Cover Story: The Big Qs of 2011
They say the only bad question is the one you didn't ask. So Target Marketing magazine reached out to some of the most knowledgeable people in the direct marketing industry to find out what they believe are the biggest issues facing direct marketers today and what questions your company needs to be able to answer to thrive in the coming year and beyond.
The marketers and consultants we spoke with had similar concerns about the industry: Do you really know your customers? Can you contact them through all the media they're using and still comprehend the metrics? What do you do about privacy?
Some marketers are seeing growth again, others are even hiring. But emerging from the recession, this is a time of soul-searching for many companies. It's a time to ask questions about the way you run your business.
These are the questions they think you should ask.
Are You Talking to the Right Customers?
"Marketers have to stop believing they 'just know' who their customers are and start using better tools and strategies to understand what drives customer behavior," says Ashley Johnston, vice president of marketing services at Experian Marketing Services in Costa Mesa, Calif. Her tone was echoed by most of the experts we spoke to.
"New predictive modeling, analytics, data enhancement and [customer relationship management] tools are making it possible for virtually any marketer to identify the characteristics of their best customers and select prospects based on those values," says Keith Goodman, vice president of corporate solutions for the Carlsbad, Calif.-based print and marketing services provider Modern Postcard.
The potential of those new techniques to cut waste from communications and improve the impressions left on customers has yet to be fully realized by most marketers.
Multichannel touchpoints make such understanding tricky. Wendy Talio—director of database marketing for New York-based Consumers Union, the nonprofit publisher of Consumer Reports—explains the challenges her company faces: "Part of the plan [to increase Consumers Union's customer base] requires that we attract more online subscribers while optimizing our retention programs and increasing the number of multi-buyer customers through cross-sells." However, Talio must overcome two "data hurdles" to effectively identify prospects she's marketing to:
- How to extract from the "mountains of Web analytic data" Consumers Union has collected, the specific items that can be used to improve predictive models for cross-selling and determining the next-best offers; and
- How to learn more about unidentified site visitors so they can be marketed to with high relevance, yet still respect their right to privacy.
At some level, every marketer currently has this problem: How do you bridge the gap between the people in your database who you know well and can market to efficiently, and everyone else who you really want to be able to market to efficiently?
That's even more difficult when you consider customers change over time. Pat McGrew, data-driven communication segment "evangelist" for Rochester, N.Y.-based Eastman Kodak Co., explains that, "a lot of marketing programs start with last year's plan, and then adjust for available budget. Over the years customers evolve and change, but marketing programs often miss those essential changes. If you haven't evaluated the profiles of your best, worst and growable customers for the revenue they return and cost of keeping them as customers, you may be wasting more of your budget than you realize."
One solution that both McGrew and Experian's Johnston recommend is to purchase outside data to append to your database and complete the picture of who you're trying to reach and where they are in that data. There are many data sources out there with information you can append to the records in your database to develop a more complete record of the people in it.
"Marketers need to turn to external data sources to truly understand their customers, and how external influences, like economic fluctuations, have changed their behavior," says Johnston. "This means including a mix of demographic, behavioral and psychographic data in their segmentation and targeting decision-making processes."
Are You Talking to Them the Right Way?
"The old buying model—i.e., RFM: Recency, Frequency, Monetary—[asked about customers] 'When did I buy last? What did I buy? And how much did I buy?' That's gone," says Gary S. Laben, CEO of the marketing solutions provider KBM Group, headquartered in Dallas, Texas. "Now, it's about, 'Where am I at the moment? What is it that I'm purchasing right now? And with whom am I conversing at that moment?' ... The best direct marketers are already figuring out how to make all their conversations one-to-one."
Instead of focusing on RFM to predict customer value, Laben says marketers should focus on a new buying model that predicts purchasing behavior based on "geography, context and community." According to Laben, this breaks down in to:
- Geography is where the customer is at that moment—for example, in a competitor's store;
- Context, says Laben, is "about the conversation [the customer is] having right now"; and
- Community refers to who the customer is talking to at that exact moment.
Whether or not they share his view on RFM, our experts agree that marketers, as a group, have a long way to go before they can say with certainty and proof—as opposed to "just knowing"—that they are using the most effective techniques to communicate with customers today.
"Marketers [must] figure out how to deploy multiple elements of their media mix in an integrated manner ... based on the individual preferences of customers," says Ernan Roman, founder and principle of the consultancy Ernan Roman Direct Marketing (ERDM) in Douglas Manor, N.Y.
Roman uses in-depth customer needs assessments to help clients figure out what customers want and how they want to be treated. "Social media is the most exciting development" in direct marketing technology, he says, because of its ability to put the customer at the center of marketing campaigns. It "has finally completed the transformation [of marketing] to 'customer as center of the universe.' This humbling transition will force all marketers to finally adopt customer-centric marketing as a fundamental element of all they do."
"The underlying theme for marketers has always been about successfully engaging customers," says Johnston. "Today, that means effectively utilizing both online and offline channels and having them work smarter together, while also understanding a customer's threshold for receiving information across those channels."
"It's imperative that marketers build an air-tight, tested program for turning an inquirer or first time buyer into a second time buyer," says Lois Brayfield, president of the Mission, Kan.-based direct marketing consultancy J. Schmid & Assoc. "Just putting them into a mailstream is not enough." She rates triggered marketing programs–—which launch targeted marketing communications when certain triggers are met, such as sending an automated, yet personalized, email a number of weeks after a purchase—as a top priority.
How Do You Manage Multichannel?
"The most challenging development in direct marketing is the back edge of the new media sword," says Eric Schmitt, executive vice president and senior principle of Allant Professional Services Group in Naperville, Ill. "Channels like online video advertising and mobile apps bring new opportunities for direct marketing ... but at the very steep price of fragmentation. This complicates budgeting and measurement. Best-in-class marketing organizations are operationally competent across a range of channels, and have invested in data integration and multichannel analytics on the back end. This mix is crucial to efficiency, effectiveness and agility."
However, the proliferation of channels also offers marketers better tracking opportunities of some media than they have had before. As Goodman of Modern Postcard notes, "technologies such as barcoding, multiple phone line provisioning, email metrics, PURLs and more are putting advanced tracking technologies in the hands of virtually any business."
The question isn't whether or not you're using multiple channels in your direct marketing, the question is how many are you using? For more and more marketers, the answer is a lot, and the challenge is how to make sense of the analytics feedback they provide. Direct Marketing Association CEO Lawrence M. Kimmel identifies "effectively leveraging data across the entire enterprise; allowing the customer experience to be seamless regardless of touchpoint" as the key factor separating industry leaders from laggards.
"As marketers seek to implement more data-driven campaigns and marketing strategies across a growing media mix, it will be essential to have immediate access to data that is linked across all channels and insight that is actionable," says Experian's Johnston. "CMOs want to know what channels—and what mix of those channels—drive purchasing decisions. Properly measuring attribution is critical to understanding campaign effectiveness and adjusting channel mix and spend for future campaigns. Leading marketers have figured out how to reconcile channel attribution and apply the correct mix of touches across those outlets."
KBM group has seen the same increase in multichannel touchpoints. "Our clients' marketing plans are more diversified," now than in years past, says Laben. "They are testing more messages in more channels. Because there is testing and experimentation with new and emerging channels, measurement and evaluating ROI are more important than ever."
"Remember the Pareto principle," that 20 percent of your customers deliver 80 percent of the revenues, advises direct and email marketing consultant Reggie Brady. "Even if those ratios are off, it is vital to find multichannel strategies that address your most valuable customers. It's not just about email or catalogs/mailings or the Web—it is all about developing a communication strategy that leverages multiple touchpoints for this important group of customers."
How Do You Balance Consumer Privacy?
"The privacy groundswell is growing and makes good sound bites for the Washington aristocrats," says Ken Lane, senior marketing consultant, J. Schmid and Assoc. "While the direct industry has done much to self-regulate ... all it will take is a documentary on privacy concerns for this to blow up."
In fact, all it took was the Federal Trade Commission's recommendation for new "Do-Not-Track" rules in December. The proposed rules would allow customers to opt-out of being tracked by companies on the Internet, much like they can opt-out of telemarketing calls at home. In many ways, however, this move coincided with a conclusion marketers were already drawing themselves: Getting accurate and in-depth customer information is so important to next-generation marketing campaigns that you need consumers to approve of your activity—you need to get opt-in.
"It's all about respect for the consumer," KBM Group's Laben says. "Consumer knowledge needs to be the basis for a long-term relationship, which is what most marketers aspire to create—[i.e.,] customer retention. Consumers are smart. They respond to businesses that treat them with respect and courtesy."
They also respond to businesses that offer value for consumer opt-in. Johnston points out, "progressive and responsible marketers are focused on delivering relevant and meaningful content to their customers through more robust data and insights." Marketers who can convince consumers that the value they offer is greater than the risks—which is a combination of offering good value and taking steps to eliminate those risks—will have the tools to do better in the data-driven marketplace.
"The direct marketing community should be careful to distance itself from targeting approaches that consumers don't trust," says Schmitt. "Fundamentally, direct marketing is about addressing marketing messages based on direct relationships with existing customers, and/or widely available and publicly accepted data sources."
What Did You Learn from the Recession?
"Skilled direct marketers who understand their data and customer behavior invariably find a way to succeed," says DMA CEO Kimmel. "As Sam Walton [founder of Wal-Mart] said when asked for his opinion of the 1991 recession, 'I've thought about it, and decided not to participate.'"
Bad times often tell you more about yourself than the good, and the recession has taught companies a lot about their businesses, their markets and their customers. But as with your customer data, that information is only useful if you can capture it and act on it. Plus, stubbornly high unemployment means the hard times have barely lifted for most Americans, so you're going to have to live by those lessons for at least another year.
"To survive and thrive in this economy, our clients [have become] more engaged with their customers, not less," says Laben. "Hard times require more conversations, more touchpoints with customers. There is less impulse buying and more value-based buying. Customers need more compelling reasons to buy."
However, there has been payoff for hard work. "For marketers who are in tune with their customer base, the recession has actually presented new opportunities, says Laben. "The sheer volume of customer data and one-to-one contact [gathered through that engagement] gives us extraordinary opportunities to learn, optimize and market in real-time. Plus, with tons of legacy data, marrying the 'long view' with real time insights is the goal."
The recession forced many marketers to focus on retention in ways that will have long-lasting effects.
"Our clients have learned a very important lesson; customers have great value and are expensive to replace," says Roman of ERDM. "Marketers are working to earn the renewal from the moment of acquisition. For example, they warmly welcome the customer and acknowledge their value. They offer education and needs assessments to provide proactive value. They deploy opt-in based communications throughout the year which are based on the individual preferences of customers. ... When it comes time to renew, the marketers have already proved their worth. Clients who have implemented these proactive relationship strategies have increased retention rates 25 percent to 40 percent."
"There are no guarantees when it comes to customer loyalty," notes McGrew of Eastman Kodak Co. "When household income is at risk, customers use their wallets to tell the market what works and what doesn't. But it isn't only end consumers, it's also in B-to-B relationships. Every supplier relationship is being subject to scrutiny. Just because you've done business in the past doesn't mean you'll have wallet share or market share going forward."
B-to-B marketers like Kodak are increasingly shifting their focus away from their products and onto the solutions they provide. As Goodman of Modern Postcard put it, top direct marketers are "focusing on their customers results vs. selling products."
"Within the context of Kodak B-to-B marketing," says McGrew, "our forward plan is moving away from being product-focused and toward being focused on solving problems in specific market segments by linking the many tools in our portfolio together. ... As I look across the industry, I see more vendors are moving in the direction of promoting solutions to business problems, with their specific products taking the back seat."
"Marketers must understand where profits really come from," says Brayfield of J. Schmid. "It's critical that brands understand the reason why customers spend money with them and why they stay. Cookie cutter loyalty programs will not work in our changing social norms. We must understand what value really means; it's more than price plus quality. Value must be delivered as an emotional benefit. Research is critical."
"I think the key takeaway here is flexibility," concluded Goodman. "Business models in a recession change. There are opportunities in any economic climate, and you have to position yourself to maximize those opportunities."