Customer engagement improves brand profits
A model that demonstrates the link between consumer engagement and profit margins could be the necessary fuel to propel marketers into the boardroom.
Marketers must not only engage consumers through advertising, experiences and online dialogues, but these days they need an in-depth financial understanding. A recently unveiled study by research consultancy
Hall and Partners suggests that up to two-thirds of a brand’s profits may rely on effective consumer engagement.
To help marketers understand how what they do contributes to the “profit” column of the balance sheet, Hall and Partners has developed a model that links a brand’s level of consumer engagement with its profit margins. The “Engager” model also singles out key components on engagement that can connect marketers’ performance to a brand’s sales power.
Hall and Partners global innovation director Richard Owen explains: “When we go to a client, they may question the value of implementing and measuring engagement. We can show them that the likelihood of selecting, say, Virgin Atlantic for their next flight, increases when other measures also go up. This validates a brand’s engagement activity.”
The Engager model, released last month, has been generated using the views of 2,500 UK consumers about 50 brands. The overall research project takes in 250 brands in the UK, US, China and Australia, and uses the responses of 10,000 consumers.
Hall and Partners has devised a specific “Engager score” for each brand, which takes into account numerous complex attitudes to companies, such as how much faith people have in a brand delivering and how willing they are to participate in “conversations” with it.
To make sure there is a real connection between consumer engagement and sales, the model also analyses which other measures rise when a consumer expresses commitment to buying a particular brand. A high score for purchase intent is duly mirrored by a high Engager score.
These Engager scores are also matched with company profit data sourced from the Forbes 2009 Top 2000 company list. While “intent to purchase” is a good indication of whether an item will sell, the real proof is in the eventual profits.
“We can explain two-thirds of the difference between brands’ profits through our Engager model,” says Owen. “If we rank ordered the 50 UK brands by their Engager score and rank ordered them on their profit margins, we’d be right two thirds of the time.” The remaining third of the profit generation, Owen suggests, is generated within areas such as product distribution and business management.
Brands with high Engager scores and equally good profit margins include Google, Microsoft and Coca-Cola, which all achieve scores above 110 alongside 15% margins. These three are all brands people know and see others using or talking about, says Owen. Google and Coke also score high on connections with consumers, showing the formation of deep emotional bonds. Google also scores highly on commitment and conviction.
Toyota, Nokia and Nike also rate reasonably well, with Engager scores of 100 to 110 and profit margins of 7% to 15%. Average level engagers, such as Starbucks and BMW, score between 90 and 100 and have profit margins of 5% to 10%. At the low end are companies such as British Gas and HSBC, which score less than 90 and have profit margins of less than 5%.
In the UK, Cadbury ranks as the second most engaging brands, with profits of 6.7%. Retailer Marks & Spencer is sixth, with a margin of 9.11%, while the London 2012 Olympics is ninth, demonstrating its money making potential as a result of its engagement with the British public from an early date.
However, Cadbury rarely competes with Google for market share, so the sector where a brand operates needs to be taken into account. Marketers should compare the engagement levels and profit margins of their rivals rather than comparing themselves against all other businesses.
Rather than use data to show what they have done has worked, marketers should understand in advance what they need to do.
Andy Bird, Brand Learning
While utilities and banks tend to be less engaging by their nature than, say, FMCG, it doesn’t mean there is little hope for boosting consumer interaction. Andy Bird, co-founder and joint managing director of agency Brand Learning, says that it’s valuable for every company to understand what makes it engaging.
“It is really worth marketers knowing detailed specifics on consumer engagement and behaviour, such as what they are thinking and what they are doing in order to develop a framework to improve,” he argues.
Marketers could use consumer engagement scores in future to show the board that they are being “responsible” rather than “accountable”, says Bird. He sees too much research used as a justification for certain marketing activities, when it should be used to improve future performance.
“Marketers should focus their attention on acting responsibly in the interests of the business, rather than just worrying about being held accountable. If they make sure what they are doing is likely to create value for the company in advance, the evidence they need afterwards to prove the effectiveness of their activities should take care of itself.”
For example, HSBC scores low on integrity and advocacy in Hall and Partners’ study. Rather than see this as a problem, the bank brand could use Bird’s advice and see its engagement scores as indicators for what kinds of campaigns and messages need to go out and how they should improve the customer experience, both on the phone and in branches.
Of the brands deemed to have average engagement, Owen at Hall and Partners says Starbucks’ instant recognition and ubiquity has caused consumers to doubt its authenticity and its integrity scores to suffer. He suggests the brand could work on improving its perceptions of integrity to increase its level of engagement and improve its business performance. Its work in offering Fairtrade coffee and schemes to “localise” its branches could go some way towards this.
Nokia rates highly for integrity and commitment to purchase, but its brand identity is unclear among consumers. “People trust it to deliver for them, and it’s done well to cement its place in our lives,” says Owen. “However, when you ask people to convey their understanding of Nokia’s brand values, it seems we’re not certain of what the brand is about, in the way we are clear about a company like Apple and its mission to deliver state-of-the-art technology and connectivity to entertainment and each other.”
Nokia’s challenge is to find a “clear voice”, he says. “When people really ‘get’ your brand and your values, they will be more engaged than if they don’t.”
Brand Learning’s Bird says that more marketers need to translate soft ideas like engagement into a series of specific metrics that can be measured against a company’s performance and growth. An engagement study by research agency Targetbase Claydon Heeley (MW, 18 February) revealed that while 78% of marketers believe their engagement strategies are effective, 77% of consumers feel brands are failing to engage with them.
TBCH’s research states that increasing customer engagement by just 1% generates an almost 3% increase in customer value. So why do just 31% of marketers actually assess the level of customer interaction in a campaign?
Hall and Partners’ Owen says that it’s time for marketers to step up and demand more focus on turning creative successes into numbers on the balance sheet. He claims: “We’re showing that engagement is important and we have a way of measuring it. There is a huge correlation to claimed consumption and strong correlation to a company’s bottom line,” he states.
Linking engagement with profitability: other evidence
Prophet’s “State of Marketing 2009” (MW, 17 December 2009) research suggests that those marketers seen as “visionary” are more likely to have an awareness of how marketing initiatives affect their company’s overall business performance.
According to the study, 60% of visionary marketers collaborate with the CEO or COO and 31% work with the CFO. Prophet senior partner Scott Davis says that board savvy marketers need to develop strategies that will help drive the whole business, not just their own objectives. Corporate growth strategies and marketing strategies need to be perfectly aligned.
Consultancy Lippincott’s recent “Brand Legends” study (MW, 15 April) suggests that brands that tie their marketing stories to their consumers’ real-life experiences will increase their bottom line.
It divides companies into “brand legends”, which have succeeded at matching the strength of their communications with the delivery of a distinctive, positive customer experience, and “brand myths” – companies that have rested on the laurels of their reputations for too long. The legends are likely to retain profitability longer than the myths.
Targetbase Claydon Heeley’s study (MW, 18 February) claims that only 24% of brands are investing “heavily” in engagement, although 82% claim to have a customer engagement strategy in place.
Seventy-eight per cent believe their programmes are effective, with 7% soliciting customer feedback, 18% carrying out two-way customer conversations and 13% keeping in regular contact with customers as forms of measurement.