There’s one story that you will be unlikely to read about in the pages of the marketing press. Yet it is probably the most important marketing story of the moment. Like cold war powers during the nuclear arms race, more and more major companies are retreating behind closed doors to rethink their marketing weaponry from scratch.
To be sure, the normal rough and tumble is taking place: this ad campaign, that new product launch. Meanwhile, future organisational structures, communications budgets and priorities, supply and distribution chains and brand strategies are all being taken back to the drawing board as senior executives realise the rise in retailer power and changes in IT and media are fundamental and irreversible. Tweaking traditional formulae is no longer enough. A new formula must be found. But no one is sure what it will look like.
Vast sums are being spent in the quest for this new holy grail. According to some sources, P&G has recently invested 100m developing its UK consumer databases. Neither the figure nor the activity is possible to verify. The confidentiality clauses surrounding the exercise make the CIA and the KGB look like paragons of openness. But here’s one possible picture. P&G has realised the UK has, effectively, become the guinea pig for a new order in marketing worldwide. What’s happened in the UK – with retailers’ access to superior information sources and increasing ability to “own” the customer relationship – means retailers now have guns while suppliers are stuck with the bow and arrow. As retailers in other countries catch on, some way of spiking those guns must be found, fast.
Consumer databases potentially offer three ways of doing so. First, they allow suppliers to fight information with information. While retailers now often know more about manufacturers’ performance than manufacturers’ themselves, they have precious little detailed insight into how well their rivals are doing, category by category, catchment area by catchment area. Manufacturer databases, as opposed to store-based databases, can help provide that detail.
Second, the database is the germ of an alternative means of communicating with consumers which not only bypasses retailers and expensive TV companies but also has the added advantage of being covert.
Third – and this is where the real advantages begin to bear fruit – it provides the foundations for alternative distribution arrangements. Direct delivery of Ariel is not a commercial starter. But an enterprise offering the whole P&G range, perhaps in alliance with non-competing drinks, clothes and home products companies operating through a range of new outlets, including home delivery, may well become viable over the next decade. (Significantly, Unilever is said to be centralising its consumer data sources from its various company fiefdoms.)
But the core issue is “ownership” of the customer. There has been widespread scepticism about database marketers’ ability to deliver cost effective and appropriate communications programmes that go beyond direct advertising to relationship building.
Sure it’s difficult, but the numbers aren’t as crazy as they seem at first sight. As the Buitoni Club’s marketing manager Duncan MacCallum points out, 40 to 60 per cent of the populace are not interested in a category like Italian food, and most brands would be happy to have a 20 per cent share of those who are. By concentrating on ten to 20 per cent of the most valuable of those customers a starting point of 21 million households quickly dwindles to about half a million – and that’s becoming manageable.
Likewise, if you divide the 5 million names on Tesco’s Club Card database between its 519 stores, it averages out at something like 10,000 per store. Not only is it feasible for each store manager to be charged with building a relationship with the 500 or thousand most valuable customers in each catchment area, the potential implications for all of Tesco’s marketing are enormous.
Some intriguing questions follow. First, as the Tesco example shows, are retailers winning the relationship marketing race? Not in all categories. For the past few years, for example, Imperial Tobacco has been monopolising lifestyle questionnaires to build a multimillion strong database on smokers and their brands.
Second, who is best placed to exploit databases and relationships? Again, not necessarily the retailer. As Pedigree Petfoods faces Sainsbury’s forthcoming launch of Paws its need to rethink is obvious. Already it sends birthday cards to Sheba and Caesar buyers’ pets. Why not extend the relationship to offer a total pet care service? This could take in everything from taking the hassle out of pet food shopping through direct delivery, through to dietary and veterinary advice, to clubs for different breeds, to pet-sitting services for holiday makers or burial services for the bereaved, and so on. Pedigree could become not only the authority on pets, but also the funnel for pet-related services and transactions.
Third, what becomes of brands in a world such as this? Brands first came into their own after theindustrial revolution when buyers no longer knew who was baking their bread or making their candles and the need for trust grew. When the customer is in ongoing contact with the maker how does that change branding and brand management? US consultant Regis McKenna suggests the brand “becomes an ongoing dialogue, the interactive experience of buying and using the product”.
Fourth, what will the long-term social effects of such initiatives be? It has often been argued that mass marketing was a democratising, equalising force. As the guru of mass customisation, Joseph Pines, points out mass marketing’s goal was “developing, producing, marketing, and delivering goods and services at prices low enough that nearly everyone could afford them”. Relationship marketing, on the other hand, is about treating your most valuable customers better than the rest. Could marketing become anti-democratic and divisive?
There may be more to the concept of “owning the customer relationship” than meets the eye. And until a few of the major companies feel they’ve got some of the answers, we can expect the current climate of paranoid secrecy to continue.