Case Study #19: Stratelysis for Marketers Part II – Crystallize Consumer Confidence Metrics Into Measurable Market-Facing Programs

It seems like yesterday when a consortium of economists, businesspeople, politicians and others assert that the missing link for a full economic recovery is a sustained increase in consumer confidence. Today, The Conference Board, a New York-based business research group, reports that its Consumer Confidence Index rises to 54.1 in August from an upwardly-revised 47.4 in July (Pepitone, Julianne. “Consumer confidence soars”. CNNMoney.com. August 25, 2009). As of noon CST, the Dow Index is up 57.06 points: “The day begins with surprisingly strong readings of home prices and consumer confidence, as well as the nomination of Federal Reserve Chairman Ben Bernanke for a second term.” (McKay, Peter A. “Upbeat Data Buoy Stocks”. Wall Street Journal, August 25, 2009). As this economic data streams through your RSS, Twitter, Facebook, LinkedIn updates, are you asking the same question I am:

“So what?”

Before answering that question, it is important to understand what consumer confidence means. It is generally discussed in context of the Consumer Confidence Index that measures Americans’ attitudes about current and future economic conditions.

It is based on a monthly survey of 5,000 households conducted for The Conference Board. The Board develops a report based on the survey that gives details about consumer attitudes and buying intentions, with data available by age, income, and region. This is compiled into three numbers:

• The overall Consumer Confidence Index: This Index is a composite of the two other indices, and is weighted 40%-Present Situation Index and 60%-Expectations Index.
• The Present Situation Index: This Index is based on two questions the survey asks: 1) How would you rate the present business conditions? and 2) What would you say about available jobs in your area right now?
• The Expectations Index: This Index is based on respondents' predictions for business conditions and available jobs six months from now. It also measures whether those surveyed think their incomes will be higher, lower or about the same in six months.

Consumer confidence is important to the economy because consumer spending drives 70% of economic growth.

There is also the University of Michigan Consumer Sentiment Index (MCSI). Like the Consumer Confidence Index, it is indexed to have a value of 100. At least 500 telephone interviews are conducted each month of a United States sample which excludes Alaska and Hawaii. The two surveys are quite similar, but they have two important differences traders should be aware of. The MCSI survey asks one less question about employment. This fact makes the Conference Board survey a better indicator of consumers' expectations about employment. But the look-ahead period of the MCSI survey is longer: one year instead of six months. The Michigan survey therefore attempts to predict economic conditions a full year into the future (Investopedia).

Assuming you work in an existing or soon-to-be public company, the majority shareholders or soon-to-be shareholders of your firm will make investment decisions based on the data points they receive from reputed, credible sources such as the Conference Board and University of Michigan. They have numerous data points to make the best possible business decisions, but if this economic recovery hinges on the growth of consumer confidence, then it is imperative that customer-driven metrics brim to the very top of executive analysis and review. It is not enough to say that a rising unemployment rate and home foreclosures will limit spending for the rest of 2009. Marketers, you and your partners within and outside of the organization may consider the following ideas to help assess consumer confidence for the brand(s) you support:

• Reporting overhaul: Every company reports its performance in different ways, but generally, they report on business drivers. For example, the acquisition of new accounts is a driver for a credit card company. A new truck sales deal is a driver for a truck manufacturer. These drivers change based on market and economic conditions. But, this kind of reporting may not be granular enough. This report should be supplemented with a detailed, granular look on the customers who comprise the sales, and be segmented by confidence factors such as recency, frequency and monetary (RFM) values. A dashboard may be used to summarize a monthly segmentation analysis so executives can easily distill the information.

• Market research: A multi-million dollar study does not have to be commissioned to validate or innovate a strategic path. Research should be endemic in the heart and soul of marketer, and there should be an established process by which customer-facing departments interface with customers on a frequent basis. Online consortiums (i.e. the Facebook portal for customers), customer advisory boards and other online or offline groups will enable companies to have real-time dialogue with people who drive their business. It also enables analysts to answer the question, “Why are the numbers so low?” or “Why are the numbers so high?”. Every quarter, it is important to study and capture how customers absorb and act on brand messages. This provides a critical understanding on the psychological underpinnings of their purchase decisions, and this qualitative analysis speaks to their level of consumer confidence.

• Execution of marketing tactics: With the evaporation of collective, liquefiable assets and cash, it is challenging to get a customer to spend money they don’t have or don’t want to part with. The personal savings rate in the United States grows from 1.3% from January 2008 to 4.6% in June 2008 (U.S. Department of Commerce: Bureau of Economic Analysis). But, that isn’t a detriment to business growth as marketing campaigns can be developed to secure data points about new customers while trying to achieve profitable conversions. For example, let’s say a small consumer packaged goods company notices a decline in year-over-year sales of bottled salsa. It may be able to turn inventory through aggressive retail promotions. A long-term strategy will enable the CPG company to collect customer data through marketing touchpoints such as a recipe micro-site or a partnership with a chain restaurant (such as Chipotle). There is a cost per acquisition, but if a relationship can be built through an online or offline partnership, the future payout can be very rewarding for the CPG’s bottom-line. In addition, the data generated by the two marketing touchpoints can be provided to executive management, showing that cost conscious customers are being acquired in the present to increase profitability in the future. The monetization of data should never be underestimated in its potential ability to be converted into cash.

Recovery is on the way and that provides a certain degree of relief, but there is a lot of work that needs to be done within and beyond a corporate environment to make sure that a recession of this magnitude does not happen again.