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Beyond the Aisle: Where Consumer Packaged Goods Brands Meet Technology to Drive Business Results Tim Ross Published by SolutionSet at Smashwords Copyright © 2012 Tim Ross Smashwords Edition, License Notes Thank you for downloading this free ebook. Although this is a free book, it remains the copyrighted property of the author, and may not be reproduced, copied and distributed for commercial or non-commercial purposes. If you enjoyed this book, please encourage your friends to download their own copy at Smashwords.com, where they can also discover other works by this author. Thank you for your support. Beyond the Aisle: Where Consumer Packaged Goods Brands Meet Technology to Drive Business Results Dedication To Gloria, Maddie, and Allie who make everything in my life better Acknowledgements I would like to thank a number of people without whom this book would not be possible. HMI’ers Zain Raj, Paul Kramer, and Peter Cloutier taught me about the CPG business and the marketing problems web, mobile and social technologies could solve. SolutionSet’ers Alex Kaplinsky, Frank Anan, Robert Balmaseda, Dave Kilimnik, Adam Trissel, and Dessy Stanley who are great partners and even better people. Chapter co-authors Joe Robinson, Stacey Rubin, Peter Cloutier, and Paul Kramer, who gave key insights and applications across strategic domains. Amy Westervelt, who for years has made me appear far smarter and more productive than I truly am. My friends and family from whom I steal many of my best ideas. Table of Contents Preface Chapter 1: Market Shifts Chapter 2: Understanding the Digital Consumer Chapter 3: Understanding Digital Marketing Chapter 4: The Benefits of Building Active Customer Communities Chapter 5: Mobile Tech and Capturing the Always-On Shopper Chapter 6: Building Customer Loyalty Through Gamification, Interactive Marketing and Rewards Programs Chapter 7: Turning Video into Value Chapter 8: Leveraging Video Analytics to Improve Everything from Customer Service to Visual Merchandising Chapter 9: Using Web CMS to Manage Not Just Content, but Brands Chapter 10: Digital May Be Different, but Content Is Still King Preface In 2012, SolutionSet, the second largest independent marketing service agency in North America and D.L. Ryan Companies, the nation’s largest independent digital, shopper, and promotional marketing agency, merged to form Hyper Marketing Incorporated (HMI). That merger didn’t just create one giant integrated marketing services company, it also brought together some key pieces of the digital marketing puzzle for consumer packaged goods (CPG) companies. With DL Ryan’s long history of working with CPG brands and SolutionSet’s experience using technology to change brands, we quickly realized we could help transform the way CPG companies leverage technology. Over the course of several months we brought our best thinkers together to look at all the different aspects of digital for CPG companies—from how they might use web systems and mobile technologies to how such strategies as gamification could help CPG companies build their brands and solidify their relationships with consumers. Those conversations led to a series of tips and articles and ultimately to this ebook, which we envision as a quick and easy primer on digital marketing for CPG companies. Enjoy! Chapter 1: Market Shifts Ten years ago, consumer packaged goods (CPG) companies had very little direct interaction with their customers. They dealt with distributors and retailers, and they had a corporate marketing team in place to tend to the company’s brand more generally, but the day-to-day relationship with consumers was left largely to retailers. And that relationship was mostly managed in person. Shoppers would head to the grocery store, coupons in hand, and browse for what they wanted. While there, they might happen across an end-cap display showcasing a two-for-one deal or someone handing out samples of some kind. Those days are largely gone. Digital technology—particularly mobile and social technology—has transformed the consumer experience in every industry. For CPG companies that means not only learning how to sell to consumers online, but also playing a bit of catch-up when it comes to digital marketing. It also means a wealth of new opportunities to reach and sell to customers. Online CPG sales were projected to reach $16 billion by 2012, according to Nielsen, up from $12 billion in 2010. Though that’s still just a fraction of the $475 billion total predicted value of the CPG market, it’s nonetheless a growing segment worth courting. The key to tapping into those consumers, and to the potential of digital more generally, lies in understanding how consumers have changed over the past several years and how marketing needs to evolve to deal with that change. First there was the initial shift to digital when people realized that it was easier to order things like giant bags of dog food online and have them delivered, rather than lugging them home from a store. Today, it goes far beyond that. Consumers can use their smart phones to find out where each piece of produce in the grocery store came from or search for particular coupons while they shop. According to Nielsen, the web is the fastest-growing CPG sales channel, with more than 10% of some categories’ sales occurring online. Although CPG companies have mostly caught up with the ecommerce side of things, many still lag behind when it comes to understanding how to market to digital consumers. Chapter 2: Understanding the Digital Consumer It’s not just the distribution channel that has changed. Customers and their whole approach to consumption have changed. Over the past decade, the way customers move through the purchasing process for any type of product or service has fundamentally shifted. Consumers have become increasingly suspicious of “push” marketing techniques—placing information in front of people in order to influence purchasing decisions—opting instead to “pull” in their own information. Today’s consumers turn more often to friends and family for advice on what to buy than a company’s website or ad campaign. In its 2010 study, “The Consumer Decision Journey,” consulting firm McKinsey posited that the traditional way of thinking about how customers make purchasing decisions—typically represented by a funnel, with consumers narrowing their decisions down over time as they are influenced by various factors—no longer bears any resemblance to the way customers make decisions. The firm’s analysts found that consumers no longer move neatly and linearly toward a purchase. At any given point, most people are only aware of a handful of brands in a given product space. However, once they decide to purchase a particular type of product—a TV, say, or a smart phone—they set about researching that category, asking friends and relatives, reading consumer and media reviews online, and (less frequently) paying attention to ads in the space. CPG companies that understand this new customer—and meet them where they’re at—stand to gain substantial market share. Those that don’t will spend the next several years looking over their shoulders at Amazon. Not only is the e-tailer setting up regional distribution centers all over the country, but it also bought Diapers.com and Soap.com in 2011, and it has been hinting at taking a bite out of the grocery industry. Customers “pull” more information these days because there’s plenty of it available and more than half the planet now has access to it. There is no end to sources of relatively unbiased information, from the running commentaries of friends on social media sites to crowd-sourced product reviews to plain old word-of-mouth suggestions. Not only have consumers become quite good at finding the information they’re looking for, but they can do so anywhere and any time. According to recent Pew research, nearly half of all Americans are smart phone users. And according to the latest comScore report, four out of five of those 85.9 million people use their smart phones to research and make retail purchases. Thanks to the proliferation of DVRs and streaming video sites, it’s becoming easier for consumers to avoid “push” messages. Consumers have always been able to avoid being influenced by web ads. As mobile ads increasingly geo-target consumers and serve up more relevant content, they are proving more effective than standard web ads. However, their peers still influence consumers more than any campaign, no matter how personalized. Then there’s the public’s widespread mistrust of advertising in general. A Forrester Research survey found that between 2002 and 2004 alone, there was a 40% drop in the number of respondents who agreed that ads were a good way to learn about new products. There was also a 59% drop in the number of respondents who had bought products because of ads, and a 49% drop in the number of respondents who said they found ads entertaining. The thing about social networks—both digital and physical—is that they constantly influence consumers. Unlike the traditional advertising paradigm, wherein the natural campaign “end” is a purchase, in today’s digital world, companies need to ensure customer satisfaction long after the purchase date or face the dip in sales that could come if customer complaints start cropping up on Twitter and Facebook. No company wants a hashtag that marries its name with the word “sucks” to start trending on Twitter. So there’s the availability of information, consumers’ ability to avoid advertising, their general mistrust of advertising, and the communal nature of the web, which lends itself to constant social influence. When you throw technological innovation into that mix—in the form of apps that tie products, information, and your Facebook page together, for example—it doesn’t take long for the masses to take it and run with it. In the past, CPG brands focused the bulk of their marketing efforts on in-store promotions and coupons. When they began to use digital channels to reach customers, CPG companies tended to cling to similar strategies, simply making them slightly more digital—coupons on a brand’s website or a push alert to consumers’ phones about a two-for-one offer. CPG brands must start looking beyond the in-store experience and begin thinking about how to interact with their customers everywhere—at home, online, in-store, on devices, and on review and social media sites where customers might share their product experiences with others. It’s no longer enough to release the occasional coupon on a brand’s Facebook page. Although such activities are worth pursuing, they’re the low-hanging fruit of digital marketing for CPG brands. Consumers expect at least that much, but to truly differentiate themselves, CPG brands need to do more. They need to connect with consumers on multiple levels by providing content and tools that are applicable to their daily lives. Gluten Freely, a site recently launched by General Mills, is a great example. The site is content-rich with plenty of info and tips on gluten-free diets, not just product information. By providing an easy portal for gluten-free consumers, General Mills has not only connected with a new market segment, but it has also created a great way to keep tabs on what sorts of products this segment is looking for —both by tracking what customers search for on the site and by providing easy ways to post questions and comments. ConAgra’s “Give Every Night New Flavor” program, launched in conjunction with several retailers, is another good model. The company created a microsite, which offered recipes and all the products needed to prepare them, built in-store displays that showcased the recipes, provided digital coupons, and advertised both online and in print. The program delivered double-digit growth in units, dollars, and profit over the prior year. Both programs highlight the importance of every part of the customer journey for CPG marketers, beyond the initial interaction or the point of sale. CPG marketing needs to happen all the time now, not just in the aisles. It also needs to provide real value to consumers, not just more ads to ignore. Marketers can no longer post the occasional digital coupon on their brand’s Facebook page, create a viral video, and call it a digital marketing strategy. Although the idea of completely rethinking how marketing is done may seem daunting at first, we’ve boiled it down to two fundamental changes: CPG marketers need to re-think how customer value is calculated, and they need to start thinking more like product managers. Chapter 3: Understanding Digital Marketing The traditional Lifetime Value Formula (LTV)—used for the past several decades to figure out marketing budgets—is being upended by the shift in how companies and customers interact. The Lifetime Value formula predicts the net profit attributable to a company’s entire relationship with a customer. The math is complicated; it takes into account churn rates and retention rates, retention costs, contribution margins, and time period. Traditionally, if the cost of acquiring customers is lower than the LTV of those customers, marketers got the go-ahead to spend more on campaigns aimed at finding new customers. Today, that’s not always a good strategy. Ideas about Customer Lifetime Value and Customer Acquisition Costs need to change because the markets they describe and predict are changing. Customers don’t want to be bought, they want to be wooed. They still seek immediate gratification to a certain extent, but they’re much more concerned about identifying with a brand and its values than they were in the past. Beyond that, consumers don’t want to hear about a product or service from the company that sells it. They want recommendations from their trusted friends and family. Study after study has shown that word-of-mouth marketing—while slower to pay off—delivers nearly twice as much long-term customer value to companies as advertising does. Word-of-mouth marketing is particularly crucial in new markets. A 2010 study by McKinsey found that although advertising and previous product usage continued to be the primary drivers of consideration in mature product markets, word-of-mouth was the most important factor at every stage of consideration in new markets. The thinking around word-of-mouth needs an update, too. Traditionally viewed as low-cost advertising with a high return, it could perhaps be better described as high-cost brand building with a high, longterm return. Companies could spend quite a bit of money creating apps, tools, and customer service programs that their audience view as cool enough to share with their friends and family or to tweet about. But because all of those investments have a long shelf life, unlike a month-long ad campaign, they will continue to generate returns for years. They are also likely to deliver ongoing word-of-mouth returns, which traditional marketing formulas don’t account for. There’s an additional shift underway, not just away from marketing’s obsession with new customers and toward building long-term brand loyalty, but also toward baking that eventual loyalty into a