Marketing Award: TowerRecords.com

When Tower Records launched TowerRecords.com in early 1997, the company never completed an e-marketing campaign before. The music retailer probably never imagined that the online arm's early e-marketing efforts would garner more than one million registered users, forcing them to compete with powerhouses like CDNow and Amazon.

With a staff of less than 60, and 200 worldwide stores, it initially made sense to the 40-year-old mass music retailer to outsource its new e-marketing to third-party service provider Digital Impact because of its marketing history for retailers.

"strategically, we thought it would help if we could utilize its staff of research analysts and people who understood direct marketing," says Russ Eisenman, director of marketing and business development at Tower Records.

However, as the company grew and realized the Web's potential, it discovered the shortcomings of outsourcing this critical piece of the business. Because it took a week to execute a campaign, the company couldn't communicate with customers as often as needed. Marketers lacked the control over their customer database needed to drive more targeted communications. Worse, the company wasn't able to test and refine campaigns for maximum effectiveness.

"Testing was very expensive," says Eisenman. "It added many layers to the bill, and it got to the point where it was cost prohibitive. It's the essence of direct marketing, yet it was very difficult for us."

In addition, the company wasn't able to use its click-and-mortar advantage by tying e-marketing to retail events. "We have a lot of things that come up on the retail side that if we could get quick turnaround we could get a huge bang for our buck," says Eisenman.

Finding a Solution

Eisenman began looking for an in-house technology solution in January of 2000. "We felt that if we brought it in-house, we would only have to overcome our expenditures for the licensing of the software to get to a positive ROI," he says.

The company evaluated six vendors. Eisenman says that while Tower wasn't a large enough client to complete head-to-head tests, they were able to get deep into the organizations to see what each of them had to offer. Not only did they view demos and have the marketers try the graphical user interfaces each vendor offered, they also did some in-house testing with customers.

By May, the company made its decision to purchase software from Mountain View, Calif.-based Annuncio Software.

"We saw that Annuncio was really built for the B2C marketer," says Eisenman. "We really wanted something that would allow us to go in there and easily build a campaign or Web page."

Annuncio Live software would be used primarily by two people in Tower Records' internal marketing department. Eventually, the UK office would use it as well. The solution encompasses four modules. In LiveProfile, marketers design and manage customer profiles. It automatically captures customer data and updates profiles in real time, as well as builds a history of campaign communications and customer responses.

LiveAudience provides a point-and-click segmentation tool, which generates quick counts of audiences, manages the number of communications with a particular customer, and automatically removes unsubscribed customers. With an easy-to-use interface, LiveCampaign helps marketers design campaigns, Web forms and surveys. LiveResults automates report generation and provides metrics and trends to help marketers determine which messages and offers are working best.

Up and Running in 75 Days

TowerRecords.com chose to use Annuncio Software's professional services organization for training and implementation, rather than a third-party integrator. The professional services group provided both technical and marketing consultants to assemble plans for implementation, data management and integration, as well as to help the company organize its first campaigns.

Working with Tower's IT staff, installation took 75 days. "We were foreseeing it taking six months," says Eisenman. "We did the quick installation and there are probably some better ways to install it than we actually did. But we did it, and it works."

He says the biggest challenge with the installation was getting the software to work with the company's existing custom systems. "It's not a traditional Oracle system that you see with many of the online companies," says Eisenman. "We really built on top of our existing legacy systems, and had to work within that constraint."

To import the customer database from its service provider, TowerRecords.com also purchased LiveExchange, one of several integration tools offered by Annuncio. "I thought one of the big areas of difficulty would be grabbing the data that was over at Digital Impact and feeding it into Annuncio, but it was actually very simple to do," says Eisenman.

However, that didn't mean there weren't problems. "One of the issues that was a surprise to Tower Records was when they went to extract the data from the third party, the data wasn't very clean," says Ann Felony, marketing consultant in Annuncio's professional services organization. "Some of the fields of the profiles were missing and a lot of it was just junk."

"You really don't know what's going on with your database," she says. "We had to do some significant scrubbing and we did some campaigns to gather the musical consumption behavior information that we really needed."

The First Campaign

Gathering that data was one of the goals of its first campaign, which launched last August to celebrate Tower Records' 40th year in business. The anniversary campaign offered customers 30 percent off the top 10 selling products from each decade between 1960 and 2000. Free shipping was offered for orders of $40 or more.

Eisenman was able to develop and launch the campaign in less than 16 hours. Results were phenomenal. In the first two days of the campaign, average daily sales doubled in a normally stable sales period. Purchase size increased 75 percent.

Since then, the company has executed about 15 campaigns. "We're able to do smaller campaigns with less cost and we're able to put them together in a 24-hour period," says Eisenman.

More importantly, the campaigns are more targeted and staff can monitor their progress. "We're able to target our audiences much more thoroughly than we were able to do before," says Eisenman. "Everything is stored against the profile, so we know what's happening and we know what people have responded to."

The online company is also better able to promote the retail stores' events through e-mail, as evidenced by the success of a recent in-store performance by Billy Joel. "We found out 24 hours in advance, did an e-mail, and doubled the size of traffic that came into the store," says Eisenman.

Customers can also sign up online or at retail stores to receive information about music sales via e-mail. "A real focus for 2001 is to use our e-mail grouping to drive traffic to the stores, as well as online," says Eisenman.

Savings and Sales

Eisenman says the total cost for the system fell under $1 million. While the company had estimated it would take a year to get a return on investment, it is almost at that point now. "We weren't as aggressive in our ROI model than what we have actually been," says Eisenman. "We're very close to achieving return."

Bringing e-marketing in-house is saving the company $500,000 per year on outsourcing alone. Further cost savings are expected through less reliance on direct mail and other marketing initiatives.

Although the company has also seen an increase in sales, it's difficult to determine how much can be attributed solely to the Annuncio project, Eisenman says.

"2000 was a great year for us, and there are a lot of factors that go into sales growth," he says. "The number I really look at is the repeat buying percentage. It's jumped from 19 percent in 1999 to an average of 55 percent in 2000. E-mail is the main driver there."