A Brief History of Flight

In the mid-1980s, the highly regulated airline industry was relatively unsophisticated about how to price its main product, seats, until Peoples Express burst onto the scene. Peoples’ low fares quickly gained customers and market share. The big airlines took notice and responded in two ways–one obvious and one less so.

American Airlines responded with deep discount “Supersaver” fares, essentially matching Peoples on key routes. This was the obvious response. The less obvious response was the introduction of “yield management,” which gradually brought a level of sophistication and a data-driven pricing model that yielded a 3-8% revenue improvement, according to industry analysts. Yield management quickly spread to the hotel, car rental and other industries.

Yield management is an approach to maximizing revenue when a business has a fixed, perishable resource and can segment customers into groups willing to pay different prices for the same resource. In airlines, a seat is “perishable” as the revenue potential disappears once the flight has flown.

Simply stated, the airlines want to sell the right seat to the right passenger at the right time at the right price. Doing so requires sophisticated algorithms which account for capacity utilization, route scheduling, fuel prices, competitive pricing and the like. All those yield management algorithms are what’s behind the minute-to-minute price changes happening every time you book a flight.

Yield Management… For Marketing?

From an advertiser perspective, yield management is the ideal model:  place the right ad in the right program against the right target at the right price. In concept, it’s the same as selling airline seats, but on the buy side.

Making it Work

What’s required for yield management to work for advertisers?

• Digital – Digital is more easily measurable and therefore more usable in a yield management model.
• Cross-Media Measurement – Marketers must be able to measure viewership across TV, web and mobile to optimize media allocations.
• New Measurement Tools – Marketers must be able to target viewers based on any segmentation dimension, buy media based on ad effectiveness by program, and measure ROI.
• Real Time Data – All three of the above are needed in real time – 24/7/365.
• Accountability – Advertisers must demand greater accountability for every media dollar spent.

For some, the surprising news is that all of the above are either in place or rapidly becoming so. The future is closer than you think.

New Measurement Tools

Two new measurement tools are critical to moving to a real-time Yield Management Marketing Model:

1. TV Program Engagement – TV Program Engagement is a measure of how involved consumers are in a TV program. Is it really a surprise that viewers are more involved in “Desperate Housewives” than “America’s Greatest TV Stars?” Who cares? Marketers should, because TV program engagement is highly positively correlated with ad recall. Higher engagement = higher recall. So, buying ads in high engagement shows instead of low ones is more effective.
2. Advertising Effectiveness – Ads are more relevant to consumers if the equity of the ad fits the TV program they sit within. Is it any doubt that an ad for SlimFast is more effective on the “The Biggest Loser” than a program with different content but similar audience size and demographics? Now advertisers can buy media based on their brands Purchase Intent by program or genre.

Barriers

The advertising and media industry has had decades to build systems and processes to support the traditional media model. The systems for planning, buying and allocating media for brands won’t change overnight. But the trends are there to see, and the Marketing organizations with the most foresight and vision will see that reengineering these will yield great benefits.

So… When Do We Take Off?

There’s no doubt — all of the Yield Management puzzle pieces are now in place. In the future, advertisers will be able to:

• Target the Right Audience – Targeting will move from simple demographics to more sophisticated psychographic and behavioral targeting. And Marketers will be able to drive these segmentation schemes thru most of their marketing contact points.
• Identify the Right Program – Viewership will be supplemented with TV Program Engagement data. Marketers will become more sophisticated in identifying high engagement / high ad recall programs to improve their ad recall effectiveness.
• Match the Right Ad – Marketers will care about and measure the impact of program fit with their brands. This will enable them to match ads to programs based on purchase intent data, for optimal impact.
• At the Right Time – Media planning will move from an annual, exception-driven exercise to a real-time, algorithm driven process, fueled by continuously updated effectiveness metrics.

All of this will be connected to purchase panel data. So all of the buying, planning and allocation decisions will be held to simple question: did I get an acceptable ROI?

This is the coming “seismic” shift in Marketing—real-time ROI Marketing. Those who don’t get on board will be grounded in the new economy.

Chris Adrien, Vice President, Product Development, Nielsen BASES
Rob Mooth, Vice President, Client Consulting, Nielsen BASES

SUMMARY: Much has changed in the world of innovation and successfully launching new products has become more challenging. For many marketers, current metrics and action standards to gauge in-market acceptance are not quite enough to guarantee success today. Nielsen BASES has evaluated 500+ recent in-market cases globally to understand what it takes to win in an ever-changing marketplace—and has developed the next generation success models that address all facets of the consumer adoption process.

It has become increasingly challenging to bring new products to market. Over the past decade, significant changes have occurred—consumers are more sophisticated, the value equation is shifting, retailers are more powerful and the communication models have been revolutionized. Additionally, product development time is now shorter, competition is fiercer than ever, and there is continued fragmentation at the shelf. Despite these changes, many new product development processes and metrics have not been adapted.

Game changing metrics
It is no secret that most new products fall short of expectations for a variety of reasons. The ones that achieve in-market success do three fundamental tasks really well:

1. Master the Trial Build Chain: Successful new products must have strong consumer appeal and be supported through quality distribution and awareness.
2. Ensure Strong Ongoing Volume: Successful new products deliver on their consumer promise, with strong performance and on-going marketing support.
3. Maximize Franchise Incrementality: Successful new products attract new triers or generate new usage occasions in order to minimize cannibalization of established franchises.

While these fundamentals have not changed, the media and retail landscape has, and the current metrics and action standards used in the past are no longer enough to guarantee success today. To gain a fresh understanding for new product dynamics in the context of current marketplace conditions, Nielsen BASES analyzed 1,900+ recent product launches globally and examined how each initiative did in the marketplace against its goals. The net result was a compilation of 500+ cases of in-market launches that were used to develop the next generation success models, providing a strategic framework for how to win in today’s marketplace.

Success is multifaceted
There are many ways to define success. From achieving volume goals and hitting strategic targets to averting risks and surviving in the marketplace, performance can be measured in a number of ways. While current pre-market performance metrics typically compare a product’s overall performance relative to the competition, the next generation success models analyze the entire adoption process by isolating areas of weakness or readiness for every key measure of success. In this way, you move beyond just measuring how a product compares relative to the competition by overlaying whether this comparison is likely to be meaningful to ultimate success. This adds important new power to competitive comparisons and allows you to focus on issues that will truly make a difference in the outcome.

Five new secrets of innovation
By applying new key measures of success and action standards, BASES in-market test cases demonstrate the potential to improve your success rate. The way to bring stronger products to market is by following five new rules of the road.

1. What worked yesterday might not be good enough for tomorrow.
Make new product development decisions based on the most up-to-date, multifaceted models of in-market success. Relying on the performance standards from the past without adjusting for current market conditions is likely to result in blind spots that can get in the way of success. The current models will help you anticipate issues more effectively and bring more sound propositions to market.

2. Consumer adoption may be complex, but the steps of the process are clear.
Measure and optimize all that matters to success by covering the entire consumer adoption process. The current key measures of success—such as purchase intent, units per purchase and frequency of purchase—continue to be critically important and are key to accurate estimations of volume potential. But there are a host of new factors—such as breaking through clutter, generating buzz and offering true innovation—that also need to be considered.

The consumer adoption process can be broken down into five key factors on which winning products excel:

• Being salient—the ability to stand out. Winning new products catch consumers’ attention and/or offer a distinct consumer benefit.
• Successfully communicating—get the message out. The message needs to be understandable, focused and translatable into memorable ad copy.
• Generating consumer attraction—generate interest. Provide a unique solution to a substantial need/desire, be credible and be free of barriers.
• Converting attraction at the point of purchase—find it in the right store, on the right shelf and at an acceptable cost.
• Delivering an enduring product—achieve lasting consumer adoption with strong repurchase strength.

For each factor, traditional and new performance measures are evaluated to pinpoint and isolate areas of strength and weakness.

3. What it takes to be ready for a successful launch varies at each step in the adoption process.
How does your product perform relative to the competition? Because each step of the adoption process—salience, communication, attraction, point of purchase and endurance—may have different ranges of in-market readiness, each evaluative measure should be benchmarked separately using a four-tier scale: Strength, Ready, Not Ready and Weakness. In doing so, performance is linked to success for every key measure.

Put another way, not all measures are created equal. For some measures, being “average” may be good enough for in-market readiness and improvements may have limited returns on the potential for success. For other measures, it may be more important to perform better than competition, as this could represent an area of real competitive advantage. Moving beyond a simple competitive comparison and adapting launch criteria with this understanding makes for a more robust decision-making platform.

4. Success is about doing most everything well enough, not about really excelling at one facet.
In-market success is not about doing one thing really well. Rather, it is about doing everything you need to do—covering every touch-point in the consumer adoption process—sufficiently. The initiative that does everything enough, but isn’t a star at any one thing is likely to be a success. A single fatal flaw can derail even the otherwise strongest of initiatives—think “weakest link”. Many marketers fall into a trap of focusing only on the one or two areas that a new product does really well, but ignoring areas that represent barriers to success.

Each consumer adoption touch-point has a limited ability to compensate for the failure of another. Take a holistic approach to vetting innovations, making sure that every consumer adoption step is satisfied and optimized. This doesn’t mean that a winning initiative has to excel on everything. A winning proposition will have mostly green “ready” bars, perhaps with a few blue “strength” bars, and no yellow “not ready” or red “weakness” bars.

5. Measure what matters, when it matters.
Set action standards for every new product development stage based on the relevant consumer touch-points. And the earlier you start in the new product development process, the better. Even at the earliest stages, you can understand an idea’s ability to stand out, catch attention, and meet a relevant need. As the idea progresses into a more developed concept and branding, features, and pricing are built in, more elements of the communication and point of purchase dynamics can be folded in. The key is to build on a consistent framework that puts the relevant touch-points into the context of in-market readiness along the way.

Putting the plan into practice
For every stage in the new product development process, set action standards based on readiness for in-market success. For the final test of the concept and product prior to launch, look for “green (ready) or higher” for every touch-point. Seek competitive advantage in the touch-points that are specific to the initiative’s strategy. Only allow initiatives with “yellow” (not-ready) touch-points to move ahead to the next phase if improvement seems likely and monitor these issues closely as the launch proceeds.

Jon Stewart, Research Director, Technology & Search
and Chris Quick, Mobile Media Analyst, The Nielsen Company

SUMMARY: The mobile media landscape is primed for accelerated growth. Smartphone sales are predicted to lead the way, accounting for nearly half of worldwide sales by 2013. Mobile consumers around the world weigh in on the features, functions and data applications they find most desirable. The key driver of mobile growth is good devices and fast, affordable data. Understand what vehicles are most effective in reaching consumers.

Growing from a niche opportunity for games and ringtones, the mobile media landscape has flourished into a full-blown marketplace for advertising, rich media content, ecommerce and unparalleled utility—bringing about one of the biggest changes in the media and advertising business in a generation.

A perfect storm is imminent. The market is primed for accelerated growth well into 2010. What will “phone” mean to the next generation of consumers and what applications, functions and features are the most effective in reaching today’s consumers. A review of these opportunities reveals important insights into what is driving mobile growth in the U.S and abroad.

Apps-titude
Nielsen examined mobile media usage across 14 countries and discovered some interesting patterns. China has the highest penetration of software/application downloaders, ringtone downloaders, and mobile Internet users. At 89% penetration, text messaging is nearly as prevalent as voice services in Mexico, which is also the highest penetration of any media activity in any country analyzed.

Canada ranked first for content uploads and game downloads. The United States clicked into first place for picture messaging/MMS (multimedia message services) and location based/global positioning services.

Purchase criteria
Mobile consumers around the world applied different criteria when deciding what phone to purchase. Cost was the top factor across the board—especially influential among buyers in Turkey, South Africa and India. Brand or previous experience also weighed heavily among shoppers in Italy, Spain, Sweden and Russia. Ease of use was second most important factor for consumers in Germany, the United Kingdom and France. Design and style factored in for mobile users in Mexico, United Kingdom and the United States.

The features most desired by global mobile shoppers on their next purchase will be camera capability (number one in all 13 countries examined), followed by a built-in MP3 player and Bluetooth connectivity.

Growth drivers
In the fast-paced world of mobile media, the U.S. mobile subscriber base grew 7% to 277 million by the second quarter of 2009, which represented 221 million unique users, adjusting for multi-phone holders.

Among the many applications available on mobile devices, the fastest-growing segment in the U.S. was web video, which expanded by 33% to 20 million subscribers/15.2 million unique users, followed by multimedia messaging which jumped 29% representing 174 million subscribers/68 million unique users, and audio/application/game downloads which increased by 25% to 71 million subscribers and 39 million/27 million/23 million unique users per respective download.

Get smart
Perhaps more telling for the future of the industry, was the increase in the number of U.S. smartphone subscribers during the 2008-2009 Q2 period—a jump of 72% to 26.1 million users.

The Gartner Group predicts that smartphone sales will account for 46% of all mobile phone sales worldwide by 2013.

Currently, smartphone penetration varies by country. In Italy and Spain, more than one-quarter of new mobile handsets purchased were smartphones, with 28% and 23% market penetration respectively. The United States followed at 17%, Sweden at 13%, Canada-Germany-United Kingdom at 12% and France at 11%.

The newest generation of smartphones, like the Apple iPhone, the Palm Pre and the Blackberry Storm, combine cellphone connectivity with handheld computer capabilities like email, Internet, ebook readers, QWERTY keyboards, touchscreens, video, cameras and navigation software to name a few popular features and applications.

Dialed in
Smartphone owners in the U.S. tend to be male, younger (between the ages of 18–34), affluent (income of $75k+), and they use the phones for a mix of both personal and business purposes, with more emphasis on business usage. The profile of the iPhone user is similar, but skews even higher for the more affluent (twice as many in the $100k+ income group). A higher percentage of iPhone users also use the device for a mix of personal and business purposes (index of 160 for the iPhone compared to 220 for all smartphones).

One of the most appealing attributes of the U.S. smartphone owner, and particularly the iPhone user, is their appetite for data packages. All mobile subscribers spend $57.04 in billed services, with the monthly voice plan accounting for $35.40 and data extras adding $12.10 to the bill. Blackberry owners typically rack up $88.85 per month in charges, with $45.10 in voice plan costs and $28.20 in data extras. iPhone users spend nearly as much on data ($37.60) as they do on voice ($42.00) and have an average monthly bill of $89.35.

Surf city
Smartphone utilization underscores the point that, if you build a better browser and user experience, they will come. Almost 60% of all software/application downloaders were smartphone owners. More than half (55%) of all streamed music users did so using their smartphones. Smartphone owners also account for half of all active mobile Internet users, 41% of online game players and 38% of mobile instant messagers.

iPhone owners lead the way in media usage when it comes to mobile Internet (89%), text messaging (87%), software/application downloads and location-based services (75%), video/mobile TV (41%) and full track music (38%). The same market-leading usage pattern holds for iPhone’s built-in handset features like camera pictures (87%), Wi-Fi (77%) and speakerphone (72%). The sole exception is Bluetooth connectivity, where other smartphones feature a slightly higher utilization rate at 42% compared to 40% for the iPhone.

Transaction action
SMS (short message services), or text messages, reached 4.2 billion standard rate transactions in the U.S. on AT&T and Verizon in Q2 2009. The clear leader was Twitter with 1.3 billion messages, followed by FOX (due in large part to MySpace) with 740 million texts, Facebook at 465 million, and 4INFO at 257 million transactions. Total traffic was generated by 50 million unique users.

Stateside, social networking drove the growth train for mobile Internet, with a 187% increase in audience for the year ending July 2009. The distribution of 18.3 million unique social network users by the top three sites is Facebook (26% reach), MySpace (13% reach) and Twitter (7% reach).

Ad exposure
One-third of all mobile data users were exposed to some form of mobile advertising in Q2 2009. SMS and MMS comprised the two most popular forms of mobile advertising response. Roughly 16% of consumers responded to mobile ads most frequently via text message, a picture or MMS message, email or by visiting a designated web site.

Teenagers were the most accepting of mobile advertising—the acceptance rate declines as age increases. Perceptions of mobile ads were highest among all age groups if it lowered their bill. Consumers age 45+ were the least accepting of mobile ads. The Yankee Group forecasts mobile ad revenues could see faster growth than online, predicting a 60% jump in 2009 to $184 million. By 2013, that amount could reach in $566 million range.

Mobile marketing opportunity
Companies looking to drive sales should leverage mobile marketing activities like providing product information, coupons, discounts, event notification and mobile search. Another high-return approach would be to employ mobile’s innate capability to enhance the consumer interaction with a brand, providing information, inspiration or helpful functionality.

Companies who are finding success have developed specialized applications that were either fun or functional, scoring high on consumer engagement. Optimally, marketers will strike a balance between utility and enrichment, marrying the two into a unique, timely mobile consumer experience that makes best use of these dynamic devices.

Trade promotions include products featured in ads and in-store circulars, products displayed on end of aisle caps or away from their normal self location and products with temporary price reductions.

“Although we shouldn’t be surprised by an increase in promoted sales during a recession, it’s stunning to see an additional 1.3 billion purchase decisions being influence by in-store promotions,” said Tom Pirovano, Director, Industry Insights at Nielsen.

Other key findings from Nielsen’s study:

• Chicagoans buy the most on promotion, with 55.9 percent of products sold on promotion, followed by Phoenix, Oahu and Indianapolis.
• San Antonio, Oklahoma City/Tulsa and Birmingham have the lowest promotion sales.
• Impulse purchases such as ice cream, crackers and carbonated beverages sell the most on promotion.
• Conversely, magazines, ice and tobacco sell the least on promotion.

In other promotional activity, Nielsen found that coupon activity – -which has seen a strong resurgence among American consumers over the last year – was highest is disposable diapers (21% of which were sold with a coupon), dough products (14%) and sanitary protection (12%).  By measuring the average number of units purchased per trip, Nielsen identified canned cat food, baby food and canned dog food as the best candidate for buy-one-get-one (BOGO) promotions. This same measure found that coffee makers, baking powder and dishwasher rinse aids are the weakest categories for BOGO promotions.

“The key for consumer product manufacturers is to set goals for each trade promotion, and then measure the results to determine which promo events are the most efficient and effective,” said Pirovano.  “Retailers who can drive their feature ads with the right mix of products, price points and display support will have success with both their vendors and shoppers.”

The data analysis examined the distinctive consumer patterns and marketing appeal of women who work fulltime and have one or more children at home. The study includes information on their shopping habits, media patterns, demographics and lifestyles. “The Working Mother is the gatekeeper for purchases related to clothing, feeding and making a home for her family. Her high spending on cellular services together with her propensity to download content via her cell phone imply that mobile marketing could be an important platform for reaching her with product announcements, offers and other promotions,” said Howard Goldberg, Senior Vice President of agency services, Scarborough Research.

Download Shopping Insights on Today’s Working Mom, from Scarborough Research.

We have seen that the mobile industry is on a fast-track, with massive growth in mobile marketing, advertising and paid-content for users. But what is really leading this growth is the increase in quality devices and fast, affordable data. While smartphone ownership was once just a business tool, more consumers than ever are using smartphones in their everyday lives. In the past year alone, the total number of smartphone subscribers increased 72% quarter-over-quarter, growing from 15 million subscribers in Q2 2008 to 26 million in Q2 2009. While the penetration level of smartphone users is still fairly low – nearly 17% in Q2 2009 – they make up half of the mobile Web audience.

Italy Leads in Smartphone Adoption

Despite America’s reputation as a nation of big talkers — the U.S. is not setting the pace in smartphone adoption — ranking third when ranked by penetration. Italy has the largest percentage of smartphone owners at 28%, while Spain is not far behind with 23%. France has the most room to grow, with an 11% penetration level.

Smartphone Gender Gap Continues

With the continued expansion of smartphone ownership in the U.S. and the availability of more affordable devices, the market is opening up to a wider range of consumers. However, we continue to see similar demographic profiles for smartphone owners as we did a year ago. While smartphone usage is shifting from purely business use to both personal and business use, owners are still more than two times as likely to own a smartphone for business usage only. Smartphone owners continue to be predominantly male, are 65% more likely than the average mobile subscriber to be between the ages of 25 and 34, and nearly two times as likely to make more than $100,000 a year.

What’s Next?

So while more people are buying smartphones and penetration levels are increasing, the demographics are not significantly changing yet. There is a lot of untapped potential available to marketers to reach a whole new generation of smartphone users. Is your mobile marketing strategy as smart as your phone?

In a period when consumers and companies alike are spending their money more carefully, megabranding might seem like a no-brainer.  Take a well-known brand and attach that name to other similar products. It certainly seems easier – and cheaper – than launching an entirely new brand.  But to embark on a megabranding strategy is far more complex, and marketers must take a number of factors into account or they ultimately risk damaging the brand.

Read more about how some consumer goods companies are successfully extending their brands’ equity in the new edition of Consumer Insight.

Mike Mancini, Vice President of Data Product Management, Nielsen Claritas

SUMMARY: In a down economy, price sensitivity can trump loyalty. Without loyal customers, however, businesses can lose a substantial revenue stream, higher profit margins and enthusiastic referrals. Innovative companies are staying ahead of the trend by deploying strategies built on consumer segmentation to strengthen the bonds with these high-profit potential customers. These strategies go beyond the classic marketing applications of segmentation to drive customer-facing aspects of a business.

For most businesses, loyal customers are the ultimate quest: consumers who wouldn’t think of buying a car from another dealer, shoppers who are on a first-name basis with a boutique store clerk, coffee shop regulars who don’t even need to place an order to get their half-caf, no-whip soy latte. Loyal customers provide businesses with a steady revenue stream, higher profit margins and confirmed evangelists who virtually—and sometimes virally—do much of their marketing for them.

Twenty-five years after Neiman Marcus introduced the first customer loyalty program, nationwide surveys have reported a decline in corporate allegiance as consumers shift their concerns from patronage to price. To strengthen the bonds with their best customers and retain wallet share, a number of innovative companies are taking a second look at a classic marketing tool—consumer segmentation—and applying its concepts in new and innovative ways.

Customer-centricity as a growth strategy
Electronics giant Best Buy launched a customer-centric program based on segmentation that now is at the heart of its company-wide growth strategy. According to published reports, Best Buy, which has more than 1,000 stores nationwide, classified its best customers into five consumer segments, with names like Buzz (the young tech enthusiast), Jill (the suburban soccer mom) and Barry (the wealthy professional guy).

Using a variety of demographic, lifestyle and marketplace data to flesh out these portraits, Best Buy re-aligned its stores according to the segments. Store clerks received training on how to serve the Barrys or Buzzes in their trade areas, and stores were remodeled to reflect the dominant target groups. As a result of this program, the company invested more than $50 million to renovate 110 stores.

In the year after the makeover, the Best Buy stores that had been converted to the customer-centric model reported same-store sales growth in excess of 9%—more than double that of outlets that had not been overhauled using the segmentation model.

The human connection
Typically, segmentation initiatives like the one used by Best Buy augment a company’s transactional data with syndicated survey research to create detailed profiles of the best customers. Segmentation systems—such as Nielsen’s PRIZM, which was introduced in 1976—enhance customer data by linking consumers to a variety of third-party databases that can reliably predict their lifestyles and media preferences through their demographics.

PRIZM® draws on U.S. Census data and market research conducted by companies like Simmons and Mediamark Research & Intelligence and currently classifies all 114 million U.S. households into one of 66 consumer types putting a human face on every segment’s likes and dislikes.

By appending a segmentation system such as PRIZM to an address file, any company can begin building stronger relationships with customers through tailored contacts that go beyond mass mailing a discount coupon or buying a 30-second spot on the evening news. Stores in different cities—or even different neighborhoods in the same city—can feature product mixes geared specifically to the lifestyles and preferences of the segments in that area. Once a company finds a specific segment with a high-profit potential, the segmentation system can identify areas where more of those kinds of consumers are likely to live and provide insights on what messages will appeal to them.

Loyalty has its privileges
At the Arizona Republic, a Gannett newspaper with the largest circulation in Arizona—486,686 Sunday subscribers—consumer segmentation drives its interdisciplinary approach to maintaining customer loyalty. Reporters attend seminars about the most common PRIZM segments among their readers to better craft their stories with their audience in mind. Circulation managers differentiate customer service policies based on whether a subscriber is a long-time reader or a new customer. And marketers target subscription drives to prospects who, according to segmentation data, are most likely to become loyal readers.

The Arizona Republic classifies loyal readers by PRIZM segments based on their addresses. The resulting list of dominant segments is then sorted into five target groups with nicknames like Gold (older, affluent readers from PRIZM segments like Upper Crust and Blue Blood Estates) and Silver (younger, upscale residents of segments such as Young Influentials and The Cosmopolitans). Analysts then identify Arizona neighborhoods with high concentrations of the target groups and the retail areas they are likely to frequent. Knowing where to find people who share the same demographics and lifestyles as its most loyal readers allows the Arizona Republic to target its introductory direct-mail subscription offers and differentiate its pitch based on the prospects’ specific interests.

This approach to finding “look-alike” customers who matched the characteristics of its most loyal segments yields measurable results. For example, after the paper segmented and targeted subscriber look-alikes, the drop-out rate fell to just 14%—a 39% improvement. Just as important, by targeting only selected households, the newspaper was able to cut printing and postage costs, reducing its acquisition cost per subscriber by 23% and decreasing the number of direct mail pieces sent by 40%.

Developing a competitive edge
Segmentation can also help companies keep existing customers from defecting to competitors. When First Tennessee, a Memphis-based regional bank with about 200 branches, decided to place a greater strategic emphasis on becoming customer centric, it employed an innovative approach to address the lifecycle needs of top prospects. The bank drew on both its customer records and data from Nielsen P$YCLE—a segmentation system that classifies households into 58 types based on demographics and financial behavior. Focusing on a customer’s investable assets and lifestage, First Tennessee identified segments of affluent and mass affluent customers, and divided them further into younger professionals, near retirees and retirees, for a total of six target groups.

After developing lifestyle portraits of the target group members, First Tennessee identified key marketing themes based on the intersection of customer needs and the bank’s competitive advantages. With a multi-channel advertising campaign built around the tagline “Powering Your Dreams,” the bank tailored individual marketing messages to resonate with its top target groups. “We want our bank to resonate with the lifestyle and financial needs of our target audience,” says Dan Marks, Chief Marketing Officer at First Tennessee.

Adopting such strategies across multiple departments has allowed First Tennessee to incorporate consumer segmentation into their overall business plan. For example, to increase customer awareness, First Tennessee deployed an advertising strategy linked to the media patterns of targeted P$YCLE® segments. While the bank used to run TV commercials on network news and sports programs, P$YCLE showed that its targeted customers actually preferred cable channels like CNBC, the Weather Channel and the Food Network. The bank’s media buy changed accordingly, and the number of new deposit accounts and loan applications rose in response. “We’re still surprised by the Food Network,” Marks chuckles. “But it’s worked very well.”

Principles for creating loyal customers
Despite these success stories, applying consumer segmentation across an enterprise is not always an easy sell. Some sales managers resist focusing on the most valuable customers over the long-term, preferring to acquire as many customers in as short a time as possible—especially if their compensation is structured to reward that objective. Others may consider customer loyalty a qualitative attribute that is less important than such quantitative metrics as product sales. For those companies ready to undertake an enterprise-wide segmentation initiative to increase customer loyalty, there are a handful of guiding principles that are important to achieving success:

• Identify key customer segments
• Create target groups of similar segments
• Prospect for look-alikes in target markets and your own customer database
• Deliver differentiated messages and experiences
• Implement the approach throughout the departments within your organization
• Measure the effectiveness and adjust your strategy

Using consumer segmentation to build customer loyalty can help companies prosper even in a difficult economy. By shifting resources away from mass-marketing channels to a focused campaign that puts their best customers front and center, businesses can improve sales and decrease costs, while building a loyal clientele that allows them to weather this challenging market.

To learn more, download the full report, Using Segmentation to Strengthen Customer Loyalty.

With the country in the grips of a recession, however, consumers are focusing on price more than where they purchase goods.  Recent surveys have reported a decline in corporate allegiance.  But all is not lost for companies who are willing to take a hard look at classic marketing tool – consumer segmentation – and applying its concepts in new and innovative ways. 

Best Buy, for example, launched a customer-centric program based on segmentation that now is at the heart of its corporate growth strategy.  By classifying its best customers into five consumer segments, targeting them with marketing and changing the way stores look and training associates in new ways, the company has posted same-store sales growth in excess of 9 percent – more than double that of outlets that haven’t converted to the model and no small feat given the current economic challenges.

Nielsen has been at the forefront of consumer segmentation since the 1970s; its PRIZM system draws on a range of U.S. Census data and market research to classify all 114 million U.S. households into one of 66 consumer types.  Systems like PRIZM can help companies build stronger relationships with customers through tailored marketing and help them retain consumer loyalty, even when conditions are less than ideal.

Read more about how consumer segmentation works and can help innovative companies develop a competitive edge in the new edition of Consumer Insight.