Chapter One
What Is Marketing''s Goal?
Relationships. The goal of all organizations is a better relationship with their constituents.
We (marketers) are all looking for long-term, mutually beneficial relationships. We want relationships in which our constituents overlook our minor imperfections, appreciate our subtle differences, and commit to us as much as we do to them. Sounds sort of like the ideal spouse, right?
It is impossible to do a better job explaining how we should view our marketing relationships than Seth Godin did in his amazing book Permission Marketing (New York: Simon & Schuster, 1999). With all due respect, I''ll paraphrase him: As marketers, we usually don''t approach our customers like we would approach a potential spouse, do we? No, we''re more like a drunken frat boy at his first freshman mixer. Most marketers approach customers and prospects more intent on the one-night stand than the long-term relationship. We know it''s wrong ... but we do it anyway.
A lot of good things happen when you build better relationships. People tend to stay around longer, they become more engaged, and they tell their friends about the great relationship that they''re in.
Want to argue this simple premise? Do you think marketing''s goal should be customer acquisition? Higher sales? Lower turnover? Successful campaigns to sell more widgets?
Guess what? If you focus on the relationship, all of those good things will happen.
The funny thing is that relationship marketing has more traditional roots than many of us care to admit. It''s mass marketing that is the recent corrupter.
In a letter from Rory Sutherland, vice chairman and creative director of OgilvyOne, he states: "It is the intervening age of broadcast, interruption-based communication that is out of step with today''s consumer controlled media world, and it is the people who''ve grown up in that world who find themselves most wrong-footed."
Excellent point. Our grandfathers knew the value of relationship marketing, whether it was door-to-door selling or acting like Sam (the butcher) from the Brady Bunch. Take the time to get to know your customers as individuals. Pay attention to them. Talk to them like human beings (and show them you are a human being rather than an institution).
We know that these tactics work because each and every one of us is also a consumer. Who doesn''t appreciate being called by name or having the right drink put in front of him or her without having to ask? We all want to be recognized and appreciated for our contribution and the value we are bringing to the relationship.
But mass marketing is so ingrained in our practices, despite having the most revolutionary tools ever available to us, we still measure success around analytics that should be tertiary at best (i.e., impressions, visitors, opens).
Like any addict, we as marketers need to take a step back and analyze our behavior. The goal isn''t based on "hits," is it? The goal needs to be something that really drives your business. The goal is to build long-term relationships (Lifetime Value).
At this point, you really have no choice but to change your ways. You can keep blasting away, hoping that if you yell loud enough, a few people will actually pay attention. The problem is that it''s getting harder and harder to yell and be heard. The audience is gaining more control; consumers have the upper hand in the relationship. They have multiple choices for almost every product, service, nonprofit, religious institution, and more. Why should they choose you? Lower prices? Better location? A higher level of service? Maybe you can establish those as real differentiators, but how long until a similar product or a lower price or a better-located competitor comes along?
As your constituents gain more control, they are turning away from mass marketing tactics and learning to ignore them. Instead, they''re talking to each other; going to social networking sites, emailing their friends-you know, good old-fashioned word-of-mouth.
What''s really funny to me is the fact that when you talk to organizations about what makes them different (worthy, if you will), this answer always lands somewhere in the top three: our people.
So why do you hide your people behind the facade of a brand or an institution? At the end of the day, people associate themselves with other people that they like. Your constituents want to like you and have a relationship with you.
As a marketer who focused on people, you wouldn''t run "campaigns." You would build better relationships. You would treat every conversation as if it were critical to the future of the relationship. You would try not to do anything stupid and would be quick to apologize and make it right if you did.
Valentine''s Day should be the national holiday for all marketers. After all, as marketers, our job is centered on playing the cupid between our organizations and our constituents. You want your constituents to love you, right?
This special time of year gives us all an opportunity to reflect and focus on what is really important in our (marketing) lives. So, in the spirit of the season, I offer the following five ways to bring love to your constituents:
1. Make them feel special. People don''t fall in love with people who make them feel ordinary. We all want to hear things that make us feel original and unique. This goes beyond calling your constituents by the right name and extends to everything you can find out about them.
If you''re serious about a relationship, you weave your significant other''s likes into your conversations. If he loves football, you would try to learn something about the game. If she likes fine wine, you would take her to a great restaurant and show off your vast knowledge. The same goes for your constituents.
2. Be human. People don''t fall in love with institutions, and they are not inclined to fall in love with a brand (Apple and Starbucks excluded, perhaps). Your chance of landing in a great relationship increases exponentially when you show a human side. Introduce your constituents to a real person. For 60+ years, we marketers have focused on institutions, which is an outdated approach. This year let''s focus on person-to-person.
3. Don''t smother. Just like a real relationship, you have got to be respectful of the proper pace. I love the commercial where a woman cooks her date''s favorite food, knits him a sweater, and introduces him to her parents ... all on the first blind date. (I have no idea what this commercial is selling, by the way.)
All relationships develop at their own pace. Some people will only want an occasional date for a period of time before things really heat up. Come on too strong-and they''re gone. Other people want to get married right away. Move too slowly and they are going to find more promising relationships.
As marketers, it is up to us to sense the right pace for each and every one of our constituents. This is referred to as frequency control and it''s a critical element for marketers to get right.
5. Acknowledge when you make a mistake. Apologize. Be humble and sincere. Ask for forgiveness and offer some token to win the person back. In a relationship, you learn the signs that tell you something is wrong with your partner. Whether it''s the cold shoulder, silence, or yelling treatment, you''re probably sensitive to these indicators and take steps toward forgiveness if you''ve done something wrong. Most of us are forgiving of others. We recognize that people make mistakes and an apology goes a long way.
Smart marketers learn to recognize the problem and alter their communication to get the relationship back on track.
6. Accept that relationships end. It is a sad, sad fact: Some relationships do not last forever. Sometimes, they never should have started in the first place. If football is critical to your existence, and she hates it, you may have to acknowledge that perhaps this relationship isn''t in the cards and let it go.
Other times, you make a mistake and the apology isn''t accepted. Or your significant other might just find someone he or she likes better. If step four doesn''t work, then you need to let it go.
As marketers (like all desperate lovers), we keep coming back. We can''t bear the loss or the thought of rejection so we call, show up unexpectedly, and hang on to the relationship. In the real world, this is called stalking. The problem is that rather than leaving the dumping party with a fond feeling about how mature we are, we become the subject of cocktail party jokes or of a restraining order. Either way, it''s bad.
When it''s over, it''s over. Let it go. Adjust your attitude or find someone else who is more receptive to your communication style. In relationships, there are no guarantees. But there is hope that we will learn from the past and resolve to build a better relationship that extends far into the future.
What are some other aspects of a relationship? How about dialogue or respect? The ability to tell the other party the truth? Are you afraid of your constituents?
I''ve been getting a lot of questions about a comment I recently made about companies (and people) being afraid of their customers. It''s easy to deny, but true.
There are two facts about your constituents:
1. They are people (some even think of themselves as individuals).
2. You usually know more than they do.
Point 1 is obvious, but ignored. We know our constituents are people, but we don''t want to communicate to them on that level. We are afraid they will ask a question we can''t answer or afraid they might not like us.
The evidence is all around us. Even in email, my chosen media, most of us choose to hide from our individual customers behind some facade such as info@ or Cust_Serv@ instead of bringing forth our true selves.
Point 2 really hits on how afraid we are of customers. We are afraid to tell them anything. We don''t want to step on any toes by making a suggestion or telling them when they are wrong.
The fact is that your constituents are loyal to you because there is some perception of expertise. If I could (or wanted to) program an enterprise customer relationship marketing (CRM) system or make a delicious pizza, I would. The fact is that customers hire us to be the experts. They take confidence in our confidence. If all we are doing is taking orders from customers, we don''t build much value, do we? Where is the loyalty? Customers are loyal to people they can''t do without, not organizations that just take orders or scream at them with irrelevant junk.
The time has finally arrived when organizations are getting serious about marketing for what it does best: driving value. Do we really care about relationships with customers? Of course not. We care about Lifetime Value (LTV). Relationships are how you can increase the value of your customers and convert your prospects. I hope that''s not too cold for you.
I''m going to spend some time covering the basic metrics to consider when thinking about LTV.
LTV Lesson One
Don''t pay too much to acquire a customer. The easiest way to get behind the 8 ball on Lifetime Value is to overpay in the first place.
Let''s say you''re spending $500 a month on a phone book ad. That means you need $500 a month in new business to cover that cost, right? It''s so easy!
Wrong! Add in margin and defections, and that number is probably more like $5,000.
One problem is that brand new customers cost a lot more than existing customers to service.
Think about even the simplest example of a pizza shop. Assume the average cost per call in the pizza business is approximately $1.50. For that first-time caller, it''s around $2.50. Think about what that added cost does to the margin on an $8.00 pie. (Now you know why all those pizza places are pushing you to order online.)
There is also order size to consider. Often, the first-time buyer spends less than a returning customer. First-time buyers just want to try you out. You now have a margin squeeze from an order that is both more costly to service and worth less.
You may think, "I''ll just average that acquisition cost over multiple orders and make it up."
Do you know your retention rate? In the average business, 50 percent of first-time customers never buy from you again. Are you average? Do you even know your defection rate?
That''s the core of LTV-you must know simple stats such as average order size for first-time customers, defection rate, and cost of servicing that first-time customer.
Online, this picture can get even worse. If you are paying for clicks and not converting to a sale, all those costs have to be accounted for in the number of people who actually do convert. The problem is that most of the people who visit your site don''t do what you want them to do.
LTV Lesson Two
Most of us are in the habit of measuring profit by product or service. We know that the large extra pepperoni is more profitable than the medium cheese.
But do you know that this thinking is wrong? We''ve been brainwashed into believing that marketing is all about products. The truth is, profitability needs to be measured by customer. Which customers are the most profitable? How do you calculate that?
1. Sort your constituents by the amount they spend over a period of time (a simple Excel spreadsheet will work just fine).
2. Group them into buckets for the sake of time (i.e., all customers who spent $40 to $55 over a period of 12 months).
3. For each group, subtract all costs so that you''re left with the difference between that and the amount spent. That amount is individual profitability.
4. Taking overall revenue and dividing by individual profitability will give you a profit percentage for each of your buckets.
Here is a simple example: Assume that the Johnson family spent $10,000 on pizza last year. They order every week by calling in. They never know what they want, so it takes an extra minute on each call. They always use a coupon and live on the outer edge of our delivery area.
A second customer, 22-year-old Bill, lives in the neighborhood and spent $3,000 on pizza last year. He responds to your email and orders online. He always gets the loaded meat pizza and picks it up at the store.
Who is the most valuable customer? I don''t know. But you need to know for your business, right? When you know profitability by segment, you can then determine how much to invest in acquiring each segment.
And you need to think about how you market to the different audiences based on their actual margin. If Bill starts calling instead of ordering online, or has delivery even half the time, you might see your profits slip.
If you can drive better coupons to the Johnsons based on their individual profitability, get them to place their orders online, or get a few of their neighbors to order so you can spread your delivery costs, the entire profit picture might change.
LTV Lesson Three
How do you increase your customer margins? First, consider customer share of wallet. Are you getting all the pizza business from certain customers? Can you entice them to spend more per order? Can you convince them to come to you for other meals? McDonald''s taught us all a lesson when it introduced its breakfast menu.
Disney has been highlighted in several books for its success in increasing wallet share. Disney realized that although it was getting lots of people to the parks, it was only getting a fraction of the dollars spent. The answer? Open Disney hotels and restaurants. Genius.
It''s going to be interesting to follow Starbucks'' entry into the music business. Does it need to be as big as Virgin? Of course not, it just has to show increased margin per customer.
Same with Apple. Asking simple questions like: "What is a computer?" Or, "What is software?" opened Apple up to a great new world where it enjoys the highest margin per customer in the business.
(Continues...)
Excerpted from Email Marketing By the Numbersby Chris Baggott Copyright © 2007 by Chris Baggott. Excerpted by permission.
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