Coupons and Customer Loyalty? It’s not what you think!

We're talking about customer loyalty with clients and prospects a lot these days. Everyone wants it – some are working strategically to achieve it. Many more seem to be focused on short-term demand generation tactics, which can have surprising results from a loyalty standpoint.

Coupons are a great example of how a tactic aimed at generating demand for one participant in the value chain may build loyalty for another. Coupons are generally top-of-the-funnel tactics that convert consumers from considering to trying a product. Loyalty comes later – and brands work hard earn it. In general, the product usage experience is most important in building repeat purchase and loyalty.

According to research by IRI and Platform A that was conducted in late 2008 and reported on last month, “More than 90 million US consumers (78% of retail shoppers) currently use newspaper coupons, and 40 million (40% of shoppers) say they are likely to use coupons accessed online.”

No wonder newspapers are stuffed with all those inserts and circulars. In addition to being one of the only remaining revenue sources for newspaper publishers, most shoppers report that they actually use them. Who are these shoppers? The same IRI study found that nearly one out of every four newspaper-coupon clippers is likely to be age 65+. That means three of every four are under 65!

For a whole variety of reasons, coupons are shifting online. Q Interactive found that as the recession has worn on and as more people are more comfortable online, online coupon usage has increased significantly:

“From July to October 2008, consumers printed an average of 477,000 coupons per month at Q Interactive's online coupon site Cool­Savings.com, a 33% increase over the first six months of 2008, and a 124% increase compared to the monthly average for the full year of 2007.”

According to Q Interactive, Google has an application that lets the user scan a barcode in a store into their phone, press a button and search for comparison prices at nearby stores. This app would seem to work best for categories that people are willing to shop around for - more expensive goods or where the risk of getting it wrong is high. In other words, not groceries, where we know people tend to go to the same store(s) for the vast majority of their purchases. Rarely is a coupon worth an extra trip to another, less familiar grocery store.

Cellfire is a new digital coupon service that works on consumers' Smartphones and computers and is relevant to grocery and specialty retail. Kroger frequent shoppers can link their grocery savings card to their Cellfire account, and the coupons they select are immediately loaded to their grocery savings card. The coupons are applied automatically on qualifying items and reflected on the receipt at checkout when the card is presented. Once a coupon is used or expires, it's automatically removed from the Cellfire account. Sounds a lot more complicated than Safeway's program - all a shopper needs is to sign up, have a phone number, and purchase anything the retailer has on special for its loyalty program members.

For groceries, some time soon, we’ll be able to retrieve coupons on our Smartphones and have scanners read them at checkout just like they read paper coupons today. In this scenario, where does the equity flow – to the brand whose coupon I just redeemed so easily? To the retailer who accepted the digital coupon? Or to the app or the device that brought me the coupon and allowed me to avoid having to cut it out or remember to bring it with me to the store?

Each player in this story has its own customer purchase funnel at work. Online and newspaper based coupons are effective at driving trial for food and CPG brands (including store brands). New services related to digital coupons may build loyalty for the device and application developers, not the product or store.

IRI speculates that "we’ll be seeing CPG manufacturers using online coupons to court a new generation of consumers and build loyalty during these cost-conscious times.” I suspect online coupons will build awareness and trial among a new generation of consumers, and increase their loyalty to their Smartphones!

Locally Grown Food - 3 Steps to Get the Word Out

Before a recent business trip, I bought a bottle of Crystal Geyer spring water at the airport. Nothing terribly remarkable about that…until I looked at the label. Since I’ve been doing a lot of packaging work lately for CPG brands, I took special note of the label on the water bottle. And that’s when I saw it – my bottle was “By CG Roxane”. Not only that – it was bottled “at the CG Roxane Source in Olancha, California, in the California Sierra Nevada Mountains.” In case I didn’t know where that was (which I didn’t) there was a map showing Olancha, CA near Mt. Whitney.

I’ve written before about the local movement relative to fresh produce. USDA and others are careful to point out that locally grown food is not necessarily safer than food from farther away. But it seems consumers are not satisfied with government assurances about the safety of the food supply in general, and they like the greater ripeness that sourcing produce locally affords. In some respects, “Local” has become short-hand for “Safer” and "Better."

The trend is accelerating and taking on new meaning. QSR Magazine’s May 18 issue reported on Chipotle Mexican Grill’s move to source some of the produce used in its 800+ restaurants locally. The story reports that Chipotle:

“will expand its local produce program this summer, purchasing at least 35 percent of at least one bulk produce item in all of its restaurants from local farmers when it is seasonally available. This represents a 10 percent increase over last year's program, the first of its kind for any national restaurant chain.

"Under its local produce program, Chipotle expects to have more than 25 local farms in its network that will supply some of the romaine lettuce, green bell peppers, jalapeno peppers, red onions and/or oregano served at the 860-plus Chipotle restaurants nationwide."

What’s new is that the trend toward knowing where our food comes from is extending beyond fresh produce to other categories. My bottle of Crystal Geyser is one example. Another is from last week's USA Today, which reported the launch of the Frito Lay’s campaign promoting the:

“80 local farmers from 27 states who grow the potatoes used to make its Lay’s potato chips. “Lay’s Local” is the brand’s biggest 2009 campaign, featuring 40,000 in-store displays customized for each state…Ads and regional store displays announce that the product is “locally in Texas.”

At the same time, Atlantic Monthly’s current issue (May 2009) features a story about the trend to locally grown meat. Apparently, lamb is among the winners here. As Corby Kummer, an Atlantic senior editor and the curator of the food channel on theatlantic.com, reports:

“Lamb offers several advantages to the budding locavore. Sheep are easier to raise and require less pasture than cattle, so aside from poultry and pork, lamb is the local meat you’re likeliest to find from small farms.”

What’s behind this drive to know the source of our food? Perceptions about safety and freshness are clearly part of the motivation. Sustainability and carbon footprint may also be factors. In today’s virtual world, interest in local sources may also be a quest for personal connection to a time and place.

Twitter can help smart marketers capitalize on this seemingly growing desire to know where our food is from, and get around the systems integration required to make real-time inventory information available online. Here are 3 steps for food marketers:

1. Set yourself up on Twitter using your brand name and the relevant geography you serve.
   
   
2. Tweet a few items that are new and / or particularly fresh or locally sourced each day, and where they're from.
   
   
3. Invite people to contact you to find out if you have what they’re looking for.
   

Millennial Gamers Brand Loyal?

For today’s teenage boys (and everyone around them), the array of gaming platforms and games is dizzying. There used to be one dominant brand – Nintendo, Activision or Sega, depending on the year. Now there are multiple, rival, strong brands, and multiple generations or line extensions that coexist instead of being phased out, and online as well as in-person play options. Ebay and other auction sites ensure that old formats never really die, they just get traded online. Similarly, Game Stop and Amazon, among others provide access to a national market for buying and selling used games.

Mobile gamers are the top of the gaming pyramid. According to a just-released study by AT&T Wireless and PopCap Games:

“86% of mobile gamers also play video games on one or more other devices. The most popular gaming devices among mobile gamers, other than mobile phones, were: Computer (76%); Console: (41%); and Handheld game device (24%). Fully 17% of mobile gamers consider their mobile phone to be their primary device for playing video games. Among all mobile phone gamers, 53% signified their desktop or laptop computer, and 23% indicated their video game console, as the device on which they play games most often."

As a result, gaming households now have a crazy variety of gaming hardware. In our 2-millennial home, we have Mac computers, a Wii Fit that was a Mother’s Day gift this year (but not a regular gaming Wii), a Playstation 3 that we use to watch BlueRay movies as well as play games, and an XBOX360 but without the internet hookup (for now, until Netflix comes adds more movies to its on-demand offering to make getting online worthwhile), all of which were purchased new. In the last year, our 13-year old son sold his PS2 online and bought a used GameCube and a used GameBoy. And thanks to him, I now have PacMan on my iPhone.

I asked him why he wanted the GameCube and the GameBoy – “because the games are cool.” Same for the PS3. And the XBOX360. He likes the games. It seems that the creation of format-exclusive games has fueled the growth, sustained the proliferation, and enabled the coexistence of multiple gaming platforms. Among 13 year-old boys, news about cool new games travels by word of mouth. These young guys go to each other’s houses to play, and learn about games from one another.

In fact, it appears that for some gamers, exposure to a game on one platform is a factor in their decision to buy it in another. For others, reviews are key. The AT&T-PopCap study found that:

“When making the decision to purchase a game for their mobile phone, women are twice as likely (28% vs. 14% of men) to do so based on having played the game in question on another device such as a computer. Conversely, 30% of males indicated that printed or online reviews factor into their mobile game purchasing decision, compared to just 8% of females."

Millennials play the field when it comes to gaming platforms. EA’s right – it’s in the game.

3 Ways For Local Businesses To Benefit From Being Community Insiders

Being a believer in having a vibrant local business community, I want to support our town’s local businesses whenever I can. Recently, I spent over 3 hours at a recent Business Task Force meeting discussing ways to increase the vitality of our local economy. Putting my money where my mouth is, I set out last weekend with my 17 year-old daughter to run pre-prom errands as much in town as possible. We had the dress but needed it hemmed, needed a slip and had to schedule appointments for hair and makeup before the big event.

First order of business was getting the dress hemmed. In our town, there are several dry cleaners that do alterations. We went to the most exclusive one first and struck out. We struck out again at the number 2 provider. Apparently, people in our town only need their clothes altered on weekdays. Neither store had any one on site on a Saturday morning to pin the hem.

With two strikes against us and determined not to strike out on the dress-related errand front, we abandoned our local businesses and set off to Nordstrom at the nearby mall. They didn’t have the slip we wanted, but offered to order it and ship it directly to our home at no charge. Great service!

Next, we asked in a tentative voice if they would hem a dress that had not been purchased at the store. The timid associate who helped us with the slip asked a colleague and was told “no.” It seemed to us that the colleague hadn’t actually listened to the question – we asked our timid associate to ask the department manager. We got the answer we were hoping for, and the alterations lady appeared on the spot! Nordstrom has always gotten service. And they understand their customers’ lives. Score one for the Seattle chain store!

When it came to the hair and makeup appointments, we again went local. Here, the providers were far more tuned-in than the dry cleaners. We found a few who were willing or even planning to come in on Sunday (our high school’s prom is always on Sunday night, for some reason). One enterprising salon had created a Prom Special, a package deal for hair and makeup. Smart marketers at work!

What’s up with the alterations people? What can other local businesses learn from these vignettes? Here are three ways local businesses (providers of products and services) can take advantage of the fact that they are community insiders:

1. Make your services available when people in your town are likely to use them. Whether it’s the seamstress at the dry cleaner’s or the local coffee house, if you’re not available when potential customers are about, you’re not only missing a revenue opportunity you’re risking falling off the community’s radar. The last show at our local movie theater usually gets out around 11 pm. Almost all of the stores in town close at 6 and most restaurants and coffee houses close at 9. Affluent people are strolling back to their cars with nowhere to linger. Give them an opportunity to come in and buy something!
   
   
2. Make it your business to know what’s going on in your town, and tailor your offerings for local needs, tastes and events. Unlike command-and-control chain stores, local businesses can be more nimble. As the hair salons in my Sunday prom story show, being tuned into the local community can give local merchants an edge on the competition in the surrounding area. By offering specialized products and services (e.g., hair and makeup for the prom or box lunches for the mountain play every Sunday in June), they earn incremental revenue and as importantly, they motivate residents to give them a try when they might not otherwise, and have an opportunity to turn them into more frequent customers.
   
   
3. Help consumers extend the useful life of their purchases. As sustainability grows in appeal and shoppers become ever more frugal, interest in maintaining and repairing clothes and other items rather than simply replacing them is already on the increase. Expect it to continue. Being known as the place that can help people to get more use out of their clothing is on-trend and personal. It's more natural for a local business to provide these services.
   

Smart seamstresses will see an opportunity to help consumers make their clothing last, and will make themselves available to fit their schedules. Those who don’t figure it out will continue to reduce their hours until they are no longer in business, unless Nordstrom drives them out of business first.

Is Price the only ‘P’ that Matters Now?

As consumers and retailers settle into the new frugality, IRI reported last week on the emergence of a new generation of Americans – the Downturn Generation. As shoppers, this generation is adopting practices similar to Depression-era shoppers, implemented both to weather the recession and to keep a close eye on spending long after the recession ends. This marks a dramatic change in how consumers shop and what they buy.

When people lose their jobs, they value their time differently. In today’s economy, convenience-based value propositions are losing their appeal as people are repricing their free time. In fact, IRI found that “65% of shoppers reported that price is becoming more important than convenience in their purchases."

But how do they know when a price is a good deal. In conversations with homeowners in December, it was clear that they are well-aware of the current price of items they buy regularly. Under those circumstances, consumers are generally able to evaluate an offer, and know when they are being overcharged. This may be changing.

A recent NY Times article about today’s consumer mindset the title of which says it all: “Never Mind What It Costs. Can I Get 70% Off?” The point of the story is that consumers are numb to 50% off offers, giving rise to a vicious cycle of discounting to motivate a purchase. Trouble is, this type of downward price spiral does not build loyalty. In fact, it’s the opposite of loyalty – it rewards customers for being fickle. And it requires retailers to reorient their value chain to make up for what they lose on the top line by selling more. While many have famously claimed “we’ll make it up on volume,” few have actually succeeded.

Enter Starbucks into the fray. The brand that brought us the idea - if not the reality - of the Italian café experience, has been criticized for the high price of its lattes and is under siege from McDonald’s and Dunkin’ Donuts, among others. Last weekend, the retailer began a campaign to combat extreme price pressure and the media blitz behind McDonald’s McCafe launch. The campaign warns readers to “Beware of a cheaper cup of coffee. It comes with a price.” According to Starbucks CMO Terry Davenport and reported in an article in the May 1 issue of AdAge, “The ads lay out facts that separate Starbucks from the competition, such as its practice of buying fair-trade beans and providing health care for employees who work more than 20 hours a week.”

Are people today more sensitive to the need for worker benefits like health insurance? Do mass market consumers value the fact that Starbucks provides coverage to part time workers? Do they make the connection between the price they pay and the company’s ability to afford coverage? Two years ago, the answers would have been “no.” Starbucks is making us connect the dots between our values and our willingness to pay. It may give us a chance to see whether this recession has changed these perceptions. Kudos to Starbucks for trying.

4 Things Retailers Need to Know About Millennials

From the impact they are having on politics to their effect on the ways we communicate to how they are influencing every category of consumption to their spending and savings habits - Millennials are a force to be reckoned with. They are social. They want to be engaged. They seek authenticity and sophistication. Experiences that deliver will earn their loyalty.

The Economist Intelligence Unit conducted a study of Millennials last year and found that business executives believe them to care little about price, and most about convenience, style, taste, and peer recommendations. Are they right? Even when it comes to wine, recent research by Mintel/Simmons and the Wine Council shows that Millennials are different.

Here are key takeaways on what retailers need to know about millennials:

• They want to be in the know: Millennials who drink wine are twice as likely to belong to a wine club (20%) and to drink at wine bars in the past three months (38%) than older groups, (Wine Council).
  
  
• They want sophistication: Forty-one percent of Millennials who drink wine say they drink imported wine most often vs. only 24% of Boomers and 31% of Gen X'ers. For example 31% of Millennials have drunk a wine from NZ, compared to only 15% of Gen X'ers (Wine Council). And 40% percent of 25-34 year olds agree that more expensive wine tastes better compared to 31% of adults on average. (Mintel)
  
  
• They are willing to spend more to make an impression: Millennials say they spend about $10 more per bottle than average across a wide variety of wine buying occasions. For example, Millennials say they would spend $40 on a bottle of wine for a special occasion compared to just $24 for all adults. (Mintel)
  
  
• They value authentic experiences when they shop: Millennials are much more likely to purchase wine at a winery (33%), specialty liquor store (40%) or gourmet food store (20%). (Mintel)
  

Wine is a favorite discussion topic on Yelp, a vibrant millennial community. A quick review of the listings for San Francisco reveals a beehive of millennial (and other) enthusiasts advising one another on the pros and cons of different wineries, wine stores, wine clubs, and restaurant wine lists. Here's an entry by sascha "just let me" b. from March 20, 2009:

Berna, I do one of the K&L clubs (champagne) as well as the monthly club with Plumpjack. I enjoy them both for the fun of having new and interesting wines selected for me that I wouldn't necessarily seek out (or find) on my own. I think that K&L has some good buyers --- which is the key to a good club --- and PJs has a great buyer as well. Do I always like every wine? No. Am I always satisfied? Pretty much. The value is there, and if you can budget the guaranteed $40-$50 a month, it's a lot of fun, and will expand your wine horizons no matter what club you go with.

I also do some winery clubs, but that is a different value proposition: you're only getting one winery's output, and you better make fer dam sure that you know and like the winemaker's style and vision.

The headline for retailers trying to engage Millennials – make it real and create opportunities for Millennials to study up on your category, and to share their knowledge. Help them show they're in the know!

For food and drink marketers wanting a more intimate understanding of millennials, check out Brand Amplitude's upcoming proprietary study of millennial trendsetters, food and wine.

Too Cheap to be Good? It Can Happen in Food

The recession grinds on and people continue looking for ways to save. Meanwhile, brands are trying to entice new customers to give them a try and to get past customers to buy again. Discounting is rampant in cars, shoes, hamburgers, cruise vacations, the high end, the low end – pretty much all around us.

The LA Times reported last week on the Fast Food Wars. Both KFC and Pollo Loco were giving away free food -- to introduce new products in KFC’s case and to increase trial in the case of Pollo Loco.

As the article points out, it’s not clear how attractive the customers are that find heavily discounted or free offers appealing. Here’s a flash – they tend not to be brand loyal. This may seem obvious, but the path to retail bankruptcy is littered with brands that were going to make it up on volume.

It's not only likely that KFC and Pollo Loco are attracting unprofitable customers. In addition, they may be turning off their loyal customers by devaluing their offering. And the potential lost revenues from these loyal customers are far greater than the potential gains from switchers gained through low price promotions.

Recent research with consumers, we found that there is a price below which people become suspicious of product quality. For brand-loyal canned goods customers, the magic number is $1.00. Below a dollar/can, these shoppers suspect the product can’t be any good. They buy the brands they buy and pay what they cost because they think they’re better. That’s one of the main advantages of having brands.

How does that jive with recent reports from Procter and Gamble that volume is off for major brands like Tide and Swiffer? To state the obvious: Food is not a cleaning product. Consumers may be willing to cut back on the latter before they cut back on the former. Second, there is something potentially nostalgic about canned goods. It’s possible consumers are stocking up on them as a way to reconnect with simpler times. Another possibility: smart home chefs are using canned goods to bulk up their home cooking, for example adding canned olives or canned chopped tomatoes to soups or chili or pasta sauce.

Whatever the strategy, it’s worth it for retailers, including fast food chains, to pay attention. Pricing too low can lead to greater lost sales than pricing too high.