• November 1, 2007
  • By Jessica Tsai, Assistant Editor, CRM magazine

Cast a Narrow Net

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Without customers, marketing efforts obviously fall on deaf ears. But without the right customers, you likely end up with the same results anyway. Almost every business relies on a healthy -- and hopefully hefty -- customer list; but raising a list in an increasingly customer-driven world has forced marketers to adjust their approach. Consumer information -- too much information, in many cases -- is available everywhere, so it's up to the marketing department to sift through the available data and find the best fit between what its company offers and the audience it should be targeting. Businesses often tend to take the easy way out and favor quantity over quality when it comes to building their customer lists. "It's hard to be targeted," says Elana Anderson, an independent consultant and former analyst with Forrester Research. "It requires analytic skills to reach the right people." She adds, "Tactics like TV have a lot more glamour associated with it." Television commercials also strive to reach a large audience -- and when the landscape was dominated by The Big Three networks, TV used to be a fairly definitive form of mass marketing. Unfortunately, the literal meaning of "mass" marketing no longer exists. "If anything, it's used as a pejorative term," says Richard Hren, director of product marketing at analytics firm SPSS, "for 'anything that's less than finely targeted.' " (The closest relative, he adds, would be buying a general list where each recipient is listed as "Occupant." Still, even this method involves some sort of targeting, such as location.) Today, however, with several hundred cable TV channels -- and target audiences for each one growing increasingly narrow -- companies have to be selective about where they put their ads. It's unrealistic for marketers to want to reach everyone, everywhere. Fortunately, they've realized that attempts to attract just eyeballs are not only a waste of money and resources, but also a guaranteed way to transform potential consumers into a frustrated audience. But Anderson says the supposedly negative results aren't entirely the fault of the marketer. "If you look at the way marketing organizations were measured, many marketers, even today, are still measured on overall reach as opposed to conversion of leads," she says. With those evaluations being counterintuitive to effective marketing strategies, it's no wonder marketers are facing a serious dilemma. "As long as that metric is in place, marketers aren't encouraged to be more effective," Anderson says. Most businesses likely realize they could benefit from targeting but lack the "organizational discipline," according to Suresh Vittal, senior analyst at Forrester Research. But for companies that are willing to take a step back and invest the time and energy into data mining, analytics, and foresight, experts say, there will be an eventual payoff. While the mental grunt-work of analytics is understandably less appealing than the glitz of TV, knowing whom to target will be much less costly and far more beneficial in the long run than a massive outreach would be. Plenty of Fish in the Sea
The list-building industry is booming. "You do a search on Google and everyone and their brother is trying to sell you a list," says Rebecca Wettemann, vice president at Nucleus Research. Blame technology and a global economy for that: The cost of building a basic list has dramatically decreased, Wettemann says, especially because "so many firms and places like India [are] able to contract and build a list for you." The challenge, then, is determining how accurate the list actually is. "Those lists are gathered and created from a multitude of sources, a mind-boggling array of sources," Hren says. Even when the list is from a "known" source, businesses still have to be careful. Take, for example, The Right Start, a retail company that sells baby and infant products: After a series of acquisitions, bankruptcies, and closures, the company had to find its own right start just three years ago. That was when Senior Vice President of Marketing and Strategy Hope Neiman and her team were buried by a list of 500,000 names. "We were told -- the operative word being told -- that they were double opt-ins, and we found out pretty quickly that they weren't," she says. In fact, all Neiman was told was that the half-million names were The Right Start customers. "You have no idea where these names really came from," Neiman says. "Were they partnerships [the acquired companies] had? Were they actually customers?" Industries currently work with two general types of lists. First, there are compiled lists, which are "just like the White Pages," SPSS's Hren says. "It's, like, 'some evidence that this person has existed.' " These types of lists are not very selective or unique -- but they do have the benefit of being inexpensive, and with deeper analysis marketers are likely to find that compiled lists do contain a significant amount of information. "You can do a little bit of manipulation with those lists and, in fact, you can build predictive models using that data as well to make those lists work better for you," Hren says. The other type of list is a vertical list, bound by some shared attribute or characteristic. Vertical lists are more targeted and, thus, more expensive. To get down to that personalized, one-to-one contact is, as Hren puts it, "the Holy Grail" of marketing communication. "So the tradeoff there is the cost of the list and the power of analytics. Ultimately, you've got to come down to know[ing] your audience, know[ing] your marketplace, and fit[ting] your product or service to that," he says, before adding that the real trick is doing all that in a cost-effective manner. While most businesses spend money and energy on customers and prospects, the two groups are usually (and rightfully) treated differently. Businesses, Hren says, "have to acquire, grow, and retain so they're working their inside list [as well as] finding new acquisitions." RDS Delivery Service, a New York-based messenger and courier service, segments its list into several groups: customers; inbound and outbound prospects; a circle of influencers; and lost customers. Each group receives a different campaign depending on its relationship to the company. (See this month's "Real ROI: RDS Delivery Delivers on Service.") For some businesses, even certain members of the existing-customer group may warrant different treatment. For customers with a track record of a decade or longer, Hren says, "you may want to talk to them differently than the customers who just made their first purchase." Failure to handle this division delicately can prove disastrous, he adds: "Your loss can be very, very great if you start miscommunicating." According to industry experts such as Frederick Reichheld, director emeritus at Bain & Co., acquiring a new customer can cost six to seven times more than retaining an existing customer. (See "Influential Leaders: The Loyalist," September 2007.) "Some marketers may, in fact, lose money on new-customer acquisition," Hren says, adding that those customers "will make up the 'loss' in terms of longer-term value." He continues, "The investment in any single name might be spread over a longer time period." Cell phone companies, for example, often do not profit from a given customer until well into the second year of a subscription, throughout which they've been continually soliciting for new phones and accessories. Moreover, in some industries, businesses may lose up to half of their customer base within a five-year period. But customers leave -- that's a given. Marketers have to take into account the reason for leaving, learn from it, and continue to replenish their databases while also pursuing the next generation of customers. The path to cost-effectiveness varies from business to business and depends highly on each company's purpose, budget, and goals, according to Hren. Changing Course "The marketplace [has] shifted," Hren says. "What used to be sort of a 'push' marketing" -- sending information out to people -- "is now becoming customer-driven," or what's called "pull" marketing. Deploying analytical services like SPSS's PredictiveMarketing allows businesses to collect customer data, and to turn that data into actionable advice for building the most receptive customer list. FBTO, a Netherlands-based insurance company, realized it had to accommodate the customer's needs rather than push the products it wanted to sell. FBTO was sending out 1.2 million pieces of marketing material each year and was utterly dissatisfied with the results. By better understanding its customer list using PredictiveMarketing, FBTO recognized the need to depart from all-encompassing generic messages to targeted ones -- an improvement that raised conversion rates from 1 percent to 3 percent, according to SPSS. Part of the shift is due to an explosion in the amount of available information. The Internet is bursting at the seams with the stuff and can simplify communication down to just a few clicks. Customers, Hren says, "just want it on their own terms." In the past, he adds, customers would just ignore "bad" pieces of email or direct mail. But consumers have learned to take charge of their inboxes. They are increasingly using spam filters, installing pop-up blockers, and putting their names on do-not-call lists to shield themselves from the bombardment of unsolicited messages. Case in point: When The Right Start's first round of emails went out to test the vitality of its new list, Neiman recollects that she soon began receiving calls from RightNow Technologies, the CRM vendor whose software the retailer had deployed, saying, "Every [Internet service provider] out there is about to ban you because they believe you're spamming people." Having customers empowered to control the information they receive, Hren adds, is "changing the dynamic of how lists can work." The new dynamic, he adds, shows how you can maintain and control the customer. But how do you hone in on what's most relevant to them? The key to obtaining that invaluable 360-degree view of each individual customer requires an investment in profiling and analysis. Solutions are available with the help of business and marketing analytics programs, CRM systems, or newly hired skilled employees -- any of which may seem costly at first. But these are the moves that often deliver a high payoff. According to Hren, the characteristics that affect the receptiveness of a consumer include family lifestyle, life stage, previous purchase patterns, and individual interests -- but the story extends to more abstract components like attitudes, wants, needs, and desires. Getting that deep requires insight: "Take a close look at what data you already have," Wettemann says. "Look at what you can buy, or what you may be able to ask your customers for, through a survey or other means." Eventually, the parts will paint a clearer picture of the whole and targeting only gets better with time and attention. "You know you've got this whole ball of data," Hren says. "The more refined and the more clear you can make that, then reaching out to customers, building lists, communicating, and effectively driving that customer relationship management [can be done]. It's never easy, but without that it's nearly impossible." But what many marketers don't understand is that aggregating data and building a list is "only the start of an optimization journey," Forrester's Vittal says. Basically, after you've caught the customer's attention, you can't stop playing until you hear the whistle. "You need to think about your list optimization," Vittal says. Marketers "think about the fact that they have a list, but they don't think about the fact that, 'OK, now I need to maximize the usage of this list.' " He recommends that each marketing department think about its list as one of that company's most valuable investments. "You've put some initial skin in the game, if you will, to build a proper list, a targeted list," he says. "Now what you have to think is, this is your asset." A list becomes the living, breathing component of a business -- in fact, Vittal emphasizes the need to keep the list alive for as long as possible. After making a one-time investment in the list, marketers need to focus on contact and list optimization so that they can keep extracting value from the list on a regular basis. "You cannot do that if you just mail everybody, all the time," he warns. So how should marketers focus on optimization? The first step, according to Vittal, is simple enough: Look at the response rates. But then, he says, companies need to think about a predictive modeling infrastructure -- and therein lies the challenge. Direct mail and email addresses change, for example, more frequently than marketers expect. In fact, more than 31 percent of email addresses are changed each year, according to Jared Reitzin, CEO of California-based email- and mobile-marketing firm MobileStorm. While the percentage is much lower for direct mail addresses, even that figure is significant enough to require constant vigilance. Therefore, Vittal suggests, be systematic and periodic about keeping up to date with services like the National Change of Address (NCOA) and Email Change of Address (ECOA) provided by the U.S. Postal Service and other proprietary companies such as Harte-Hanks, a global direct- and targeted-marketing solutions provider. In addition, marketers need to closely monitor their internal systems to check and record what mail is being returned -- not only has that message not reached its target, but it also represents money wasted. The next step is to "get granular about the affinities of your list," Vittal says. Monitor how consumers respond to each mailing. "Try to build a profile or segment of your list, see which segments respond to what kind of offer," he says. "If they respond well to one product, it doesn't necessarily mean they will respond well to every product," he points out. Periodically test a sample of your existing list to ensure that the response rates are still high. Results could also provide insight into marketing improvements such as enhancing creativity, promoting a different offer, or even exploring changes in the language or tone of voice of the campaign. Check for Holes in the Net "We probably test at least one type of concept once a month," The Right Start's Neiman says. Tracking everything from headline and product layouts on an email campaign to customer conversion rates provides clues into the behavior and preferences of her customers. Testing allows her to know the best times to send out to any given audience (e.g., emails to mothers are most frequently opened late in the evening or midmorning; grandparents open emails more during the core part of the day or early evening). Neiman also noticed an important shift from which day of the week her customers opened their emails most frequently, thereby forcing her to strategically change the launch date of her campaigns. Most list providers will allow you to test a sample of the list before you have to purchase the full version. (Also look at that firm's list success rates and check with its references or previous customers.) According to Peter Patsula, author of Business Planning, list buyers should be able to sample 5 to 10 percent of the desired list. In addition, when sharing a list with another company that has a common profile of customers, be sure to obtain customer approval. Tossing Back the Small Fry Perhaps the best way to guarantee your customers want to hear from you is giving them the opportunity to opt in to receive information about you. "Opt-in lists are much more effective than buying a list," Wettemann says. Self-generating options, according to Hren, include activities businesses can take part in to attract a customer. For instance, companies could hold or attend a relevant event; Igal Alon, owner of Mavrik Jewelry, makes contacts and finds new customers among self-selecting trade-show attendees. Of course, there's also the Web, where potential customers can freely browse and decide for themselves whether or not they're interested. Other programs include rebates, loyalty programs, or customer surveys. After the debacle with her first email, Neiman had to embark on damage control. "We sent out an email basically coming clean and saying, 'We got this list, we don't know if you really are [supposed to be] part of that list. If you choose to be with us, please click here.' " In the end, after customers were given the opportunity to opt in, The Right Start was left with 25,000 legitimate customers. Even now, when acquiring a customer, The Right Start continues to request opt-ins at various levels of interest. This allows Neiman to give the customers exactly what they want, when they want it. Highly sensitive topics reveal the importance of opt-in messages: Neiman can recount her experience, for example, with families who have suffered miscarriages and have painfully requested the termination of baby-oriented emails, alerting her to be cautious of her customers' needs in every realm. By focusing on being targeted and updated with customer information, The Right Start has an extremely low opt-out rate -- approximately one tenth of 1 percent -- and has already acquired almost 200,000 active customers. Wetteman anticipates that the need to better understand the customer will be evident in increasingly targeted approaches, like better surveying: "It isn't just, 'Are you satisfied with your meal at Denny's? Fill out this card,' " she says. "It's, 'In January, how did you feel?' [and] 'In March, have you been back?' So companies can use targeting and online tools to have more of an ongoing relationship and an ongoing gauge of where the customer stands," she says. Swimming Into the Net of the Net It's becoming increasingly apparent that, as Anderson says, "tactics like direct mail and email are not about acquisition marketing, they're about relationship marketing." She believes that, with the pervasiveness of the Internet, the frenzy surrounding list businesses is diminishing. "It's hard to find a list out there that isn't aged, isn't overused," Anderson says. As a result, she observes, marketers are taking an accelerating shift toward Internet-centric resources, particularly within the last three years. Perhaps most significant of all, Anderson claims that marketers are now much more involved with search -- search engine optimization (natural search) and search engine marketing (pay-per-click keywords) -- than they are with list rentals. In response to the increase of Internet activity, though, companies need to focus on "turning site browsers into buyers," Anderson says, explaining that an increasing share of marketing dollars is being spent on capturing data from -- and building, maintaining, and modifying customer lists from -- search results. This is not to say that lists themselves are antiquated -- in fact, there are just new and innovative means of creating them. The Internet is simply the latest driver of information; consumers and marketers alike head there almost on instinct. (Here's one clear indication: "Google" was recently entered as a verb in Merriam-Webster's Collegiate Dictionary.) In other words, customers have taken the reins and they're holding on tight. "We're seeing people forming their own lists," Hren says -- self-selecting according to their interests, hobbies, and activities. One day soon, he adds, consumers may "elect amongst themselves to say, 'I'll invite in some commercial entities to talk to us a little bit.' " Until then, customers and companies alike need to be selective -- and, like any relationship, the one between a business and its customers requires some TLC. Your company's customer list "needs to be managed, nurtured, maintained, and basically respected for the value that it has," Hren says. "It's not just a list of names -- it's much more than that." Contact Editorial Assistant Jessica Tsai at jtsai@destinationCRM.com.
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