BEYOND PERSONALISATION European retailers perspective on contextual marketing
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1 An executive summary from The Economist Intelligence Unit BEYOND PERSONALISATION European retailers perspective on contextual marketing Retailers are at the sharp end of the digital revolution. Once, their competition was limited to nearby rivals. Now, thanks to the Internet, their customers can buy from companies all around the world. In the past, their direct interaction with buyers gave retailers unique insights into customer profiles and preferences. Since then, digital technology has given all kinds of companies a view into their customers buying behaviour. As a result, many retailers are keen to adopt and adapt digital capabilities to ensure that they remain relevant. This means finding an optimal balance of digital and in-store experiences that engage customers and increase profitability. Digital marketing is a crucial component of this and using digital channels to understand and engage with customers is certain to be part of the mix. An emerging trend in digital marketing is the use of contextual information, such as the current location, behaviour or mood of a customer or a prospect, to deliver more relevant and effective marketing communications. Bill Brand, president and chief marketing officer of US broadcast retail network HSN, describes contextual marketing as the next step in a progression from mass marketing to segmentation, personalisation, and finally contextual or what I call in-the-moment marketing. To investigate the use of contextual marketing in Europe, The Economist Intelligence Unit (EIU), in a project sponsored by SAP, conducted a survey of west European chief marketing officers, 50% of whom were from retail companies, as well as interviews with a series of marketing executives from across the region. Our research identified that west European retailers, like their peers in other sectors, are eager to build a deeper understanding of, and engagement with, existing customers and to make their interactions with prospects more Sponsored by:
2 relevant. They are more likely than companies in other industries to collect contextual information through channels such as social media and mobile apps, which have the potential to provide deeper contextual insights than older digital channels. And yet, much of the contextual information that retailers collect goes unused. The organisational challenges they face such as developing marketing messages that are effective in particular contexts and hiring the required technical and creative skills are apparently holding them back from exploiting contextual information to the full. While they are aware of the dangers of overstepping the mark by misusing contextual marketing techniques in such a way as to make customers and prospects feel uncomfortable, there is an opportunity to achieve greater insight and relevance, and retailers would be wise to learn how to use it effectively. 2 The Economist Intelligence Unit Limited 2015
3 1 The retail marketing agenda The primary goal for west European marketing executives, in the retail sector as in other industries, is to improve awareness and perception of their company s brand. Nearly six out of ten (58%) survey respondents from retail companies list this among their top strategic marketing priorities. As retail becomes increasingly digital and the advantage of wellpositioned stores dissipates, having a well-known and trusted brand becomes vital. Beyond the brand, European marketing executives are keen to deepen their understanding of customers, to improve engagement and to make their interactions with prospects more relevant. This is not to suggest that west European retailers do not already have a good understanding of customers. For example, 69% of respondents from retail companies say they understand how satisfied customers are with their products and services, and 65% claim to know how this could be improved, thanks to information gleaned through their current marketing channels. Nevertheless, retailers are especially likely Chart 1 Which of the following are currently your top strategic marketing priorities? (% of respondents) Improving awareness and perception of our brand(s) Understanding our customers better Increasing customer engagement (e.g. interaction on social media) Improving customer loyalty Improving the customer experience Improving return on investment of marketing activities Becoming more cost effective Ensuring our marketing staff have the right skills for our current and future activities Retail Non-retail Source: The Economist Intelligence Unit. The Economist Intelligence Unit Limited
4 to identify improving their understanding of customers as a strategic priority (45%, versus 36% non-retail). Similarly, retail marketing executives are confident that their marketing communications with customers are well received: 51% believe that customers are happy with the way their organisation interacts with them, and 15% even think customers would like more interaction. Nevertheless, 43% regard improving customer engagement as a strategic priority. This suggests that while customers may be happy with the way companies interact with them, the companies themselves are not happy with the response they receive. By contrast, retail marketing executives accept that their interactions with prospects could be significantly improved. Only 22% believe that prospects are happy with the way their organisation interacts with them, while 33% believe that prospects want those interactions to be more relevant. Beyond the objective to strengthen their brand, therefore, west European marketers feel the need for a more intimate understanding of customers and prospects, so that they can deepen their engagement and improve their relevance. 4 The Economist Intelligence Unit Limited 2015
5 2 Collecting contextual information Given these strategic priorities, it is not surprising to learn that many retailers are making use of contextual information for marketing purposes. One example is the Dutch e-commerce giant Wehkamp.nl, which uses contextual cues such as buying intention to identify where on the marketing funnel a prospect resides, and therefore to target relevant marketing content. We use contextual marketing to know where customers are in the funnel and use different techniques to orient them to our brand or to inspire them, explains Alex Bloemendal, e-commerce manager at the company. If a customer arrives on our website via a category page, it shows interest in that category. If we target [that category] in the newsletter and he or she interacts, we know there is interest. If they visit the product page for the fifth time, we know he or she wants it and can do a retargeting campaign for that product. Not all retailers are so advanced, but many are collecting contextual information. Indeed, retailers surveyed by The EIU collect a more diverse and sophisticated array of contextual information than the average company in other industries. Chart 2 Website Social media Which of the following channels do you routinely use to collect contextual information about customers? (% of respondents) In store personnel Mobile applications Channel partners Third party sources e.g. media partners, data aggregators Source: The Economist Intelligence Unit Retail Non-retail The Economist Intelligence Unit Limited
6 They are considerably more likely to use social media (83% versus 31% among non-retailers) and mobile applications (68% versus 34%) to collect contextual information. One might have thought that retailers would have less need to use these more recent digital channels, given their bricks-and-mortar outlets, but this is not so. When it comes to contextual marketing, social media and mobile applications are not just extra channels like any other. By their nature, they provide greater depth of contextual insight than has previously been available to marketers. Mobile applications (as well as mobile websites) can reveal an individual s precise location for example, whether they are in a store at a given moment in time while social media reveal what they talk about and who their friends are. The fact that retailers are more advanced in their use of these sources reflects their eagerness to adopt digital practices in response to intense competition from Internet-based rivals. 6 The Economist Intelligence Unit Limited 2015
7 3 How retailers use contextual information or not Retailers are using contextual information, to some degree, in a variety of ways. The most common application of contextual information among west European retailers is communication with prospects, as identified by 65% of respondents. This means they are using contextual cues to decide when and how to reach out to potential customers. This could include anything from search-engine advertising to location-based promotions. Meanwhile, 59% use it to communicate with current customers. The opportunities for using contextual marketing are greater for current customers, as a retailer typically has more information about them. According to Thomas Bay, international marketing manager at Danish fashion brand Vero Moda, which sells through its own outlets and online as well through channel partners, contextual marketing is especially relevant for younger customers. The younger market expects to see information when they want it, he says. We try to be relevant at the right point in time, to give them information they find inspiring. Substantially fewer respondents from the retail sector (51%) use contextual information to identify prospective customers than those from other industries (66%). This could be an indication that retailers have less of a requirement to identify new prospects as their physical stores help to attract new custom, but it also suggests that there may be more for them to learn. Chart 3 What contextual information do you routinely collect and use about your customers? (% of respondents) Currently collect and use for marketing Currently collect but don t use for marketing Don t collect but would be useful for marketing Don t collect and would not be useful for marketing Don't know/not applicable Their current location What they are currently doing (excluding online behaviour) 38 Their current online behaviour 35 Current personal interests 35 What they are currently planning to do 23 Who their friends are/who they are with How they are currently feeling Source: The Economist Intelligence Unit. The Economist Intelligence Unit Limited
8 However, despite their desire for a deeper understanding of their customers and prospects and the relatively wide variety of contextual information sources they use, much of the contextual information they collect is left unused for marketing purposes. For example, 80% of retail respondents say they collect information about a customer s current behaviour, but only 38% use it for marketing purposes. A surprising proportion 45% collect information about a customer s current mood, but only 22% use it. So what is preventing retailers from using the contextual information they collect? 8 The Economist Intelligence Unit Limited 2015
9 4 The challenges and risks of contextual marketing When asked to identify the greatest challenges associated with contextual marketing, 52% of retail marketing executives identify producing messages that work in particular contexts. Communicating effectively in context has both technical and creative components. Contextually relevant messages must of course be generated automatically, as the situations they address are transient, but they must also inspire the customer or prospect to take action. Hence recruiting the creative skills required by contextual marketing is a key challenge for almost as many respondents (47%) as hiring the necessary technical skills (50%). For Vero Moda s Mr Bay, the main barrier to using contextual marketing is finding the time to analyse and interpret contextual information that is collected. The more work you put into it, the better the result, but the challenge is the time, he explains. There is so much data; being able to sort through that and understand what is important makes this complex. Chart 4 Which of the following do you consider to be the greatest risk associated with contextual information? (% of respondents) Producing messages that are effective in particular contexts Encouraging customers and prospects to share contextual information Hiring the technical skills required by contextual marketing Hiring the creative skills required by contextual marketing Respecting customer privacy Identifying relevant contexts in which to target customers Measuring the success of contextual marketing campaigns Adapting our marketing/campaign processes to incorporate contextual marketing 10 7 Source: The Economist Intelligence Unit Retail Non-retail The Economist Intelligence Unit Limited
10 For other companies, it is a matter of resources. The Italian co-operative supermarket Coop Nord Ovest has ambitions to make greater use of its customer data to provide more targeted advertising and promotions. We estimate that to make it work well, we would need 20 people to work on it every day, explains Claudio Marenco, the organisation s head of promotion advertising and loyalty. Right now, we have only one person who works on this part-time. That is one reason why we can t start yet. The proportion of retail marketing executives who say that respecting customer privacy is one of the greatest challenges of contextual marketing is higher in the retail sector (37%) than in other industries (30%), but it is still the minority. However, one-half of retail respondents say that encouraging customers to share contextual information is a key challenge, and one-quarter believe that damaging the brand by making customers feel uncomfortable is the biggest risk associated with contextual marketing. Both these findings highlight the need to operate within the boundaries of what customers accept and are comfortable with. It is possible to get too personal, says Mr Bay. If it feels like we re sitting in their living room, it s creepy. Wehkamp.nl s Mr Bloemendal adds that customers are increasingly taking control of the data that marketers collect about them. If companies abuse their trust or intrude on their privacy, they will withdraw their data. The more people opt out of cookies, the less information we have. Given the strategic importance they place on maintaining their brand reputation, it is clear that retail marketers are reluctant to create negative associations among their customers by overstepping the mark with contextual marketing. 10 The Economist Intelligence Unit Limited 2015
11 Conclusion Marketing executives in the retail sector, like their peers in other industries, believe that they have a good understanding of their customers. But they nevertheless wish to deepen that understanding further, and they acknowledge the need for more relevant communications with prospective customers. They often have the raw material for a deeper, more contextual view of their customer base that looks beyond who they are, how they behave, and how a company s products and services might fit into their lives. In particular, they are using a more diverse range of contextual information sources, including social media and mobile applications. activities, much of it is going unused. Retailers are struggling to find the right messages to use in particular contexts, due in part at least to the difficulty of recruiting the required skills. They are also aware of the danger of making customers feel uncomfortable through misused contextual marketing. This is to be expected contextual marketing is still an emerging practice, and marketers do not want to tarnish their reputation by overstepping the mark. But if retail marketing executives wish to achieve that deeper understanding of their customers, a bit of considered experimentation to find marketing messages that work in context could set them on the right path. But while the contextual information they collect is being applied to a wide range of marketing The Economist Intelligence Unit Limited
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