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Love the Ones You're With: The Importance of Loyal Customers

By: Lisa Katz
Posted: May 30, 2013, from the June 2013 issue of GCI Magazine.

Creating a connection with consumers has always been an objective for leading beauty brands. Today, new paths to reach this goal are emerging as marketers are increasingly able to access consumer/customer data, a valuable data set that goes beyond financial metrics to provide a longitudinal view into a consumer’s shopping basket and behavior.

This data set allows marketers to understand how a shopper’s purchasing behavior may change over time and the impact of that change in relation to product launches, promotions, merchandising changes and marketing tactics.

The Age of the Consumer

While both retailers and brands have been capturing data for some time, technology-based solutions are now more readily available and provide access to this valuable asset. As a result, brands have an entirely new lens through which to view their consumers. Greater knowledge of who they are and how they behave is transforming the industry, allowing brands to develop strategies that truly put the consumers first. In what Forrester Research has coined the “Age of the Customer,” brands are no longer marketing to their consumers—rather, they turn to their consumers for insight into how they want to be marketed to.

Historically, beauty has been a product-centric industry. However, today, the availability of consumer data and the complexities of the current business environment are forcing this model to evolve into a consumer-centric approach, one that requires brands to prioritize existing consumers. Within the beauty industry, prioritizing retention over acquisition is a significant shift in thinking that will ultimately impact functions from product development to advertising to training and education.

Working with major retailers and brands around the world, dunnhumby has found that brands’ current consumers deliver the vast majority of business growth. Most brands and retailers have a core following—typically 20–30% of all shoppers who contribute 70–80% of sales. However, many companies invest 80% of their resources on customer acquisition and only 20% on current consumers. The biggest opportunity for beauty brands is to effectively leverage their most valuable asset—their existing loyal consumer base. Consumer behavioral data proves quantitatively at a macro level what the beauty selling associate has experienced locally—it requires a greater level of effort to attract a new customer than it does to develop a relationship and grow spend with an existing customer.

Consumer Data = Smarter Decisions

The beauty industry has historically leveraged many sources of data—including traditional research, focus groups and point-of-sale data. And the availability of consumer data does not invalidate these traditional sources; on the contrary, it seeks to augment these existing resources.

Winning with consumers today requires that brands decipher the nuances in consumer behavior such as shopping preferences, tastes, unmet needs and even affiliation for newness in addition to demographic factors such as age, income and ethnicity. Beauty consumers with similar lifestyles and demographic characteristics may exhibit drastically different beauty preferences. But if used appropriately, consumer data can build on existing knowledge to identify new opportunities and redefine success metrics.

For example, let’s say a beauty brand knows from market data that its business is under penetrated within the eye treatment category. In response to this insight, the brand launches a new product within its portfolio to grow this category. Upon initial evaluation, the launch is disappointing in that it is not meeting financial sales targets. Using traditional data and measures of success, the product could be considered a failure.

However, after looking at the consumer data, the brand learns that the new product launch appeals to the brand’s loyal consumers and is predominately being purchased with complementary products, driving up units per transaction and spend per household. As a result, the brand changes product marketing and visuals to present the product in a new marketing regimen. After further evaluation six months post-launch, this new eye care product shows a high repeat purchase rate, indicating success. Whereas the initial read may have led to an early discontinuation of this product, the core strength of consumer data lies in its ability to validate actual purchasing behavior and, most importantly, chart changes in behavior over time.

Beauty is a category with a focus on product innovation and newness. The risk of consumers migrating out of one beauty brand and into another is a challenge that has always existed. Yet beauty marketers have only recently been able to fully understand the magnitude of this behavior with consumer data and the ability to study consumer purchase patterns over time with a view directly into their shopping baskets. Truths regarding brand loyalty and retention are revealed by mining consumer data to answer questions such as: Is she buying both skin care and makeup from my brand? And how many of my loyal consumers tried my new product and returned to make a repeat purchase of the same item?

The Omni-channel Challenge

The omni-channel environment adds both complexity and opportunity for beauty brands. As cheaper communication channels have emerged, the risk of delivering irrelevant communications is greater. For example, according to The Wall Street Journal, in 2011, retailers sent recipients an average of 177 e-mails each, up 87% since 2007, while open and click-through rates have decreased dramatically.