Transactional rewards alter the consumer decision making process

Recently came across a brilliant video (see here)

As people chose the stairs in this case, do you think they decided the same way they would usually do when they are offered a choice of stairs vs. an escalator?

I don’t think so, and that is the point – a change in consumer behaviour can be triggered by suspending consumer rationality.

The most iconic example of this is the McDonald’s Happy meal promotion, where children across the world have coerced parents into a McDonald’s for a sandwich they did not want but for the toy that came with the Happy meal.

But children are easily beguiled do you say?

Consider the  ‘Free’ phone deal that all mobile operators offer on a contract  that makes consumers throw away perfectly good phones and pay for a new ‘Free’ phone.

Or take the iPhone phenomenon; people who would have considered coverage and service reputation, compared deals from various providers before changing providers have queued up to buy O2 service without doing this because that was the only way they could get their hands on the phone.

As these examples demonstrate, an unrelated pay-off in the transaction can fundamentally change how decisions are made and even trigger decisions that are not rational. The limit is only defined by the marketing and pricing creativity that you can bring to building the proposition. Not surprisingly, a ‘free’ reward is a trusted weapon in the direct marketing arsenal for triggering consumer response.

PS: See a very interesting write-up from James Myers of Ogilvy on Behavioural Economics here that delves further into the ‘intuitive’ consumer behaviour.

Managing risk in direct marketing

Direct marketers and stock traders share one thing in common – both take large financial risks based on their judgement.

The traders however, realise the risk they take and have a distinct risk management strategy (atleast the ones still standing anyway). Direct marketing, on the other hand, has not recognised risk management as a vital element of the campaign development. So you see campaign managers still signing off a DM drop of millions on nothing more than their gut.

So why does this happen? I believe it is because campaign managers do not realise that they need not be slaves to chance but can actively manage and reduce risk in their campaigns.

To address risk, we need to first see what creates risk in direct marketing.

The primary risk driver in a direct marketing campaign is the selection of the target audience, insight and messaging as this calls for a qualitative judgement. The risk further amplifies as creative gets developed and data gets sourced. While research at each stage is the classic (and academic) response to manage this risk, the time and money it demands often makes it an unviable option.

 I find an in-market ‘test-evaluate-scale’ to be a much more robust risk management strategy, a process where every new contact point, creative or data set gets tested in the market and gets scaled to volume only if it meets the performance bar. 

Setting a ‘new to tested’ ratio for a campaign also balances security with innovation as it creates an innovation agenda supported by a budget.  All this strategy requires is a longer horizon marketing planning, a fair price for a de-risked campaign.

The other risk driver is pure chance; improbable events that tend to drive response down like data modelling errors, the recent Royal Mail strike, even good weather, the list goes on. It is often impossible to identify the point of time when these events might happen but the risk increases if the activity is concentrated at a few points in time. This strategy to manage this risk is obvious, to spread the activity across time as far as possible.

In summary, every direct marketing campaign needs to build a risk management strategy. The great news is that it is not difficult at all.

Fairtrade- managing an ethical brand

What does the Fairtrade proposition have in common with chicken farming, British produce, even UK-based call centres?

 The unifying factor across all of them is that the consumer value is created by meeting a belief/value that a consumer holds rather than a consumer need.

 So what principles does this distinction drive?

 1. Value is created when the consumer pays a premium to exercise this choice

 The charity in choosing Fairtrade over a cheaper (and unethical) version is what makes the consumer happy (see interesting research on charitable behaviour and happiness cycle by Prof. Michael Norton et al from Harvard Business School here)

 This is where Fairtrade is going wrong on their coffee and cocoa pricing strategy. By not charging a consumer premium as they do on, say, bananas, they have lost the value that the brand created. Also, the farmer’s welfare becomes dependent on getting a larger share of the existing value and this sets up a conflict of interest with a partner. Not a good idea in the first place and not a very successful one when the partners are the size of Starbucks and Cadbury’s.

 2. Fairtrade brand licensing has to capture a fair share of this value

 The consumer pays for the Fairtrade branding of the produce and the brand needs better management at both defining the premium and the share that Fairtrade gets from the premium.

There is also the larger brand management task of driving brand affinity (that they are doing quite well) and protecting the brand from the damage that a campaign like Cadbury’s can cause. (What were they thinking? See advt here)

 All this, however, needs a larger belief in the brand than what the FLO has shown(TIME article here)

 3. It is a niche market

 In a Lennon-esque world, everyone would eventually buy Fairtrade so many consumers would support many farmers- a premise that the Fairtrade seems to base the premium on.

 However, the bargain-hunting hordes at Primark should confirm what Fairtrade is experiencing- it is a niche market. (See an interesting research article by Prof. Norton (again) on rationalisation of questionable preferences). Fairtrade has a 2.5% share of the world coffee market and has sold £700 million worth in UK in 2008, a large number but miniscule compared to the total retail sales.

 The brand premium needs to be what this small segment is willing to pay, and this might not be as miniscule as Fairtrade is willing to settle for- poultry farming drives a much superior premium, as do Fairtrade bananas.A larger premium would also help Fairtrade in its objective of helping a larger number of farmers across the world.

In summary, in all that Fairtrade does, it is easy to lose sight of the brand management task. However, how Fairtrade manages the brand franchise will be central in determining how successful it is in its goal of helping the farmers.

This also has wider application where a niche consumer group hold deeply held beliefs or value – the RSPCA has done a great job with the poultry farming practice but this could very well expand wider than food. For instance, how about UK call centres at a higher access cost than the cheaper call centres abroad?

Fairtrade marketing is failing the farmers

Does a Fairtrade latte from Starbucks make your morning a bit shinier? Good deed for the day done, you see some poor farmer rejoicing in your choice.

 How much did the farmer get out of that Fairtrade label you reckon?

 A princely 0.3¢ (0.2p) per cup!!

 And this is where Fairtrade marketing is failing the farmers.

 Is the accusation fair, you might ask, countering that Fairtrade has done a great marketing job at bringing ethical trading into consumer consciousness and giving it a visual identity.

 It has indeed, but as Fairtrade balks at setting the price for fairtrade produce higher, it is failing in winning an appropriate share of the premium that an ethically sourced product can command.

 Pricing is an integral part of managing the brand and, unfortunately for the farmers, Fairtrade’s poor pricing strategy is not capturing enough brand premium for them.

 So who is keeping the winnings from the Fairtrade branding? The coffee brands of course are enjoying great brand image benefits but the consumers win too! A self righteous glow is a bargain at 0.3¢ a shot.

 This does raise some interesting marketing questions, why do people pay more for Fairtrade produce and how do you determine the right share of brand premium?

What do you think?

Drive engagement by personalising your direct marketing

Personalisation in direct marketing seems to be a dying art. Pick a random selection of the direct mail dropping into your letter box and most will be clearly mass-produced broadcast messages. Paradoxically, this is when the ever-growing quantities of consumer data and powerful computers enable us to profile our consumer better than ever before.

 At its basic minimum, personalisation is the addressing of the mail shot and the salutation – very important as this is what sets direct mail apart from ‘junk’ mail for many consumers. However, there are more ways to make the message more personal and relevant for the consumer.

Make the tone of communication personal

Does the copy talk to the consumer as against talking at them? My quick and dirty test to check this is to count the number of times ‘you/ your’ appears. When the tone is not relating to the consumer it can lapse into just statements about the brand and the product.

 Visually engage with the consumer’s world

Came across a basic but brilliant example from the Tesco Opticians where the image on the outer envelope is of a woman wearing glasses if the mail is addressed to a woman.

A campaign that aligns with the consumer’s world, real or aspirational will make the consumer open and interact with your marketing 

 While this comes easily to products that have a clear demographic target, stair lifts for instance, personalising the visual content to the consumer is critical to brands that service a wider demographic, banks and telecoms.

 Make the content relevant

Digital production has provided direct mail with the ability to customise content to the consumers known behaviour; for example, Tesco’s discount vouchers and offers are tailored to your purchase patterns.

Also see my post on Technology in Direct Marketing for an outstanding example from Direct Wines.

 Personalise content overtly

Referencing your consumer’s profile or past action will definitely get you attention though the ‘big brother’ overtone scares many marketers off. However, in doing so, they let go of a huge opportunity. The balance here is in being personal and, at the same time, respecting the personal space.

 None of this is radical, everyone in direct marketing knows and understands this. So. the question is, who is producing the direct mail dropping into my mailbox?

Why target small consumer segments with TV?

Saw an Aviva TV commercial yesterday, offering free insurance for one year for new parents.

 A really brilliant ad, but what struck me first was that this offer was on TV. Every year about 700,000 children are born in the UK, so why was this commercial talking to 1.4 million consumers on a medium that talks to 60 million?

 Am sure the Aviva marketing team has very good reasons to do so but it does raise an interesting question, what really tips the choice in favour of TV instead of direct marketing so often for a marketer even when targeting a small consumer segment?

 Came up with the following list, am sure you can add some more,

 It could be the real communication objective: if it is driving the emotional brand parameters rather than cost efficient sales then a choice of TV would make eminent sense

 Or it could be the speed of building awareness. TV with its quicker, frequent and universal access can reach more people quicker than any other medium

 The target consumer might be difficult to identify and reach with direct marketing. Especially tricky when the segment definition is by softer attitudinal and psychographic parameters

 Or back to the communication objective, it could be a vignette in a larger campaign

 But, it could also be the size of the marketing budget. Large marketing budgets drive some very interesting marketing decisions. Whether it is a TV commercial shot in Peru or the 300 million door-drops a TV services company reportedly sends every year, as direct marketing!

 TV is definitely more versatile, sexier, and is notoriously difficult to measure efficiency of

 Or it could be the ‘to a man with a hammer’ effect- Mass marketing and direct marketing are very diverse skills and individuals, teams and companies can develop a lopsided skill set.

 What do you think?

Technology in direct marketing

Had a very fruitful afternoon today at a leading digital printer, looking at the exciting personalization capability that digital printing brings to direct marketing.

 Digital printing technology can now tailor a direct mail for a specific individual in many layers, by inserting text, images and offers that speak her language and relate to her interests, behaviours and desires.  It is still more expensive than conventional printing but not eye-wateringly so and can be done at scale. DM heaven!

However, personalization demands a deep data driven knowledge of the consumer. The more we know about our individual consumers, more relevant and personalized the communication can be. The best examples that we saw came from retailers, Tesco, Waitrose, Sainsbury’s, Direct Wines;  not surprising, given the rich purchase pattern information that they have on their consumers. 

This ability to capture, consolidate and analyze consumer data  demands investment in technology and the retailers have managed to build systems that make sense of the billions of data points streaming through and translate this into their marketing strategy.

Even for other organizations, the quality of the CRM technology will define what advantage they can get by using digital printing technology in the marketing campaigns.

PS – My favourite from the direct mail examples today was from Direct Wines: a brochure that goes with the case and is customised to hero the wines in the case. It does not stop there, the recommendations and wines showcased are based on previous purchases. This means that there are as many variants as there are customers – truly talking to an audience of one!