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Increasing retail ROI through collaborative communication

Collaborating around the customer ensures that everyone's needs are met, especially that customer.

Increasing retail ROI through collaborative communication

Effective communication isn't a tactic.  It is a long-term strategy that can deliver a tremendous benefit to a company's bottom line and a customer's brand experience. Companies who put their customers' needs first and offer them relevant dialogue that rewards them for their loyalty will experience greater performance in store.

A key piece of a continuous communications strategy is collaboration between manufactures and retailers. Collaborating around the customer on the vital issue of communications is the way to ensure that everyone's needs are met – the manufacturers, the retailers and — most importantly — the customers.

Comparing needs: Manufacturer and the retailer

Initially, collaboration between two groups with inherently different needs may seem like too great a challenge.

For example, while manufacturers' needs may constitute:

  • high redemption rates
  • strong offer ROI
  • in-store sales support
  • customer acquisition
  • controlled promotional activity

Retailers' needs often look slightly different:

  • high redemption rates
  • overall vehicle ROI
  • customer retention
  • controlled promotional activity

Both of these sets of objectives are underscored by the need to strengthen a customer's preference for both the manufacturer and retailer brands. It is only when that preference increases does it make the customer more likely to continue to be a patron of the brands.

This is an important distinction. Too often vehicles such as Kroger's Best Customer Campaign are seen as only serving the retailer by rewarding the customer. Yet the phenomenal incremental sales uplift that these programs provide is not just an uplift for the retailer but one that is shared between the retailer and the manufacturer.

A case for relevant communications

A customer's choice is never a certainty. According to our data, 85 percent of customers tend to buy a range of products within one category rather than being devoted to one brand. In tough economic times, when there is little difference between products, the customer is more often making price-based decisions at the shelf. Today's customers are more consistently buying products that are discounted and therefore, brands are committing more time and investment to fight the effects of commoditization.

The most powerful tool for driving desired customer behaviour, for both retailers and manufacturers, is improving communications to make campaigns more relevant, more targeted and therefore more effective in driving long-term loyalty. The ideal communication has to be prefaced by a simple but powerful change in thinking: from the traditional campaign-led, "What do I want to talk to the customer about?" to the modern customer-led "What does the customer want to hear about?"

Collaboration in action

A collaborative approach can be particularly effective in improving brand loyalty among a retailer's most loyal customers. For example, from our own portfolio, a major manufacturer in a core center-store category was experiencing base volume declines among their most committed customers. Market share and dollar sales declines were largely driven by increased switching within the category due to aggressive pricing and promotion tactics initiated by the retailer.

Traditional campaigns would have responded to this with strategy most likely involving price promotion, an expensive and ultimately ineffective strategy in that these offers would have been available to all customers, ignoring the long-term loyalty behavior desired by the brand. By working with the brand to develop an ongoing, consistent communications program targeting their most committed shoppers with relevant offers as well as those who had shown the propensity to switch across competitive brands, we were able to develop a campaign that included six months of regular, consistent messaging across two different channels.

By comparing the behavior of customers who received the communications to a match-control panel of customers who had exhibited the same behavior prior to the program, this campaign produced two dimensions of positive results:

  • Positive Loyalty Migration: Customers who received three consecutive and consistent offers maintained greater preference and had a greater propensity to move up the "loyalty ladder" than those in the control group.
  • Positive ROI:For every dollar invested in the program, the manufacturer received a $3.50 return from customers who received the communications vs. the control group. ROI for brand champions was even higher than the average.

Many retailers and manufacturers have traditionally placed the idea of long-term customer loyalty to their store or brand in a subordinate position. By inconsistently communicating with customers who are the most loyal, marketing departments are spending too much of their investment on offers to the wrong customers and messages that are irrelevant, if not spam, to best customers--leading to decreases in customer loyalty.

Retailers and manufacturers can achieve greater ROI, sales performance and profit margin by identifying where their needs meet and developing a customer-centric strategy to achieve a combined objective: greater customer preference. By allowing data-driven insights to inform every step of this collaborative effort and more personalized communication, customers will respond with their own reward: to buy one product, one more time, improving the company's brand value.

Mark S. Wilmot is senior vice president, head of communications and media at dunnhumbyUSA, responsible for leading customer loyalty campaigns, providing a significant level of direction on strategy development for dunnhumby's retail and manufacturer partners. (Photo by George Kelly.)


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