The new battleground for marketing-led growth
In the
digital age, consumers are always shopping around. New research shows that
hooking them early is the strongest path to growth.
The CEO of a branded apparel company was troubled and began putting some tough
questions to the marketing department. The company had spent substantially on
promotions and loyalty-rewards programs to drive much-needed growth based on
studies showing that targeting current consumers with marketing investments offered
the highest return. Yet sales results were disappointing, and an alarming
number of customers were drifting away after their initial purchases. They were
often going to a rival with a different marketing approach, one that deployed
social media to lure shoppers to its website, where—even the chief marketing
officer had to admit—creative interactions were attracting new consumers to
consider the rival’s brand.
If
you’re the CEO of, say, a consumer-products company—or one in banking, travel,
autos, or other categories where it’s easy for your consumers to compare
products—you may be finding yourself similarly perplexed, and with reason.
Powerful new currents are disrupting established patterns of behavior. And
consumers, including those you may have thought loyal, are considering someone
else’s offerings more often than you realize. With top-line growth at the top
of every CEO’s agenda, cracking the code of consumer behavior is more critical
than ever.
Since 2009, McKinsey
has studied the emergence of consumer decision journeys (CDJs)—the
often irregular paths consumers take as they move from brand awareness through
to purchase and loyalty—as a critical lever to driving top-line growth. Like
the apparel company described above, many have responded to nonlinear consumer
behavior by doubling down on customer-retention and loyalty programs. Selling
more to consumers who are already buying seems a dependable, low-risk, and
potentially quick way to boost sales growth. Recent research shows a 26 percent increase in loyalty-program
memberships between 2013 and 2015.
Evidence has begun emerging, however, that
consumer bonds with many brands is simultaneously slipping, with active
engagement in those same loyalty programs falling by 2 percentage points and 58
percent of loyalty members not using use the programs for which they are signed
up. We see such data as an important signal that new technologies and greater
choice are changing how consumers are thinking and acting across their consumer
journeys. As one executive puts it, “In the digital world, your consumers can’t
help but shop around.” The past few years have seen exponential growth in tools
that have made researching and purchasing products online vastly easier. An
explosion of mobile shopping apps that showcase options, simplify pricing,
compare product specifications, and facilitate peer reviews is making it
possible to size up brands effortlessly. In addition, social media lets
consumers know exactly what their friends are buying and what they like and
don’t like about those purchases. The sheer weight of all this encourages even
your best consumers to shop around and changes paradigms that marketers have
counted on for years.
To better understand the magnitude of
change in consumer behavior, we turned to our CDJ database, which now covers
more than 125,000 consumers, shopping for more than 350 brands. The numbers
tell a startling story. Of the 30 categories we researched, only 3 were loyalty
driven, with consumers predominantly making the same brand choices from one
purchase to the next rather than shopping around. In the other 27 categories,
consumers exhibited strong shopping tendencies.
The elusiveness of loyalty suggests
marketers need to place more emphasis on the moments when consumers are
initially considering which products or services to buy. They’ll need a
fine-tuned understanding of who those increasingly fickle consumers are, what
triggers them to shop, and how best to enter what’s known as the initial
consideration set. And of course, once a brand is in a consumer’s consideration
set, marketers will still need to fend off competitors as they attempt to
dislodge it during a round of active evaluation, thus increasing the odds of
converting shoppers at the moment of purchase.
Your
new ‘shop-around’ consumers
We sought further to understand the extent
to which shopping led to either a repurchase or, alternatively, a switch to
another brand. Within the 27 categories where shopping around was dominant, we
divided consumers into three groups based on what the data said about their
buying behavior. Loyalists were those who remained faithful to the last brand
they purchased without considering other choices. Vulnerable repurchasers gave
in to the urge to shop around and considered other brands at least briefly, but
ended up returning to the fold. Switchers took the next step and purchased
another brand.
What surprised us was not only how
ephemeral loyalty is, but also how often consumers switched brands once they
decided to shop. In the categories where we examined purchase behavior, only 13
percent of consumers were loyalists. A full 87 percent of consumers, in other
words, were shopping around. A portion of this group—the vulnerable
repurchasers, who represented 29 percent of all consumers studied—ultimately
didn’t change brands. But the remainder, comprising 58 percent of our sample,
became switchers. Incumbent brands held their own just 42 percent of the time.
Digging deeper, we discovered just how
vital it is to be included in the set of brands that first come to a consumer’s
mind when he or she is triggered to make a purchase decision. These brands in
the initial consideration set were more than two times as likely to be
purchased as were brands considered only later in the decision journey.
(Downstream consideration might take place, for example, when a buyer performs
a more thorough comparison of products using online tools or evaluates products
like televisions in a retail store.) Overall, 69 percent of the brands
purchased by consumers who switched brands were part of their initial
consideration set when they started shopping.
We’re not suggesting that marketers ignore
other parts of the consumer decision journey. Providing quality and service, or
rewarding your most loyal customers during the postpurchase experience, remains
important. After all, as we have noted, 42 percent of purchases are still made
by consumers who return to their incumbent brand and are responsive to
repurchasing incentives.
But investing too much of your marketing
dollars in loyalty is risky when today’s shop-around environment means it’s
easy to lose consumers faster than you add new ones. Instead, companies that
hope to move the growth needle need more focus on innovative programs for the
87 percent of consumers out there who are likely to look beyond their current
brand.
The
link between initial consideration and growth
In a world where most categories are
shopping driven, consideration and growth should be strongly correlated—and
they are. We used our survey data to identify how frequently a consumer put a
given brand in his or her initial consideration set versus other brands in the
category. We then divided that consideration measure by the brand’s market
share and multiplied it by 100.
This metric, which we call the customer
growth indicator (CGI), takes into account the consideration a brand is able to
command, as well as the fact that as a brand’s share grows, greater
consideration is needed to keep up the pace of growth.
For most categories in our research, CGI
explains a full 60 to 80 percent of the variation in sales growth from one
purchase to the next. The tight linkage between CGI and growth underscores the
importance of initial consideration to a company’s brand strategy and suggests
the new metric should be a useful benchmark for assessing brand health.
In fact, we would suggest that companies
augment current metrics to include the CGI as a way to better understand their
potential growth relative to competitors. Today’s recommendation metrics are a
valuable means of understanding whether marketing programs are delivering
loyalty and customer satisfaction, but research has found they can explain only
20–60 percent of variations in growth.1
Further evidence for the rising importance
of engaging shoppers early came when we tested the relationship between growth
and total consideration, which includes those brands considered at the initial
shopping trigger point, as well as those added throughout the full shopping
process. We found that initial consideration, isolated as a factor, is
generally much better than total consideration at explaining the variance in
near term (within one year) growth. That explanatory power confirms the need
for marketers to win attention for their brands at the very beginning of a
shopper’s journey.
Marketing
to increase consideration
Earning initial consideration goes well
beyond getting shoppers to be aware of your brand name. They also need to have
a clear enough sense of its unique benefits and value to include it among
products they plan to evaluate as they begin their journey toward a purchase.
While traditionally, this would have prompted companies to increase spending on
television advertising, today many additional avenues are open to drive
shoppers to brands. We’ll focus here on three proactive moves companies can
take to boost initial consideration, drawing some lessons from companies that
have category-leading CGIs.
Resegment
the consumers you don’t target
Loyalty-based marketing doubles down on a
narrow selection of high-value consumers and then spends on incentives to
retain them. By contrast, marketing geared to growing initial consideration
will exploit a more diverse and wider set of consumer segments, many with
limited or perhaps even no experience with the brand. The name of the game is
expanding your window for growth potential, which is likely to demand quite
different approaches for shoppers who have and have not previously engaged with
the brand.
Consider first consumers who have had a
positive experience with the brand in the past but have stopped buying. These
“lapsed” customers may hold high potential: our research shows the most
important touchpoint for driving initial consideration is previous interaction
with a brand, even if the interaction happened several years before. So
marketers need to look hard at the reasons behind consumers’ “no repurchase”
decisions. In some cases, a better offer may have stolen away a lapsed
customer; in others, lifestyles or habits have changed. Some consumers may
never have connected emotionally to your brand. The task of rekindling initial
consideration is likely to look quite different across consumer groups like
these.
For consumers who have had no experience
with the brand, the underlying issues can be even more complex. The consumers
in question may not understand the brand, often have never considered it, and
sometimes even harbor feelings that the entire category just isn’t for them.
Take vacation cruises, which some consumers reject out of hand because of
preconceived notions about the cost or nature of the cruising experience.
Disney, though, has built on its well-known brand in entertainment to expand into
the vacation-cruise category. With a sharp focus on creating unique
experiences, Disney has attracted consumers who ordinarily would not have
considered a cruise vacation. Disney led its category in our CGI measure and
has experienced above-average growth compared to other cruise providers.
Rebalance
marketing budgets, giving more weight to what counts most
While the importance of consideration is
hardly a new concept, the need to elevate initial consideration requires new
focus. The basic playbook for driving more of it is straightforward:
deemphasize lower returning marketing investments, many of which may ignore
initial consideration, and spend more to encourage it.
Prune spending on closing the sale and
loyalty.
Although many marketers emphasize sales
incentives and rewards for loyalty, such initiatives are poor at driving
consideration and also can run into diminishing returns. Airlines, for
instance, have been cutting back their loyalty programs and raising the
requirements to achieve elite status for several years because the programs,
while effective, simply became too expensive. Many consumer marketers including
packaged-goods, automotive, and financial-services companies are also taking a
deeper look at the true return on spending from short-term sales incentives and
finding significant opportunities to reduce spending. Actions like these that
shift budgets away from lower-productivity spending are critical since they
free up resources for initiatives that drive initial consideration among promising
segments. For example, during the recession that started in 2008, rather than
just follow the usual auto-industry playbook by trying to stop the bleeding
with short-term sales incentives, Hyundai used an innovative marketing campaign
to build consideration. It promised to take back cars from customers who had
lost their jobs to drive up consideration among consumers financially unsettled
by the recession. Hyundai had an impressive CGI score, and it also was one of
the very few auto companies to grow at a time when the industry was widely
losing ground—a signal of the importance of initial consideration not only in
up markets, but also in tough environments.
Encourage consideration.
With funding freed up, you need to begin
expanding initial consideration across two horizons of marketing engagement.
First, you’ll need new ways of boosting broad awareness of your products,
services, and brand—likely using major media or social channels—that give
consumers a reason for learning more about your brand. Second, you’ll need an
innovative approach for translating traffic beyond simple awareness to real
brand consideration, often on your website, where there’s an opportunity to
convey a fuller picture of the brand’s value through creative interactions.
Cosmetics firm L’Oreal and
financial-services player Charles Schwab suggest how this can be done. Both
used social media and display ads to drive a wide cross section of consumers to
their websites, where they offered them user-friendly tools that encouraged
brand interactions. For L’Oreal, it was teaching consumers the right way to
apply makeup; for Charles Schwab, it was a tool to help learn the basics of
financial planning. Gilt Groupe, the online luxury-goods site, took a different
approach. It used broad-reach banners ads, each of which highlighted very low
prices for designer brands. Once the consumer followed the link to the website,
he or she learned of the brand’s innovative business model and value
proposition—an inside track on great deals. The goal in each case has been to
use the broad reach of social and digital channels to highlight a unique offer
that persuades consumers to learn more about the brand, thereby building
consideration.
Build a
pipeline of innovative product, service, and brand news
Creating more innovative and exciting
products or variations can grow consideration organically. News about a brand
often is a powerful trigger for new consumers to add it to their initial
consideration set. It also keeps current customers engaged. While the news must
of course be relevant, it can range from announcements about new products or
features to messages that position products creatively to new types of
consumers who don’t have the brand in their consideration set. Credit-card
marketers, for instance, often design new product offerings that spur current
and new consumers to reevaluate preferences. For example, Bank of America’s
BankAmericard Better Balance Rewards credit card, Capital One’s Quicksilver
card, Citi’s Double Cash card, and the Discover It card have all promoted
innovations that increase the likelihood of consideration by rewarding
consumers for card usage in new and differentiated ways.
The CGI leaders in our database have a
tradition of building buzz with brand news as part of an integrated plan.
Consider Apple, which earns high CGI scores and has outgrown competitors by
offering product innovation and a differentiated consumer experience. It has
long used product news on innovations to stoke the interest of shoppers who
then place the brand in their initial consideration set.
Every company we know is sweating out
efforts to increase revenue from their brands. Earning a spot in consumer’
highly valuable initial consideration sets has never been more crucial.
Measures like the initial consideration index can help companies understand how
their brands stack up against those of competitors while offering a way to
track progress as they encourage consumers to consider their brands first.
None of this, of course, diminishes the need for a
well-orchestrated program across the consumer decision journey, including
staying in the mix during active evaluation, converting sales at the moment of
purchase, and ensuring loyalty and retention. Yet in a world where market noise
will inevitably increase, initial consideration has emerged as marketing’s most
critical battleground.
By David Court, Dave Elzinga, Bo Finneman, and Jesko Perrey
http://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/the-new-battleground-for-marketing-led-growth?cid=reinventing-eml-alt-mkq-mck-oth-1702
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