Shopper marketing has grown over the past decade to become a commanding presence in the consumer packaged goods (CPG) industry. CPG manufacturers spend nearly $225 billion annually on marketing, representing over 20 percent of total revenue, with approximately 57 percent of that spending paid to retailers to fund shopper marketing and trade promotion initiatives.
Large brand manufacturers have built out massive shopper marketing departments within their organizations, employ legions of data analysts searching for insights and fund countless agencies conducting never-ending research. Shopper marketing has established itself as a vital discipline in the retail industry.
Shopper marketing is dead.
Wall Street demands for greater return on massive marketing budgets, the sense that shopper marketing has lost its original focus, and a gnawing feeling that rapid innovation across the supply chain is creating new ways to go to market are all driving industry leaders to search for what’s next. Shopper marketing is becoming the latest victim of the technology-fueled transformation sweeping the retail industry.
Enter Customer-of-One Retailing
Let’s imagine you are a brand manufacturer and you have just one customer to focus on; let’s call him Joe. You would want to learn all you could about Joe, but most importantly, you would want to know how often he purchases from your product category and your share of his category business. You would also want to understand Joe’s brand loyalty and discount propensity.
Armed with this knowledge, you would then want to promote to Joe just before he’s due to make his next category purchase, aligning brand promotion activity to Joe’s purchasing cycle, ideally communicating the right offer (knowing Joe’s discount propensity) at the right time (easy to do in today’s digital world), and in the right place (including in the store as he’s approaching the category).
Over time, you would want to grow Joe’s value to your brand by increasing his purchase frequency, up-selling and cross-selling into larger package sizes, multiple units, and related products.
Stepping back from a focus just on Joe, you would want to maximize the lifetime value of each of your brand customers, aligning promotion timing and discounts to each individual customer.
Now compare this marketing nirvana to what actually happens today. Mass promotions are inefficient at the customer level, providing too little savings to convert a sale, giving away more margin than necessary, or being out of sync with the individual customer’s purchasing pattern. There is often no recognition of first-time brand buyers or effort expended seeking to retain customers defecting to a competing product. CPG marketing suffers from massive waste and lost opportunity.
The "customer-of-one" approach mandates new analytics and reporting. It requires scorecards that enable a brand to measure the number of customers purchasing its products by category, and whether they are new customers, repeat customers, or those declining in brand spending. This customer inventory also reflects a corresponding share of category, sales, and units sold.
Armed with this new data, brands become ideally positioned to invest marketing funds more intelligently. Experience will quickly prove the best ROI comes from increasing the purchases of existing customers, growing brand loyalty. Brands will also discover that first-time customers represent a growth opportunity when able to intelligently encourage repeat purchase.
These new scorecards – finally – provide brands definitive measures of the efficacy of in-store merchandising initiatives, which are able to evaluate the off-shelf display in terms of securing brand trial, growing purchases of existing customers, or slowing the rate of declining and defecting customers.
A handful of loyalty disciples understand the power of this customer-focused approach. For example, Kroger’s focus on growing the value of existing customers has been a core tenet of their Customer First Strategy over the past decade, which has delivered an unprecedented 50 consecutive quarters of same store sales growth.
The mainstay of Kroger’s success is the strategic targeting of promotions to acquire, grow and retain customers. As Kroger has grown share of customer, it has realized improved margins that have, in turn, been reinvested in key item pricing, helping the company grow market share. Improved pricing helps bring in new customers that are funneled into Kroger’s targeted marketing initiative, starting the cycle anew. Kroger’s customer strategy has created an upward spiral of value creation.
The same concept of using strategic promotion targeting to acquire, grow and retain customers can be applied to brand marketing. I am suggesting not an incremental approach to brand marketing, but a wholesale transformation of how shopper marketing and trade promotion are executed: a customer-of-one approach.
So, why hasn’t the transformation happened? We’ll see why in Part 2.