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Part VI: Targeted Online Marketing
Sixth in a series of six articles on CRM by Ashley Friedlein, CEO of London-based e-consultancy.
Posted Jan 8, 2002
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[The following is part of a six article series on CRM by Ashley Friedlein, CEO of London-based e-consultancy.]

How To Do Your Targeting

There are numerous potential advantages to online marketing: reduced production and delivery costs, faster turnaround times, higher response rates and more immediate responses, more accurate and insightful performance measurement. Furthermore, interactive channels allow greater potential for relationship building with customers. These relationships can be used to build greater customer intelligence, greater levels of permission and to build customer behavioural and preference segments that yield higher returns on marketing spend as well as build customer loyalty.

But how should you approach this targeting to maximise return on investment (ROI) and how does the online channel relate to offline channels and "raditional" forms of targeting?

Online/Offline Dynamic

Most organisations are working towards achieving a "single view" of each customer, unifying data from different online and offline customer contact points, so that they can optimise each subsequent customer interaction both for the customer, in terms of providing a consistent and relevant experience, and for the business by increasing and realising the opportunities to derive more value per customer. This single customer view provides the platform for an integrated, highly targeted, multi-channel approach to marketing--an approach that is proving very effective. After all, the customer is the same irrespective of channel but different customers use different channels for different purposes. In order to optimise marketing returns you must therefore have good insight into your customer base and channel usage by customer segment.

Online has proved to be an extremely effective direct marketing and response medium whereas offline remains powerful for awareness and brand building. The two can certainly be complementary. "E-mail is incredibly powerful for immediate response but once the impulse moment is gone, the opportunity evaporates," says Rowan Gormley, CEO of wine e-tailer Virgin Wines. "Direct mail may not achieve as high response rates but when combined with e-mail builds a depth of customer mind share and gives the marketing a weight and substance that significantly increases the customers' propensity to buy and responsiveness to future e-mail offers. An integrated e-mail and direct mail campaign blends the awareness and response elements to optimise returns."

Interestingly, in terms of frequency of targeted communication, First Direct has used both online promotion and direct mail to promote its online banking services to its customer base and found that while the on-site promotions received a response rate equivalent to the direct mail (between 2 and 4 percent), the deterioration of efficiency has been markedly lower with online than offline.

Traditional offline segmentation and targeting techniques (demographics, lifestyles, geography etc.) are still valid and are particularly effective for achieving reach when prospecting for online customers and when creating a cross-channel marketing campaign.

The online population can be segmented like any other. Customers can be classified and targeted based on their lifestyle, gender, types of site they visit, the distribution of their online shopping habits and you can even differentiate between those who just look for information, those who abandon their basket and those who actually buy. With this data further segmented by geography you can optimise a direct mail campaign designed to drive sales through your web site.

Equally, you can use your online customer base to optimise offline campaigns: "Why not analyse the geographic split of your online base and build an acquisition model to target direct mail and door drops regionally? If you run some test campaigns that target customers with email newsletters by lifestyle and postcode variables, rather than by blanket mailing the whole database, then I guarantee that your response rate will increase to over 35%" Helen Litvak, Head of e-strategy, CACI.

Phil Singh, Head of e-commerce at Experian Marketing Services, notes that "Traditional targeting methods should still be used when prospecting for customers. However, once you have those customers you can exploit the potential of online targeting and profiling techniques to maximize their value and minimize your costs. We are achieving e-mail marketing response rates of over 35 percent with over a third of responses leading to purchases: a recent $3,000 campaign resulted in $35,000 of sales."

Online profiling and targeting (e.g. segments based on online behavioural attributes, user-configured preferences, dynamic personalisation, collaborative filtering, etc.) is at its best when used for customer retention purposes and for maximising the value per customer, both key CRM objectives. As the relationship with the customer deepens, so the interactive channels become more and more effective and targeting is likely to be based less on traditional segmentation models and more on observed and stated customer preferences that are captured, stored and updated online.

Brand, Content & Events

Effective targeting is worth very little if the actual message is not strong. The quality of the actual customer proposition is as important online as offline. More so, according to Andrew Davies, Head of e-Marketing at First Direct, who comments further, "Our most successful customer acquisition campaigns have combined strong, relevant content with strong branding. A recent co-brand e-mail campaign built on the respected editorial strengths of Motley Fool combined with First Direct's brand heritage to achieve read rates in excess of 60 percent and subsequent interaction rates of 25 percent."

Online's immediacy is also very effective as a trigger and response medium that harnesses the power of events or changes. Wireless marketing is proving that it can be very successful, especially for event-driven communication. First Direct is allowing customers to configure an SMS service to alert them with account status, large changes in balance etc. The customer can reply with a text message (e.g., an 'I' to be sent an information pack through the post), follow up by phone or via the web. These event-driven, personalised communications are achieving response rates in the region of 16 percent Event-driven targeting online is powerful not only because it is relatively easy to schedule but, from a user's perspective, it feels very personal and relevant even though it is actually driven by a simple piece of business logic.

Customer Self-targeting

Applying analytic models and using external data sources to segment and target customers optimises the "interruption" marketing that is necessary to acquire customers. However, this form of more traditional targeting remains comparatively crude and inefficient compared to customer self-targeting, i.e., customers actually telling you what they like, what they are interested in, when and how they are happy to be marketed to, rather than you doing your best to guess on their behalf.

This notion of customer self-targeting is very similar to proactive (as opposed to passive) personalisation where a customer chooses to tailor their experience according to their preferences. At the heart of customer self-targeting and personalisation is the customer profile, which is enriched and becomes more valuable over time as more intelligence is built up and the customer becomes more willing to keep their profile and preferences up to date. Also extremely important, if the true value of these profiles is to be realised, is customers' permission to be marketed to - as described by Seth Godin in his popular book on permission marketing. The more personal and direct the marketing (e.g., wireless), the more vital it is to have permission.

Give customers the tools and incentives to target themselves by stating what they are interested in and build increasing depths of permission to talk to them about their interests. If you can increasingly shift the responsibility for targeting to the customer this saves you time and money as well as increasing the efficacy of your marketing. You can spend more time on refining your propositions and strengthening your customer relationships, in particular by paying special care to your most valuable customers.

Customer self-targeting is the best way to get close to realising the 1-to-1 vision and increasing your ROI. However, it must be recognised that whilst this approach works well for some customer types, products or services (for example, financial services), it is not always possible. There are customer segments who are not interested in developing an ongoing relationship, either because they feel the product or services do not warrant it (many FMCG products fall into this category) or because they are simply not that kind of people. As ever, it is a question of optimising your marketing mix to get the balance right for your customers and your product or service.

Set the Right Course for Your Goals

If you are prospecting for new customers, or your customer type or product offering demands it, stick with traditional targeting methods, integrating campaigns across multiple channels. You will achieve your required volume and reach whilst optimising response rates. If you are seeking to build the loyalty and value of existing customers, use online channels as a means of building customer intelligence and permission as the engine and platform for interactive marketing.

Online is more a matter of all or nothing than offline, so it is even more important to successfully position the brand and quality of your proposition. Exploit the immediacy of the online channels to capture the power of events: build targeting models and evolve contact strategies based on moments of change in your customers' relationship with you.

Work toward providing your customers with the tools and incentives to target themselves in the form of personalised content and services. In the long term this is the most effective and cost efficient way to realise the 1-to-1 vision and build customer loyalty. As a further CRM initiative, use your online channel to recognise and reward (and therefore keep) your most valuable customers.

Finally, although it is possible to use online marketing as a way to reduce the costs of offline marketing, you should perhaps see targeted online marketing more as a means of increasing revenues. The savings in production and delivery costs should be reinvested into crafting more targeted propositions, building deeper levels of permission and, where the customer is amenable, increasing the frequency of customer communication across more channels.

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