Do you really know your customers?by
As consumer confidence falls, brand managers need to gain real insight into their behaviour if they want promotions to be successful - but this means ditching some common misconceptions.
By Charles D’Oyly, Valassis
Consumer confidence is at the lowest point for years. Retail sales fell by 1.5% in September compared to the previous year and as a result, marketing budgets are being cut at the fastest rate since 9/11, according to the latest report.
So how are organisations going to make the most of their remaining budgets? Every year, £20-25 billion of the annual £44 billion UK marketing budget is spent on promotional marketing. Yet, much of this promotional activity is based on several misconceptions about consumer attitudes and behaviours in this area.
Brand managers need to gain real insight into the way customers behave in response to promotional activity if they are to maximise annual spend, drive greater returns for their brands and deliver commercial gains to their board and shareholders.
Where are brand managers falling down?
Brand managers are generally good at understanding consumer attitudes towards and their usage of brands and products. They understand the competitive environment and how different brands are positioned. But these insights often fall short when it comes to consumer attitudes and behaviours towards promotions. In fact, 40% of marketers with promotional budgets in excess of £100k admit that too much promotional activity is determined by previous promotional plans.
Then why do so few organisations invest in improving their understanding of customer motivation and behaviour in response to different promotional activities? Few marketers can answer the most essential questions necessary for wise promotional investments: What is the price discount tipping point to attract new customers? To what extent can brand loyalty within a category be depended upon for sales? How effective is in-store promotional investment versus marketing to the consumer at home?
Marketers also consistently overestimate consumer loyalty. Recent research from Valassis shows that marketers believe consumers to be up to twice as loyal to brands as consumers claim. Marketers tend also to overestimate the appeal of their promotional mechanics.
However, the list of promotional miscalculations doesn’t stop here. Another common mistake is directing offers towards an aspirational target audience, rather than a brand's purchasing audience. Further wastage comes from marketers' poor understanding of price elasticity, or the necessary tipping point to trigger the incremental purchase.
By no means last, or least important, in the list is that marketers tend to overemphasise the commercial value of in-store promotions. Meanwhile, they are underestimating the impact of simultaneous competitor activities taking place on the shelves, verses the alternative approach of targeting consumers at home in a significantly less competitive environment. The result of these insight gaps can be profound disappointment when promotional results come in.
The causes of these shortcomings are many and varied. Probably the biggest and most obvious culprit is the habitual lack of focus or priority accorded by the organisation. Another is that promotional plans tend to be overly delegated to junior members of the marketing team, who don't have the necessary information to hand or are unaware of alternative promotional approaches.
However, others that often feature include fragmentation of the promotional budget across different budget holders: the brand manager, the national sales account manager and the category manager. This means there is no central framework or drive for exploring alternative promotional strategies and monitoring promotional performance.
But whatever the reasons, this lack of insight into promotional performance and customer behaviour is undermining promotional value. Brand managers cannot optimise their promotional budgets if they don’t have the necessary insights and commercial information.
Creating new insights
There are, however, solutions to hand for many of these problems if marketers effectively use the market information and tools now available, from panel data and consumer research to in-market testing, ROI analysis and even academic studies.
For example, organisations can avoid overestimating loyalty by using panel shopping data (e.g. from loyalty programmes) to understand how consumers shop within each category - and more specifically, how different promotions encourage consumers to change their shopping habits and to what extent. These behavioural or in-market insights can be supplemented by additional attitudinal research into preferences between different mechanics.
Marketers can reduce wastage from poor promotional targeting by assessing which consumers actually purchase their brand through panel data and then adjusting subsequent campaigns. Promotional audiences and brand audiences can have different profiles.
Furthermore, panel insights can be gleaned to determine the relative merits of targeting consumers in different locations to help strike an optimal balance between promoting to consumers at home versus when they are in-store. This sort of analysis may also help put brands slightly back in the driving seat when dealing with retailers. Using in-market testing over time with different discount levels can also help assess promotional price elasticity.
Finally, scores of academic studies have been published in the UK and the US which reveal promotional clues and tactics which haven’t seen much light of day.
More bang for your buck
With economists predicting that markets across the globe face several years of tough trading, organisations need to deliver quantifiable value from every aspect of the marketing mix.
Strategic brand activity is thoroughly researched and the results painstakingly analysed. So why is the thinking which underpins equally costly and risky promotional investments handled so casually? The fragmentation of the promotional spend is no excuse - senior marketers need to take a far more all encompassing approach and leverage available information to attain real understanding of customer behaviour in response to different promotional activity.
Doing so will enable brand managers to design promotional plans with results that redress historic commercial disappointment.
Charles D’Oyly is managing director of Valassis
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