Meal delivery services, streaming services, wine clubs, online groceries, and e-commerce arms of companies are all benefiting from stay-at-home orders and the pausing of physical selling during this period. UK e-comm grocery retailer Ocado has seen Google search increases of 550%, recipe kit service HelloFresh has hit 260% growth, and searches for Peloton bikes have reached levels only normally seen in the run up to Christmas[1].
These businesses no longer need to invest in marketing in this landscape; their demand far outstrips their ability to meet it. However, the real challenge (beyond the short-term operational capacity) is how to ensure the current serviced demand is not lost as social distancing measures are eased and consumers are more able to shop as they used to. If captured effectively, this may be the biggest driver of growth these businesses will ever see. The question is, how do you capture it?
All customers that have signed on to new services and methods of delivery throughout the crisis are likely doing so because it has become more difficult to shop using their habitual routes. What is absolutely fundamental to successfully capturing this demand increase in the long-term is to separate those who are more likely to stick to this new habit if engaged in the right way vs. those who will quickly transition back. The data available through e-commerce purchases, giving direct knowledge of the customer and a route to contacting them (with the right permissions, of course), means that the businesses experiencing surges in demand can already begin planning who and how to target.
There are many features of customers and their purchase behavior that can point to the likelihood of a customer becoming loyal or high value in the future. What is very clear is that simple models based on basket size that were previously employed are no longer relevant due to the crisis. Instead, a much more nuanced approach needs to be taken to identify your potential loyal customers.
The first step is to differentiate today’s drivers of loyalty and value from what has been observed in a pre-crisis world. Proximity to brick & mortar competitors, estimated size of household, geographic location, demographics – there are an enormous number of features that can be constructed from captured data to understand what distinguishes those who are loyal from those who are fleeting. Some data sources are directly owned by brands, collected through the normal sales process; others need to be constructed by bringing together the right external sources (e.g. geographic data for competitor locations) and internal data (customer address to measure proximity).
Once this more detailed model of loyalty is constructed, one that is more resilient to the changes in demand during COVID-19, the discriminating features can be discovered amongst the surge of new customers to identify who deserves your attention the most. This enables a shift from an organization focused on pure acquisition in marketing levers and retention through CRM to a marketing organization completely focused on keeping the step change into whatever our ‘new normal’ economy looks like.
For each industry, the exact approach will be different. In grocery, large basket sizes and high frequency are no longer a valid indicator; these just reflect the changing consumer need during this period. Homes are fuller throughout the week and so more food is needed to sustain them. However, other indicators, such as the type of product bought can still be used. Looking at customers that purchase products priced above the category average can be a good indicator of potential value (but there is a need to be careful with stock availability distorting results here). Alternatively, a high number of meals chosen in a recipe delivery service is likely due to difficulty in accessing groceries now, but enhancing address data with external sources on property size and purchase price can be an indicator as to whether the makeup of a particular household indicates a greater likelihood of loyalty.
The other side to the coin is how to activate marketing to retain your high value customers. Direct communications through CRM initiatives are clearly a prime source for this, and the identification of potential VIPs lets you focus more costly CRM efforts on those that deserve it the most. However, contactability and attention can be an issue. Low opt-in, open, and click-through rates mean that you need to ensure broader marketing activities are also playing their role in retention.
Most of the time, CRM strategy and Marketing Mix Optimisation have been kept separate in the past, perhaps with CRM actions being included in an econometrics model to understand their impact. However, there is an opportunity to go much further and approach these as linked disciplines, increasing the strategic value and impact of each. This powerful new capability will ultimately allow you to steer your investments between retention-focused and acquisition-focused as the business and your tracked KPIs evolve.
By understanding which levers across the whole marketing mix are able to drive repeat visits from high value customers, businesses can put plans in place to retain as much of the recently observed growth as possible. Marketing Mix Optimization can play a crucial role here and ensure you’re not just steering from the limited perspective of an attribution model. Constructing econometric models both for customer acquisition and for retention of high value customers can allow you to view which levers over-index in which role – acquiring new business or keeping the most valuable, as well as how these interact with external drivers.
Some levers will be equally strong at both and can be leaned on to continue new acquisition as well as retain a customer base. However, others will skew much more towards one role. Immediately post-COVID-19, as social restrictions are lifted, retention should be the priority for many businesses, allowing them to prepare a marketing mix that captures the short-term step change in demand. This also leaves them with clarity on how to transition to a more balanced plan, and to remain flexible throughout the coming year as KPI tracking of acquisition vs. retention fluctuates.
In short:
Some teams now are rightly focusing on servicing never-before-seen operational demand. It is critical to provide as high a quality of service as possible to demonstrate the value of your model during this period and leave customers with a positive impression. However, those businesses that are preparing for retaining this new customer base, and that are commissioning and running the analytics to chart the direction, will be best placed to see long-term growth and avoid customers moving back to their old purchasing habits.
[1] Google Trends: UK Market
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