that it could reverse the declining trend in a key category, even in the face of the new competition. Since meeting the needs of best customers was the primary objective, the chain considered the effort positive enough (despite the small decrease in basket size in Store 33) to roll the initiative out to other opportunity stores with high concentrations of each customer segment.

What can you learn and apply to your own business? Using loyalty data to segment customers based solely on spending or frequency of shopping is not enough. These measures do not provide insight on how these customers care about the chain, or their potential opportunity. Companies without loyalty card programs and with little proprietary customer data owned at the household level can empower customers and gain share of wallet by using third party data. It’s a matter of finding the real issues, and using the data to find real solutions, all in the name of consumer-centric marketing. Finding ways to understand customers’ special needs and exercising marketing discipline to respond can work for any business.

It’s Not Just for Retailers

Mass advertising sometimes brings in the wrong customers. Targeting profitable customers is an important initiative for supermarkets since 45 percent of customers in a supermarket at any given time are value shoppers. This requires customer knowledge, but doesn’t necessarily require a loyalty card.

Packaged goods brand manufacturers have a similar need. More and more purchase decisions are becoming routine and low-involvement for consumers. In today’s world of overload, people don’t take time to think about what brand of cereal or cookies or laundry soap to buy. They just want to get what they need, get out of the store, and get on with their lives. As a result, top-line growth is slow for packaged goods manufacturers. Marketing spending has been increasing, but manufacturers are seeing diminishing return on those expenditures. Add to that the facts that they have little opportunity to market—to talk directly—to their millions of end users; they have very little individual customer data owned at the household level; and with annual brand revenue per household typically under $25, direct media is becoming less and less affordable. With access to product purchase behavior, consumer response to marketing stimuli, consumer attitudes toward category, and lifestyle/ lifestage data, companies can become customer-centric marketers without loyalty cards. They can become more relevant to their customers in near-CMR fashion by discovering the differences that matter to customers and developing programs that are more productive.

There are other kinds of hammers, beside the loyalty card, that will allow companies to capture customer behavior data to identify biggest spenders and increase customer knowledge. If you don’t have a loyalty card program there are third party sources, like Spectra, that can help you get at the data that will identify the real issues. As traditional customer recognition tactics become even more widespread, as it gets harder and harder to redeem miles and points for free flights and free nights, and as the impact of loyalty card rewards become more diluted, more companies will be turning to external sources of customer knowledge.

The critical point is not how you gain the customer information, it’s how you use it. It has to be more than just targeting customers to sell more of what you want to sell. Your success will require using your customer knowledge to provide more of what the customer tells you she wants, giving the customer greater control of the relationship.