Customer Portfolios' Blog

Finding the Gold in a Value Exchange

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As a kid, my favorite part of Lucky Charms cereal was the marshmallow treats that made breakfast feel more like dessert, and I can guess that most consumers feel the same way. It appears that Lucky Charms saw this desire for marshmallows as an opportunity; consumers who provide basic information such as mailing address are entered to win a prize: a full box of just Lucky Charms marshmallows.

A good value exchange will make a person feel positive, if not exceptional, like they are on the right side of the velvet rope. And this is a perfect example of a good value exchange. The brand is receiving something of value from consumers (information it can use for marketing), and consumers have the chance to receive something of value from the brand (a limited-edition box of just Lucky Charms marshmallows). This value exchange works! It is on brand, doesn’t take much effort to execute, isn’t based on discounts, and creates exclusivity.

The most commonly thought of value exchange offer is a discount, which is not original and rarely enhances a brand. An example of this is signing up to receive emails from a brand, where you then receive 15% off your first purchase. However, offers can come in all shapes and sizes. Coca-Cola ran a promotion where each bottle of soda had a promotion code underneath the cap, and consumers went online to enter their codes for a chance to win a prize. Offers that are more creative have the opportunity to stand out and do a better job at encouraging consumers to take the desired action.

As creative as offers can be, it is wise to have the promotion be based on data and have a balance of value. A value exchange won’t work if the offer delivered is not relevant to the customer. And it is equally at risk if the value of the offer is too high thereby removing any positive impact to the bottom line. To test the effectiveness of a customer promotion, it’s optimum to have a closed-loop or complete single view and understanding of the customer, their journey with the brand, and their modeled future behavior. A complete single view of the customer will help marketers determine and track:

  • Incentive - Marketers need to see all the offers and messages that an individual consumer receives across all their brand’s initiatives to ensure the delivered value exchange offer is valuable enough. For example, if a customer receives 15% off for signing to receive the brand’s emails, but there is already a 20% off sitewide sale underway, the value of the incentive to sign up for emails is weak and response will be low.
  • Relevancy – Marketers will have the most up-to-date information about their consumers, and can send the offer to consumers for whom it is relevant. For example, an exclusive movie screening in New York wouldn’t be relevant for a consumer who lives in California, unless the screening also included flights and a hotel.
  • Change in behavior – Knowing a consumer’s current value and their future value allows a marketer to be in a position to calculate an offer’s ROI. The marketer knows what they are willing to invest in an offer to drive consumer behavior to deliver a specific return. For example, a marketer knows from analysis of the data that cross-category purchasing results in a 2x increase in customer’s future value. They may target customers that have made multiple purchases in a single category with a $20 cross-category coupon. These customers’ incremental future value is $60. When the targeted customer responds, the cost of the offer drives new behavior and has a 3x ROI.

Throughout the promotion, marketers should be looking for a change in customer behavior. A full view of the customer enables more holistic analysis, so promotional offers can be optimized to better fit the natural customer journey, while being designed to be profitable. The goal should be to engage customers while driving revenue. Having a full view of the customer makes it easier to generate actionable insights, optimize your strategy, and move the customer forward along the lifecycle while maximizing your marketing investment.

The Lucky Charms promotion is a good example of a great value exchange, because it is simple, low cost for the brand (assumed?), and has a high perceived value by consumers. However, there is no way for General Mills to measure the level of success their promotion is generating in the way of sales, due to not selling direct. Without all the data, the marketer can’t see if a consumer who entered the contest changed their behavior and purchased again. Retailers, on the other hand, have access to their customer data and can close the loop on their marketing efforts. By combining the simplicity of a Lucky Charms-like promotion with the insights generated from analysis of the customer data, retailers can create powerful value exchanges that will be relevant to customers, and be at an appropriate investment level that will move the needle to generate revenue.

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