The Value of Relevance Marketing in Retail

Transcription

1 The Value of Relevance Marketing in Retail How much is a personalised marketing approach really worth to a retailer in terms of increased response and sales? We look at the figures to examine the true potential value... The Retail Personalisation Experts Blue Bridge Solutions Ltd, October

2 Personalised Marketing a retailer s secret weapon In today s busy, noisy, digital age amplifying your brand voice requires far more than retail intuition and marketing flair. It requires customer data and insight to fuel a deep understanding of how each and every customer thinks, acts and behaves. However, while the concept of using data to drive marketing relevance has been well documented, the enormous commercial benefits attached to personalised marketing are often overlooked. This white paper uses published figures on response rates to show how multichannel or specialist online retailers can benefit from adopting a more consumer relevant approach. The results are game changing and have the potential to increase retail revenues by 18% + Marketing Cross selling Customer Insight - The Background Facts Enhancing multichannel consumer experience In-store behaviour analysis Sentiment analysis Location Based Marketing Customer micro-segmentation According to trusted specialists McKinsey Global Institute, companies using insight data to increase their relevancy can increase operating margins by more than 60% 1. This data can lever growth across different enterprise functions and be used to help cross-sell and upsell, to facilitate locationbased marketing and improve relevancy through micro-segmenting. Within merchandising the report suggests that data can lever growth by as much as 40% by helping to influence store format, optimize assortment and reduce the SKU. In marketing it can create a 10-30% uplift in operating margins. McKinsey Global Institute identified 9 retail data levers in Marketing and Merchandising: Merchandising Pricing optimisation Assortment optimisation Placement and design optimisation

3 Our Simulated Retailer Using a typical 50m turnover multichannel retailer with approximately 200,000 customers we have simulated the level of financial return a retailer might receive by adopting a personalised approach through the use of , web and mobile personalisation. Our simulated retailer is as follows: Annual sales turnover: 50m No. of customers: 200,000 Annual average spend per customer: Average customer transactions per year: Average spend per transaction (in store or online): Top 20% customers spend / customer/annum: Split between online and in-store: No. of s sent per month to customers: %/80% 4 Blue Bridge Solutions Ltd, October

4 Let s start by considering . Today, the inbox is a battlefield with the average person receiving commercial messages a month. Using big data to create targeted, personalised campaigns doesn t just increase open and click rates, it affects conversion, which can have a big impact on a company s bottom line. The following chart uses benchmark figures for standard conversion to demonstrate what is achievable using personalisation. Imagine if we could increase conversion to 1% - this would equate to increasing sales from 24,000 to 400,000 per month. Annually this would equate to an increase of 4.8m in revenue. An increase in sales conversions to 1%, increases monthly revenues as follows: 24,000 3 Sales conversion per % Transactions per Transactions per month: 480 Value per month: 24,000 3 Experian quarterly benchmark study Sales conversion per 1% Transactions per 2,000 Transactions per month: 8,000 Value per month: 400, ,000 No Personalisation Personalised

5 The Cost of Irrelevance 22% of Internet users stopped purchasing from a company due to too many irrelevant s Despite the clear advantages that using customer data offers to both the retailer and consumer, The Four Futures: The Digital Loyalty Survey found that consumers were concerned about the rising volume and irrelevancy of marketing messages. They also felt they were not receiving the rewards they expect for the data they provide. 4 Research by the CMO Council has found that 22% 5 of internet users stopped purchasing from a company due to too many or irrelevant s. Additional benchmark data from 2013 shows that 0.12% 3 of recipients unsubscribe for each broadcast sent. A retailer carpet bombing its database of customers with anything from 4 to 6 s per month would therefore lose at least 8% of its potential base. For our example retailer this equates to around 11,500 customers. If 50% of these customers become completely disengaged with the whole retail brand experience and decide to opt out of the brand altogether this could be worth as much as 2.8m in lost revenue. Personalising s might not eliminate unsubscribes completely, however it s acknowledged within the retail industry that it could potentially recoup over 1.4m in lost sales. This demonstrates that while the initial expense of sending thousands of indiscriminate s may be minimal (certainly when compared to traditional DM), irrelevant s cost a business a sizable sum. 8% unsubscribes = Up to 2.8m in lost customer revenue

6 One area highlighted with the McKinsey report was the ability to boost average order values within ecommerce through cross-selling. Used correctly, cross-selling through online personal recommendations is a particular beneficiary of customer insight, helping to increase conversion rates and the average order value. ecommerce This level of ecommerce personalisation, whilst in its infancy, will revolutionise the way that consumers use ecommerce websites, benefiting both the consumer and retailer. Again early indications suggest that retailers can benefit from at least of 19% uplift in order valued through personalisation 7. So web personalisation could account for at least a 19% uplift on ecommerce sales and for our example company would raise online sales by an additional 1.9m, lifting overall annual revenue by 3.8%. Research firms estimate that 15% of online adults in the US have purchased a recommended product. Interestingly, 70% of Amazon s homepage is devoted to product recommendations, with Amazon once reporting that 30% of sales were due to recommendations. According to a survey conducted by Forrester Research, the uplift potential on the average online order value through relevant recommendation is as much as 50%. 6 However, ecommerce optimisation doesn t stop at recommendation. Ideally an ecommerce website should be tailored to each and every visitor to reflect their purchase preferences and browsing behaviours million 19% increase in online sales 50 million

7 Promotions and Pricing % wasted on unnecessary price reduction? % motivated by price reductions? Every day, a retailer s customers are influenced in their shopping behaviour by a whole range of market stimuli. However, for retailers the most commonly used stimuli are those of price and promotion, which are seen as an essential part of any category sales plan. Whilst a good deal of focus is placed on organising price changes and product promotions, little attention is paid to maximising the sales value from these events. Given that not everyone responds to a promotion in the same way or is necessarily motivated by them, using promotions indiscriminately wastes money. For example, customers who aren t motivated by price and who would buy at full price get an unnecessary discount, whilst the things that really entice them to buy, such as a better service, are missed. Smarter analysis and deeper segmentation can be used to drive targeted promotional campaigns that motivate the right audience. 3,000,000 The measurable commercial effect of this is a saving on the costs of the promotion. In addition, it can be used as a target tool to re-encourage price sensitive shoppers back into the store. For instance, let s imagine 50% of your customers are price sensitive. In other words, their purchasing history indicates they are more likely to buy if discounts or other price incentives are offered. In such cases, it makes sense to segment the deal seekers from those unmotivated by such offers and to only target the offer to them. The other 50% may buy the product undiscounted, leading to a needless loss of revenue. 2,500,000 2,000,000 1,500,000 1,000,000 For the sake of the case example, if promotions during the year cost the 500,000 equivalent of 5% of revenue or 2.5million this cost could potentially be cut in half for the same sales effect through more effective targeting million saving

8 Overall Commercial Value of Relevance This paper has only looked at a few ways in which data insight can increase sales. However, by increasing the relevance of , ecommerce and promotions alone our example retailer could raise its overall sales figure from 50m to 58m, and make savings of 1. 25m an increase of 18%. +18% Increase in Revenue Clearly these results depend on a range of factors including product mix, customer numbers and average basket size. However, this simple analysis would suggest that any retailer would be missing a huge opportunity by not evaluating more fully the commercial effect of increasing the relevance of marketing programmes. That said, the method in which the data is extracted is as important as the data itself. For businesses outsourcing elements of their marketing to third parties, any data and insights derived from one communication channel can be unreliable. Such isolated findings fail to deliver the insight needed to understand customer behaviour across, for example, a cross-channel campaign. In addition, while the outsourced agency may have a reasonable grasp of the client s business, it may not have sufficient understanding to translate those findings into meaningful data. And if the data isn t accurate, what s the point? Accrued and used effectively, however, this customer data can be a game-changer, helping to create goodwill, increase loyalty and connect humans with a brand in a way experience and intuition alone can t. And when you consider the value of relevance, utilising customer data effectively makes absolute financial sense.

9 How we worked it out... Our 50m example retailer therefore could benefit in the following ways:- A 1% conversion rate gives an increase in sales of 4.8m per anum Reducing the rate of unsubscribed s could result in an additional 1.4m per annum in sales Find out more Contact us to find out more about how personalised marketing could increase revenues for your retail business: +44 (0) enquiries@bluebridgeltd.com Ecommerce personalisation raises online sales by 19% nets 1.9m per annum Relevant targeting of pricing and promotions cost saving of 1.25m per annum Additional revenue:- 8.1m Cost savings:- 1.25m Net effect: Increase of 9.35m This is an 18% increase References 1. business_technology/ big_data_the_next_frontier_for_innovation 2. inbox-is-a-battlefield-infographic 3. Experian Quarterly benchmark study Aimia_Whitepaper_FourFutures_DigitalLoyaltySurvey. pdf 5. CMO Council survey (2010) intelligence/2013/04/ marketers_missing_trick_with_online_personalisation.php Blue Bridge Solutions Ltd, October