Wading in a metric tonne of data

Marketing is becoming increasingly scientific, and while there is a lot of room for creativity in terms of advertising and marketing, the metrics, or numeric data, is where the action happens. Big data can be overwhelming, with so many pieces of information from various sources that can tell a company exactly the who, what, where, when and why of their customers. But is this the bottom line? If we step down through the metrics, we can see how customer retention and customer acquisition could be the keys to success in what marketing dollars gain.

large-895567_960_720-2Big data can tell an organisation minute details about the customer, right down to what they’re clicking on a website, and the analysis of that data can assist the organisation’s interactions with the current and future customers (Marr, 2016). Making sense of all of those numbers would probably take a long time, and a specific skill set, which is why the focus is shifting towards the financial metrics and away from the more intangible ones. There is a lot of data to choose from and the main metrics considered are marketing activity metrics (rise and fall of sales figures), Customer profile metrics (data on the individuals such as age, gender or data on a company such as industry and size), memory metrics (brand awareness, customer satisfaction, purchase intentions), behavioural metrics (activities of the buyer) and financial metrics (profit, return on investment, customer value) (Sharp, 2016).

“Marketers are constantly focused on improving campaign effectiveness — more data is great, but more impactful and easy-to-work-with insights are better”  –Steven Fuld, senior vice president, Sony Corporation of America (PURSWAY 2013)

Many Metrics
While all of these different metrics provide useful information, there is ongoing debate as to whether financial measures in isolation are adequate to demonstrate something as multidimensional as brand equity (Ambler and Roberts, 2008). However some companies are satisfied that the financial metrics should be the key focus. For example, a recent study conducted with Microsoft Corporation showed that their marketers are focussing more on business-focussed metrics that show the link between the customer experience and the financial outcomes (CMO Council, 2016). This is typical of the trend towards using the financial data to tell the company what it really it needs to know, which is what are they getting for their money.

big-data-1515005_960_720If we consider the key financial metrics that can be used to formulate marketing strategy are Return on Investment (ROI), Cost Per Acquisition (CPA), Return on Advertising Spending (ROAS), Customer Lifetime Value (CLV) and Customer Retention Rate (CRR) (Goulart, 2016), we can learn a lot about our marketing dollars just by focussing on one of those metrics.

Return on Investment or ROI
Return on investment is calculated  using the formula ROI = Net Profit/ Cost of Investment, and can be compared to other ROI.  Even the recommended top ten online marketing metrics recommends measuring ROI, as it demonstrates the profitability of a particular marketing campaign (DeMers, 2014).  For example, ROI can be the most useful way of comparing whether it is more beneficial for a company to spend money on acquisition or retention of customers, as both have their merits.

Research has shown that existing customers boost bottom line growth in more ways than do new customers. Concentrating your efforts on building and nurturing relationships with your existing customer base is worth the investment (Hoovers, 2016). But what if it’s more economically viable to acquire new customers? By breaking down customer acquisition to a formula that tells you the cost of converting a person into a customer you can compare the ROI of retention to acquisition. The cost of acquisition would be worked out by dividing the expenses related to acquisition by the number of new customers acquired (Optimove, 2016).  Customer retention has been considered a “missed mark” in marketing for most companies, as many companies have not fully grasped  the power of the customer retention relationship (Newnorth, 2016).

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Customer retention and customer acquisition don’t have to be two parallel lines that never meet  because word of mouth is a great tool (Jao, 2013), but these kinds of marketing have a way to go. For companies to be successful in retention marketing they must commit to a new way of thinking that must be implemented from the top down. (Jao, 2015).

As you can see, metrics can go from big data to small data and help show you the bottom line.

 
References

CMO Council (2016) Marketers looking to measure customer experience based on business outcomes not campaign metrics, PR Newswire [online] http://www.prnewswire.com/news-releases/marketers-looking-to-measure-customer-experience-based-on-business-outcomes-not-campaign-metrics-300217111.html

DeMers, J (2014) 10 Online Marketing Metrics You Need To Be Measuring, Forbes [online]
http://www.forbes.com/sites/jaysondemers/2014/08/15/10-online-marketing-metrics-you-need-to-be-measuring/

Goulart, M (2016) 5 Critical Marketing Metrics to Follow, Entrepreneur [online]
https://www.entrepreneur.com/article/278758

Hoovers
http://www.hoovers.com/lc/sales-marketing-education/customer-acquisition-vs-retention.html

Jao, J (2013)
Customer Retention Should Outweigh Customer Acquisition http://www.cmo.com/features/articles/2013/7/18/customer_retention.html#gs.null
Jao, J (2015)
 Customer Retention Is King: The Future Of Retention Marketing, Forbes [online] http://www.forbes.com/sites/jerryjao/2015/01/21/customer-retention-is-king-retention-marketing-provides-greater-roi/#1e381b9f609a

Marr, B (2016)  How Big Data Analytics can improve your marketing, Data Informed [online] http://data-informed.com/how-big-data-analytics-can-improve-your-marketing/

Newnorth (2016) Five reasons why customer retention is better than acquisition

Five Reasons Why Customer Retention is Better Than Acquisition

Optimove (2016)  http://www.optimove.com/learning-center/customer-acquisition-vs-retention-costs

Pursway (2013) ‘Marketers Monetize Customer and Prospect Real-World Relationships’
http://www.pursway.com/marketers-monetize-customer-and-prospect-real-world-relationships/1891/

 

 

 

Sharp, Byron (2013). Marketing : theory, evidence, practice. Oxford University Press, South Melbourne, Vic

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Another brick in the chain

If you’ve never stepped on a piece of LEGO, don’t worry, there’s still time. LEGO are considered to be such a common household hazard that you can actually buy LEGO slippers to prevent blunt injury to your feet.  This is just one of the many tangential products that LEGO have come up with over the years to accompany their core business of bricks for construction sets.

LEGO as a company was established in 1932, when a carpenter began manufacturing wooden toys. He chose the name LEGO  from the word LEG GODT,  or in English “play well” (in Latin it translates as ‘I put together’).  It would seem unreasonable that such a well-known and popular product could ever be considered as ‘on the brink of bankruptcy’, but back in 2004 LEGO was struggling to meet the costs of production and give consumers what they wanted (Feloni, 2014).  So where in the Four P marketing mix had things gone wrong?

There were certainly areas that needed to be addressed in the product, promotion and price, but the main overhaul was required with LEGO’s place, i.e the channels of distribution, logistics and location. LEGO has a great product, that promotes itself and will sell at a high price, but the important consideration at the time was the best way to get the product to the people.

figure-ioca-lego

Some manufacturers deal directly with their consumers, but most use distribution channels and it requires thought, effort and investment to create and maintain those channels (Mulky, 2013). This figure from Iocabucci (2014) shows what a distribution channel and supply chain can look like.  To elaborate on that, if there is direct distribution it means that the manufacturer delivers directly to the consumer without the help of intermediaries, and indirect distribution channels mean there are intermediaries who perform most or all of the functions of distribution (including wholesalers, retailers and distributors). Within these distribution channels there are also flows of ownership, cash, information and promotion (Fayaz and Azizinia, 2016).

In order to save the company, LEGO believed that getting the supply chain right was essential to meeting other business challenges (SCDigest Editorial Staff, 2007). In 2004, the LEGO Group had a new CEO, Mr Knudstorp, and among other decisions, the board of directors elected to cut one fifth of their costs for logistics by consolidating the majority of their distribution centres and warehouses in Europe into one location (Cooke, 2009). This optimisation of the supply chain, and reduction in the number of providers of logistics, allowed LEGO to work more closely with the external distributors and to target customer needs and behaviours more effectively (We Are Development Admin, 2012).

LEGO went through various processes to simplify the supply chain by firstly reducing the number of colour options that the bricks were available in, reducing the number of plastic resin suppliers they had, rationalising the production lines, and fixing the cycles of production to tier the manufacturing to the rest of the supply chain (SCDigest Editorial Staff, 2007).  They also reduced the number of logistics service providers from twenty six to four , and centralised distribution to the Czech Republic, closing centres in Denmark, Germany and France (Oliver et al, 2007).

lego-car-stackBy 2008 LEGO had an increase of almost nineteen percent in annual revenue with a profit margin of twenty one percent (Cooke, 2009). Since Knudstorp took over, Lego’s revenues have increased by 400%, and its operating profit margin has increased from -21% to 34%. That’s the power of shrinking to grow (Zook, 2016).

The 2015 Annual Report for LEGO shows that they are continuing to remain in profit, and their Annual Responsibility Report shows that supply chains are an ongoing important consideration in many aspects of the business. For example, in their environmental considerations  the report states “In the supply chain (any company that provides us with materials, equipment or transport services required to make and distribute LEGO products), we will work with our partners to reduce and eliminate their CO2 emissions through actions such as increasing energy efficiency, making production improvements and using renewable energy” (Lego Group, 2015).

Despite the occasional bottleneck in the supply chain, the overhaul and simplification of LEGO’s products and partnership appears to be working. Lofvers (2015) stated that “more companies – including Lego – are part of a growing Sales & Operations Planning (S&OP) ‘renaissance’ – either starting from scratch, starting over or building on existing initiatives”, and this appears to have been exactly what LEGO did to save their bricks.

 

 

 
References

Bologna, C (2015) ‘New LEGO Slippers Will Spare Parents The Unique Pain They Know All Too Well’, The Huffington Post [online] Lego Slippers

Cooke, J (2009) ’Lego’s Game-Changing move’
http://www.supplychainquarterly.com/topics/Logistics/scq200903lego/ <http://www.supplychainquarterly.com/topics/Logistics/scq200903lego/&gt;

Feloni, R (2014) ‘How LEGO came back from the brink of bankruptcy’, Business Insider [online] http://www.businessinsider.com.au/how-lego-made-a-huge-turnaround-2014-2?r=US&IR=T 

Iacobucci, D (2014) Marketing Management (MM), 4th Edition, South-Western, Cenage Learning, Mason, Chapter 10, Channels of Distribution and Logistics.

Lofvers, M (2015) ‘How Lego supply chain should prevent hitting a brick wall’ Supply Chain Movement [online] http://www.supplychainmovement.com/how-lego-supply-chain-should-prevent-hitting-a-brick-wall/

Oliver K, Samakh E and Heckmann P (2007) ‘Rebuiliding Lego, Brick by Brick’, Strategy + Business [online] www.business-strategy.com/article/07306?gko=99ab7

LEGO group (2015) ‘Annual report’ [online] www.lego.com/en-us/aboutus/lego-group/annual-report

LEGO group (2015) ‘Responsibility Report’ [online] www.lego.com/responsibility

Mulky A (2013) ‘Distribution Challenges and Workable Solutions’, IIMB Management Review, No. 25 pp. 179-195 [Available online: http://www.elsevier.com/locate/iimb%5D

SCDIgest editorial staff (2007) ‘Manufacturing Supply Chain News: Lego, the “Toy of the Century,” had to Reinvent the Supply Chain to Save the Company’, Supply Chain Digest [online] http://www.scdigest.com/assets/on_target/07-09-25-7.php?cid=

We Are Development (2012) ‘LEGO’s Approach to Customer-orientation’, We Are Development [online]
https://wearedevelopment.net/2012/07/11/legos-approach-to-customer-orientation/

Zook C (2016) ‘How to pull your company out of a tailspin’, Harvard Business Review [online] https://hbr.org/2016/09/how-to-pull-your-company-out-of-a-tailspin

Buying more than zeroes and ones

01101000 01100101 01101100 01101100 01101111 or, translated from binary, hello.

For businesses selling digital products it’s all about zeroes and ones, and, of course, dollar signs. For consumers of digital products it’s about instant satisfaction. Forbes’ prediction for the top ten business trends to drive success in 2016 included companies that engage in the Connection Economy (Altman, 2015). This considers that building relationships and connections is valuable, more so than assets created through industrialism. The examples provided of these are the largest in their fields and yet don’t actually own or create anything, eg. Facebook, Uber and AirBnB. And what about Amazon and ebooks? If you think about it, they don’t produce a product, they provide an information conduit, and for doing so they get paid between thirty and sixty five percent of a sale.

Consumer behaviour
Research would indicate that consumers have an increasing amount of control over the market in this day and age, but Broniarczyk and Griffin (2014) outline some of the difficulties that consumers face when making decisions about purchasing products and they largely relate to information. The amount of information available to consumers from a variety of sources can cause uncertainty and add complexity to the decision making process instead of making it easier. And when it comes to ebooks, the amount of choices grows every day.

The consumer process can be broken down into three major steps – pre-purchase, purchase, and post-purchase. A consumer identifies what they want, they research the solution, and create a set of considerations in the pre-purchase phase. Then they move on to the purchase phase, where the considerations have been narrowed down and a provider for the good or service is chosen. After the purchase is complete then there is the post-purchase phase of customer satisfaction, whether they’d be likely to repeat the purchase and possibly generate word of mouth marketing to their friends.

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Consumers and ebooks
When purchasing ebooks, it would seem that consumers go through the pre-purchase and purchase phase in the blink of an eye, and then spend more time on the post-purchase phase. And because they are likely to purchase in an emotional way this results in an impulse purchase. Kacen and Lee (2002) describe impulse buying as more arousing, less deliberate, and more irresistible buying behaviour compared to planned purchasing behaviour. Maybe they like the cover. Maybe they just heard on Facebook that it’s good. Or maybe it’s only 99c for one more day.  And, you can have it right now. Amazon even has a ‘one-click’ option, where consumers have already provided their credit card details and with one touch the book is purchased.  They get it, and start consuming it, and they start evaluating the outcome.

happy bag shopperIf the book surpasses their expectations, they’ll be delighted. If it meets their expectations they’ll be satisfied. And if it doesn’t meet their expectations, they’ll obviously be dissatisfied. But ebooks are a consumer market. Despite having access to a full blurb, reviews, and even a sample of up to 20 percent of the book, consumers often impulsively skip the research phase and buy the book, only to find they don’t like it. No problem. They just return it for a full refund. Something you’re unlikely to get away with when you buy a paperback.

Why are consumers drawn to Amazon?
Amazon is a brand. It is easily recognisable and trusted. It occupies the largest share of ebook sales, accounting for 74% of all US ebook purchases and 71% of all US consumer dollars spent on ebooks (Author Earnings, 2015). Even people who own Android or Apple devices download a Kindle App so they can buy from Amazon, and if you visit the Google Play Store you can see that the Kindle app has been downloaded more than 100 million times just from them, even though Google has their own e-reader app and ebook store.  If Klaus (2013) is correct, maybe it’s not just Amazon’s frequent email follow up, and post-sales marketing,  but also their ‘useable’ website that makes them so attractive. Klaus describes the useable website as “one that allows visitors to accomplish their desired goals efficiently and simply. Although online customers are not able to physically touch products, they still require assistance experiences to assess products in virtual environments in order to stimulate and manifest their purchase intentions.” If they linger longer in the purchasing phases. But, regardless, ebooks are an experience, so people are buying more than zeroes and ones.

References

  1. Altman, I (2015) ‘Top Ten Business Trends that will drive success in 2016’ Forbes
  2. Author Earnings (2015) http://authorearnings.com/report/october-2015-apple-bn-kobo-and-google-a-look-at-the-rest-of-the-ebook-market/
  3. Broniarczyk, SM and Griffin, JG (2014) ‘Decision difficulty in the age of consumer empowerment’,  Journal of Consumer Psychology, 24 (4), 608-625 [online]
  4. Kacen and Lee (2002) The Influence of Culture on Consumer Impulsive Buying Behaviour JOURNAL OF CONSUMER PSYCHOLOGY, 12(2), 163–176 [online]
  5. Klaus, P (2013) “The case of Amazon.com: towards a conceptual framework of online customer service experience (OCSE) using the emerging consensus technique (ECT)”, Journal of Services Marketing, Vol. 27 Iss 6 pp. 443 – 457 http://dx.doi.org/10.1108/JSM-02-2012-0030