BEYOND PERSONALISATION A European perspective on contextual marketing

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1 An executive summary from The Economist Intelligence Unit BEYOND PERSONALISATION A European perspective on contextual marketing The rapid progress of digital technology has allowed marketers to build an intimate picture of their customers and prospects. Since the very early days of the Internet, digital channels have gradually revealed who they are, where they live, what they like and more besides. Now these channels are providing additional, more transient contextual information. Where are customers and prospects right now? What are they doing? And what are they interested in buying? Using this kind of information for marketing is called contextual marketing. Examples range from established practices such as search-engine marketing, which allows companies to reach prospects based on their current interests, to more cutting-edge approaches such as social media advertising that responds to the weather. Lipton Iced Tea used Facebook to advertise its drink in areas in the UK with warm temperatures, for example. According to Bill Brand, president of the US retailer HSN, contextual marketing is the next step in a progression from mass marketing to segmentation, personalisation and finally contextual, or what I call in-the-moment marketing. A recent survey by The Economist Intelligence Unit (EIU), sponsored by SAP, reveals that west European marketers are already collecting a large quantity of contextual information about their customers and prospects. Two-thirds are using some of that information to help them identify and communicate with prospects, among other marketing objectives. However, much of the contextual information that companies collect is currently not used for marketing purposes. This reflects, among other concerns, a lack of understanding of how to communicate with customers and prospects most effectively in a given context. Sponsored by

2 Meanwhile, the most prominent sources of contextual information that west European marketers use today are the first-generation digital channels: and the company website. This suggests that they are not using more recent innovations such as mobile technology and social media which have the potential to provide deeper contextual insights as much as they could. understand their customers in greater detail and are beginning to apply that understanding to their marketing efforts. However, just as personalised marketing required new approaches to messages and campaign management, so too will contextual marketing. Marketers who wish to exploit contextual marketing must learn how to use it to offer genuine value in order to win their customers consent. In short, west European marketers have made a start with using contextual information to About the survey This executive summary draws on a survey of 165 chief marketing officers conducted by The Economist Intelligence Unit (EIU) in the summer of Survey respondents were drawn from France, Italy, the Netherlands, Scandinavia and the UK. One-half of respondents represent organisations in the retail sector, with the remainder drawn from a range of industries. Of these, just under one-half (47%) represent companies with US$100m-500m in annual revenue, the remainder companies with US$500m and above. 2 The Economist Intelligence Unit Limited 2015

3 1 Engaging customers and prospects In the last 20 years most companies have accumulated considerable volumes of information about their customers. As a result, marketers feel they have a good understanding of their customer base. For example, the majority of west European marketers surveyed by The EIU believe they are able to identify when customers intend to switch to a competitor and how satisfied their customers are, thanks to insights gleaned from their current marketing channels. Nevertheless, there is always room for improvement, and there is demand for even deeper understanding: 41% of respondents list gaining a better understanding of customers among their strategic marketing priorities. Furthermore, there is a difference between understanding customers and engaging them: the same proportion (41%) say that improving customer engagement through social media, for example, is a top priority too. Marketers in western Europe are mostly confident that their interactions with existing customers are well received: over half (51%) say customers are satisfied with the way we interact with them. But it is a different story when it comes to prospective customers. Over one-third (35%) say their prospects would like their interactions to be more relevant, compared with just 22% who say prospects are happy with their interaction today. These findings show that despite the considerable amount of information that marketers have about their customers, there is still a need both to improve their interactions with existing customers and to communicate more effectively with their prospects. Chart 1 In your opinion, how do your customers feel about the way your organisation interacts with them? (% of respondents) They have no opinion about how we interact with them 1 4 They are happy with the way we interact with them 22 They would like to have fewer interactions with us They would like to have more interactions with us They would like our interactions with them to be more relevant 21 They would like us to stop interacting with them altogether 0 1 Source: The Economist Intelligence Unit. 35 Customers Prospects 51 The Economist Intelligence Unit Limited

4 2 Putting contextual information to use These objectives deepening customer engagement and improving interactions with prospects have driven many organisations to investigate the use of contextual information for marketing purposes. In fact, two-thirds (66%) of west European marketing executives surveyed incorporate contextual information into their communications with prospective customers. Nearly as many (58%) use contextual information for communicating with existing customers. One such company is Italian telecommunications provider Wind. Contextual marketing is the way we reinforce our relationship with our customers, says customer relationship manager Elvira Petaroscia. We provide a superior user experience with tailor-made selling propositions and understanding of our customers needs. There is some variation between countries. For example, Nordic respondents are more likely to use contextual information to communicate with existing customers (72%) and to issue special offers (66%) than identifying or communicating with prospective customers. Respondents from the UK are equally likely to use contextual information to build customer loyalty as they are to interact with prospects. But while the proportion of marketers making some use of contextual information is high, much of the information that is collected goes unused. For example, nearly three-quarters of survey respondents (73%) say they routinely collect information about customers current behaviour, but only half of them (37%) use this information for marketing purposes. Location is the most widely collected form of Chart 2 Which of the following marketing practices at your organisation currently incorporates contextual information? (% of respondents) Communicating with prospective customers Identifying prospective customers Communicating with existing customers Issuing special offers Alerting customers to new products and services Building customer loyalty Building brand recognition Source: The Economist Intelligence Unit. 4 The Economist Intelligence Unit Limited 2015

5 contextual information, according to 91% of respondents. Location is most important to us, explains Laurent Geffroy, digital performance director at telecoms provider Orange. That is where we can really serve our customers and provide them with a benefit. We are working internally on proof of concept for an opt-in app. If customers allow us to do so, we can collect their location information and use that to communicate with them. For example, if they are travelling abroad we can offer them special services, such as automatically updating their Facebook status. But despite its value as a source of contextual insight, one-third of respondents whose companies collect location data say they are not using them for marketing purposes. Evidently, something is holding them back from making greater use of the contextual information they already collect. The Economist Intelligence Unit Limited

6 3 The challenges of contextual marketing It may be one thing to be able to identify a prospective customer s current situation, but it is an altogether different challenge to be able to respond to that insight with a relevant offer or a marketing message which works for that precise context. Producing messages that are effective in a particular context is one of the most common challenges that west European marketing executives associate with contextual marketing. For Johan Grundin, EMEA director of digital marketing at electrical appliances manufacturer Electrolux, the definition of effective contextual marketing is being in the right place at the right time with relevant messages. He argues that messaging in context requires a greater degree of subtlety that conventional marketing channels, in part because of the greater intimacy involved. With contextual marketing you try to choose a marketing message that appeals in a more subtle way, rather than being intrusive. Another common challenge is the availability of people with the necessary skills: 47% of respondents identify finding staff with the required technical skills as a key challenge, while 45% say the same of creative skills. According to Mr Grundin, the real challenge is not just finding recruits with the necessary digital skills, but finding a combination of the technical talent and business acumen. You typically find these skills among young people, fresh out of school, he says. They have the skills, but not the business knowledge or the contextual marketing mindset. Chart 3 Which of the following, if any, do you consider to be the greatest challenges to using contextual information? (% of respondents) Producing messages that are effective in particular contexts Encouraging customers and prospects to share contextual information Hiring the technical skills required by contextual marketing Identifying relevant contexts in which to target customers Hiring the creative skills required by contextual marketing Respecting customer privacy 34 Measuring the success of contextual marketing campaigns 15 Adapting our marketing/campaign processes to incorporate contextual marketing Source: The Economist Intelligence Unit. 6 The Economist Intelligence Unit Limited 2015

7 Another challenge singled out by respondents is the ability to identify relevant contexts in which to target customers. This may reflect the narrow range of contextual information sources that companies are currently using. The most common sources through which organisations currently collect contextual information are the first-generation digital channels: their company website (used by 77% of respondents) and (61%). Newer digital channels, including social media and mobile applications, are used less frequently, but these have the potential to offer more finegrained contextual insights than conventional channels. Social media provide marketers with unique insights into an individual s mood and their social network, while mobile applications can reveal their precise location or current activity. The fact that marketers are not making as much as they could of these rich sources of contextual insight may reflect another common concern: the fear of intruding on a customer s privacy. The Economist Intelligence Unit Limited

8 4 The privacy issue Relatively few of the marketing executives surveyed by The EIU count respecting customer privacy among the biggest challenges associated with contextual marketing (34%). However, 50% say that encouraging customers and prospects to share contextual information is a key challenge. And 28 believe that damaging the brand by making customers feel uncomfortable is the biggest risk associated with the practice. This suggests that although they are confident that they can apply contextual marketing while complying with privacy and data protection rules, marketers nevertheless acknowledge the risk of hurting their brand by using it in a way that customers are not happy with. One challenge we have is finding the balance between customer promises and data privacy, says Orange s Mr Geffroy. We have to make sure to protect data we have a clear mandate from our CEO to protect the personal data of our customers. So when we look at launching new offers, we look carefully to make sure we respect privacy. And it is not just the brand that is at risk. Customers are increasingly empowered to control the amount of information that marketers collect about them, and if anything makes them feel uncomfortable, they are likely to withdraw. As Alex Bloemendal, e-commerce manager for Dutch retailer Wehkamp.nl, explains: The more people opt out of cookies, the less information we have. At Wind Italy, these concerns are addressed by a rigorous privacy regime. Our privacy policy is very transparent, explains Ms Petaroscia. We acquire customer permission for marketing purposes with an opt-in process, which can be revoked easily at any time. Data are completely anonymised and encrypted during profiling activities to comply with privacy rules. As this suggests, such an approach requires a great degree of organisational discipline. The quality of the entire process is a fundamental requirement of success [for contextual marketing], she adds. Chart 4 Which of the following do you consider to be the greatest risk associated with contextual marketing? (% of respondents) Collecting incorrect or misleading contextual information about customers or prospects Damaging the brand by making customers feel uncomfortable 28 Making marketing processes too complex 14 Damaging the brand with unsophisticated experiences 10 Failing to make a return on investment 8 None of the above 2 38 Source: The Economist Intelligence Unit. 8 The Economist Intelligence Unit Limited 2015

9 Conclusion Thanks to decades of innovation in digital marketing, companies in western Europe already have a well-developed understanding of their customer base. But thanks to the same digital innovation, competition for the attention of customers and prospects is fierce. Marketing executives therefore acknowledge a need for closer engagement with customers and more relevant interactions with prospects. Meanwhile, companies are already collecting a fair degree of contextual information and putting it to some use. However, a large proportion of the contextual information that companies collect is not being used for marketing purposes. A number of challenges are holding them back, such as producing messages that are effective in particular contexts, hiring people with the necessary technical and creative skills, and understanding the relevant contexts in which to target customers. And while west European executives do not consider privacy to be one of contextual marketing s greatest challenges, they do see the risk of making customers and prospects feel uncomfortable, and they appreciate the need to encourage them to share contextual information. The digital channels that make true contextual marketing possible are relatively recent innovations, and the cultural norms associated with its use are still in development. Companies are learning how to use contextual information appropriately, which may explain their hesitation to exploit what information they already collect to the full. This caution may be understandable, but if they are to win the right to use customers contextual information, they must offer value in return. If they refrain from engaging with their customers in context, they may never learn how to offer that value. The Economist Intelligence Unit Limited