A report out last week shows that affinity marketing, which has grown by an average of 25% from 2002 – 2003, is expected to grow by a further 27% by mid-2005. What is driving this significant growth, what impact is it likely to have – on customer management, and how are individual market sectors affected?
Let’s start by giving you some background to the report. Group 1 Software, a market-provider of software solutions for data quality, customer communications, and direct marketing applications, commissioned the report.
MarketingUK undertook the research in July 2003, with a survey population of senior marketers from the UK’s top 1000 companies surveyed by telephone and email. A research objective was to find out the share of the marketing budget different industries assign to affinity or partnership marketing. Another was to check the same sectors’ estimated allocation in two years, comparing this with earlier research by MarketingUK in January 2002. The summary results of the survey, by industry sector can be seen in the following graph:
The principal findings associated with the research are outlined below:
"The trend of affinity marketing is set to substantially increase as a marketing tool across all sectors over the next two years. Marketers predict an average rise of seven percentage points across all sectors by 2005. This is probably a result of the increasing need for marketers to obtain value for money and return on investment from every marketing pound.
Currently, an average of 20% of the marketing budget is devoted to affinity marketing, up from 16% in 2002. This is in line with expectations a year ago, which predicted an average of 23% by early 2004. According to Group 1 Software’s new research this is set to rise to 27% by mid 2005."
It looks as if marketing budgets remain tight. The latest Bellwether report for Q2 shows that marketing budgets have been revised down for the fourth consecutive quarter. Marketing managers continue to seek ways of improving the return on investment from every pound. Affinity marketing is increasingly being viewed as one such solution, as it allows a shirt into new markets without the infrastructure or costs of adding value to the customer experience.
This general trend holds well in individual market sectors on the whole, as the following analysis of major findings of the research by market sector shows.
Affinity marketing varies within the financial services sector. Banks show the least interest in affinity marketing, currently allotting only 13% of the marketing budget to partnership tie-ups. Affinity spend is predicted to increase by 6 percentage points to 19% by 2005, well-below the cross-industry average of 27%.
Credit card issuers currently allot 17% of their marketing budget to partnership marketing. 2002 research predicted that by early 2004 this would have reached 23%. The recent research however, reveals a slight change in attitude, as the researchers believe the credit card sector will not allocate 23% of the budget to collaborative marketing until mid 2005. A reason for this slowdown is perhaps the sector’s heavy investment into affinity credit cards during the 1990s resulting in over-saturation of the market.
Direct insurers are currently devoting 18% of the marketing budget to partnership marketing. It is predicted that this will rise by 7 percentage points to 25% in 2005.
Significantly, they are the only industry surveyed to have experienced a drop in the part of the budget allocated to affinity partnerships. The 2002 research indicated direct insurers assigned 22% of their marketing funds to partnership marketing fifteen months ago, so there has been a drop of 4 percentage points to 2003.
Retail multiples currently allot the highest proportion (31%) of their marketing budget to affinity marketing. However the industry drops to third place by 2005 with an estimated 34% of the budget being spent on affinity partnerships. Retailers traditionally have had a high level of involvement with non-conflicting third-party partners for example tie-ups between clothes multiples and washing powder brands. Retail multiples hold much consumer interest. The industry is therefore desirable as affinity partners, especially to less-exciting sectors with frequency or churn problems.
The telecoms industry, both fixed line and mobile services, spends 16% of the marketing budget on affinity marketing. However, by 2005 it is thought that this figure will rise by 7 percentage points to 23%. It is surprising the current figure is so low as the industry is becoming increasingly commoditised and deregulated, with strict price controls.
The travel industry (including hotels, travel agents and tour operators) is one of the longest established sectors at using affinity partnerships as a marketing tactic. Currently the industry allots the second highest percentage of its marketing budget to affinity marketing (28%) – just below retail multiples at 31%. By 2005 it is thought that a massive 41% of the budget will be allocated to partnership marketing – both the largest proportion and the highest increase (13 percentage points) of the industries surveyed.
As a customer facing, leisure/entertainment industry, the customer experience is paramount to the travel sector. Therefore affinity partnerships that can improve the overall holiday are an integral part of the industry’s marketing strategy. For example, a travel agent’s offering no longer runs to just the mode of transport and hotel, but to car rental, tours and travel insurance. Also hoteliers offer more than just bed and board. It is now common to find affinity inclusions of cut-price transport, theatre tickets and restaurant deals. However, partnerships are not only viable to hoteliers, tour operators and travel agents as a marketing tool but also strategic to increasing profits. The travel sector has changed its affinity relationships often making commission arrangements on sales to third parties. The travel sector is dependent on affinity tie-ups for growth.
The utility market currently allocates 18% of the marketing budget to affinity marketing. This is set to rise to 24% in 2005, an overall increase of 6 percentage points. Since deregulation in 1997 the utilities market has changed radically. It has been opened to fierce competition. Privatisation of the industry resulted in a plethora of new or regional companies seeking approval and national coverage. One-time monopolies no longer have a captive customer base and have to work harder to keep the loyalty of their customer base and bring in new business.
So what do we make of this move to affinity marketing and its different levels of acceptance in different industries? It seems clear the major driver in the move is to get a better return from each marketing pound (or dollar). Combining two complementary brands, and hopefully two complementary customer bases, should provide a better return from marketing spend for both the organizations. However, this doesn’t necessarily do too much for the consumer.
We have long suggested that consumers are looking for solutions to their problems, and that those solutions will often need multiple suppliers to be effective. Affinity marketing at least involves companies collaborating to make an offer to the consumer, so skills are built in collaboration between companies, even if they are not yet taking a solutions-driven approach to marketing.
Perhaps what is most interesting is that in travel, perhaps the most developed sector in affinity marketing, alongside Retail, we are seeing the emergence of a solutions package. Travel, whether business or leisure, usually involves a package of needs: travel, hotel, insurance, entertainment, etc., and it is encouraging the industry is using affinity marketing to put together such solutions.
In the move from product-focused sales and marketing to customer-centric approaches we’ve been looking for a ‘tipping point’ which can help in the transition from one to the other. Could affinity marketing provide such a transition?
If you want to know more about the report on affinity marketing, contact Louisa Osmond of Lindsell Marketing at [email protected]
What do you make of this? If you have comments to make, we’d love to hear them. Make them below by clicking on the ‘add your own comments to this story’ or e-mail me at [email protected].