As families settle back into school, parents start to worry about the viruses that naturally spread when children cluster together in classes. My colleague Tim Joyce and I have found a similar viral phenomenon with superconsumers — our term for people who buy big volumes of a product or service, but who often can be convinced to buy even more.
But instead of spreading germs, superconsumers spread growth.
Tim and I observed this while using big data to better understand the habits of superconsumers. First, we found that they tended to cluster together at a local geographic level. In our work with clients, we call these local areas “super geos.” Second, we found that these super geos had a network effect — in these areas, even people who don’t qualify as superconsumers tend to spend more on the product in question. Finally, we found that these super geos made it easier for companies to develop growth strategies. These super geos were local profit pools that were concentrated and big enough to offer big ROI upside for marketing and sales.
Per capita sales of a category can vary wildly across different parts of the country. We wondered if this was a random phenomenon. So we built several models regressing hundreds of macro-economic, category, consumer, and competitive variables to figure out what was driving higher per capita spending. Having a wide variety of variables was critical to get a complete picture.
Sometimes it’s not immediately obvious why some geographic markets are such big consumers of a particular product. For instance, the best markets for top-sliced bread (think hot dog buns) tend to have had three to four times the profit dollars versus the average local market. What makes them unique? It turns out that these super geos tended to be in areas with high concentrations of elementary schools (which serve lots of bun-oriented lunches), warmer climates (more year-round bun usage at cookouts), and a strong lead grocer (which gives the bun-maker more willingness to invest to gain more shelf space). While we don’t know if super geos make superconsumers or vice-versa, we do know that in each instance it is not random. Certain local markets have the right ingredients to ripen demand.
Second, we found that within and adjacent to these super geos, non-supers spent more on the category than the average non-super nationally. This network effect reflects the power of “word of mouth,” which McKinsey says is the primary factor for 20-50% of all purchase decisions. Given that superconsumers are the most insightful and articulate consumers of a specific category, it is no surprise their influence is felt by regular consumers nearby.
In one entertainment category, for instance, non-supers who lived near superconsumers spent 20% more than the average non-super. This is like peer pressure with children. If you give one child a treat, the other children want one, too. This also works broadly in other areas like private label brands. In some cities (such as Las Vegas), $1 out of every $3 spent at the grocery store go to private labels; in other cities (such as New York), the ration is one-in-eight. If you see enough friends using store brand products, you’re more likely to consider it and buy it yourself.
Finally, when we analyze the economics of these super geos we find that these are attractive local profit pools waiting for companies to get after. In some cases, the top 10 super geos have accounted for 50-60% of the incremental profit pool for companies. This can meaningfully change the ROI equation for how a company goes to market. National marketing may make sense for efficiency sake when only one-in-ten consumers is a superconsumer. But if superconsumers account for one-in-four customers ina particular market, shifting from TV to digital marketing may make sense, because digital can very precisely find and reach superconsumers.
Some companies we talk to are beginning to question the core assumptions of their growth strategy. Ideas like economies of scale (manufacturing, sales, and marketing) are still relevant, but may have diminishing returns. National plans/strategies have long been efficient, but their effectiveness is in question as the US, in particular, is increasingly diverse in demand. Most European, Asian, and Latin American executives would laugh at the idea of a “continental” growth strategy. One wouldn’t assume the demands of Belgians, Luxembourgers, and Dutch are the same because they are part of Benelux, right? Yet, the vast majority of growth strategies we encounter fundamentally assume all Americans are more or less the same irrespective of where they live. “National average” may be two of the most misleading words in business.
Precision business models and one-to-one marketing may still feel out of reach for some. But perhaps the compromise between mass marketing and CRM is “GRM” — geographic relationship marketing. Super geos seem to show that the decision between a mass marketing/scale driven business model or a precision/niche business model is a false choice. And the best of both worlds is possible.Go to Source