We all know how important it is for the central message of any advertising campaign to reach the right customer, but in the retail sector it is vital. Customer segmentation, the practice of dividing a customer base into age, gender, interests, spending habits and other characteristics, is key to any successful campaign. But how can retailers use customer information to better understand how different media affects these various customer segments?
Market mix models
This statistical modelling approach is used to understand what causes sales (or another KPI) to vary over time. However, while the model can provide valuable insight into marketing performance, it does not always provide information on which customers are responding.
Modelling by customer segment allows a deeper insight into the performance of marketing campaigns. This analysis will not only show the total impact of each marketing campaign, it will also reveal which types of customers are responding. Customer segment models can be also combined with path to purchase models - showing how advertising impacts each part of the decision process - to help understand how advertising influences consumers.
So, how can retailers target customers with advertising?
Customer relationship management
Focusing on direct means of communication, leads to highly granular customer data. This in turn feeds into Customer Segmentation, which allows the retailer to further target each group of customers with the right mix of brand and price-led advertising, and use branded content that resonates with the target segment.
A recent case study revealed that a supermarket enjoyed a sales uplift of 1% during a school vouchers scheme with an on-going impact of 0.25% after the scheme had finished. This is a significant uplift in the retail world where marketing has a small percentage impact on a large base. They achieved this by presenting consumers with a targeted campaign that, while not appealing to price, offers a lifestyle choice that can yield long-term results.
Retailers who employ ‘loyalty card’ schemes can track and analyse the purchases of all those who subscribe, then analyse and categorise their consumers into different groups. For instance, one-time buyers may view a particular brand as too expensive, so retailers would have arguably more success targeting their message towards that customer segment with price-led advertising.
Card data also allows you to understand if consumers are price sensitive, price neutral or price insensitive. Do they buy cheaper, own-branded produce or the more-expensive branded goods? Again, analysis of this data allows understanding if media has a different impact on those segments - how important is promotional offers on the least price-sensitive segment in terms of bringing in a new purchase and so on.
A direct correlation has been observed between the amount people advertise and the price elasticity of those consumers over time. Simply put, people become less price sensitive the more advertising you do. You can see from certain brands like Coca-Cola that by advertising more, they generally induce lower (non-promotional) price elasticities. If you can convince people of a reason to pay more, then they will.
Historically, print and TV advertising has been very effective at driving short-term sales, but as the message is not relevant beyond the period of a given offer, any long-term impact is minimal. However, technological advancement is closing the gap between online and above-the-line advertising.
The most significant advance is what’s known as addressable TV. In the US advertisers have capitalised on the nation’s different TV cable areas, sending different messages to different cable zones and offering increasingly targeted advertising opportunities. Moving forward, companies such as SKY now aim to send a different message to each individual via their set-top called Sky AdSmart,
TV’s increasing addressability means we are able to target individuals with personalised messaging. In doing so, it will be increasingly important to know what turns them on and what turns them off.
Ultimately the aim of any advertising message is simple. Convince someone to purchase, ensure they have a good experience in the process, and they return to purchase in the future.
While all the factors mentioned above are intrinsically linked and form part of the holistic experience, it can be clearly seen that understanding the drivers of sales for each Customer Segmentation allows a company to target specific groups of customers effectively and allocate marketing resources to best effect.
Alan Bloodworth is managing partner at Ohal.