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Monthly Archives
May 28, 2004
Posted by Britton
Frederick Reichheld, a director emeritus at Bain and Co and author of the influential book The Loyalty Effect , has defected from the movement he started. Now what are we to make of that?
Actually, he hasn't completely disavowed his past work on customer (and employee) loyalty. He just admits that his theories have never caught on in the real world of business.
As Reichheld now sees it, "retention rates have not progressed over the last decade. Where the rubber meets the road, customers are not demonstrating loyalty.... No one defined what loyalty was. There was no measurement, no link to profitability or growth. There was a lack of definition. What is loyalty? If what you mean is putting up with lousy value or service, do you want stupid customers?"
Now, he is interested in customers who are willing to recommend a company's products to a friend or a colleague. While he still believes companies should measure customer profitablity, he thinks they should also be identifying the "promoters" and "detractors" among their customers. Obviously, the objective is to increase the number of promoters.
"The median ‘net promoter score’ is just above 10%," says Reichheld in Direct Magazine. "Most companies have 10% more promoters than detractors. But the best companies have 80% more. The net of promoters minus detractors doesn't show up in profit and loss statements, but detractors destroy your future and make your employees feel lousy."
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May 27, 2004
Posted by Britton
Senior marketers are searching for new ways to measure marketing performance and build credibility within their organizations, according to new research. One new Forrester Research study involving 280 executives from an array of industries found that their greatest challenge this year is "measuring marketing effectiveness or ROI." Yet another study from the CMO Council, a new association of technology marketers, found that companies are spending billions on marketing, yet are failing to measure its impact. 
The CMO Council's report found that more than 80 percent of the respondents do not have formal marketing performance measurement (MPM) systems in place, despite spending as much as 25 percent of their revenue on marketing. In addition, almost 80 percent of the 315 senior marketing executives polled were dissatisfied with their ability to demonstrate their marketing programs' business impact and value.
The study found that "nearly 90 percent of respondents believe measuring marketing performance is a key priority for today's technology companies -- the larger the company, the higher the priority. Growing boardroom pressures on marketing departments to justify and account for their spending, as well as more critical and demanding corporate performance environments, heightens this priority."
Further, the study found that companies that have formal performance measurement systems "consistently achieved a higher level of CEO confidence in the marketing function." Nevertheless, 70% of respondents said they spend less than two percent of their marketing budget on marketing performance measurement. Marketers are most capable of measuring direct mail and e-mail campaigns, web site and Internet search engine presence and telemarketing and contact management programs. However, they are least capable of measuring advertising, sales and marketing collateral, and branding.
Finally, the study pointed to several weaknesses in MPM analytics. Among them: performance tracking for individual countries; automated report generation across all functions; information "drill-downs" on individual programs; competitive benchmarking; and executive dashboards of key performance indicators.
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May 25, 2004
Posted by Britton
You can't have your customers and eat them too. And yet, the conflicts, contradictions and trade-offs associated with simultaneously pursuing customer equity and brand equity remain largely hidden...at least, for now. As the economy recovers and advertising markets recover with them, companies are once again aggressively pursuing brand value and pouring money into untraceable mass market campaigns.
The question is what that means for the customer. "[C]ompanies that understand the asset value of each customer, and that tailor their marketing efforts (and their costs) to acquire and sustain the highest-value assets, will trump less-focused mass marketers," state Robert C. Blattberg, Gary Getz, and Jacquelyn S. Thomas in their book Customer Equity: Building and Managing Relationships as Valuable Assets. Here's their comparison table...
Unfortunately, that book is three years old now -- and no one has picked up the argument since then. That's a pity. The money that goes into mass ad campaigns won't go into understanding, engaging or cultivating individual customers. Should it? Where, exactly, would those dollars generate their best return -- building brands or building relationships? What's the appropriate mix? These are questions that are rarely being asked in a rigorous way.
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May 24, 2004
Posted by Britton
One of the reasons Google is so interesting (apart from its upcoming IPO) is that the company has learned to harness the collective intelligence of vast numbers of people, says James Surwiecki, author of a new book called The Wisdom of Crowds.
"Under the right circumstances, groups are smarter, make better decisions and are better at solving problems than even the smartest people within them," writes Surwiecki in a recent issue of Forbes. "On any one problem a few people may outperform the group. But over time collective wisdom is near-impossible to beat. No one, you might say, knows more than everyone."
Some have called it community intelligence; still others refer to "swarm intelligence," "smart mobs" and "tipping points." What's interesting is the drift toward potential innovations that draw on the unspoken and unanticipated knowledge of today's (and tomorrow's) customers. Surwiecki suggests problem solving approaches that leverage collective intelligence may turn out to be the best way to determine whether demand truly exists for new products and services.
Surwiecki explains that Google "has succeeded for a simple reason: It regularly finds the Web pages that are most valuable and puts them at the top of the list. The heart of the technology that lets it do this is the PageRank algorithm (after cofounder Larry E. Page), which essentially asks Web page producers to vote on which other pages are most worthwhile. Each link to a page counts as a vote. Google is a republic, rather than a pure democracy; sites that have more links into them are effectively given more voting power. But the principle is fundamentally democratic -- let the masses decide."
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May 21, 2004
Posted by Britton
As far as Procter and Gamble is concerned, focus groups are out. Jim Stengel, the company's chief marketing officer, is relying on one-on-one research instead. He believes the obvious needs of consumers have already been met -- and the real challenge lies in defining unarticulated needs. "I'm a big observational guy," says Stengel, in a recent profile in Fortune. 
He now encourages his marketers to invest a great deal of time observing consumers -- watching them wash clothes, clean floors and change diapers. A few years ago, they spent four hours a month with consumers. "It's at least triple that now," he says.
By observing dozens of young mothers close-up in an on-site diaper-testing center, P&G's baby-care division learned how frustrating extended periods of toilet training can be to these moms. Based on that insight, P&G is launching a new line of diapers, Feel 'n Learn Advanced Trainers, that are designed to stay wet for two minutes, encouraging children to use the toilet. Rather than focusing on having the driest diapers, the company has reframed its positioning to focus on "helping moms with baby's development." Having launched an array of products with this in mind, P&G is now gaining market share against Kimberly-Clark's Huggies for the first time in a decade.
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May 19, 2004
Posted by Britton
One financial services player that is setting itself apart from the competition is Toronto-based CIBC, which has more than 8 million personal banking and business customers.
When it built a data warehouse eight years ago, one of the central challenges it faced was determining how to manage customers across independent lines of business: credit cards; mortgages; commercial loans; checking; mutual funds; and certificates of deposit. 
Taking a customer-focused perspective, CIBC collected data across business lines and employed analytical intelligence technology to better understand and predict customer behavior. The company learned to effectively segment its customers by needs and preferences, as well as by profitability and potential. Capitalizing on its customer analysis technology from SAS, CIBC now is attaining tremendous predictability and accuracy in its marketing campaigns and customer management initiatives.
Daymond Ling, director of modeling and analytics at CIBC, points to intelligence-driven campaigns for pre-approved credit cards that are generating astounding acceptance rates of 20 to 30 percent. He also maintains that some personalized campaigns reaching out to new customers generate a 300-percent return on investment. "The benefits come from multiple sources including goodwill, which translates into strengthened relationships in the long term," he says. "In the short term, the customers see you as an institution that they're willing to trust with their financial transactions. They also purchase more products."
As a result of such successes, CIBC has become deeply committed to competing, marketing and managing customers in a very analytical way. "If a campaign is not supported by a predictive model of some sort, the business people immediately ask why," says Ling. "So we've got them trained. They have accepted the practice and they do not want to go back to the days when they didn't have models."
And while CIBC certainly has powerful analytic capabilities, it recognizes that customer insight is useless unless it is "operationalized." With that in mind, the bank's customer marketing group actively works to support sales and service operations and establish strong relationships with channel partners. "Our challenge lies in our ability to bring focused insight and stories about customer behavior to the table to enable customer-centric decision-making to happen," says Ling. "It's not about customer analysis, per se. It's about getting people used to [applying the analysis] and having them talking about customer considerations as a culture."
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May 18, 2004
Posted by Britton
Retailers are increasingly focused on understanding their customers and have developed new metrics to support the endeavor, according to a new study. The 14th Annual Retail Technology Study -- conducted by RIS News and Gartner and sponsored by Lawson Software, Inc. -- suggests a growing number of retailers are developing marketing and promotional programs based on customer analysis. They also are leveraging new customer-focused tools to analyze their customers, the report stated. Nearly half of the study respondents report being involved in customer data and intelligence projects -- 32 percent in the last three years and 14 percent currently.
Yet another objective is large-scale segmentation. The study found that nearly a third of participants have short-term customer segmentation plans. Meanwhile, 31 percent are using consumer-specific databases; 26 percent are involved with frequent shopper programs; and 25 percent are utilizing some type of customer traffic tracking.
"Traditionally, retailers have focused on merchandising and the supply chain; however, in an effort to be competitive and improve the shopping experience for consumers, retailers are realizing that it is critical to put customer knowledge to use and harness the value hidden in consumer transaction data," said Mark Elliott, vice president, Retail, Lawson Software. "Retailers, in order to survive in today's retailing environment, must understand the consumer and how they can use their buying patterns to their advantage. As a result, customers are being treated differently. The easiest way to build a customer base and get that customer back to the same retail store over and over again is through in-depth customer metrics."
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May 17, 2004
Posted by Britton
Harley Davidson has discovered that one of the most powerful ways to ensure it is investing in its customers effectively is to measure its own reputation. The company uses what one executive calls "active market intelligence" to monitor its performance against corporate reputation goals and to drive competitive moves. Moreover, it is measuring the impact of its campaigns in real time. 
These capabilities proved important during Harley-Davidson’s 100th anniversary activities. Turns out, the media reported that the company's "Open Road Tour" was a giant motorcycle ride as opposed to an entertainment festival that would travel to 10 cities around the world. By scanning the horizon of stories and campaign responses, it was able to quickly determine that a mistake had been made and correct it before it proved costly.
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May 14, 2004
Posted by Britton
The Internet is back -- just in case you thought it had gone away. "The 200 million Americans who now have web access are likely to spend more than $120 billion online this year," according to the Economist Magazine in an optimistic new survey of E-Commerce. The publication also points out that business-to-business (B2B) services have now climbed to more than $1 trillion a year. Wal-Mart, for instance, manages all of its supplier relationships over the Web through a proprietary B2B network.
This is good news for companies that intend to capitalize on customer intelligence. After all, web-based interactions and transactions are far more traceable than offline marketing and commerce. However, the real challenge lies in intelligently managing customer interactions that encompass both click and bricks.
"No company can any longer afford to ignore the internet, even if it does not itself sell much or anything at all online," states the Economist. "Consumers are behaving as if they see no great distinction between online and offline shopping. They do both. For most consumers, the internet is just another sales channel, and a convenient tool for browsing and research, and they make their purchase in whatever way happens to suit them best. To reach these customers, companies have had to look at new and different advertising and marketing strategies. This is why firms are finding that paying for sponsored links to appear on search sites like Google and Yahoo! has become one of the most effective marketing tools..."
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May 12, 2004
Posted by Britton
You can't see your customers very clearly in just one dimension. Marakon Associates points out that companies invest vast amounts of money into attitudinal research about their customers that demonstrates very little about how they might act.
"They track changes in their satisfaction religiously, develop detailed segmentation schemes based on customers' attitudes and perceptions, and design into their products the attributes customers say are important to them," according to a recent paper by Marakon consultants Ron Langford and Matt Hammerstein. "But knowing what customers think or say is not the same as knowing how they will react to changes in product attributes or marketing messages. Knowing the 'minds' of customers is only useful if it deepens one's understanding of their behavior and how to change it."
But even an understanding of behavior -- a second dimension of insight -- is not enough. Indeed, companies often fail to track the existing or potential profitability of customers -- even though 20% of them consistently account for all profit. This leaves them blind to the real value of their customers.
Langford and Hammerstein contend that companies must develop a three dimensional customer perspective that accounts for attitudes, behaviors and economics. Such an approach, they believe, can increase insights "exponentially." Critical to understanding customer value, the researchers note, is the notion of "switching behavior" -- a key variable in determining where profitable growth lies.
Companies can use these insights to "develop clearer pictures of the economic drivers of customers and customer segments, and dedicate their attitudinal research to interpreting and improving their understanding of how to influence customer behavior." Firms that think this way "outpace their rivals because they know which customers to target and spot opportunities for profitable growth that are invisible to companies employing one dimensional or less comprehensive approaches to developing customer insight," the authors state.
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May 11, 2004
Posted by Britton
Have you forgotten what it's like to be in the head of a teenager? Well, the big media giants haven't. Actually, they are infiltrating young minds, tempting them with sexual imagery and setting their shopping preferences, according to some media critics, who take their analysis just a little too far. What's fascinating, though, is the way big media ad firms follow the teens around, engaging in cool-kid anthropology. Video interviews and focus groups are key tools of the trade. 
A few years ago, Douglas Rushkoff produced a compelling documentary called The Merchants of Cool for Frontline. He contends the main media conglomerates -- News Corp., Viacom, Bertelsmann, Sony, Disney, Vivendi and AOL TimeWarner -- have woven themselves deeply into the minds and lives of their teen customers. (Actually, they are pretty active with the pre-teen set, too, as I discover every time my kids grab the remote.)
Some might argue that the new, new media have diminished the power of the established media. Who, after all, owns chat and instant messaging? The media barons, moreover, have consistently failed to gain attention on the Internet. Indeed, Rushkoff's documentary overestimates the power of media and advertising to "colonize" the minds of young consumers. If the kids are not alright, well, we can't really blame it on Britney and Janet. After all, they'll grow out of MTV's lurid, tasteless and sexually charged visuals. Then they will see them on CBS, CNN, and Fox News like the rest of us.
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May 10, 2004
Posted by Britton
Churchill Downs Inc. (CDI) , which hosts the Kentucky Derby and owns recognized race-tracks worldwide, is analyzing millions of in-person, telephone- and Web-based transactions to determine how best to strengthen relationships with its customers.
CDI stated recently that it is employing predictive analysis technology from SPSS to analyze a combination of demographic and psychographic information covering more than one million global customers, including the 150,000 members of the company's elite player-reward program, the Twin Spires Club. The objective: maximize customer lifetime value. 
"For well over a century, Churchill Downs Incorporated has served as the premier source of quality horse-racing content for sports enthusiasts the world over," said Atique Shah, vice president of CRM and technology solutions at CDI. "Our goal is to interact with customers on a one-to-one basis, ensuring that their experience is memorable. Not only do we want to reach our customers with the right offer, but we want to reach them through the channel they find most appealing."
Churchill Downs creates a powerful opportunity for leveraging data mining technology because it generates vast amounts of data across channels. It will employ SPSS Clementine predictive analytics to study the lifetime value of its customers and build models that anticipate preferences and potential behavior. "Overall, Churchill Downs Incorporated views predictive analytics as an asset," says Shah, who notes that the goal is to "achieve more effective customers relationships over time."
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May 06, 2004
Posted by Britton
Geographic Information Systems (GIS), which leverage geo-demographic data, represent a powerful tool in the hands of customer analysts. "Geospatial technology is improving much faster than it did in the past," says Susan M. Wachter, director of the Wharton GIS Lab. She cites the rapid growth of GPS, RFID, Wi-Fi and cell phone location-specific technologies. Moreover, she contends that GIS is being integrated into the overall matrix of networked technologies and notes that it is no longer in its "own silo." Geo-spatial technologies are now being applied in an array of business processes, particularly in marketing. 
Over the past ten years, GIS technologies have become increasingly prevalent. "Now, businesses have begun to understand that within corporate databases there exist vast resources of location intelligence that can be leveraged throughout the enterprise," she says. Customer addresses, zip codes and other information captured at the point of sale enable companies not only to analyze the type of purchase but also provide opportunities to enhance inventory management and logistics as well as marketing and sales. "This ripple effect is inherently location-based in many instances and serves as a signal to CIOs and CTOs that location can be an effective strategic weapon," according to a Wharton GIS Lab backgrounder.
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May 05, 2004
Posted by Britton
Financial services firms generally have no coherent and integrated view of their customers, according to a recent report by Bearing Point. In fact, fewer than 60 percent surveyed have ventured beyond their product-based stovepipes to speak to their clients with a single voice. As a result, the financial services sector is vulnerable to customer attrition. "When I talk to senior management of our clients, what I hear is that very rarely do their retail or corporate customers come into the bank anymore," says Chris Formant, executive vice president of BearingPoint. "Everything is done in some disconnected way."
Ironically, the empowerment of customers through web-based tools of interaction actually has made it more difficult for companies to manage customer knowledge -- and has attenuated customer loyalty. "What other industry would push all of their clients out to have disconnected interactions, and then not want to find some way to make a terrific experience each time to encourage loyalty?" Formant says. "We're suggesting that, at the end of the day, after you have disconnected all your customers, if you have no way of differentiating yourself on the basis of customer experience...you're dead."
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May 03, 2004
Posted by Britton
Not to discount the grand applications and possibilities of Neuroscience. Corante's own Zack Lynch does a wonderful job of illustrating them right here every week in Brain Waves. But the current hype over neuromarketing strikes me as imperial overstretch. Time to get a grip.
Advertisers have always had rather technocratic ambitions and, unfortunately, many conspiracy theorists have given them way too much credit for their supposed powers of persuasion. Americans were warned about the "hidden persuaders" by Vance Packard in the late 1950s -- and we have exaggerated, overestimated and become absurdly paranoid about the impact of advertising ever since.
Now, we are encouraged to believe that advertising is on the edge of becoming a new science -- thanks to the accessibility of new technology such as magnetic resonance imaging (MRI). Indeed, researchers are now using MRI technology to test reactions to everything from political spots to Coke commercials. We are told that that ad execs will soon pinpoint the "buy button inside the skull."
Well, I'm not buying. And, apparently, I'm not the only one. Media analyst Douglas Rushkoff exposes this trend for the silliness it represents in a compelling editorial on the topic. Even if neuromarketing research does offer a more efficient way of measuring advertising's impact on human impulses than, say, focus groups, it doesn't address the real questions that now confront marketing execs. It quite simply fails to make the critical linkages between stimulus and response -- or, at least, the response that matters. Just because someone finds skimpily clad spokesmodels, ahem, interesting doesn't mean that individual will buy a product or buy it consistently -- and it sure doesn't demonstrate the ROI on today's massive mass advertising spend.
"A decade or so from now, I suspect we will regard neuromarketing researchers and their techniques the way we regard phrenologists or blood-letters today," says Rushkoff. "And we’ll realize that the only people who ended up being hypnotized by their wares were the daft corporate executives who paid for them."
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