European retailers’ perspective on contextual marketing

Bill Brand, president and chief marketing offi cer of US broadcast retail network HSN, describes contextual marketing as “the next step in a progression from mass marketing to segmentatio

Retailers are at the sharp end of the digital

revolution Once, their competition was limited

to nearby rivals Now, thanks to the Internet,

their customers can buy from companies all

around the world In the past, their direct

interaction with buyers gave retailers unique

insights into customer profi les and preferences

Since then, digital technology has given all kinds

of companies a view into their customers’ buying

behaviour

As a result, many retailers are keen to adopt and

adapt digital capabilities to ensure that they

remain relevant This means fi nding an optimal

balance of digital and in-store experiences that

engage customers and increase profi tability

Digital marketing is a crucial component of this—

and using digital channels to understand and

engage with customers is certain to be part of the

mix

An emerging trend in digital marketing is the use

European retailers’ perspective

on contextual marketing

location, behaviour or mood of a customer or a prospect, to deliver more relevant and effective marketing communications Bill Brand, president and chief marketing offi cer of US broadcast retail network HSN, describes contextual marketing

as “the next step in a progression from mass marketing to segmentation, personalisation, and

fi nally contextual or what I call in-the-moment marketing.”

To investigate the use of contextual marketing in Europe, The Economist Intelligence Unit (EIU), in

a project sponsored by SAP, conducted a survey

of west European chief marketing offi cers, 50%

of whom were from retail companies, as well as interviews with a series of marketing executives from across the region

Our research identifi ed that west European retailers, like their peers in other sectors, are eager to build a deeper understanding of, and engagement with, existing customers and to

Sponsored by:

2 © The Economist Intelligence Unit Limited 2015

relevant They are more likely than companies

in other industries to collect contextual information through channels such as social media and mobile apps, which have the potential

to provide deeper contextual insights than older digital channels

And yet, much of the contextual information that retailers collect goes unused The organisational challenges they face—such as developing marketing messages that are effective in particular contexts and hiring the required

technical and creative skills—are apparently holding them back from exploiting contextual information to the full

While they are aware of the dangers of overstepping the mark by misusing contextual marketing techniques in such a way as to make customers and prospects feel uncomfortable, there is an opportunity to achieve greater insight and relevance, and retailers would be wise to learn how to use it effectively

The retail marketing agenda

1

The primary goal for west European marketing

executives, in the retail sector as in other

industries, is to improve awareness and

perception of their company’s brand Nearly

six out of ten (58%) survey respondents from

retail companies list this among their top

strategic marketing priorities As retail becomes

increasingly digital and the advantage of

well-positioned stores dissipates, having a well-known

and trusted brand becomes vital

Beyond the brand, European marketing

executives are keen to deepen their

understanding of customers, to improve engagement and to make their interactions with prospects more relevant

This is not to suggest that west European retailers

do not already have a good understanding of customers For example, 69% of respondents from retail companies say they understand how satisfi ed customers are with their products and services, and 65% claim to know how this could

be improved, thanks to information gleaned through their current marketing channels

Nevertheless, retailers are especially likely

Which of the following are currently your top strategic marketing priorities?

(% of respondents)

Chart 1

Retail Non-retail

Source: The Economist Intelligence Unit.

Improving awareness and perception of our brand(s)

Understanding our customers better

Increasing customer engagement (e.g interaction on social media)

Improving customer loyalty

Improving the customer experience

Improving return on investment of marketing activities

Becoming more cost effective

Ensuring our marketing staff have the right skills for our current and future activities

59 58 45

36

43 40 37 37 33 24

29 31 27

34 26

34

4 © The Economist Intelligence Unit Limited 2015

to identify improving their understanding of customers as a strategic priority (45%, versus 36% non-retail)

Similarly, retail marketing executives are confi dent that their marketing communications with customers are well received: 51% believe that customers are happy with the way their organisation interacts with them, and 15% even think customers would like more interaction

Nevertheless, 43% regard improving customer engagement as a strategic priority This suggests that while customers may be happy with the way companies interact with them, the companies themselves are not happy with the response they receive

By contrast, retail marketing executives accept that their interactions with prospects could

be signifi cantly improved Only 22% believe that prospects are happy with the way their organisation interacts with them, while 33% believe that prospects want those interactions to

be more relevant

Beyond the objective to strengthen their brand, therefore, west European marketers feel the need for a more intimate understanding of customers and prospects, so that they can deepen their engagement and improve their relevance

Collecting contextual information

2

Given these strategic priorities, it is not

surprising to learn that many retailers are making

use of contextual information for marketing

purposes One example is the Dutch e-commerce

giant Wehkamp.nl, which uses contextual cues—

such as buying intention—to identify where on

the marketing funnel a prospect resides, and

therefore to target relevant marketing content

“We use contextual marketing to know where

customers are in the funnel and use different

techniques to orient them to our brand or

to inspire them,” explains Alex Bloemendal,

e-commerce manager at the company “If a

Which of the following channels do you routinely use to collect contextual information

about customers?

(% of respondents)

Chart 2

Retail Non-retail

Source: The Economist Intelligence Unit.

Website

Social media

In store personnel

Email

Mobile applications

Channel partners

Third party sources – e.g media partners, data aggregators

85 70

83 31

83 23

70 53

68 34

55 49 34

48

customer arrives on our website via a category page, it shows interest in that category If we target [that category] in the newsletter and he

or she interacts, we know there is interest If they visit the product page for the fi fth time, we know he or she wants it and can do a retargeting campaign for that product.”

Not all retailers are so advanced, but many are collecting contextual information Indeed, retailers surveyed by The EIU collect a more diverse and sophisticated array of contextual information than the average company in other industries

6 © The Economist Intelligence Unit Limited 2015

They are considerably more likely to use social media (83% versus 31% among non-retailers) and mobile applications (68% versus 34%) to collect contextual information One might have thought that retailers would have less need to use these more recent digital channels, given their bricks-and-mortar outlets, but this is not

so

When it comes to contextual marketing, social media and mobile applications are not just extra channels like any other By their nature, they

provide greater depth of contextual insight than has previously been available to marketers Mobile applications (as well as mobile websites) can reveal an individual’s precise location—for example, whether they are in a store at a given moment in time—while social media reveal what they talk about and who their friends are The fact that retailers are more advanced in their use of these sources refl ects their eagerness to adopt digital practices in response to intense competition from Internet-based rivals

How retailers use contextual information—or not

3

What contextual information do you routinely collect and use about your customers?

(% of respondents)

Chart 3

Don’t collect and would not be useful for marketing

Currently collect and use for marketing Currently collect but don’t use for marketing

Don’t collect but would be useful for marketing

Don't know/not applicable

Source: The Economist Intelligence Unit.

Their current location

What they are currently doing (excluding online behaviour)

Their current online behaviour

Current personal interests

What they are currently planning to do

Who their friends are/who they are with

How they are currently feeling

1 29 63

2 4 14 42

38

4 27 34

35

2 33 29

35

2 41 5 6 39

1 12 41

33 23

27 23

23 22

Retailers are using contextual information,

to some degree, in a variety of ways The

most common application of contextual

information among west European retailers is

communication with prospects, as identifi ed by

65% of respondents This means they are using

contextual cues to decide when and how to reach

out to potential customers This could include

anything from search-engine advertising to

location-based promotions

Meanwhile, 59% use it to communicate with

current customers The opportunities for using

contextual marketing are greater for current

customers, as a retailer typically has more

information about them

According to Thomas Bay, international marketing manager at Danish fashion brand Vero Moda, which sells through its own outlets and online as well through channel partners, contextual marketing is especially relevant for younger customers “The younger market expects

to see information when they want it,” he says

“We try to be relevant at the right point in time,

to give them information they fi nd inspiring.”

Substantially fewer respondents from the retail sector (51%) use contextual information

to identify prospective customers than those from other industries (66%) This could be

an indication that retailers have less of a requirement to identify new prospects as their physical stores help to attract new custom, but it also suggests that there may be more for them to learn

8 © The Economist Intelligence Unit Limited 2015

However, despite their desire for a deeper understanding of their customers and prospects and the relatively wide variety of contextual information sources they use, much of the contextual information they collect is left unused for marketing purposes

For example, 80% of retail respondents say they collect information about a customer’s current

behaviour, but only 38% use it for marketing purposes A surprising proportion—45%—collect information about a customer’s current mood, but only 22% use it

So what is preventing retailers from using the contextual information they collect?

The challenges and risks of contextual marketing

4

Which of the following do you consider to be the greatest risk associated with contextual

information?

(% of respondents)

Chart 4

Retail Non-retail

Source: The Economist Intelligence Unit.

Producing messages that are effective in particular contexts

Encouraging customers and prospects to share contextual information

Hiring the technical skills required by contextual marketing

Hiring the creative skills required by contextual marketing

Respecting customer privacy

Identifying relevant contexts in which to target customers

Measuring the success of contextual marketing campaigns

Adapting our marketing/campaign processes to incorporate contextual marketing

52 48 50 49 50 43

48 43

38 30

37

54 11

19 10

7

When asked to identify the greatest challenges

associated with contextual marketing, 52% of

retail marketing executives identify producing

messages that work in particular contexts

Communicating effectively in context has

both technical and creative components

Contextually relevant messages must of course

be generated automatically, as the situations

they address are transient, but they must also

inspire the customer or prospect to take action

Hence recruiting the creative skills required

by contextual marketing is a key challenge for almost as many respondents (47%) as hiring the necessary technical skills (50%)

For Vero Moda’s Mr Bay, the main barrier to using contextual marketing is fi nding the time

to analyse and interpret contextual information that is collected “The more work you put into

it, the better the result, but the challenge is the time,” he explains “There is so much data; being able to sort through that and understand what is important makes this complex.”

10 © The Economist Intelligence Unit Limited 2015

For other companies, it is a matter of resources

The Italian co-operative supermarket Coop Nord Ovest has ambitions to make greater use

of its customer data to provide more targeted advertising and promotions “We estimate that

to make it work well, we would need 20 people to work on it every day,” explains Claudio Marenco, the organisation’s head of promotion advertising and loyalty “Right now, we have only one person who works on this part-time That is one reason why we can’t start yet.”

The proportion of retail marketing executives who say that respecting customer privacy is one of the greatest challenges of contextual marketing is higher in the retail sector (37%) than in other industries (30%), but it is still the minority However, one-half of retail respondents say that encouraging customers to share contextual information is a key challenge, and one-quarter believe that damaging the brand by making customers feel uncomfortable

is the biggest risk associated with contextual marketing

Both these fi ndings highlight the need to operate within the boundaries of what customers accept and are comfortable with “It is possible to get too personal,” says Mr Bay “If it feels like we’re sitting in their living room, it’s creepy.”

Wehkamp.nl’s Mr Bloemendal adds that customers are increasingly taking control of the data that marketers collect about them If companies abuse their trust or intrude on their privacy, they will withdraw their data “The more people opt out of cookies, the less information we have.”

Given the strategic importance they place on maintaining their brand reputation, it is clear that retail marketers are reluctant to create negative associations among their customers

by overstepping the mark with contextual marketing

Marketing executives in the retail sector, like

their peers in other industries, believe that they

have a good understanding of their customers

But they nevertheless wish to deepen that

understanding further, and they acknowledge

the need for more relevant communications with

prospective customers

They often have the raw material for a deeper,

more contextual view of their customer base that

looks beyond who they are, how they behave, and

how a company’s products and services might

fi t into their lives In particular, they are using

a more diverse range of contextual information

sources, including social media and mobile

applications

But while the contextual information they collect

is being applied to a wide range of marketing

activities, much of it is going unused Retailers are struggling to fi nd the right messages to use

in particular contexts, due in part at least to the diffi culty of recruiting the required skills They are also aware of the danger of making customers feel uncomfortable through misused contextual marketing

This is to be expected—contextual marketing is still an emerging practice, and marketers do not want to tarnish their reputation by overstepping the mark But if retail marketing executives wish

to achieve that deeper understanding of their customers, a bit of considered experimentation

to fi nd marketing messages that work in context could set them on the right path