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Deep Dive 2 Mar 2021 - 5 min read

Finding NEOs: How 4.7m Australians will drive a two-speed recovery, and implications for CX, segmentation and targeting

By Paul McIntyre & Brendan Coyne
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Marketers risk alienating 4.7 million high value customers by taking a traditional approach to customer segmentation, personalisation, targeting and customer experience. A panel of social scientists, marketers and ad agency bosses think that’s a recipe for failure – because the new economic order, or NEO customer type, is already powering a two-speed recovery.

What you need to know:

  • Some 4.7m Australians are responsible for upwards of 70% of discretionary spend, according to social scientist Ross Honeywill.
  • So-called NEOs are already powering a two-speed economic recovery, but brands that do not prioritise them will fall into the slow growth lane, he suggests.
  • Jaggad Chief Customer Officer Scott Browning is attempting to replicate his NEOs success at JB Hi-Fi, where the strategy “changed everything” and underpinned sustained growth.
  • 303 MullenLowe CEO, Nick Cleaver says the agency is using NEO principles to “link disciplines” and target higher value customers for clients.
  • “For LVMH, the task was to deliver on short term business objectives and make sure you maximise long term value growth – whilst retaining margin. To be able to do that over a 10-year period using NEOs worked exceptionally well,” – Jonathan Coles, Principal at consultancy Premium and former Marketing Director at Moet Hennessy
  • “My hope is that 2021 will be the year when the C-suite recognises that there is not just one market, but two fundamentally different markets,” – Ross Honeywill, Executive Director, Centre for Social Economics

In an economic downturn, the default position for many companies is to discount like there may genuinely be no tomorrow. Any budget that avoids the knife is pumped almost entirely into performance-based marketing and messaging.

But according to a panel of social scientists, marketers and ad agency bosses – that’s a recipe for failure.

They say a huge slice of the population – almost 5 million Australians – are high discretionary spenders who don't act, shop or spend like traditional consumer segments, recession or otherwise.

This group of individuals is already driving a two-speed economic recovery, and according to social scientist Ross Honeywill, brands that want to grow should prioritise them above all else.

Marketers that have deployed his ‘NEO’ typology agree.

“Any business that ignores NEOs in their trajectory ignores them at their peril,” says Scott Browning, Chief Customer Officer at fashion retailer Jaggad.

As marketing chief at JB Hi-Fi, Browning put NEOs at the heart of its growth plan for a decade – and he now aims to repeat the trick.

If NEO thinking is correct, the implications for segmentation, targeting, personalisation and CX could be profound.

 

NEOs was transformative … because it debunked a lot of mythology about who our customers were, what they wanted.

Scott Browning, Jaggad Chief Customer Officer & former JB Hi-Fi chief marketer

The NEO normal

Ross Honeywill has written a small library about the new economic order (NEO), a typology that sets apart free-thinking, creative high spenders from the masses.

In a nutshell, he says NEOs are “socially progressive” premium consumers who drive the higher-margin spending economy. They earn more, “but more importantly, they spend more” accounting for at least 70% of elective discretionary spend.

In Australia, there are 4.7m NEOs, per Honeywill and Roy Morgan, which has built a NEO database, versus some 10m ‘traditional’ consumers around which marketers have built traditional segments. Honeywill suggests that is their biggest mistake.

“A lot of marketers believe that the entire world is designed and operates for ‘traditionals’. So they have the traditional value proposition – which estranges NEOs.”

If marketers want to power out of the pandemic, he suggests, “they really have to start aligning their brands with the high value, high spending consumers”.

That’s something luxury brands have naturally always aimed at. Jonathan Coles, Principal at consultancy Premium and former Marketing Director at Moet Hennessy, says the NEO strategy paid off at LVMH – but must be ingrained across the supply chain, particularly with retail partners.

For LVMH, the task was be sure to deliver on short term business objectives and critically make sure you maximise long term value growth – and do that whilst retaining margin. To be able to do that over a 10-year period using NEOs and those metrics worked exceptionally well,” says Coles.

“What I learnt very quickly was that this wasn't just about buying an audience, it's understanding the mindset of the NEO and then helping all partners across the entire route to market to meet and exceed those expectations at every touchpoint, all the time.”

That meant helping to bed-in NEO thinking with the likes of Dan Murphy’s and Vintage Cellars. What it boils down to, he says, is “how do you help them as partners deliver on what they want to do, which is to create the maximum value for their most valuable customers?”

 

Higher fidelity

Scott Browning, now Chief Customer Officer at fashion retailer Jaggad, spent a decade building JB HiFi’s brand around NEOs – initially without even knowing it.

Back in the mid-noughties, JB Hi-Fi had just gone public had committed to expand its footprint from 20 stores to 100. It had a good brand, says Browning, but didn’t really know who its customers were – certainly not well enough to lay the kind of bets it had told the ASX it would be making. But very quickly, NEOs “shaped everything” the retailer did.

“We knew JB Hi-Fi was a distinctive brand … but there was a lot of mythology in the business about who the customer was,” says Browning.

“It was purely by accident that we came across NEOs. But running the profile across our business, we discovered that about forty five per cent of our customers fell into the NEO group,” says Browning. “We were massively over-indexing.”

That discovery was “Transformative … because it debunked a lot of mythology about who our customers were, what they wanted”.

JB Hi-Fi then built its strategy to primarily target NEOs – while “not throwing the baby out with the bathwater” around ‘traditional’ customers.

That approach affected “everything from store size, to assortment strategy in terms of categories that we weren't even in that we aimed to dominate within 10 years,” says Browning. “It shaped everything.”

 

As a retailer, demographics are a joke. You are better off with star signs

Scott Browning, Jaggad Chief Customer Officer & former JB Hi-Fi chief marketer

Instincts confirmed

JB Hi-Fi was actually already leaning towards NEOs – just not in name. But the data provided a framework, says Browning.

“We had some very intuitive retailers running their businesses. But it illuminated certain factors that provided the data and statistical support to the strategy that we were able to turn back to time and time again,” he adds.

“Over my 12-year period, we constantly returned to the data around this [NEO] group in confirming decisions: These were times when retailers didn’t have much customer data … so it reduced the amount of data-less debate on who our customers were,” says Browning. “Because as a retailer, demographics are a joke. You are better off with star signs.”

NEO for DTCs

Now at clothing retailer Jaggad, Browning is deploying NEO strategy again – this time at a business shifting from a wholesale business model to direct-to-consumer.

Pre-Covid, about 70-80% of Jaggad’s business came from supplying retailers such as Myer and Iconic, with around 10-15% direct-to-consumer, says Browning.

“The strategy for Jagged using the NEO guideline was to move more of its business direct-to-consumer [because] you need to control far more of the customer experience parameters if you’re going to talk to a NEO and be successful,” he says.

Covid came at the right time, “because every single wholesaler cancelled their orders – and Jaggad was sitting on all the stock with a strategy to move in that direction”, Browning admits.

“So within the space of three weeks, we closed our stores and went 100% DTC.”

Now Jaggad controls the experience – with a strong returns policy key to building reciprocal trust with NEOs.

“How can you get your customer to trust you if you send them signals that you don’t trust them?” says Browning.

“We put a lot of emphasis on return policy to create a great experience. That's really what it comes down to.”

 

There are guidelines for creating content that come out of NEO thinking, which then translates into where, when and how you actually place that content in the marketplace.

Nick Cleaver, CEO, 303 MullenLowe

Agency view

Nick Cleaver, CEO at ad agency 303 MullenLowe, suggests NEO principles are “incredibly useful” as a common thread to link agency disciplines, “and then help us to target the people we want to target with performance marketing”.

NEOs can also form a guiding principle for creative work around “ideas that are engaging and that treat NEOs in a way that acknowledges their intelligence, and that is entertaining,” says Cleaver.

“So there are guidelines for creating content that come out of NEO thinking, which then translates into where, when and how you actually place that content in the marketplace.”

While 303 MullenLowe is starting to work with NEO guidelines “with a large financial institution … and a couple of other clients”, he says the agency, like Scott Browning at JB Hi-Fi, already leant in that direction.

“There’s a great deal of NEO thinking within our work, if in the past it was unknowing,” says Cleaver. “The work we do for Budget Direct, the work we do for Audi … NEO thinking resonates really well. We see it as a potential to enhancing our effectiveness in the future.”

 

NEOs skew heavily to digital ... But they really like cinema. They also like magazines. So there are some quirks.

Ross Honeywill, Executive Director, Centre for Social Economics

Finding NEO

How do marketers find NEOs? In short, subscribe to Roy Morgan, says Ross Honeywill, who has long worked closely with the data firm and isn’t afraid to plug it. In terms of media consumption, he says NEOs are “dramatically different” from ‘traditionals’.

Broadly, traditionals skew to traditional media, he says, “particularly television and radio”. NEOs “do everything … but they skew heavily towards online with everything they do.”

Though there are some exceptions.

“There are some interesting channels that NEOs do choose – and one of them in cinema,” says Honeywill. “NEOs really like cinema. They also like magazines. So there are some quirks in there as well as the obvious.”

 

NEOs and normals?

Can brands talk to both NEOs and traditionals? The short answer is yes, but put NEOs first, according to Honeywill.

“Any business that is interested in attracting NEOs is much better to start with a NEO value proposition, because it’ll bring the traditionals along as well,” he suggests.

303 MullenLowe’s Nick Cleaver is also not betting the farm entirely on NEOs just yet.

“Many clients have invested a great deal in their own databases or are attached to different typologies,” he says. “Some clients perhaps believe it is an all or nothing strategy, and maybe Ross would say it is. My perspective is that you can take a NEO database, but that doesn’t mean that you can’t layer in and filter other screens across it.”

Ross Honeywill thinks marketers and management must prioritise NEOs in post-pandemic Australia.

My hope is that 2021 will be the year when the C-suite recognises that there is not just one market, but two fundamentally different markets with two fundamentally different types of consumers with totally different mindsets,” he says.

“It's time to stop talking about 'the market'. It's time to stop talking about 'the consumer' and start talking about nuanced views to unlock hidden value.”

 

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