CPGmatters: Personalized Marketing Poised to Improve ROI for Manufacturers
Through a special arrangement, what follows is an excerpt of a current article from the monthly e-zine, CPGmatters, presented here for discussion.
CPG manufacturers are starting to work more closely with retailers on personalized loyalty programs for two reasons: one, higher returns on their customer marketing investments and two, reductions in their product markdown expenses.
This collaboration is a "significant paradigm shift," according to Gary Hawkins, chief executive officer of Green Hills Farms store and the Hawkins Strategic consultancy, both in Syracuse, N.Y. "The development of this new world of consumer marketing will require new solutions, new tools and new business strategies."
Mr. Hawkins regards his Green Hills store as a "valuable test laboratory in which CPG brands and retail can learn new insights into consumer behavior, and make use of the store's ability to communicate and deliver true customer-specific promotions on a mass basis."
In a recent presentation in San Francisco, Mr. Hawkins said CPG wastes 50 to 70 percent of the $100 billion a year it spends in trade funds, and many events 'buy' sales volume yet drive down profitability. Yet loyalty programs have mostly failed to improve results or even provide clear and accurate data due to numerous issues: limited data access, pay for access, no industry platform (different retailers/different systems), limited true collaboration, un-actionable data, and reliance on costly direct mail and coupons.
By contrast, the SmartShop loyalty program at Green Hills has raised spending and lowered expenses by effectively targeting top shoppers. In the fourth quarter, the top 3.7 percent of shoppers (Tier 1) produced 23.4 percent of store sales, and the next 9.5 percent of shoppers (Tier 2) accounted for 30.2 percent.
In this same period:
SmartShop participants spent 150 percent more and shopped 144 percent more frequently than non-participants;
SmartShop members spent seven percent more than a year earlier, while non-members spent just 0.1 percent more;
Storewide sales rose five percent on a 12.5 percent decline in marketing expense;
Markdown expense was slashed between 10 and 15 percent.
The CPG-retail collaboration Mr. Hawkins advocates can maximize the true lifetime value of shoppers for brands and stores.
"Within a retailer's environment [beyond Green Hills, including large chains], a brand can know who 'new customers' are (first-time buyers of the brand at that retailer), who their existing customers are (segmented into groups), which customers are declining in brand-level purchasing, and who has 'defected' from the brand," explained Hawkins in an interview.
He added, "In my experience, we've seen many CPG manufacturers want to work this way with their retail customers, but they've been limited by the actionability of their insights. A personalized marketing platform makes these insights actionable and very valuable for both retailers and CPG."
Discussion Question: What do you think about the opportunities and challenges for true collaboration between CPG suppliers and retailers around loyalty programs? What do you think is holding back more collaboration around rewards programs?