Two Heads Are Better Than One: Growing Media Fragmentation Ramps Up Affinity Activity

There has never been a better time to get together, according to a recent study my firm, Lloyd James Group completed. Marketers are now spending just under a fifth of all marketing budgets on affinity marketing. But what does this mean exactly? Affinity marketing has become the common phrase to describe the growing activity between two brands, where both organizations swap "brand assets," usually access to each others' customers, or the high visibility appeal of their brand or product offering. And, according to the research, the rapid uptake of this form of marketing by major U.K. firms is expected to continue so that by 2007 more than one-quarter of all marketing spend will be allocated to this type of partnership activity.

We asked a sample from the Top 1,000 U.K. companies, across key industry sectors, what share of the marketing budget they currently assign to affinity marketing, and we canvassed views to estimate British marketers' overall commitment to affinity techniques by 2007. Their answers suggested that factors such as restrictions in the availability of commercially available third-party data and the fragmentation of traditional advertising channels were the key reasons behind the growing popularity of affinity activity.

There is constant pressure from management and shareholders for companies to spend their marketing budgets "smartly" and improve their return on marketing investment. This has led marketing professionals on the quest to explore hidden assets such as under-exploited marketing communications channels—especially as traditional advertising channels are increasingly fragmented and less able to offer coverage of the required target audience. Marketers see affinity marketing as the primary method of achieving these goals.

The financial service, travel and mobile telecom industries are above-average users of affinity techniques, either because of industry intermediation or fierce competition—or both.

For example, a mobile network operator was excessively worried about escalating levels of churn among its subscribers. It decided that it had to take action to try to stem the tide of customer defections. To do so meant adding meaningful value to the subscribers' total package to dissuade them from leaving at contract renewal.

Rather than trying to appeal to every group in the customer base, the network provider first conducted analysis to profile the groups of valuable customers most "at risk" of defection. They then created privilege services, based on those profiles. These included cinema discounts, restaurant vouchers and branded gallery guides. For each affinity partner, the arrangement added value for the subscriber but also helped to drive additional business—in some cases specifically during off-peak hours—for those partner organizations, justifying the discount or privileged access offered. They meticulously measured take-up of the affinity offers, so they could follow up with intelligent actions or messages.

In the financial sector, a large general insurer was concerned about falling customer retention rates. And renewals marketing initiatives had failed to significantly change defection levels. The company conducted market research to assess what kind of initiative might get through to customers and encourage them to renew each year. The worrying feedback from the research was that most customers regarded general insurance as a compelled purchase, which they resented, and that they were unlikely to pay attention to any appeals around the core product, even metrics proving very high standards of claims management.

The marketing department and its advisors realized that they could not change such attitudes and that they had to find a way of making the company more interesting. They created a quarterly booklet to send to each policyholder, containing a range of discount offers exclusive to the insurer, with other brands that data analysis had shown to be desirable to the majority of customers. As a result of the loyalty booklet, they were able to halt customer attrition and even improve retention by several percentage points over the ensuing two years. Affinity partners were happy to offer discounts, because they obtained access and brand exposure to the underwriter's many hundreds of thousands of policyholders.

Constructing effective and commercially productive brand partnerships is a complex process. In-house personnel have to deliver clear and achievable objectives and then rigorously measure the performance of their company's affinity initiatives. Expert third-party agencies are also necessary to identify truly complementary brand partnerships, to arrange balanced joint propositions and to deliver the campaigns that take those joint propositions to the consumer.

To construct right relationship between brands, pre-campaign planning is essential. The agency must evaluate the company's particular assets and establish an in-depth knowledge about its customers and its marketplace. The idea of "assets" may encompass a variety of factors, such as volume and value of customers; channel distribution and reach; communications channels; brand strength and persona; depth and breadth of customer data held; analytics capabilities; and market pene