Articles - Written by Arthur Hughes - 419 Comments
Building Retention in Packaged Goods
Relationship building does not work with most packaged goods. Very few people would want to build a relationship with the company that manufactures its paper clips, or dishwasher detergent. There just isn’t time in the day to conduct a dialog with the manufacturers of the three thousand different products that the average consumer purchases in a year. Since the consumers cannot be bothered, if follows that the manufacturers cannot make a profit by attempting to conduct such dialogs. These products have to be promoted by mass marketing, and by working with retailers to obtain adequate shelf space. The product will have to speak for itself.
This is not true of all packaged goods, however. There are some niche products which appeal to certain identifiable groups for which it is possible to establish a continuing relationship between the manufacturer and the consumer. Examples of such products are:
- Premium pet food
- Baby products
- Dietary products
- Ethnic products
For each of these products, there is an affinity group which has a special need or interest in the category, and which often wants information concerning the product, companion products, or how the product is used.
Baby products are an outstanding example of this type of niche situation. Today most families have far fewer children than they had a couple of decades ago. About half of the children born are the first child in the family. Families today seldom have a mother or other relative in the home who knows about babies: what to feed the child, what kind of diapers to buy, etc. New parents are often eager for information. Manufacturers of baby products have become alert to this situation. Manufacturers of baby food, infant formula, diapers and other products have developed special newsletters which are sent to new parents. The newsletters usually include generous coupons to encourage not only trial, but retention.
Nestle Carnation runs such a program used for their infant formula program. Working from a database of expectant parents, The Carnation Special Delivery Club mails helpful information about child nutrition and baby care beginning as early as eight months before the birth. These mailings promote use of their baby products, building a base for introduction to other related products. Concentrating on this special niche market of baby parents, the redemption rate of coupons runs more than 24% as opposed to 4% or less for FSI’s. The baby mailings both promote trial (through high value initial coupons) and retention (through very creative and useful baby care information delivered along with the coupons). There is a referral program, a sweepstakes, an educational booklet, Pregnancy, Nutrition and You and an 800 number baby hot line with experts that can answer questions.
Kraft General Foods has blazed a trail in this area. Working from their massive 30 million name database, they pioneered with the Crystal Lite Lightstyle Club, which offers one million diet-conscious customers an interesting newsletter on diet and fitness, discount coupons on General Foods products, a cover letter and a catalog. The catalog is part of the club image, because it offers watches, mugs, jogging suits, and other gear that bears the Crystal Light emblem. This highly successful club has been going for several years, maintaining the loyalty of medium to heavy users of the product, and promoting related KGF low fat low calorie foods of interest to this special niche market.
A similar effort has been used by Kraft to promote Kool Aid sales. The Wacky Warehouse newsletter is mailed to a large group of pre-teens. It has successfully kept its database of 4 million children drinking Kool Aid for many years.
In all of these efforts, the success comes from one simple principle: offering information, assistance, helpfulness, reassurance. The coupons (and in some cases checks) simply serve as a communications vehicle, rather than being the central focus of the outreach program. They are building loyalty to Carnation, rather than building up the expectation of getting something for nothing.
Where Retention Promotion Fails
Not all efforts at retention building for package goods are successful. One noted failure was The Society To End Dull Meals Forever promoted by McCormick-Shilling. A quarterly newsletter was mailed to 200,000 customers interested in cooking. The idea was to teach people something that most of them did not know: how to use spices in cooking. The program was designed to build loyalty to McCormick and increase the sales of their bottles of lemon and pepper and other spices. The creative was very well done. The response from the public was excellent. They correctly targeted a niche market (people who like to cook using spices). They forgot only one thing: the economics.
Spices sell for $2.50 in the supermarket. The retailer gets about half of that, and McCormick probably nets $0.20 out of the remainder. So for each additional bottle sold, McCormick makes 20 cents incremental profit. The problem: how many additional bottles of spice can the average family on the database buy in a year? Six perhaps? Remember that bottles of marjoram, thyme, sage, curry tend to last a long time — perhaps several years — and take up space in the average kitchen. Six extra bottles per customer per year is $1.20 in incremental profit per year.
How much does it cost to maintain a database, and to design, print and mail a quarterly newsletter to their customers? It is unlikely that you can do this for less than $1.50 per year. Result: Despite increased sales, McCormick was losing at least $0.30 per year for every customer that signed up for the free newsletter. They eventually realized this, and canned the entire program.
Conclusion: Package good’s margins are very thin. Even successful efforts aimed at niche markets will fail if the incremental increase in retention and cross sales cannot pay for the cost of the database and customer communications. Parents of babies, pre-teens, serious dieters, ethnic cooks, pet owners represent valid niche markets. Whether cultivating them will pay off depends on the economics of the products being promoted.
Here is a quiz:
Which of the following packaged goods would be least likely to result in a profitable relationship building program leading to increased retention and cross sales?
- Contadina Italian Dinners
- Romanov Vodka
- Old Dutch Household Cleanser
- Gluten Free Rice Based Bread
- Kodak Camera Film
Feedback if incorrect: It might be difficult to build a profitable relationship with consumers of any of these products. The household cleanser seems least promising for several reasons:
- the price is low, and the margin is thin
- virtually every household has this or a similar product on their shelves
- there is no identifiable special group interested in this product
- there is little specially interesting information about the product or its use that could be shared with users
Arthur Middleton Hughes, vice president of The Database Marketing Institute, has presented 28 seminars on database and email marketing. Arthur has also authored several books includingStrategic Database Marketing 4th Edition (McGraw-Hill 2012). He and Andrew Kordek, chief strategist and co-founder of Trendline Interactive, are hosting a two-day Email Strategy Study Group in Fort Lauderdale March 26-27, 2013, featuring group competition for email marketers responsible for subscriber acquisition, lifetime value, ratings and reviews, boosting their email budget, and doubling their ROI. To learn how to attend the Study Group,click here.
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