New Technology Helps Marketers Engage Customers and Build Profitable Relationships
The dot-com economy took the marketing world in an unfortunate direction — enticing marketers to veer away from a far more promising path that had already been marked. Somewhere in all the hype about gaining "attention," building "awareness," and generating "buzz" something very important was lost.
After years of building momentum for highly measurable, integrated, and effective marketing efforts, the marketing profession was suddenly tempted back into unmeasurable and, ultimately, ineffective mass marketing campaigns and efforts. At the same time, marketers were tempted to believe that a single channel — the Internet — represented the future of the profession and abandoned more prudent calls to integrate marketing activities across multiple channels.
However, the profession is rebuilding again from the wreckage of the tech bust — winning back its reputation and returning to the principles established prior to its brief detour into dot-com decadence. The historical trajectory of the profession was interrupted, but now smart marketers are back on the move. The marketing profession is embracing technology to redesign processes, reach out to customers, and reassert its vital role in the emerging relationship economy.
The minds of customers, as today's leading edge marketers could tell you, are no longer unknowable. Where once we pushed products out to mass markets that we little understood, we now have the ability to learn the preferences and priorities of our customers and then act on that knowledge.
But today's markets are not merely about passively reacting to customer needs. We are not simply customer-driven. We also have the power to influence and lead. That is precisely what our customers want from us. They want to be heard and understood, but they also want to be advised and elevated. They want to make the right decisions — and they want us to help them decide.
World-class companies realize that they must make an important shift if they are to meet these demands and challenges. They must move from a focus on products to a focus on customers. Instead of seeking customers for products, they must find products for customers. They must devote more resources to building customer relationships and selling more products and services to their existing customers. It is through such efforts that they will solve a greater range of customer problems and win customer loyalty. And, as we all know, it is far more profitable to expand one's relationship with an existing customer than to focus on acquiring new ones. Customer acquisition remains important, of course. But customer profitability and loyalty are now becoming even more important.
Considering the changing relationship between companies and their customers, it's clear that the discipline of marketing is becoming more critical than ever to business success. "Marketing Optimization" is an ongoing effort to strengthen the professional, technological, and process-related capabilities of marketers. While some use the term "Marketing Automation" to describe these efforts, it's not used here because the objective is not only to automate marketing processes but to transform and optimize them. The goal is not to automate the marketer out of a job, but to elevate the marketer's status by providing high-impact, real-world opportunities to strengthen the marketing discipline.
Key Factors Behind Marketing Optimization
Visibility and Insight
Companies now have the power to collect all sorts of information about their customers and act on it with increasing effectiveness. Powerful databases now store highly detailed insights into customer purchasing history, customer interaction history, credit and payments, needs and interests, as well as customer profitability and potential. Such sophisticated profiles can enable companies to treat customers on an individual basis and address their needs in increasingly expansive ways. Indeed, it's critical to mine and leverage this knowledge to create products and services that match the particular needs of customers.
In collaboration with marketing software provider NCR, Harrah's Entertainment has created a program, known as "Total Gold," that allows it to track individual hotel and casino guests across properties and geographies. Particular needs and interests are recorded, while customers level of play and spending are tracked. Harrah's learns how to match products and services with individual customer preferences — and creates offers and specialized packages with an eye toward the customer's overall value to the company.
Another company that has experienced impressive results due to a better understanding of the customer is Credit Union of Texas, one of the largest credit unions in the country with more than $1.1 billion in assets. Using marketing software from Unica, it was able to determine the best locations for profitable new branches and has been generating highly targeted marketing campaigns. While the organization thought the key variable for opening a new branch was a local concentration of affluent prospects, the use of modeling software showed the organization that the single most critical variable determining whether a customer would remain loyal is drive time.
Its customer value model honed in on checking account customers. "If a branch was within a 10 minute drive, we could get the checking account. But if the branch was 10 and a half minutes away, we would not get the checking account," explains Jerry Thompson, the credit union's senior vice president and CIO. "Not only did the model note this exact driving time limit, but also the [potential] locations were ranked from 1 to 3, with number 1 being the most profitable." Credit Union of Texas then leveraged analysis it had generated about prospective customers for its leasing services to drive up marketing response rates for direct mail pieces from 1 percent to 4.5 percent. Indeed, it was able to drive down the cost of customer acquisition from $200 to $44.
Measurement and Feedback
In the recent past, marketers have focused on brand marketing, advertising, and other campaign-related activity oriented toward "awareness." The trouble with such campaigns is related to the difficulty in measuring results. Evidence of success or failure was either slow to appear — or never did. Campaigns were all unidirectional or one-way. Customer feedback was difficult to elicit and thus became a trivial factor in corporate marketing efforts. Early in the 1990s, the CEO of Procter & Gamble gave a memorable speech suggesting that as much as half of all spending on advertising was unaccounted for — perhaps wasted.
But companies can now precisely track customer needs and buying patterns using marketing optimization solutions. They can run more tests, fail more often, and succeed more often. They can use the information they generate to adapt to changing trends and make rapid course corrections. They no longer have to spend a lot of money on mass advertising, as has always been the case with business-to-consumer marketers. They no longer have to spend a great deal of time on the golf course or schmoozing the client over drinks and dinner, as was the case with B2B marketers.
Nedcor, a major banking services company with subsidiaries such as Permanent Bank, Peoples Bank and Cape of Good Hope Bank, has leveraged marketing software from Aprimo to reach customer retention levels of 90 percent. In the past, the company had no way to accurately measure the impact of its marketing activities. Customer data was often isolated in pockets throughout the business. New marketing processes and software, however, have enabled the company to send precision emails, digitally deliver leads, and manage inbound and outbound interactions with much greater personal care.
Now, Permanent Bank, for one, is exceeding its customer retention goals, and customers report that they "trust" the calls that come from the bank because it is highly aware of the customer's needs, preferences, and history with the organization. It has also given bankers greater sense of control over the relationship management process. "Bankers will accept new technology when they believe that they own the process and it is easy to use," says Charles Guise-Brown, senior manager of Nedcor's retail banking division.
Customer Profitability and Valuation
One of the key metrics now beginning to take hold in the corporate world is customer profitability. It has been a long time coming. We commonly focus on overall revenues and profits as well as the profit margins of particular products. But such numbers miss a lot. To understand a company's true opportunities and fundamental health, it is also important to assess the value of its customer base. Customer profitability and potential is a critical form of customer knowledge. Such figures will soon drive our business decisions in profound new ways. Smart and responsible companies invest their limited resources in customers who represent significant existing value or, alternatively, potential for growth. They build powerful relationships with their most valuable customers. Canadian Imperial Bank of Commerce, one of North America's leading financial institutions (with more than 6 million retail customers), is proving such efforts can have a big impact. CIBC wasn't able to determine customer value until recently. But continual advances in processing, modeling, and number-crunching technology are facilitating efforts to take a sophisticated look at customer value.
In mid-1996, CIBC began implementing a new customer profitability system. The system has significantly altered the bank's perspective, enabling it to get a more accurate view of customer contributions and resource consumption. CIBC found that the use of such information is leading to shifts in how customers are segmented and therefore how the company manages them. It uses sophisticated profitability, potential, and propensity models to determine how to invest its scarce marketing resources. "The key to our future success," says Rick Miller, vice president of customer profitability at CIBC, "will be our knowledge of the customer."
Customer Interaction Across Channels
One of the most powerful aspects of the whole movement toward customer focus is the opportunity to create relationships that span channels of interaction and commerce. If companies are to win the loyalty of their customers, they must be able to address them as individuals in all of these channels of interaction. Customers want to do business in many ways — in person, over the phone, and on the Web. They also expect companies to be accessible around the clock — whether they are shopping or seeking advice. Companies must be available to interact with their customers anytime and from anywhere.
New investments in multichannel, marketing capabilities have enabled General Motors to strengthen relationships with its "family market," which is compromised of GM employees, their extended families, and GM retirees — 7.5 million constituents in sum. Traditionally, the company would reach out to them through multiple, fragmented business units — often leading to overlapping offers. "To avoid defection, we had to look at things from our customers vantage points," says Lisa Anne Charney, executive director of enterprise customer management at General Motors. "We had to enable customers to communicate with us through any channel they wanted, while offering them targeted products and services. We couldn't do that effectively through our traditional, decentralized model."
Working with software solutions from Siebel Systems, GM was able to develop a centralized call center approach that allowed agents to actively cross-sell and upsell GM products — whether a new car or insurance or something else — to the family market. GM's new customer contact center, dubbed "C3," provides customers with a single point of contact for all needs. It also helps GM sell bundled product and service offerings, and increase customer loyalty. All contact data — such as purchase history and account information — is now universally available to agents on the system and enables them to conduct a seamless dialogue with customers.
"Revenue is up because our ability to manage leads and convert them is better than ever," says Charney. "We are saving on marketing costs by targeting customers for multiple products through coordinated campaigns, rather than bombarding them with eight different direct mail pieces for eight different products. And thanks to the solution's strong analytics, we can now measure how well we are doing with given customer segments and adjust our sales and marketing accordingly."
Customer Loyalty and Relationship Management
While the average company now loses half its customers every five years, it is rare to find companies that are fully committed to solving the problem. Most rely on new customers to make up for lost ones. "Despite a flurry of activities aimed at serving customers better, only a few companies have achieved meaningful, measurable improvements in customer loyalty," writes Frederick Reichheld, author of The Loyalty Effect: The Hidden Force Behind Growth, Profits and Lasting Value. "In manufacturing as well as services, business leaders intuitively know that when customer loyalty goes up, profits do too. Yet few companies have systematically revamped their operations with customer loyalty in mind."
One company that has focused closely on customer loyalty is Hard Rock Café, which has more than 100 restaurants in 36 countries. Not content to simply amass a large following, Hard Rock set out to better understand its dedicated customer base. "We knew that we had loyal fans out there, but that was the extent of our understanding," says Kelly Maddern, director of loyalty and customer relationship management at Hard Rock. "We didn't know the different types of customers we had, nor did we grasp their preferences and tastes."
In association with E.piphany, Hard Rock proceeded to launch a loyalty program that provides program members with a special membership card. Using this card for purchases at hardrock.com or at the cafes entitles members to discounts, preferred seating, and other benefits. "We gain a single view of our customers whether theyre visiting us online or at a brick-and-mortar location," says Maddern. "Acquiring that level of insight allows us to cater to our customers based on their preferences rather than through mass marketing."
Now, Hard Rock can carefully target its marketing campaigns and offers and then track their effectiveness. "With a lot of marketing campaigns, there is no way to measure the effectiveness of a promotion," adds Maddern. Now, she points out that she is able to "target a specific segment of our customer base with an offer, and then, by capturing customer transaction data at the point of sale, establish whether the offer was successful. This closed-loop functionality enables us to continuously track and refine our campaigns."
While the average company now loses half its customers every five years, it is rare to find companies that are fully committed to solving the problem. |
Still other well-known companies have addressed the problem of customer defections. Theyve even demonstrated that loyalty can last for generations. USAA, a large insurance company that caters to retired military personnel, has established such strong loyalty that it has won the business of its initial customers children. One reason that USAA is so effective is that it has developed a centralized database and customer care operation that clients can access from anywhere in the world. The system (as opposed to the insurance agent) provides continuity with the customer. When military officers are redeployed, there is no need to find a new agent or create new records. The results? The company has an 98 percent retention rate.
Why Invest in Marketing Optimization?
Companies in virtually all industries are struggling to come to grips with the cultural, organizational, and technological challenges associated with being customer-focused. They are attempting to define customer value and instill loyalty through powerful new approaches to marketing and relationship building. They have decided they must organize around customer relationships — as opposed to products — if they hope to survive and thrive in the coming years.
If companies are to become customer-focused, they must acquire the knowledge, resources, and tools that can help them effectively match customers with appropriate products and services. The aspiring customer-focused business must transform its relationships — with suppliers and partners, but most especially with customers. This transition will require dramatic changes in how marketing is managed and organized.
Marketing — The de facto owner of customer relationship building — will become a pervasive, enterprise-wide activity that touches customers in real time and at every point of interaction. It is no longer merely a centralized function or department; it is now a perpetual and far-reaching activity — one that requires the participation of individuals throughout (and beyond) the enterprise.
In order to optimize the marketing process; however, it will often be necessary to invest heavily in new marketing software and services. That's the path taken by companies mentioned in this article. However, it's also important to add that new "outsourced marketing" solutions are also emerging that enable companies to obtain many of the analytical, campaign, and interaction related capabilities discussed here without bringing the operation in-house.
Companies such as Quaero and Precision Response are providing outsourced solutions for marketing and customer care. Quaero, based in Charlotte, North Carolina, has rapidly provided clients like AT&T, JP Morgan, and The Limited with marketing capabilities that would take a vast amount of resources to create and maintain in-house. Founder and CEO Naras Eechambadi explains that Quaero "Leverages its intellectual capital by deploying its combination of hands-on marketing knowledge, extensive technical expertise, and cutting-edge analytical skills" to improve customer profitability and deepen customer loyalty.
But let's cut to the chase. Whether one is building capabilities in-house or looking to outsource marketing, what is the payoff? There are many benefits associated with marketing optimization solutions that promise to contribute to both the top and bottom lines. Indeed, it's crucial that executives who are exploring these opportunities examine the payoff within the larger context of revenue gains, cost savings, and limited resources smartly deployed.
More Effective Cross-Sell and Upsell
Smart marketers are learning how to anticipate what customers are likely to purchase next, and then deliver an offer that customers will be quick to seize. Marketing optimization software helps companies to predict future purchases, manage focused campaigns and deliver customized offers at the moment of opportunity. Companies realize a profit multiplier effect as their existing customer base eagerly purchases new products and services — and the customer's revenue-to-cost ratio rises significantly.
Higher Customer Retention and Loyalty
Recognizing the extraordinary costs associated with customer defections and the benefits of loyalty, companies have seized on the issue of customer retention as a key objective. Marketing optimization software can enable marketers to determine which customers are most likely to be loyal and profitable, and deliver an appropriate level of service. As Gartner points out, some companies can increase profits by as much as 100 percent by retaining an additional 5 percent of their customers. By some estimates, it can cost four to seven times more to replace a customer than to it does to keep one.
Higher Customer Profitability
While many companies have spent years in the dark about the profitability levels of individual customers, marketing optimization software now helps marketers to "score" their customers in sophisticated ways. Such scores can be critical. In many industries, 20 percent of customers represent 80 percent of a firm's profit. Customer analysis helps marketers determine which customers should be actively courted and which ones — if any — should be politely dropped.
Higher Responses to Marketing Campaigns
Database marketers in many industries have learned to accept response rates in the low single digits as acceptable. But numbers considered standard among many are now being far exceeded by innovative marketers. These marketers recognize the power and potential that new software tools can offer. As anecdotal evidence and research from industry analysts reveals, it is not unusual to generate returns of 250 percent or more on investments in campaign management when one considers (on a per-customer basis) all the revenue gains and cost savings associated with an effective implementation.
More Effective Investment of Scarce Resources
The talent, skills, and capabilities necessary to pull off the types of efforts described in this article are not widely available. It's more important than ever to get more out of your scarce talent. One key way that smart companies will accomplish this is through the automation of labor-intensive marketing tasks — freeing up more resources to focus on creative and innovative marketing efforts. Of course, one of the attractions of outsourcing marketing capabilities is that a company can gain these types of skills and resources without building them internally.
The epicenter of the current corporate upheaval and transition is populated with cutting-edge marketing executives — and quite a few whose companies have had "near-death" experiences. Theyre sold on the idea of using new technology to increase the impact of marketing.
Now they are struggling to implement it — to serve as catalysts of and champions for the critical initiatives that their companies must undertake. They recognize the larger implications for their businesses, but also realize they must demonstrate clear, tangible payoff if momentum for their efforts is to continue building. They must demonstrate powerful financial results that capture the attention of top executives and persuade others that "customer focus" is not just another management fad.
But market leaders will meet these objectives. And marketing professionals that drive these efforts promise to redeem the profession. In fact, few companies will be able to compete successfully in the fast and unforgiving markets of the future without mastering the management of customer relationships. As a result, the strategic decisions that companies make with regard to marketing in the coming years are bound to prove more consequential than ever.
