Newsletter… Let the ‘4% Factor’ Change Your Business

This Months Article- Let the ‘4% Factor’ Change Your Business

Budgets continue to be slashed. Brands are disappearing. Media is getting more fragmented. The only thing getting bigger is our federal deficit. So as a marketer, how do you capitalize on a world that is getting smaller in so many respects?

You could ignore it and keep doing things the same way — reaching wide and hoping for the best. Or you can face the fact that the world is changing and figure out how to benefit from it.

There are growth opportunities out there for those brave enough and diligent enough to dive into the data right in front of them: customer databases, profiling and enhancement data, real-time research, predictive modeling. You name it, readily available sources of information about your customers and prospective customers are voluminous. To date, brands from Yahoo to Coca-Cola have used transaction and behavior data to sort out their best consumers, targeting specific types of messages via specific channels of communication.

What marketers are starting to discover is that the target universe is smaller than originally thought. So small, in fact, that 4% of a brand’s consumer base is driving most of the business. This deeper dive into audience targeting is what I call the 4% Factor. Simply stated, it is another level down from the typical 80/20 rule of prioritizing (80% drive, 20% of the business) because, well, everything is getting smaller.

Four is the significant digit because it is this relative number that seems to rise to the surface every time a study is conducted or a program is measured, proving that those impacting your brand (typically characterized as volume, margin or advocacy) tend to be a relatively small number of the whole customer universe.

Examples as to the success of using this strategy are becoming more prevalent. For instance, Catalina Marketing, with its Checkout Coupon system, recently identified that 1% of Iams’ pet-food buyers accounted for 80% of the annual volume of the brand’s sales via the supermarket channel. And other marketers have experienced similar results, such as LaRosa’s Pizzeria chain, in which a small percentage of pizza consumers account for significant portions of various menu items (for example, 4% purchase 65% of calzones).

So what do you do about it? Embrace it. Start thinking about ways to employ addressable media, digital media, one-to-one marketing and, of course, social media to reach that core 4% of consumers who have the greatest propensity to identify and recruit others to your brand franchise.

The 4% Factor goes well beyond a loyalty strategy — it is a penetration strategy — designed as a competitive approach to protecting and growing your business. Simply put, start smaller to get bigger faster. It also tends to be a much more sustainable approach than traditional strategies of casting a really wide net, going through trial and then hoping to retain a percentage of new customers.

If you want to grow a business or product line that can react and adapt more quickly to future opportunities, consider these specific steps:

• Find: Discover and define your main source of volume, margin or advocacy by tapping into existing customer data. Combine that with outside resources such as enhancement data (information that can be appended to consumer profiles to shed additional insight about their demographics, psychographics and potential purchase behaviors) and details gathered via social media and other research tools.

• Filter: Sift through the data and intelligence by segmenting, profiling and using predictive modeling to develop a pool of target segments and markets.

• Magnify: Examine, select and prioritize the top three to five target groups. Test and refine through methods, such those found at iModerate, a company with research technologies that allow moderators of online conversations to dig deeper and go beyond the standard questions to gather detailed insights, as well as other primary interactions.

• Expand: Build out the selected communities via holistic communications strategies ranging from broadcast to social media in order to establish dialogue and grow the universe of new entrants and new advocates.

Today, brands are built by communities of like-minded individuals who share their brand experiences with others and those with whom they have some connection. Pinpoint those communities — or markets of business opportunity — and find creative ways to get them to help recruit your next customers.

This concept might not sound new, but this way of thinking used to be categorized with “below the line” strategies. It needs to become “above the line” to enable social media, mobile marketing, proximity marketing and other one-to-one approaches to be viewed as critical to brand and business building, as broadcast and print used to be. Call it a reordering and rethinking of the marketing-tool hierarchy. That is what I would call a smarter and faster way to grow, particularly in these economic times.