A european perspective on contextual marketing

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 fi nally contex

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 fi nally 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 refl ects, among other concerns, a lack of understanding of how to communicate with customers and prospects most effectively in a given context

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BEYOND PERSONALISATION

A European perspective on

contextual marketing

2 © The Economist Intelligence Unit Limited 2015

Meanwhile, the most prominent sources of contextual information that west European marketers use today are the fi rst-generation digital channels: email 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

In short, west European marketers have made

a start with using contextual information to

This executive summary draws on a survey of

165 chief marketing offi cers conducted by The Economist Intelligence Unit (EIU) in the summer

of 2015 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

About the survey

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

© The Economist Intelligence Unit Limited 2015

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 satisfi ed

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 confi dent that their interactions with existing customers are well received: over half (51%) say customers

“are satisfi ed 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 fi ndings 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

Engaging customers and prospects

1

In your opinion, how do your customers feel about the way your organisation interacts

with them?

(% of respondents)

Chart 1

They have no opinion about how we interact with them

They are happy with the way we interact with them

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

They would like us to stop interacting with them altogether

1

4

51 22

14 18 13

17 21

35

0

1

Customers Prospects

Source: The Economist Intelligence Unit.

4 © The Economist Intelligence Unit Limited 2015

Putting contextual information to use

2

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

Which of the following marketing practices at your organisation currently incorporates contextual information?

(% of respondents)

Chart 2

Source: The Economist Intelligence Unit.

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

66 59

58 56 52 50 50

© The Economist Intelligence Unit Limited 2015

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 benefi t.”

“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

6 © The Economist Intelligence Unit Limited 2015

The challenges of contextual marketing

3

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 defi nition 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 fi nding 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 fi nding recruits with the necessary digital skills, but fi nding a combination of the technical talent and business acumen “You typically fi nd 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.”

Which of the following, if any, do you consider to be the greatest challenges to using contextual information?

(% of respondents)

Chart 3

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

Identifying relevant contexts in which to target customers Hiring the creative skills required by contextual marketing Respecting customer privacy

Measuring the success of contextual marketing campaigns Adapting our marketing/campaign processes to incorporate contextual marketing

50 50 47 45 45 34

15 8

© The Economist Intelligence Unit Limited 2015

Another challenge singled out by respondents is

the ability to identify relevant contexts in which

to target customers This may refl ect 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 fi rst-generation digital

channels: their company website (used by 77% of

respondents) and email (61%)

Newer digital channels, including social media

and mobile applications, are used less frequently,

but these have the potential to offer more fi ne-grained 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 refl ect another common concern: the fear of intruding on a customer’s privacy

8 © The Economist Intelligence Unit Limited 2015

The privacy issue

4

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 confi dent 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 fi nding 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 profi ling 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

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

(% of respondents)

Chart 4

Source: The Economist Intelligence Unit.

Collecting incorrect or misleading contextual information about customers or prospects Damaging the brand by making customers feel uncomfortable

Making marketing processes too complex Damaging the brand with unsophisticated experiences Failing to make a return on investment

None of the above

38 28

14 10

8 2

© The Economist Intelligence Unit Limited 2015

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 fi erce 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

Conclusion

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