Credit: Stephen Sauer
Ideas Made to Matter
CFOs on how to master direct-to-consumer marketing
When retailers cut out the middleman to manufacture, market, and sell their own products, they get closer to their customers and ultimately serve them better.
That was the takeaway from a direct-to-consumer panel at the recent MIT Sloan CFO Summit in Newton, Mass. Chief financial officers from Peloton, Etsy, and Diageo North America offered four tips for gaining valuable insight into consumers’ preferences and pain points:
Alleviate what most annoys your customers
Peloton, best known for its high-end exercise bike that streams studio cycling classes, prides itself on giving its members a great customer experience, said CFO Jill Woodworth, who spoke just a few weeks before a Peloton holiday ad went viral with mixed results.
When members began complaining about poor delivery of their stationary bikes, Peloton took matters into its own hands and in 2014 began delivering the majority of its bikes itself in its four markets: the U.S., Germany, the U.K., and Canada.
Futher reading: In Peloton's brand strategy, value in old-school advertising
“We didn’t deliver bikes in the beginning, but the No. 1 detractor from our brand was perpetually having a bad delivery experience,” Woodworth said. Now, bikes are shipped to customers by Peloton, and a skilled professional sets up the bike and makes sure it’s working. The service, valued at $250, is included in the total package price.
While that change was a big investment and involved plenty of adjustment, Woodworth said there are advantages to the approach. “When you build things yourself, you can leverage them over time,” she said. “When you open up your first show room, you don't know what you're doing. But when you're on No. 81, you know how to make it work.”
Give customers the transparency they value
From calorie counts to health benefits, today’s customers are far more conscious of what they buy. “Consumers really want to know what’s in the product that they’re consuming,” said Lavanya Chandrashekar, CFO of Diageo North America, a London-based alcoholic beverage company whose brands include Smirnoff, Johnnie Walker, Baileys, and Guinness.
Per regulation, Diageo North America can only sell alcohol to distributors, who in turn sell to retailers and on to consumers. But the company still interacts with consumers directly, whether by marketing its products at a music concert or other local events.
Recognizing the trend toward transparency, Diageo has doubled down on educating consumers on where their beverages come from and how they’re made, said Chandrashekar. One of the company’s whiskey brands, Bulleit, opened a new distillery in Shelbyville, Kentucky, that gives consumers an inside look at how whiskey is distilled, stored, bottled, and shipped.
“Even in the alcohol space, ‘low alcohol’ and ‘no alcohol’ are trends that are definitely growing,” she said. “We haven’t seen this level of change in our industry in probably the last 30 years.”
Having brand locations for tourists is also powerful word-of-mouth advertising and gives the company valuable information on how many repeat consumers it has. At the company’s Open Gate Brewery for Guinness in Baltimore, for example, about 60 percent of the consumers who come in are repeat consumers.
“They come in, they love the experience, they bring their family,” Chandrashekar said. “They bring people who are visiting the area in to partake of the experience.”
Use data to customize the consumer experience
With 2.5 million sellers and 44 million buyers, online crafts marketplace Etsy is a data goldmine. By using all the data it has — on a buyer’s demographics, location, and recent purchases, for example — Etsy is able to serve up items that are highly relevant to customers’ style and shopping habits.
“We have about a billion events per day from all the data that we capture from people visiting the site and the transactions that we have,” said CFO Rachel Glaser.
Etsy hopes that parsing through all its data will improve customization and personalization for buyers and bring in more repeat customers. “Using that data to be able to go find the people that we want to bring back into the site is a challenge and an opportunity for the business,” she said, noting that the company remains vigilant about protecting the data of its users.
“We don’t sell any data,” Glaser said. “We don’t sell it, and we don’t use it for any reason other than for your own experience.”
At Peloton, one of the most important barometers of the company’s health is how often members work out, Woodworth said. “We track pretty vigilantly the number of workouts per subscriber, and we're happy that that keeps accelerating quarter over quarter.”
Keeping members engaged is crucial to a strong bottom line.
“Everything we do at Peloton, all of the data that we use, that we collect from our members, helps us refine our product,” Woodworth said. “What length class do our members like? What instructors? What intensity? What music? We're constantly looking at everything that is consumed so that we continue to see engagement rise.
“For us, that's the North Star,” Woodworth continued, “because if our engagement is rising, that means our customers are happy, they're using our product and staying with us, and then our churn is low.”
Adjust to meet changing consumer tastes
A decade ago, Chandrashekar said, alcohol consumption happened in highly social environments, like clubs, while today, drinkers tend to prefer a more laidback atmosphere. For example, hard seltzer is a growing segment for Diageo, which owns Smirnoff and its line of spiked seltzer, which comes in a can.
“Where consumers drink and how they drink is changing rapidly,” Chandrashekar said. “Young people today want to drink pretty much everything that they can out of a can. For us, as a brand manufacturer, it's really important to have a pulse on these consumer trends and be really relevant to the consumer and not be followers in these spaces."