White Paper 5.0 Connect 4.0 Interact 3.0 Personalize 2.0 Discover 1.0 Envision

WRITTEN BY

Jean-Francois Nebel Accenture Professor Robert C. Blattberg Kellog Graduate School, Northwestern University http://nebel.CRMproject.com

Brand Relationship Management – A New Approach for the Third Millennium

Brand Relationship Management is not simply a single idea or process. Rather, it is a completely new approach to brand management that extends Jean-Francois Nebel is an traditional revenue management into the realm of customer-centric revenue associate partner within Accenture's Customer management, and then across both product and customer lifecycles. As the Relationship Management world quickly moves toward a more sophisticated approach to CRM, brand practice. Prior to joining Accenture, he held management must also change. The successful brands of the Third Millennium senior marketing positions with Unilever and L’Oréal in various must rethink their strategies and processes and ultimately enhance the value European countries. Mr. Nebel of their relationships with customers. They must become the customer’s entered the consulting field in 1994 and has since been a brand of preference – or risk dying a slow and painful death. pioneer in the application of Customer Relationship principles to Brand Management. He has In a fiercely competitive and dynamic global market- with lower levels of service from other suppliers. led and participated in a variety place, brands more than ever are facing new challenges Examples of brands that successfully deliver extra of projects across all industries and threats to their expansion and even survival. value and service include: involving strategic planning, As markets become more and more commoditized, customer and brand strategy, brand managers struggle to create differentiated value • Dell, with individually specified computers market research and analysis, for consumers and ultimately for shareholders. The delivered to customers in 2 days. database marketing, Marketing penalty for failing to create this differentiated value • Toyota, with individually specified cars delivered and Customer Information has been both harsh and immediate. In some markets, to customers in 10 days. Systems design and generic or distributor house brands have captured an • Standard Life Bank, which guarantees mortgage implementation. 80 percent share of sales volumes. acceptance within 9 minutes. Robert C. Blattberg is the The World Is Changing, But Brand Heightened competition has given customers Polk Bros. Distinguished Management Is Not tremendous freedom of choice – a freedom they have Professor of Retailing and been increasingly willing to exercise. Director for the Center for Retail Rising Customer Expectations Management in the Kellogg Customer expectations have risen steadily over the Media Fragmentation Graduate School of Management last three decades. Customers continue to become Reaching target audiences is becoming increasingly at Northwestern University. more sophisticated and more interested in innova- difficult and expensive due to media fragmentation Professor Blattberg’s primary tive products and customized services. At the same and proliferation. Twenty years ago, 80 percent of a research is in the areas of time, they are becoming more unpredictable in their target audience in many countries could be reached database marketing, sales tastes and needs. with one 30-second, off-peak television spot. promotions, and retailing. His Customers continue to expect and demand more Reaching the same audience today often requires articles have appeared in ”value” from brands. Without this perceived value, between 200 and 300 prime-time TV spots. numerous leading academic they are unwilling to pay a premium price. Customers publications. who receive exceptional service from one supplier Lack of Customer Focus (regardless of industry) will tend to be dissatisfied Brand management and brand marketing are ultimate-

http://nebel.CRMproject.com 1 White Paper 1.0 Envision 2.0 Discover 3.0 Personalize 4.0 Interact 5.0 Connect

ly all about the customer. Yet brand man- just purchases. This allows the e-tailer to 52 percent and 76 percent of consumers sur- agement has failed to recognize the differ- develop a more powerful relationship with veyed felt that the selection of brands from entiated value perceived by the customer. the customer. The implication for which to choose were more or less the same. Instead, the focus has been upon ensuring manufacturers is a continuing loss of control The situation has not changed much asset utilization while sustaining and of the customer if they don’t change their since then. For instance, a survey conduct- enhancing the customer value proposition. brand marketing strategies. ed in 1998 on the French dairy market Brands have traditionally relied on showed that about two-thirds of consumers mass communication, promotions, loyalty Customer Ownership Is don’t see any difference between the programs and intermediary distribution Changing brands available on the market. Even more channels to drive volume and revenue. But A major change facing brand companies is surprising, more than 50 percent of con- brand management has yet to demonstrate the fact that the end consumer is now sumers would rather choose a private label a consistent and meaningful focus on the ”owned” by the intermediary. Which is a than a brand if the two were comparably ultimate customer value proposition. more powerful brand as perceived by the priced. consumer? Amazon.com, the e-tailer, or Innovation has been limited – minor Increasing Power of Intermediaries Little Brown, the publisher? Customer own- packaging and product improvements have Retailers are increasing their power world- ership and brand loyalty are being eroded resulted in minimal brand differentiation wide through mergers, global expansion, because brand manufacturers are no longer and higher price sensitivity. The market has and a focus on customer loyalty. Target, a in direct contact with the end consumer. become very price-driven, a situation that subsidiary of Dayton Hudson in the United Instead, retailers who have developed has enabled private labels and low-price States, has developed a credit card that frequent shopper cards are in direct and products to reach an average 70 percent automatically donates 1 percent of a constant contact with these customers. As market share in some European markets. customer’s purchases to a school designated intermediaries become increasingly focused This is not a standalone situation. At by the cardholder. Tesco and Sainsbury upon – and successful at – building their the 1999 ECR conference, a recent survey have been leading users of loyalty cards brands (e.g., Walmart, Carrefour), customer on ”Efficient Product Introductions” in the over the past five years. loyalty will continue to shift to the FMCG industry showed that only about 2.2 New intermediaries are also emerging intermediary from the manufacturer. percent of the 24,543 new EAN codes stud- as multichannel loyalty schemes are being Who owns the relationship with the ied represented truly new products. developed (e.g., AirMiles or Shell SMART consumer? With whom would the customer card in England). Such programs tend to prefer to do business? Is it the retailer or … And for the Shareholders foster loyalty towards the ”intermediary the brand manufacturer? The weaker the The inability of brands to create value for brand,” rather than the affiliated companies. relationship with the brand, the easier it is the consumer has made it difficult to for the retailer to temporarily or definitive- sustain premium prices and has caused Changing Intermediaries ly remove a manufacturer’s brand out of its aggressive promotional battles. On April 2, The largest single change is occurring today assortment and offer a substitute without 1993, Philip Morris caused ”Marlboro as e-tailing develops. While its importance losing the customer. As an example, con- Friday” on the New York Stock Exchange is potentially overstated, e-tailing is sider Dollar General, Family Dollar, and when they announced a 20 percent price becoming a major force in many business- Dollar Tree, three low-end retailers that are cut on one of the world’s premier brands. es. In some segments, e-tailers are growing enjoying a rapid growth rate fueled by a This move resulted in a multi-billion dollar at such phenomenal rates that they may rotation of low-priced branded products. decline in stock market value for most well become the primary retailing vehicle This again demonstrates that the consumer branded consumer products companies. for the consumer (e.g., books). This power is becoming more loyal to the retailer’s Brands have an asset value to their shift offers tremendous opportunities for brand than to the manufacturer’s brand. owners as part of that company’s stock of manufacturers to develop relationships goodwill (Davies, 1992). with their customers. But will e-tailers Brands Are Struggling allow manufacturers to develop that rela- To Create Value The Solution: Brand tionship? If brick and mortar retailers are Relationship Management any example, the answer will be ”no.” For the Customer... We will extend the definitions of relationship What will be the difference? Compared In his 1991 breakthrough book on brand marketing by Groönroos (1990) and Shani to traditional retailers, both catalog retailers equity, Aaker reported on surveys that and Chalasani (1992) to define Brand and e-tailers have much better data about raised alarm amongst brand managers. Relationship Management (BRM) as follows: their customers. In addition to tracking all These surveys included a worldwide study by purchases, e-tailers can now capture click BBDO on brand parity across 13 product An integrated effort to establish, maintain, streams, observing product interest and not categories. The results found that between and enhance relationships between a brand

2 Defying the Limits: Reaching New Heights in Customer Relationship Management Customer Insight-Driven Transaction Relationship Relationship Customer Insight-driven relationships help “I like that brand and the brand strengthen brands to anticipate and deliver recognized me as a valuable against customer needs and expectations. customer with unique needs.” Consider the extremely high interest “I am (just) rewarded for just generated by a pilot brand relationship buying that brand.” program implemented across six different Personalization dairy brands in France. Of the 4,000 consumers selected for the pilot program: “I am offered a range of service Rewards/Incentives benefits tailored • 65 percent declared the brand relationship to my needs.” program to be a tangible benefit because it showed the brand’s willingness to provide recognition for them as highly Customer Service valued customers. • 78 percent looked at the brand relation- ship program as a proof that the brand FIGURE 1.0 Turning the old transaction paradigm into a relationship paradigm wanted to better meet their needs.

Technology now allows both the collection and its consumers, and to continuously no other choice but to continuously improve and processing of data on individual strengthen these relationships through inter- their value propositions. The brands that are customers in many industries as well as the active, individualized and value-added con- first to move into Relationship Management detailed evaluation of supply performance. tacts, and a mutual exchange and fulfill- will be furthest along in their ”learning Leading brands use ”customer friendly” ment of promises over a long period of time. relationships” with these best customers, technology to become easier to do business and thus be in the best position to take and with and to achieve closer and more This definition implies that BRM refers keep the best customers. interactive communications with cus- to all activities associated with both Not only will these brands enjoy the tomers. These brands also use technology ”relational exchanges,” and ”transactional ”halo effect” benefit of always being con- to improve the efficiency and effectiveness exchanges”. The effectiveness of Brand sidered to have pioneered this level of ser- of marketing processes that add the most Relationship Management is consequently vice, they will also always have a longer value for the customer. dependent upon customer data and the way learning relationship with their customers New technologies like the Internet in which it is gathered, managed and than their competitors. ”First mover” have opened a whole new way to reach turned into actionable information. advantages are the benefits that can accrue customers, and the growth in the use of BRM changes the Brand Management to a company for being the first to make a these channels over the past 18 months has practice by turning the old transaction competitive move. been truly explosive. paradigm into a relational paradigm (see The success of Brand Relationship The idea of relationship marketing Figure 1.0). The execution of refined Brand Management is closely related to the inte- has been around for some time, but a new Relationship Management requires: gration of a comprehensive Customer area of Marketing Automation Systems Relationship Strategy, and the effective (MAS) is emerging which has the • A deep understanding of customer collection and utilization of customer potential to radically change the brand expectations, attitude and behavior information to derive an understanding of marketing processes and advance the through a well organized and managed customer needs and expectations. In other concept of one-to-one marketing from customer database. words, it is critical to: theory to reality. These new MAS are • Innovative customer strategies, which designed to automate the marketing are based on the results of thorough • Unlock the marketing potential of the function, enhance its efficiency, and tie customer analysis and, which customer data. together many of the promising, but often consequently, address the major issues • Turn this data into actionable information. limited, technology solutions that have pointed out by the analysis. • Encapsulate this information to support been emerging in marketing over the last strategic marketing decisions. several years. Learning Relationships • Turn the gained knowledge into a To strengthen their brands, marketers have competitive advantage.

http://nebel.CRMproject.com 3 White Paper 1.0 Envision 2.0 Discover 3.0 Personalize 4.0 Interact 5.0 Connect

Brand Management and the Relationship Equation The ability of the brand to generate Trial Repeat Share of incremental and sustainable value is Purchase Requirements related to its ability to:

• Differentiate by providing the basis for FIGURE 2.0 Typical brand equity non-price competition (Davies 1992), thus commanding a premium price. • Secure a customer franchise by establish- ing a strong preference for its relative added value, thus maintaining and Brand growing its average share of customer. Extension Repeat Share of Affinity Brand Loyalty • Expand relationships with its customers Trial Purchase Requirements Relationship Service by developing an affinity with them in Extension order to sell other product/services (i.e., cross-selling, add-on selling).

FIGURE 3.0 This picture illustrates how the relationship with the customer will determine the Extending the case of umbrella branding ability to extend the brand and ultimately generate a higher level of brand equity (Tauber,1988), the actual relationship between a brand and a customer can be considered to be an ”umbrella” relationship. This relationship makes it possible for the Impact of a Brand Relationship Program on the Brand’s Perception brand to develop new relationships by ”monitizing the equity” of this existing umbrella relationship. It improved my perception of the brand. 65% It gave me the opportunity to better know the brand. 66% Brand Relationship Management Is The Next Evolution of It gave me the opportunity to learn new things about 73% Brand Management the product category. Earlier decades of brand management It helped me to choose among brands in that category. 35% focused on generating trial and high share of requirements (i.e., the product’s market It changed my purchase attitude toward the category. 19% share for a specific consumer). This concept was known as brand loyalty. If a brand had It gave me the opportunity to discover new ways of 47% a high share of requirements, then its brand consuming the product category. equity was high. The typical brand equity picture is shown in Figure 2.0.

It is important to recognize that high FIGURE 4.0 Impact of a brand relationship on the brand’s perception share of requirements (often mistaken for loyalty) is transient. If the sole focus of a brand is on high share of requirements, the very positive perception of that brand Research conducted by Accenture brand is highly vulnerable. Consider the through an effective brand relationship across different product categories new paradigm shown in Figure 3.0. program. Consider that 74 percent of has shown that a certain level of The relationship a brand develops with consumers felt such a program represented affinity with a brand is required before a its customers clearly represents great value. a good means of gathering objective and customer may be willing to enter an Figure 4.0 illustrates the impact of the reliable information about the brand. intimate relationship with that specific Brand Relationship Program on the percep- It is important to recognize that brand. And the level of affinity a consumer tion, attitude and declared behavior of “real” loyalty is a more complex concept is likely to develop is highly correlated to 4,000 consumers towards their regular than share of requirements. Both prefer- category involvement and brand sensitivity. dairy brands. The survey has revealed that ence and attitudes must be factored in. Amazon.com is an example of a even consumers showing a high share of Not all customers of a brand are likely company that has increased its affinity requirements could enhance their already to develop a relationship with that brand. with each customer by providing greater,

4 Defying the Limits: Reaching New Heights in Customer Relationship Management customer, the longer the lifetime and the greater the lifetime value (LTV).

Brand Equity Relationship Customer Equity Customer Equity Is Driven by Value Brand Equity The more extensive, comprehensive, and intensive the preference is, the higher the

FIGURE 5.0 The more extensive, comprehensive and intensive the preference is, the higher the customer and target customer base-wide customer and target customer base-wide average utility will be. This also results in average utility will be. This also results in a a higher average LTV. higher average LTV. The present and future revenues or profitability derived from a customer by a Impact of BRM® on the brand’s perception brand also reflect his willingness to pay a premium in terms of price and/or time. The stronger the relative utility of a brand, the The brand is worth paying a premium price stronger the consumer’s willingness to pay Totally/ Neither Totally/ Totally/ Neither Totally/ rather agrees nor rather rather agrees nor rather a premium. Figure 6.0 stresses the disagrees disagrees agrees disagrees disagrees agrees intriguing result of a three-month Brand Relationship Program on consumers’ The best brand 18 9 25 8 4 40 perception of a food brand. Not only did more consumers acknowledge the brand as 38% 56% the best brand, but they also agree that it One of the is worth paying a premium price for. best brands 18 10 13 11 19 16 The LTV of a customer reflects the influences of the customer’s preferences Before the BRM® program After the BRM® program and their situational constraints (e.g., promotion, availability, location). The FIGURE 6.0 Impact of BRM on the brand’s perception stronger the brand equity, the higher the LTV. For instance, as a consequence of the increased perceived value, the consumers value-added services. Amazon introduced ed with the product features, the tangible selected for the Brand Relationship sophisticated information technology (i.e., value of these features, and the intangible Program increased their average spending collaborative filtering) to expand its value the consumer assigns to the brand for their regular brand by 29 percent over a service offerings to include CDs, DVDs and name. The utility is a function of the three-month period of time, some of them other lower ticket consumer durables. The capacity of the brand to consistently showing a 77 percent increase. company is now adding auction services deliver an experience in alignment with the and broadening its scope. Amazon customer’s expected equity. Consequently, Customer-Centric Revenue understands that its relationship to the it reflects the convergences of the Management: Customer Equity customer is critical in developing its brand. customer’s perceptions and expectations. Reinforces Brand Equity Following the conceptual model of The heart of Brand Relationship Brand Relationship Management: consumer choice developed by Tybout and Management is customer-centric revenue Linking the Brand and the Hauser (1981), the customer’s preference management, which optimizes profits for Customer Together for a brand is based upon how valuable its each customer relationship based on the The relationship between a customer and a utility is perceived to be. The customer’s price a customer is willing to pay for his or brand is an exchange relationship. brand value perceptions and his her perceived value. Consumers enter into a relationship on the motivations are translated into preferences This is an important concept for basis of expected equity and the desire to (Kamakura and Russell, 1993). The relative brands that are too focused on Product increase the predictability of exchange out- level of preference for a brand thus affects Revenue Management instead of Customer- comes (Peterson, 1995). his brand choice and his repeat purchases Centric Revenue Management. In transac- The length and strength of the cus- (share of customer). tional relationships with tens of millions of tomer relationship is a result of the relative In summary, the stronger the consumers, analysis often reveals that just value the customer perceives of the brand; individual relative utility, the stronger the a small percentage of the customer base is in other words, the implied utility associat- preference, the higher the share of truly profitable. By refocusing some of its

http://nebel.CRMproject.com 5 White Paper 1.0 Envision 2.0 Discover 3.0 Personalize 4.0 Interact 5.0 Connect

marketing expenditures on that part of its customer base, a brand may significantly increase both its revenues and turnover. The following example is a good illus- Brand Equity Relationship Customer Equity tration of this paradigm (see Figure 8.0). Value The average consumer spends an approximately $104 per year on Brand X. In

turn, the brand spends approximately $5 per FIGURE 7.0 Customer equity reinforces brand equity consumer per year. However, consider that:

• Half of the consumers are light users, An Average Consumer generating an average turnover of $21/year for an average marketing - + investment of $5/year. Given the low costs generates margin (20 percent) in this market, these $5/year $104/year consumers are definitely not profitable. in marketing expenditures in revenues • Whereas 20 percent of the heavy % of the % of the consumers generate more than 60 consumer revenue Average percent of the brand’s revenues. Each 20% Spending consumer spends an average of 3 million $294/year (14 times more than the light 63% $294 users) for the same average marketing 4.5 million investment of $5/year. 30% x 14 Though the brand is a mass-market brand, $93 the customer base structure revealed the 26% 50% unexplored potential of Customer-Centric 7.5 million Revenue Management. The challenge for 11% $21 this brand is to identify its profitable consumers and to develop a direct relation- ship with them to increase both their share FIGURE 8.0 The value of the individual customer to the brand in terms of future revenue potential and cost to serve of requirements and their loyalty. Individual revenue management decisions must consider the value of the Step 1: Actionable Insight • Develop for each customer a market individual customer to the brand in terms Provide in-depth actionable insight of cus- response profile, measuring his propensi- of future revenue potential and cost to tomer preferences, behaviors and value ty to respond to various marketing serve. This new customer-centric revenue drivers, and continuously capture, stimuli (e.g., TV, direct mail). management philosophy has a profound maintain, and apply this insight across the effect on all aspects of traditional Brand entire customer relationship cycle. Step 2: Actionable Segments Management, including product offering, Group target customers into actionable pricing, market communications, and so on. • Identify the key value drivers that segments based on profitability, usage Thus the focus shifts from the product contribute to brand preference. characteristics, and/or common needs. or service to the relationship developed • Measure the utility that consumers attach with the customer. to the brand. Step 3: Value Propositions Define offers and corresponding value Brand Relationship Analyze the customer’s buying patterns and propositions that meet the identified Management’s Journey identify the factors that influence brand needs. Reconcile the value of the customer BRM‚ is a journey, not a destination. It switching to the value of the brand, and understand requires a long-term focus to create and tradeoffs in revenue management versus manage a relationship with the customer in • Analyze the way actual choices reflect customer relationship management. which the joint exchange is profitable to consumer preferences and situational both the customer and the firm. The steps constraints. Step 4: Develop a Relationship to manage this journey are outlined below: • Develop predictive scoring engines. Develop a relationship with the customer.

6 Defying the Limits: Reaching New Heights in Customer Relationship Management Create mechanisms that can generate • Make their choices by preference. Free Press, New-York, 1991. positive interactions between the customer • Are ready to reward the brand for and the firm. These mechanisms should providing unique value to them by paying ECR Europe, ”Efficient Product strive for customer satisfaction, loyalty a premium and/or by investing time in Introductions, The Development of Value- growth, consumer demand increase and the relationship. Creating Relationships,” 1999. lifetime customer ownership. Some industries display incredible ingenuity Davies, G., ”The Two Ways in which Step 5: Measure the ROI to give their brands the definitive ownership Retailers Can Be Brands,” International Measure the ROI of the implementation of a of the relationship with their customers. Journal of Retail and Distribution BRM strategy: Consider domestic appliance brands which Management, 20 (2), 1992. are developing on-line-controlled appliances • Define the economic framework. – a washing machine’s wash cycles can now Grönroos, Christian, ”Relationship Approach • Develop a spending allocation model be downloaded from the Internet and a to Marketing in Service Contexts: The based upon the Life Time Value of a digital cooker can receive instructions by Marketing and Organizational Behavior customer. mobile phone. Interface,” Journal of Business Research 20 • Elaborate upon different investment What does it mean for a food brand (January), 1992. scenarios (based on internal and external when the freezer has online links with resources). supermarkets and automatically places Kamakura, Wagner A. and Russell, Gary J., orders when food supplies run out? ”Measuring Brand Value with Scanner Conclusions In the next few years, BRM will Data,” International Journal of Research in Brand Relationship Management (BRM‚) is become a discipline driving fundamental Marketing, 10(1): 9-22, 1993. not just a single idea or process. Rather, it change at leading organizations. is a completely new approach to brand Developing a long-term relationship with Peterson, Robert A., ”Relationship management that extends the idea of customers is not only a question of Marketing and the Consumer,” Journal of revenue management into the realm of marketing, but it is also a question of the Academy of Marketing Science, Vol. 23, customer centric revenue management and vision, strategy, major process change No 4, pp 278-281, 1995. across both product and customer and technology. It is a question of lifecycles. The world is moving rapidly business transformation that will be the Shani, David and Sujana Chalasani, towards a more sophisticated approach to key to stability in an increasingly ”Exploiting Niches Using Relationship customer relationship management, which dynamic market. Marketing,” Journal of Services Marketing 6 must ultimately change brand management. Relationship brands are working hard (Fall), pp 43-52, 1992. The successful brands of the Third to understand smaller and smaller groups of Millennium are working hard to rethink customers in greater detail and, with the Tauber, E.M., ”Brand Leverage Strategy for their strategies and processes to enhance help of technology, will soon make the Growth in a Cost-Controlled World,” Journal the value of their relationships with their ”market of one” concept a reality. of Advertising Research, August/September customers and therefore become the brand In the Third Millennium brands have 1988, pp. 26-30, 1992. of preference. These brands are striving to no choice: they are or will become rapidly develop brand loyalty by targeting Relationship Brands or they will die a slow Tybout and Hauser, ”A Marketing Audit customers who: and painful death. Using a Conceptual Model of Consumer Behavior,” Journal of Marketing, 45 • Perceive the differentiating and discrimi- References (Summer), 82-101, 1981. nating added values of the brand. Aaker, D.A., ”Managing Brand Equity,” The

http://nebel.CRMproject.com 7